Model N Inc (MODN) 2017 Q1 法說會逐字稿

Greetings, and welcome to Model N's first-quarter FY17 earnings conference call.

(Operator Instructions)

As a reminder this conference is being recorded. I would now like to turn the conference over to your host, Staci Mortenson, Investor Relations. Thank you Ms. Mortenson, you may begin.

Good afternoon. Welcome to the earnings results call for Model N's first-quarter FY17, which ended on December 31, 2016. With me today are Zack Rinat, Executive Chairman and 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 with this call is being simultaneously webcast. The primary purpose of today's call is to provide you information regarding our first-quarter FY17 performance, and our financial outlook for our second 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 10-K, and our quarterly reports on form 10-Q for information on risks and uncertainties. Should any of these risks and uncertainties materialize, or should any assumptions prove to be incorrect, actual company results could differ materially from those forward-looking statements.

In addition, during today's call we will discuss non-GAAP financial measures. These non-GAAP financial measures should be considered in addition to, not as substitute for, or in isolation from GAAP results. I encourage you to visit our Investor Relations website at Investor.modeln.com to access our first-quarter FY17 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 periods of our FY16. With that, let me turn the call over to Zack.

Good afternoon and thank you for joining us today. I will start the call today discussing Q1 FY17 operational priorities and operational results, and then discuss our strategy for FY17 and beyond, including an update on the Revitas acquisition.

Model N executed extremely well in Q1 FY17, exceeding our guidance on both the top- and the bottom- lines. Mark Tisdel, our CFO, will follow me with the financial results.

Q1 FY17 was the highest recurring revenue, and the second highest overall, revenue in Model N history. When I re-assumed the CEO role in November, my first priority was to focus on execution, and deliver both financial and operational results.

My second priority was to capitalize on the strategic opportunity to acquire Revitas and close the deal. My third priority was to develop a detailed integration strategy to make the acquisition a success for our customers and our shareholders. My fourth priority was to enhance the executive leadership of Model N.

We made excellent progress on all of these priorities, and I am very proud of our newly united Model N team. When we announced the Revitas acquisition, we stated that we believed that this acquisition is transformative for Model N, and will benefit our customers and our shareholders. As a reminder, Revitas was a provider of revenue management solutions for pharmaceutical industries since 1989, and served 40 plus pharmaceutical companies, which accounted for about 95% of the business.

Revitas customers including Eli Lilly, GSK, Baxter, and Valeant. Model N and Revitas shared a number of common customers including Pfizer, Merck, Sanofi, Novartis, AstraZeneca, Sanjay, and Allergan.

In addition to the pharma business, Revitas had more than 10 customers in key verticals, such as, industrial manufacturing and high-tech that are in line with Model N's vertical expansion strategy. These customers include LG Electronics, Carrier Corporation, Siemens Corporation, Kitco, and United Technologies.

We discussed the fact that the Life Sciences industry is at an inflection point when revenue management is crystallizing, is a strategic imperative. Guiding top-line profitable growth is the number one strategic priority of most Life Sciences companies. At the same time, these companies need to comply and adapt to an unprecedented and evolving global climate of regulations, as government, both in the United States and globally, try to optimize their healthcare spending.

Governments and other healthcare provider, are demanding price transparency, and seek a transition from traditional consumption-based pricing to new models such as outcome-based pricing. Finally, companies are looking for optionality in both acquire and divest, in an M&A centric industry.

The focus of the new administration on cutting drug pricing, and enhancing regulatory compliance, is a strong testament to this inflection point, as well as to the need for further innovation in revenue management. The industry is seeking a strategic partner to leverage technologies such as, cloud, SaaS, mobile, social, and big data to capitalize on their strategic opportunities and overcome their strategic challenges.

Model N is now even stronger strategic revenue management partner for the Life Sciences industry at this critical moment. We now have a 80 plus Life Science's customers, 900 plus employees, and global presence in 10 major locations.

Our integration strategy focuses on customer satisfaction and retention, ensuing continuity and fulfilling commitment to our customers regarding products, projects, proposals, and support.

Model N will support and maintain the Life Sciences product and platforms of both companies. As a key enabler, we were very successful in retaining the essential members of the Revitas' team. While we did not extend job offers to everyone, 145 out of the 147 jobs offered, that we did extend, were accepted, which included all Life Sciences engineering, product management, professional services, technical support, sales, and solution personnel.

