Model N Inc (MODN) 2016 Q4 法說會逐字稿

Greetings and welcome to the Model N fourth quarter FY16 financial results conference call.

(Operator Instructions)

As a reminder this conference is being recorded.

I will now turn the conference over to your host, Ms. Staci Mortenson, Head of Investor Relations. Thank you. You may begin.

Good afternoon. Welcome to the earnings results call for Model N's fourth quarter and full-year FY16, which ended on September 30, 2016. With me today are Edward Sander, Chief Executive Officer; and Mark Tisdel, Chief Financial Officer.

Our press release was issued after the close of market and is posted on our website where this call is being simultaneously webcast. The primary purpose of today's call is to provide you information on regarding our fourth quarter and full FY16 performance and our financial outlook for our first quarter and full-year FY17.

Commentary made on this call may include forward-looking statements. These statements are subject to risks, uncertainties, and assumptions. Please refer to the press release and the risk factors and documents filed with the Securities and Exchange Commission including our annual report on Form 10K and our quarterly reports on Form 10-Q for information on risks and uncertainties. Should any of these risks or uncertainties materialize or should our assumptions prove to incorrect, actual company results could differ materially from these forward-looking statements.

In addition during today's call we will discuss our non-GAAP financial measures. These non-GAAP financial measures should be considered in addition to, not as a substitute for or in isolation from GAAP results. You can find additional disclosures regarding these non-GAAP measures including reconciliations with comparable GAAP results in our press release.

I encourage you to visit our investor relations website at investor.modeln.com to access our fourth-quarter and FY16 press release, periodic SEC reports, and the webcast replay of this call. Finally unless otherwise stated all financial comparisons in this call will be to our results for the comparable period of FY15. With that let me turn the call over to Ed.

Good afternoon. Thank you all for joining us today to discuss our Q4 and full FY16 financial results. Total revenue for the fourth quarter was $28.5 million surpassing our guided range of $27.5 million to $28 million and up 12% from the same period one year ago. SaaS and maintenance revenues were $22.4 million for Q4 FY16 up 32% from the same period last year and accounted for 79% of total revenue, contributing to our continued acceleration as a cloud solutions company.

For the full fiscal year, total revenues were $107 million and up 14% year-over-year compared to FY15. Our SaaS and maintenance revenue for FY16 was $86.4 million representing 50% year-over-year growth for the full FY16 compared to 2015. We believe this is another directional sign of the market demand for Model N's cloud-based, revenue management platform.

On the Q3 earnings call in August we shared three areas that were impacting our performance. The first was a slowing in the pace of full scale migrations for existing on premise deployments to the cloud by our life sciences pharma customers. The second was the need to adjust our go to market approach for our Revvy business and a third was performance in our high-tech business that was below expectations.

We continued to see challenges during the fourth quarter and did not improve our execution as much as we had hoped. While we are optimistic about the initiatives put in place, they are still work in progress which you will see reflected in our guidance for FY17 which calls for relatively flat year-over-year total revenue growth.

With that said, let me address what we saw in these areas that impacted our performance, what we are doing about it, and the progress made to improve overall performance. As well as why we remain confident about our business for FY17.

In our life sciences business, the pace of large-scale, enterprise wide large cloud migrations was again below expectation. Although we did not see the pace quickened as we'd hoped, we did see customers migrating to the cloud as well as market demand for Model N's cloud-based revenue management solutions.

Shionogi is one example of a customer who chose to migrate from their on-premise system to Model N's revenue management cloud platform. Shionogi is the US based subsidiary of Shionogi & Co., Ltd., a $3 billion biotechnology and pharmaceutical company based in Osaka, Japan with more than 6,000 global employees, they market products in several therapeutic areas including women's health, anti-infectives, pain, and cardiovascular diseases.

Shionogi, Inc.'s US headquarters is based in for Florham Park, New Jersey. Shionogi was operating an on-premise version of our end-to-end revenue management application suite across government compliance, managed-care, commercial and revenue management intelligence for life sciences pharma. Shionogi decided to move their entire Model N footprint to the cloud and purchased an enterprise subscription to our revenue management as a service or RMAS offering to support their near term growth, new product launches and more sophisticated user requirements.