In addition, the Model N senior management team is now a mix of both Model N and Revitas leader. In particular, we have retained four key Life Sciences executives, and gave them leadership position in the combined organization.

These four executives have a combined 52 years of experience with Revitas, and will serve as our VP of Life Sciences Sales for the Americas, the VP of Life Sciences Technical Support, the VP of Life Sciences Professional Services, and the VP of Life Sciences Engineering.

We closed acquisition on January 5, and immediately identified and executed upon cost synergies. We eliminated duplicated G&A, sales, and marketing expenses, as well as a redundant product outside of Life Sciences' vertical.

We made reduction from both Revitas and Model N employees, and feel we exited the process with a very strong unified team. Our main focus is on customers, to ensure that we clearly communicated our strategy and received feedback. Four days after the announcements of the acquisition in December, we held our executive advisory board Rainmaker X, in New York City with a presentation from companies such as Merck, Novartis, Pfizer, Allergan, and Corning.

The interaction with the customers continue with a series of webinars, emails, and most importantly, face-to-face meetings with key executives. Customers were happy with both our short-term and long-term vision for taking Revitas' product to the cloud, and by offering this product as Revenue Management as a Service.

Probably the strongest indication for customer alignment with our strategy, was the purchase decisions that they made with both Model N and Revitas after the acquisition was announced in December. For example, J&J signed major deals with both Model N and Revitas, in both medical device and pharmaceutical business.

J&J Pharma business will run revenue cloud for US and global businesses, both commercial and government, utilizing transaction and analytical models. The J&J medical device business will extend the deployment of revenue cloud to major new divisions for the US businesses.

Sanofi signed a major upgrade to the US revenue management application suite with Revitas. Gilead extended revenue cloud for Pharma by adding Model N's Discount to Allocation Management application to the revenue management application suite.

The Discount to Allocation Management Application is enabling pharmaceutical companies to enter into complex, innovative, [banded] Commercial Contracting Agreement, while still accurately calculating prices for the US government programs such as Medicaid and Medicare. These prices are mandated on a monthly and quarterly basis and their accuracy helps to eliminate regulatory compliance risk.

We also added Essentia Diabetes Care to our customer list. Established in 2016, through the acquisition of Bayer Diabetes Care by Panasonic's Healthcare Holding, Essentia Diabetes Care is a global company dedicated to improving the health and lives of people with diabetes. Essentia subscribed to our Revenue Cloud for MedTech, and will implement it with our express implementation methodology.

Essentia will leverage Revenue Cloud for MedTech to establish a global revenue management platform as they embark on their journey as an independent company. Essentia is a testament to the fact that where our Revenue Management as a Service offering is highly applicable to medium-sized companies.

In summary, we're off to and outstanding start for our combined journey, and our early success is a testament to the strategic value of the acquisition for our customers and our shareholders, as we; one, drive revenue management as a strategic enabler for our customers and accelerate the growth of Model N.

Two, deliver comprehensive end-to-end revenue management solutions and accelerate land-and-expand strategy by cross-selling and up-selling to the combined install base. Three, accelerate a transition of revenue management into the cloud, and complete the transformation of Model N to 100% SaaS and maintenance revenue.

Four, realize significant cost synergies while accelerating the time to profitability for the Company. And five, leverage combined resources to focus on material growth opportunities for Model N in Life Sciences and beyond, taking advantage of the significant market opportunity for revenue management.

I now want to shift gears from our Life Sciences and discuss our High Tech business. I am delighted to let you know that we had an outstanding quarter in our high-tech vertical. We added a $40 billion global leader in data storage solution as a Model N customer.

This leader is developing innovative products to enable people and businesses across the world to create, share, and preserve the most critical memories and business data. They subscribed to our Revenue Cloud for High Tech, replacing the current system for pricing and channel management. The customer is implementing Model N's Deal Management, Channel Management, Deal Intelligent, and Rebate Management Solution.

This global technology leader will leverage our revenue cloud to transform the revenue management process into a strategic end-to-end process, specifically, transforming disconnected processes in pricing, quoting, rebates claim, and price protection into a single optimized business process.

Micron extended their Revenue Cloud footprint by subscribing to the Sales for Semiconductors and Rebate Management applications. Sales for Semiconductors is the first CRM solution for the Semiconductor and components industry.

Sales for Semiconductors combine the best of both worlds, Salesforce Sale Cloud and Model N's deep vertical expertise, to deliver a vertically-focused solution for CRM and one that is fully integrated with our Revenue Cloud. Some other significant deals in the quarter including AMD, diodes, and microchips.

While I was pleased with our execution during the quarter, I am even prouder of the fact that we made significant enhancements to the executive team of Model N. Russ Mellott joined Model N on January 3, as Senior Vice President and Chief Revenue Officer, reporting directly to me. In addition, we hired a new head of High Tech Sales from NetSuite, a new head of Europe, Middle East, and Africa Sales from Salesforce, and a new head of Global Alliances from Saba.

With our strength in leadership and sales team, we believe we can improve our execution and accelerate the growth of Model N. In particular, we see an opportunity to increase the visibility and predictability of our revenue, by accelerating the transformation of Model N's business model to 100% SaaS and maintenance revenue.

I am encouraged by the results of Q1 2017 and am excited about the rest of FY17 and beyond. Let me turn the call over to Mark to discuss our financial results and guidance. Mark?

Thank you, Zack. Before I begin, I would like to remind you that our first-quarter results are Model N standalone, as the acquisition of Revitas did not close until January 5, 2017, at the start of our second fiscal quarter. Also, our Q2 and FY17 guidance will include the results of the combined companies.

I want to reiterate some of the points Zack highlighted above. First, not only was it a strong overall quarter for Model N but Revitas also had a very solid quarter, as well. Second, we've committed to making the tough cost decisions and we have completed our evaluation.

We have identified significant cost savings from both Model N and Revitas, and are adjusting the business accordingly. We will recognize most of the synergies by the end of Q2, and we will exit our Q3 at the full synergy run rate. We expect the total annualized cost synergies from the combination of Model N and Revitas to be between $11 million and $13 million.

Third, and most important, we are very focused on ensuring the transition to Model N is successful for Revitas customers, partners, and employees. We know this is critical to the continued success of Model N and our efforts are well underway.

The first quarter was a strong start to the year, and we believe we are well-positioned in FY17 to improve the Company's financial performance. Total revenues for the first quarter were $28.1 million, above our guidance range of $27.2 million to $27.7 million. This compares to $24.5 million in total revenue in the year-ago period.

Within total revenues, License and Implementation revenues were $5.4 million and SaaS and Maintenance revenues were $22.6 million for the quarter. Q1 represents a 14% increase year-over-year in SaaS and Maintenance revenues dollars for the same period.

The mix of our revenues in Q1 were 81% SaaS and maintenance versus 19% License and Implementation. The Company remains committed to driving the business towards a 100% SaaS and Maintenance revenues.

Before I move on to profit and loss statements, I want to remind you that my commentary will be focused on non-GAAP results. We can't provide a full GAAP to non-GAAP reconciliation at this point as certain items related to the purchase accounting from the transaction of Revitas are not ascertainable at this point. We expect to complete the full review of the purchase accounting within the next few weeks.

Gross profit for the first quarter was $15 million compared to $12.7 million in the first-quarter FY16. Similar to recent quarters, gross profits in this quarter included the impact of roughly $270,000 from the amortization of capitalized software that began upon the launch of our Revvy CPQ product.

Overall gross margin in the quarter was 53% an increase compared to 52% in Q1 of last year. We continue to focus on the improvement of gross margin, specifically on SaaS and Maintenance line. We would expect a slight decrease in gross margin for Q2 of 2017, as we will be adding in the tax 2017 Payroll and Related taxes for our Global Services team. We would expect our gross margins to improve sequentially in Q3 and Q4 of 2017.

Total operating expense was $19.2 million in Q1 2017, compared to $17.1 million in the first-quarter of FY16. The $2.1 million year-over-year increase was due to $900,000 of continued investment in Sales and Marketing personnel and programs $700,000 from the additional month of channel insight expenses, and $500,000 lower capitalization of development spend.

Operating loss for the period is $4.2 million, compared to a loss of $4.4 million in Q1 of last year, and better than our guidance of an operating loss of $4.4 million to $5 million. Net loss in the first quarter was $4.1 million, an improvement over the net loss of $4.4 million in the first quarter of FY16.