Another important example of a large pharma making a strategic long-term decision to move its revenue management needs into the cloud was a decision made by a $10 billion US subsidiary of a top five global pharma. This firm specializes in eyecare products and their mission is to provide innovative products that enhance quality of life by helping people see better.

In 2011 they emerged with another top global pharma and united three separate divisions into a single eyecare business which is now their second largest division. To aid in strategic objectives of reigniting growth, accelerating innovation and competing better in emerging markets they subscribed to Model N's CPQ solution last quarter. After helping them transform how they address global pricing with their subscription to Revvy GPM last year this top five global pharma is now modernizing their price execution, deal approval, quoting, and complex agreement processes with Revvy CPQ.

Lastly, Sobi is another good example of a company who chose Model N's Revvy cloud platform over on-premise solutions to support their revenue management needs. Swedish Orphan Biovitrum also known as Sobi is a $2.86 billion pharmaceutical headquartered in Stockholm, Sweden spanning 24 countries and delivering therapies to patients in 67 countries across the globe. They are a leading integrated biopharmaceutical company dedicated to bringing innovative therapies and services to improve the lives of rare disease patients and their families.

Sobi's portfolio is primarily focused on hemophilia, inflammation, and genetic and metabolic diseases. Sobi subscribed to Model N's Revvy GPM and Revvy CPQ solutions. They viewed our Revvy GPM solution as the clear market-leading cloud solution for managing global pricing and life sciences and they viewed our tailored CPQ solution for life sciences as having the best fit for their needs out of the cloud. Sobi purchased these solutions to manage the continued expansion of their growing, global product portfolio more efficiently setting pricing and the launch of new products and upgrade their existing pricing data base into a single global master in the cloud.

Revenue management remains a mission critical business process for companies focused on maximizing their revenue potential and driving growth. Model N's cloud platform addresses the continuum of revenue management needs from complex pricing, quoting, contracting, rebate and incentive management that natively integrate by design into company's critical Salesforce.com, Oracle, and SAP backbones.

As we have noted in our larger opportunities, we see the opportunity for cloud transformation projects for revenue management escalating to broader enterprise wide programs. We believe these programs in turn will increasingly be tied to large IT initiatives driving more deal complexity and longer cycles. So, to help with this we built a consulting team of some of the market's best value engineering talent for life sciences from SAP and [Esensure] among others who have done this before and have experience driving transformational change in large-scale IT projects. At the same time we are strengthening these competencies within our sales organization and investing in Model N's partner ecosystem function. We're optimistic that these initiatives will aid the pace of customers journeys to the cloud.

Moving on to our Revvy business. I spoke about some of the challenges we faced in our third quarter. In the fourth quarter we began to see traction in our Revvy business. We also entered into a significant expansion of our sales force partnership which I will speak about in a minute. I've already shared several examples of customer wins last quarter within our Revvy portfolio.

Sesitec] is another good example of the traction we saw for our Revvy solutions and one of Model N's first customer wins in the manufacturing space. With customers in more over 60 countries Sisitec and GmbH is a leading manufacturer and developer of inspection, separation and sorting systems for the food, pharmaceuticals, plastics, wood, glass and recycling industries. Sesitec systems are used in process, packaging, and production lines throughout these industries and the specialized preparation of materials for recycling.

Sesitec subscribed to Model N's Salesforce native Revvy CPQ solution for SAP and SAP variant configurator in a manufacturing industry space to support their need to improve data accuracy related to quoting, selling, and reporting across their sales organizations and channels. After a market review, they chose Model N because they viewed it as the best solution offering seamless interoperability between their SAP, ERP and Salesforce CRM systems in the manufacturing space.