We are very focused on accelerating the pathway to profitability, as we will discuss below in our guidance. On a GAAP basis operating loss for the period was $7.7 million, compared to a loss of $7.7 million in Q1 of last year. GAAP net loss in the first quarter was $7.6 million, an improvement from the GAAP net loss of $7.8 million in the first quarter of FY16.

We produced a non-GAAP net loss per share of $0.15, based on the share count of 28 million shares, compared to a non-GAAP net loss per share of $0.16, based on a share count of 26.8 million shares in the first quarter of last year. This is better than our guidance of a net loss of $0.16 to $0.18 per share.

GAAP loss per share was $0.27 in the first quarter, an improvement compared to $0.29 in the first-quarter of FY16. Adjusted EBITDA for the first quarter was negative $3.5 million, compared to a negative $3.2 million in the year-ago period.

We ended the first quarter with $52.4 million of cash and cash equivalents, down from $66.1 million at the end of the fourth quarter. The decrease in cash was due to the delay of some customer payments on December 31, which is a normal process of our customers retaining cash until early January. Our cash balance is also reflective of payments of some of the legal and accounting costs related to the Revitas transaction.

In addition, on December 31, 2016, we had placed $5 million into the escrow, in connection with the Revitas transaction that was returned to us in January 5, 2017 when the transaction closed. Otherwise, we would have ended the first quarter with the $57.4 million in cash and cash equivalents.

At the end of our first quarter, our accounts receivable balance was $19.3 million, and our total deferred revenue was $26.5 million. We had a number of transactions in Q1 2017 in which the billings did not incur until after December 31, which impacted both our accounts receivable and deferred revenue balances.

These billings occurred early in January as scheduled, and we fully expect to receive the cash in accordance with the agreement. We're very focused on cash, and reiterate our guidance of the ending cash balance at September 30, 2017, of $50 million to $52 million, as we previously shared.

For the first quarter, cash flow use by operations was a $8.2 million, which, after adding CapEx of approximately $200,000, capitalized software of $275,000, and the $5 million placed in an escrow as part of the acquisition of Revitas, produced a negative free cash flow of $13.7 million. This compared to cash used by operations of $7.3 million in the first-quarter of last year, which after adding approximately $400,000 of CapEx, and capitalized software of $500,000, produced a negative free cash flow of $8.2 million.

Moving on, let me now outline our guidance for the second-quarter of FY17, as well as our expectations for full 2017. As a reminder, our guidance includes the acquisition of Revitas.

For our second-quarter ending March 31, 2017, we expect total revenues to range from $33.5 million to $34 million. This represents GAAP revenue prior to the deferred revenue impact of the purchase accounting adjustment, which as discussed previously, is not yet ascertainable.

Non-GAAP loss from operations is expected to be in the range of $6.5 million to $6 million. This would lead to a non-GAAP net loss per share in the range of $0.26 to $0.28, based on a weighted average share count of 28.4 million shares and assuming approximately $1.5 million in net interest expense.

We forecast a strong collections quarter for Q2, as Q1 was the significant quarter for both Model N and Revitas. For the full FY17, we now expect total revenues to range from $130 million to $134 million. This is an improvement from our prior guidance of $128 million to $133 million. This increase is driven by the solid Q1 2017 performance by both Model N and Revitas.

We expect our ending annualized recurring revenue, or ARR, to be between $46 million and $48 million. This represents a 31% to 36% year-over-year growth. Please note, that a majority of the transactions Revitas booked historically were perpetual license deals, but as we've previously discussed we will be selling subscription-based SaaS deals going forward.

The guidance represents GAAP revenue prior to the deferred revenue impact of the purchase accounting adjustment, which is not yet ascertainable. The final purchase accounting entry has not yet been determined.

Non-GAAP net loss from operations is expected to be in the range of $15 million to $16 million, an improvement compared to our prior guidance of a loss of $17 million to $16 million. Non-GAAP net loss per share is expected to be in the range of $0.69 to $0.66, based on a weighted average share count of 28.7 million shares, an improvement compared to our prior guidance of $0.73 to $0.70.