Now back to Salesforce. I'm also pleased to share that Model N significantly expanded its Salesforce partnership last quarter specifically geared to support or Revvy portfolio of products. Model N is now a platinum plus Salesforce partner, one of just 35 globally and we have several initiatives already underway to more broadly offer our portfolio of Revvy solutions across the Salesforce ecosystem. In addition to elevating our level of collaboration to this strategic new tier we also announced the release of three new solution offerings resulting from this new chapter in our partnership with Salesforce.

The first new offering is Revvy Sales. A powerful industry-specific extension for Salesforce sales cloud specifically designed for the high tech, semiconductor industry. The second offering is Revvy CLM for Salesforce a comprehensive contract management solution that streamlines the lead to cash process.

The third new offering is an exciting new example of the depth of our new partnership and a modular capability of our Revvy cloud platform. Revvy for Salesforce CPQ is a suite of products designed to work seamlessly with Salesforce CPQ. Collectively they help businesses streamline contract negotiation and red lining processes as well as enhance quote management, profit analysis and deal modeling for Salesforce CPQ customers. With this new offering we are demonstrating the flexibility of our Revvy portfolio to offer modular solutions that can be unbundled from our cloud platform to target specific pinpoint business needs.

We're incredibly excited about our new platinum plus partnership with Salesforce. Through it we plan to build unique and highly complementary technology on the force.com platform much faster while leveraging Salesforce.com's expanded reach into thousands of accounts globally. It is a great example of how we are expanding our channel partner ecosystem to drive more effective go to market and broader distribution for our solutions in order to drive growth.

Lastly, I spoke about how our high-tech business was below expectation due to performance and consolidation in the semiconductor market. While we continue to see consolidation activity, we are optimistic that our Q4 sales leadership changes and additions to the sales team with enterprise veterans possessing deep expertise are working.

Ampleon is a good example of how our new sales team is driving business in spite of consolidation in the industry. Ampleon is a global semiconductor manufacturer headquartered in the Netherlands, spun off from NXP following the acquisition of its radio frequency power business in 2015. The global company focuses on mobile broadband, multi market and radio frequency energy electronic products for a wide range of applications such as cellular base stations, radio TV and broadcasting, radar, air-traffic control, cooking, lighting, and industrial lasers among others.

Ampleon purchased Model N's deal management solution for the high-tech industry to seamlessly manage its global pricing, quoting, contracts, opportunities and registrations in the cloud. They also purchased our channel management solution for the high-tech industry to manage their debits, point-of-sale, channel contracts and credit claims in the cloud.

You'll recall that Model N expanded its high-tech solution portfolio with our channel insight acquisition at the same time last year. Ampleon selected Model N over in-house solutions and competing vendors because of the completeness and modularity of the system. They could use its functionality as they needed it, when they need it as well as is interoperability with their SAP platform.

I'm optimistic about the contributions this team will deliver to Model N's high-tech business contributing to a promising pipeline for FY17. We also believe the Salesforce partnership I just spoke of will help considerably in this area of our portfolio.

Our cloud solution offering is addressing companies revenue management needs and we believe we have the opportunity to return Model N to historic growth rates. But we know we need to execute better. We had challenges in the second half of FY16 and we believe we are addressing them with the initiatives I have outlined.

Our expectations are that we will see improved business and bookings trends as we move throughout the year. While we know we have work to do, I remain confident that there is meaningful opportunity to accelerate the move to cloud-based revenue management and transform how revenue management is done in the industry.

I'd now like to turn the call over to Mark to discuss more of our financial results and guidance for Q1 and FY17. Mark?

Thank you, Ed. Total revenues for the fourth quarter were $28.5 million above our guidance range of $27.5 million to $28 million. This is up 12% from $25.4 million in total revenue in the year ago period. Also, SaaS maintenance revenues were $22.4 million for the quarter up 32% from Q4 2015. License and implementation revenues were $6.1 million.

Our shift towards SaaS and maintenance revenues continues to progress and these revenues accounted for 79% of total revenue. This is a 1,200 basis point improvement from the 67% of total revenue in Q4 FY15. We reported 81% SaaS and maintenance revenue for FY16 as a whole up 2,000 basis points from FY15.