Please note, as mentioned above, we have already identified the synergies to be realized from the transaction, and we believe we will be at the fully realized synergy run rate exiting our third-quarter, ending June 30, 2017. As mentioned above, the expected annualized synergies from the combination of Model N and Revitas will be approximately $11 million to $13 million

We continue to believe that the combined organization will accelerate it's pace towards profitability, and we now expect to be adjusted EBITDA positive in Q4 2017. Highlighted above, we expect our cash balance ending September 30, 2017, to be approximately $50 million to $52 million.

In FY17, Model N is committed to three key financial metrics. Number one, overall revenue growth. Number two, driving towards a 100% SaaS and Maintenance business. And number three, accelerating our path to sustained profitability and operating cash flow.

The acquisition of Revitas, coupled with the solid Q1 overall quarter for both companies, is driving Model N towards these three goals. We look forward to seeing you at our Analyst Day in New York City, on Monday, February 13, where we will spend some time walking you through the combined operations, product portfolio, and strategic initiatives for Model N.

We now open the floor for your questions.

(Operator Instructions)

Jackson Ader, JPMorgan Thank you.

Thank you. Hi guys.

Hey, Jackson. How are you?

Doing well. Hope you guys are well.

First question from me, is was there anything different in this quarter? You mentioned the billings slipping out into the second quarter. Was it more than you expected?

More that it has been in years past? I think seeing that $4 million decline of deferred revenue just kind of spooked me a little bit.

Good question, Jackson. If you look back, traditionally our operating cash burn is heaviest in our Q1. A lot of that factor is the timing of the renewals that we have. A lot of the renewals fall at the end of the Q1 time period, and we select that cash in the Q2 time period.

As pertaining to this quarter, there was a couple of different elements. One is, we had a couple of agreements with customers that we signed in Q1 where they requested that we invoice them the first week of January. So, as compliant to that agreement we did that.

Wouldn't impact revenue, but did obviously, impact deferred revenue and AR. So the cash is still expected to be collected in this quarter. Really, the only thing it impacted was AR and deferred revenue.

Secondly, we had a couple of renewals which would have renewed by December 31, where we did not receive the POs and enough time to invoice in the quarter. But those POs have been received, we have invoiced the customers, and we expect to collect the cash on time. So those were the two elements that had negative impact on AR and deferred revenue in Q1.

Okay and then a follow-up. The Revitas business -- are you guys going to allow any upfront license purchases for Revitas for products? Or is it all going to be SaaS? And if it's going to be some sort of transition, when would you expect the Revitas revenues to move that way?

So, with the exception of a seats, or if customer that wants to add it to their current licenses, we do not sell a perpetual licenses anymore. We sell a subscriptions, and then SaaS subscriptions. So that's the only two models that we are selling right now.

Okay cool. All right. Great. That's all for me. Thank you guys.

Thank you.

Brian Peterson, Raymond James.

Hi guys. Thanks for taking the question. I wanted to hit on the updated fiscal year outlook a bit.

Is there any way to parse that out between some of the improvement areas you have focused on for the legacy model-in, and then maybe some better-than-expected revenue and cost synergies as it relates to Revitas?

Thanks, Brian. Good question. So, a couple of different items. The way that we look at the business going forward is not, Revitas and Model N, it's a combined entity. That is the way that we approach the cost structure.

As Zack, mentioned in his section, we view that as an integrated Company, and we made adjustments to the ongoing business from both the Model N and the Revitas perspective. So we spent a lot of time on that in the integration period up through the acquisition. And as Zack mentioned, we executed on it very quickly and very efficiently in the quarter.

So, we feel very strongly that we did a great job on analyzing the cost structure -- the duplicate cost structure in our ability to gain synergies very quickly after the acquisition.

Yes. And just enough to add to what Mark said, the report that you just heard from me and Mark was related to Q1, and we reported this Model N as an independent company. Mark [freed] the acquisition with -- kind-of with Revitas.

And I hope we communicated well that we had a very strong quarter and very strong execution across the board, both in our Life Sciences business and, actually, in our High Tech business. So, we feel strong about the foundation of the business.

We feel that, actually, Revitas is a great boost to a business that is already working well. And believe that the combined Company is going to execute very well for FY17, and beyond. But just to make sure that we clearly communicate, the entire product line of the Company, in both Life Sciences and in High Tech, and the Revitas business, executed very well in the quarter.