Our GAAP gross profit for the fourth quarter was $14.9 million compared to $13.8 million for the fourth quarter of FY15. GAAP net loss for the fourth quarter was $7.8 million compared to $5 million in the fourth quarter of FY15. GAAP loss per share was $0.28 for the fourth quarter compared to $0.19 in the fourth quarter of FY15.

Before I move on, I want to remind you that unless otherwise specified, all of the metrics I will be discussing from here on this call are non-GAAP results. Our non-GAAP metrics exclude stock-based compensation and other one-time items. A complete reconciliation of GAAP to non-GAAP results provided in our earnings press release issued earlier today and available on the investor section of the website. Non-GAAP gross profits for the fourth quarter was $15.8 million compared to $14.3 million in the fourth quarter of FY15.

Similar to recent quarters, gross profit in this quarter included an impact of roughly $700,000 from the amortization of capitalized software that began upon the launch of our Revvy products. Overall, non-GAAP gross margin in the quarter was 55% up from 53% last quarter and compared to 56% in Q4 of last year. Non-GAAP loss from operations was $2.9 million compared to a non-GAAP loss from operations of $1.7 million for the fourth quarter of FY15. Non-GAAP net loss in the fourth quarter was $3 million compared to a net loss of $1.8 million in the fourth quarter FY15.

We produced a non-GAAP net loss per share of $0.11 based on the share count of 27.8 million shares compared to a net loss per share of $0.07 based on a share count of 26.5 million shares in fourth quarter of last year. This was in line with our guidance of non-GAAP net loss of $0.11 to $0.13 per share.

Adjusted EBITDA for the fourth quarter was negative $1.7 million compared to negative $700,000 in the year ago period. We ended the fourth quarter with $66.1 million of cash and cash equivalents which is down from $70.1 million at the end of the third quarter. This is consistent with the amount we guided to for Q4 2016. At the end of the fourth quarter our accounts receivable balance was $19.9 million and our total deferred revenue was $30.8 million.

For the fourth quarter, cash flow used in operations was negative $4.6 million which after adding CapEx of approximately $500,000 in capitalized software of $200,000 produced a negative free cash flow of $5.3 million. This compared to a cash flow use by operations of negative $2.9 million in the fourth quarter of last year which after adding approximately $300,000 of CapEx and capitalized software of $700,000 produced a negative free cash flow of $3.9 million.

Turning to FY16 revenue grew 14% to $107 million with SaaS and maintenance revenue increasing 50% to $86.4 million. Our GAAP gross margins for the fiscal year were 50% compared to 56% in FY15. Non-GAAP gross margins for the year were 53% compared to 58% in the prior year. Annual recurring revenue or ARR at September 30th was $35.1 million reflective of the booking challenges we experienced in the second half of the year.

GAAP loss from operations was $32.7 million compared to a loss from operations of $19.1 million for FY15. Non-GAAP loss from operations for the fourth quarter was $2.9 million compared to an operating loss of $1.7 million in the fourth quarter of FY15. GAAP net loss for the fiscal year was $33.1 million compared to $19.6 million in the prior fiscal year.

Net loss per share was $1.21 for the fiscal year compared to $0.76 FY15. Non-GAAP net loss for FY16 was $17.4 million compared to a loss of $7.6 million in FY15. Non-GAAP net loss per share for FY16 was $0.64 compared to a net loss per share of $0.30 in the prior year. These figures were impacted by our transition to a more recurring revenue model.

Adjusted EBITDA for FY16 was a loss of $12.6 million compared to a loss of $3.3 million in FY15.

Moving on, let me now outline our guidance for the fourth quarter of FY17 as well as our expectations for full FY17. For the full FY17, total revenues to range from $105 million to $107 million. We currently have visibility into approximately 77% of FY17 revenue. This compares with approximately 75% at December 30, 2015.

We expect staff and maintenance revenue to increase from 81% of total revenue in FY16 to 85% to 87% of total revenue in FY17 continuing the conversion of our business model. This includes our license and implementation line decreasing 30% to 40% versus FY16.

We expect loss from operations in a range of $21 million to $20 million and non-GAAP loss per share in the range of $0.73 to $0.70 based on a weighted average share count of 28.7 million shares. The annual recurring revenue is expected to range from $44 million to $46 million, an increase of 25% to 31% over FY16. Please note we define annualized recurring revenue as a monthly recurring revenue at September 30, 2017 multiplied by 12. We expect to exit FY17 with a cash balance of $55 million to $57 million.

In light of our current revenue forecast for FY17, we are reviewing options to drive further efficiencies in our business and we are optimistic that we will be able to do so while continuing to invest in initiatives that are essential to restoring high levels of growth for the long-term. We will provide a further update in this regard after we have completed our review process in Q1.

For our first quarter ending December 31, we expect total revenues to range from $27.2 million to $27.7 million. Net loss from operations in the range of $5 million to $4.4 million. This would lead to a non-GAAP net loss per share in the range of $0.18 to $0.16 based on a weighted average share count of 27.9 million shares.

We will now open the floor for your questions.

At this time we will be conducting a question-and-answer session.

(Operator Instructions)

Our first question comes from Tom Roderick from Stifel.

Yes. Hi. Matt VanVliet on for Tom. Thanks for taking my questions.

I guess first off, curious what the specific changes to the sales organization that you referenced were done in the quarter? And maybe what to expect here in the next couple of months as well? And then, in addition to that, what changes have been made to the overall sales process and training program or incentive program to help spur on more of the SaaS sales and get this thing turned around?

Sure, Matt. Good to speak with you today. This is Ed speaking.

Let me address both of your questions in terms of what we've done differently within the sales organization and then what we are doing to invest in enablement. Within the sales organization there is one specific change that we mentioned that we made in the quarter, and that is the introduction of new leadership for our high-tech sales team. That person has been with us and has already met a number of our key customers and we can already see the changes in terms of how he is managing for the business. He has also brought in new sales team members that I also mentioned, that have expanded the team and the scope. So that is really the specific change that we have made. We are investing in the partner ecosystem as I had mentioned, and we have a finalist candidate that is very close to start who is going to be running the entirety of that function for us as we continue to invest. From a go to market perspective, those are the changes that we've made within the organization.

In terms of enablement and training, we're doing a number of things. I spoke in our last earnings call about some of the focus that David Miller within our product marketing organization has added. We are continuing to invest in the training and the enablement function, delivering more tools to our teams. One of the other disciplines that we've added is a result from the investment that we've made into this value engineering competency that I also mentioned. And we have a number of joint activities that we are doing in partnership with Salesforce as a result of the go-to-market engagement that we have with them through that partnership.

Okay, and then, obviously the big news over the last several quarters in the CPQ space has been Salesforce acquisition of Steelbrick. How do you feel like that's impacting your business? Obviously you made some changes around the Revvy CPQ go-to-market here, but did that put a pause on some customers all of a sudden wanting to look more closely at that? Or how do you see your positioning relative to the functionality of the Salesforce CPQ product?

Matt, that's an area that we are pretty excited about right now. You'll recall I highlighted three customer stories, actually, that chose Model N for their CPQ needs. The top five: Global Pharma, Sobi, and Sussitech. In terms of how we are working directly with Salesforce we have taken a collaborative approach. Steelbrick certainly does have an offering in the market. Historically we had not seen that offering in the majority of our deals, but what we've chosen to do in that partnership is work together. There are specific capabilities that we have within our CPQ offering that we have chosen to partner together on and offer in combination with Salesforce's CPQ product. Those are some of the additional new product offerings that I had mentioned.

We are very excited about the partnership. We are very optimistic about what it can bring back to Model N, and we look forward to working with the broader Salesforce organization to bring Model N's Salesforce CPQ support capabilities to a much larger portion of the market.

Great. Thank you.

Our next question comes from Sterling Auty from JPMorgan. Please go ahead.