That's good to hear, especially on the High Tech side, I know at the end market, that with the M&A, the results weren't where you wanted them a couple of quarters. Any color on what has changed this quarter to drive some of these deals and up-sells that you've signed?

Yes. I think the Company had a much better focus, their execution on the market, kind-of from across the board. We have an extremely strong product line in the High Tech space. We see a lot of convergence right now, between the front-office and the back-office, and Revenue Management is paramount to which, they say, come from this inflection point.

And when you look what we did with this particular deal that we announced, and others, and you look at the product suite, it's right there where the High Tech company needs. And on one hand, ability to integrate to Salesforce and to the CRM, and then, ability to execute the quoting and the rebate management. And I think that the Company executed well, because the Company was focused on execution, and on customers, which made a big difference for the results.

Got it. Understood. Thanks, Zack.

And maybe one more from me. This is a high-level question, but, if we were to look at maybe your top 10 or 15 potential customers in the Life Sciences business, and if we were to think about where your revenue penetration is today versus maybe where it could be. What penetration rate would we be at now? And maybe, what are the few swing factors that could get you all the way up to the top? Thank you

Sure. Basically, when you look at the top 10 pharmaceutical companies, we have a relationship with all of them, but at the same times, we believe that there is a huge opportunity to expand our relationship there. Let's start with the basic fact that we were successful in moving these customers to the cloud, but still, there is a large portion of them that can move to the cloud.

In addition, when you look at the penetration there, they have some of the application but not all of the applications. Some of them are doing the commercial, some of them are doing the regulatory, and some of them are doing the analytical parts of our application suite. So there is a way to complete it by providing an end-to-end solution there.

Then you go further ahead. Then you look at the international component of that cuff of the business, and, yes, we were successful in also penetrating some of them, but there is a large opportunity to grow and to include the execution system to overlay the tender management, and a variety of the others.

So, I personally believe, that there is a huge runway still for remodeling in the current market. And now that we are a combined Company, we can start working with them in a much more strategic way to start moving their end-to-end solution to the cloud, and to overlay these other applications.

Great. Thanks, Zack. Thanks, Mark.

Thanks Brian.

(Operator Instructions)

Chad Bennett, Craig-Hallum.

Great. Thanks for taking my questions. Mark, can you give us a real-time look at the balance sheet, since the December quarter-end balance sheet doesn't really matter at this point? Can you give us an idea were cash and debt is today?

You know where the debt position is, at the $60 million that we disclosed at that the acquisition. And our cash position is relatively what we reported at the end of the quarter. I think there's always going to be swings within a quarter, Chad, as you know. As I mentioned earlier, and I mentioned in the call, Q1 for us, is a very strong renewal quarter.

Zack also spoke about the strong execution by both Revitas and Model N in the quarter. So, as I mentioned in my note, we do expect Q2 to be a very strong collections quarter.

Okay, then the ARR range that you gave, $46 million to $48 million exiting this year, is that a SaaS ARR metric?

Yes that is a SaaS AR metric. That is correct. That is consistent with the information we shared last year. Remember, we ended at $35.2 million at September 30, so that's an extension of that through September 30, 2017.

And that's just pure SaaS subscription revenue?

Yes.

Okay. How long will it take to -- I don't know if convince is the right word -- but to shift Revitas customers to adopt your combined SaaS or cloud-based solutions? Is it going to take this fiscal year to get the sales cycle going and get people to move that direction? Or can it happen sooner than that?

It's going to take time, and it's going to take time in two stages. I think the first stage is, for new customers right now we're only going to sell them a subscription.

And so, the companies that are currently on the on-prem solution, it's going to take aid to enable the product and the solution, the same way that we did it for Model N, and move the companies in this direction. This is not something that you flip the switch, and companies are now moving there.

At the same time, you can look at the Model N history where we converted 81% of our revenues to recurring revenues. And I feel that we can do it actually faster with the Revitas customers, because we have the methodology, we have the IP, we have the know-how to do it, and actually we are already in the midst of the execution there. So I feel that we're going to start to do it in the fiscal year, but it's going to take faster shape in the next fiscal year after that.

And Chad, to add on to Zack's comment, and as we mentioned in the past, Revitas traditionally had a perpetual license model. They were moving towards a subscription model, so they had aided in that direction with their current customers. As we have talked to customers in the pipeline for Q2, and in the transactions that occurred in our Q1, their customers are very willing to adopt to that methodology. So, as Zack indicated the other portion of that is, converting the existing customers to the cloud overall.

Okay, and one last one for me, probably for Mark. Mark, on the revenue range that you gave for this fiscal year, the revenue segments -- should they change much? 80/20 from what they have been, or were last quarter? Or will there be much change there?

Yes. I would expect to be in the 80/20 range in the beginning of the year for us, Q2 to Q3. And, as we move ahead, I would expect that to increase on our SaaS and Maintenance line.

So obviously, Revitas had some transactions that they had booked previous to the acquisition. We're executing on the delivery of the implementations for those customers, but we do have the opportunity to go in and move those customers to the cloud. Probably not going to happen in the next couple of quarters, but the long-term outcome is -- our expectations are that we will increase our SaaS and Maintenance line long-term.

Great. Sounds good. Thanks.

Patrick Walravens, JMP Securities.

Great. Thank you. And congratulations on getting all that done in the quarter.

I have one for Zack, and then maybe two for Mark. Zack, you mentioned in the script early on, eliminating some redundant products. I was wondering if you could give a little more color on what that means.

Revitas had a product that was called ContractWIZE. It was a contract lifecycle management solution, that was sold, actually, to outside the Life Sciences business. They actually had two customers that purchased this product.

We have our own product, in contract lifecycle management, that build-on at salesforce.com. And, it is widely used, including in the Life Sciences industry by companies like AstraZeneca, and Phillips, and others.

While this was an early stage product, Revitas does spend quite a significant amount of resources on that engineering organization, in particular, in the US. And we did not take this product forward.

Great. Okay, that's helpful.

And then, Mark two questions if maybe you can break apart your estimates a little bit, or just give us some sense -- like on the cost synergies the $11 million to $13 million. Are there some chunks that we can think about that, that falls into?

Yes. It really falls into two main buckets, Pat. One is around the people, and two is around what I will call, everything else. So the people part of that represents the majority of this cost savings.

Those adjustments to the headcount have been made. We talked about January 5, we announced to the individuals, and we made the move very quickly, and adjusted the organization accordingly. So, those synergies have already been realized.

The remaining synergies, which are minor as compared to the headcount, have to do with consolidations. For example in facilities. We had a facility in Philadelphia, for example, that closed on January 31. We have a facility -- a duplicate facility in Newark, out here, that we're going to sublease.

And then, there are some overlap in marketing program spend, et cetera. But a majority of the synergies related to headcount have already been realized, and there is just minor synergies we will gain as we move through Q2 into Q3.

Okay, great. And then, a similar question because I am anticipating the big question I am going to get tomorrow is going to be, the difference between -- you guys clearly feel good about how you executed in the quarter, and yet the billings number. So, it's just between my estimate, and then what I calculate, there's like an $8 million -- $7 million or $8 million difference.

What would be the chunks for that? What made up the shortfall in billings?

I think there was an earlier question that was asked by Jackson around this topic. There were two items. One of them was, we did have a pair of contracts that customers signed in Q1, where effectively they required, or requested, us to invoice them the first week of January. It only impacted AR and deferred revenue. Did not impact, obviously, revenue for us.

And then, there was some of the renewals that we had a we do not receive the purchase order for the customer until after we had closed the month of December. And therefore, they fell into AR deferred revenue in second quarter. But as I indicated earlier, we're actually going to collect that cash on a timely basis as well.

So, it's purely a timing difference. Your estimate is very close to ballpark, as far as the impact of that, but it's purely a timing difference for us. And that's why, as I mentioned earlier, we expect to have a very strong collections quarter in Q2.

Great. And was it like 50/50, just ballpark between the renewals --?

It was about 40/60, new contracts versus renewals.

Okay, perfect. Great. Thank you, very much.

Thank you.

Thank you. We have no further questions at this time. I would like to turn the conference back over to management, for closing remarks.

Thank you, very much for joining the call today. We appreciate it.

We are very excited about Q1, and we believe that the Company executed very well. And we were also very excited about the Revitas acquisition, and how we got started. And, we look forward to seeing you at the Analyst Day, next Monday, in New York City. Thank you for joining.

Thank you ladies and gentlemen. This does conclude today's teleconference. You may disconnect your lines at this time. Thank you for your participation.