Hey, guys. This is Jackson Ader on for Sterling tonight. A couple of questions. One really, I guess, is high level.

As far as the conversions are concerned from on-prem to SaaS, is this more about demand or is it people dragging their feet? What is the main driver here? Or is it sales execution issues? What would you say is probably the leading issue as far as getting conversion?

Sure, Jackson, it is good to speak with you today. This is Ed.

In terms of the conversions that we are seeing, there is a concentration and that is within our life sciences pharma business, and specifically it is within the large scale IT projects that we typically see at the top end of the food chain. In terms of what is happening and what's driving it, it's really a continuance of what we talked about during our last earnings call. Companies, when they make this case for change, it is a transformational initiative within their organization; and inherently it is actually a good thing for the industry and a good thing for revenue management, because the desire to move to the cloud is absolutely happening. And we even talked about an example of that with the Shionogi customer story that I mentioned a couple of moments ago.

When we see these large-scale initiatives beginning to unfold across an organization, they involve significant dating; there is a desire to see payback at different stages within a much larger project, and a complexity within the plan before it's actually approved for capital expenditure. This is one of the key reasons why we've invested in the value engineering consulting capability that I mentioned. These are people that are very familiar with this nuance to large scale IT projects and we are optimistic about their contribution. Now, in terms of sales execution, we do believe that the majority of the issues with these large-scale IT migration projects are on how they are managed, which is why we are also investing in enabling the partner ecosystem. Partners in large SIs that are already in place within our large pharma customers are receiving training from Model N on revenue management applications. The basically we feel that the more resources that we can offer to our customers, the more we will be able to help them in their journeys for migration.

Okay. And then another follow-up on the Salesforce. So you just mentioned adding some headcount in the high-tech Salesforce space. Do you expect to add more sales headcount, either in high-tech or in life sciences as 2017 moves forward?

We always evaluate the constitution of our sales organization based on the forecast and our ability to meet that coverage. We are always looking at the sales organization and rightsizing it. In terms of the specific expansion that I spoke of, we have expanded the high-tech sales team. We are optimistic about the opportunities that we see there, and I talked about one of them recently with the Ampleon deal. But we are also significantly investing in the focus and support that we have within our partners and alliances function to support not only business in life sciences and high-tech, but also the optimism that we have for the outputs of the Salesforce relationship.

All right. Thank you.

(Operator Instructions)

Our next question comes from Chad Bennett from Craig-Hallum. Please go ahead.

Thanks for taking my questions.

So are we expecting, in the 2017 guide, it basically implies that your line 1 revenue at the midpoint goes down to about $15 million. I assume that is the right number? Secondly, is there much line 1 license revenue left, and is that mostly just professional-service related?

Hey, Chad, it is Mark.

In reference to your earlier point, we landed a little over $20 million for the year in line 1, so with our current visibility we are seeing about a $6 million to $8 million share cut off of that number. So roughly $12 million to $14 million is where we believe that we will land in line 1 revenue. So a little bit below the $15 million you indicated. As far as the mix we talked about you can reflective in the gross margin. There is very little license in that line that is being amortized out over time and we don't anticipate booking many perpetual license services and going through our POT model as we move forward. We have indicated, our focus is really around the recurring size of the model, which is why we guided for the line 2 revenue to go from 81% to 85% year over year. That is really the focus of the business and it continues to be the focus of the business.

I jumped on the call a little late, but I think I saw your SaaS ARR exited the year at a little over $35 million, which is essentially what you talked about exiting this year as being your target. You upped it in the first quarter; you upped in the second quarter. I guess the takeaway would be, second half bookings on the SaaS side were pretty much modest at best or nil. Is that the takeaway we should think about?

I think the way you think about it, Chad, was the first half of the year was much stronger in the SaaS bookings than the second half of the year. And I think Ed had reflected on it in the last two calls, the breakdown between the high-tech and the Revvy pieces and execution issues that we have had in that area. So, yes, originally in the beginning of the year we guided $35 million to $36 million, and we came within that guidance range. We did have a strong first half of last year but we did not execute well in the second half of the year.

Do you expect maintenance -- how do you expect maintenance -- is maintenance -- can it hold relatively flat this year? Or do you expect that to be down?

We expect maintenance for FY17 to be relatively flat to FY16. I think we have talked about in the past that our retention rate for the SaaS and maintenance line is extremely strong. We do have an annual increase which is very slight type CPI. So we do expect that number to remain relatively flat in 2017 to 2016.

Okay. Thanks for taking my question.

Our next question comes from Patrick Walravens from JMP Securities. Please go ahead.

Great. Thank you, gentlemen.

Ed, as I look at this, it seems like it is a pretty complex situation. You have multiple platforms, multiple industries, there is a model transition, there is a sales transition. You want to grow, of course, but you want to be efficient, too. And thank you for all the detail on this call, but I was wondering if you could just step back for us and help us figure out at a high level, what is the strategy? Where is this business headed? And maybe is there anything in your experience that you can relate this to, and how that is played out?

First of all, Pat, good to speak to you again.

I don't believe, from the beginning in our conversations that we've had, we've talked about consistency in the Company's strategy. Nothing has changed or is really different. We haven't taken a course change in the Company's overall strategy. It is to help bring a singular revenue management platform in the cloud that is integrated and addresses core competencies that the market has told us and also that we have helped define along the way as being fundamental prerequisites to help a company manage its revenue management processes better. That is the name of the game and that's our core approach.

We have areas of competency where our industry-specific knowledge allows us to deliver a unique solution to customers, and it's in the life sciences and the high-tech space. We mentioned one deal this past quarter, Sussitech, that actually is a first entree into potentially looking at expanding into a new space; and that is discrete manufacturing for us. The strategy remains unchanged.

Pat, what we have done in this complex situation, these are complex projects. I have seen them before in my past in the prior companies that I had worked in, and when you have a large complex project, companies tackle them in different ways. There are times where it is a very large strategic multi-year initiative, and the vendor then steps into place and helps the customer on that journey. We have a number of examples of those. I talked about Shionogi. They are entering into their journey. Two customers that I didn't talk about, actually, that have recently gone live using Model N's revenue management as a service solution are Merck and Astellas. They have made that journey from and on-prem world to a cloud world.

It is one of the reasons why we have done two significant investments, because they are pages from the play book of successful plays where I have seen this managed in the past and in prior chapters. That is having a value competency that can offer consulting resources to an organization to help them understand how to tackle the journey for any large IT transformational project. I've seen this done extremely successfully in other companies and I'm optimistic that we are going to deliver this competency because some of the resources that we have and we have added into our value engineering team I have worked with before in other firms.

The other area where I have seen success being delivered to a company who is embarking on a major project, is to have consistency within their partner ecosystem. When the same resources that are involved in another large IT project are also trained and well-versed on the solutions that Model N has to offer, the bridges are more easily traversed, the connections between the projects are more easily managed, and even something as simple as the PMO project teams have better knowledge of the intersection points. This is one of the reasons why we are investing more within our partner ecosystem function and why we are setting up programs that for Model N are going to help these other firms: certification, centers of expertise, centers of practice for those teams.

These are some of the things that we are doing, Pat. I have seen these things done before and we are optimistic about the results they will deliver Model N and our customers.

Oh, good. Thank you for that perspective.

(Operator Instructions)

Our next question comes from Joe Faget from Greg Howell. Please go ahead.

Sorry, guys. My question has already been asked. Thank you.

If there are no further questions I will now turn the floor back over to Management for any closing comments.

Thank you, everyone, for coming into the call today. We have shared the output of fiscal year. We've given you our views into FY17. We do recognize some of the areas that impacted business performance in 2016, and we've shared some of the initiatives that we put into place, that are underway, and that we feel optimistic about. We are looking forward to FY17 and we're also looking forward to seeing you at our upcoming Analyst Day. Thank you very much for your time today and enjoy the rest of your afternoon.

This concludes today's teleconference. Thank you for your participation. You may disconnect your lines at this time.