Model N Inc (MODN) 2018 Q3 法說會逐字稿

Greetings, and welcome to the Model N Third Quarter Fiscal 2018 Financial Results Conference Call. (Operator Instructions) As a reminder, this conference is being recorded.

It is now my pleasure to introduce your host, Staci Mortenson, Investor Relations for Model N. Thank you. You may begin.

Good afternoon. Welcome to the earnings call for Model N's third quarter fiscal year 2018, which ended on June 30, 2018. With me today are Jason Blessing, Chief Financial Officer; and David Barter, Model N's Chief Financial Officer.

Our press release was issued after 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 regarding our third quarter fiscal year 2018 performance and our financial outlook for our fourth quarter and full year fiscal 2018.

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 in documents filed with the Securities and Exchange Commission, including our annual report on Form 10-K. Should any of these risks or uncertainties materialize or should any -- or should our assumptions prove to be incorrect, actual company results could differ materially from these forward-looking statements.

In addition, in today's call, we will discuss non-GAAP financial measures. These non-GAAP financial measures should be considered in addition to, not as a substitute for or an isolation from GAAP results. Reconciliation of the non-GAAP metrics to the nearest GAAP metric are included in the earnings release issued today, which is available on our website. I encourage you to visit our Investor Relations website at investor.modeln.com to access our third quarter fiscal year 2018 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 our third quarter fiscal year 2017.

With that, let me turn the call over to Jason.

Good afternoon, and thank you for joining us today. I'm very pleased to be speaking to you on my first earnings call as the CEO of Model N.

Over the last 90 days, I've split my time meeting with customers, employees, investors and analysts. I'd like to thank everyone for the warm welcome and share a few observations. First, we have very strong relationships with our portfolio blue chip customers in Life Sciences and High Tech. Each has made a significant commitment to us, and in return, we continue to deliver innovative products and top-notch professional services and support.

Our ability to serve our customers with industry-leading cloud services over the coming years also makes for a very exciting future. Second, it's clear to me that the cloud-based software we provide to our customers is absolutely mission-critical. We deliver a powerful set of cloud services that enable our customers to grow both revenue and profit, drive business efficiencies and remain compliant with the ever-changing regulatory environment. Our focus on innovation and serving customers through our SaaS business model will enable us to capture more of our TAM, while increasing the value we deliver to our customers. Moving our customers to the cloud and selling them our new products and services, represents a compelling opportunity for both of us.

The future is very bright for Model N, as we complete the transition to a single business model and serve our customers through the cloud.

Third, I would like to thank everyone at Model N for the tremendous welcome. I've been incredibly impressed by our team and the deep domain expertise they have in our core markets. I would also like to thank Zack Rinat, our Founder, for the incredible support he has shown for me, our customers and Model N during the transition.

Our third quarter results naturally build upon our performance in the first half of the year and demonstrate healthy progress towards our annual goals. Third quarter revenue grew 16% and adjusted EBITDA increased to $3.1 million, which represents an 8% margin. These results are above the top end of our guidance ranges and reflect our continued focus on execution and evolution to the SaaS business model.

One of the reasons I joined Model N is the opportunity to leverage my experience over the last decade of working in successful cloud companies, including 5 years at another vertical SaaS company to drive our evolution. My view of this market due in part to its heavy regulations and risk aversion has been more cautious about moving critical business applications to the cloud. However, I see this market following the same pattern we've now seen in every other enterprise software market, and will hit a tipping point, where cloud is not only accepted, it's expected. Model N is the only vendor positioned to capitalize on this inevitability in revenue management.

We continue to have a healthy dialogue with our customers around their cloud transition, and I expect momentum around our cloud products to continue to build over the next 12 to 24 months. The collaboration with our early adopter customers continues, and we're encouraged by the work we are doing together.

As we've mentioned before, the cloud transition is a multi-year effort for us and for our customers as they adapt and redefine how they operate. We will continue to be flexible and work with our customers on their timing as we move them to our cloud offerings.

We believe trust is important to maintaining strong customer satisfaction and renewals, which are cornerstones of the SaaS business model.

During the quarter, the strong customer focus did yield results as we had strong upsell deals, including several new sandbox pods. Over the course of the year, we've signed and implemented nearly 12 pods. Sandbox pods are nonproduction systems that give customers access to the latest version of Revenue Cloud. This model allows customers to get more comfortable, moving mission-critical systems to the cloud. The pods also allow us to work with our customers on their cloud road map and help pave the way for future, large-scale cloud deployments. As an added benefit, they also generate incremental ARR for Model N.

As previously discussed, given the health of our business, we are also providing customers with incentives to accelerate cloud adoption. One mechanism is ramping deal structures, where we increase ARR over a multi-year contract as customers drive more value from the system and their investment. Deal ramping is a common construct that enterprise SaaS companies use to entice customers to move to the cloud, and we expect to continue to use this lever in future transactions.

During Q3, we utilized a ramp deal structure in a new logo deal with Nevro Corporation. Nevro is a mid-market medical device company with over $300 million of revenue, who purchased our Provider Management and Provider Intelligence Products. In 2015, Nevro had less than $100 million of total revenues. As companies rapidly scale, they need access to modern enterprise class software to help manage the complexities of their growth and end markets. I highlight Nevro because it's a great example of where our cloud delivery model and the associated economic levers enable us to profitability serve in emerging enterprise.

With the shift to SaaS, Model N will continue to serve the largest companies as we always have. But cloud delivery enables us to also profitably serve a broader portion of the market. While the SaaS business model represents an exciting and bright chapter for us, customer success is also a key focus and core tenet of driving strong recurring revenue renewals.

Q3 was a very significant quarter for us as several marquee customers had successful go-lives and started realizing the benefits of our software. Some of the highlights include go-lives at Eli Lilly, Fresenius, BioMarin, Pfizer, Diodes, CSL Behring, Johnson & Johnson and Micron. I would like to share a few details so that you have a better sense for the positive impact our software has for our customers.

Diodes is a leading global semiconductor manufacturer serving the consumer electronics, communications, industrial and automotive markets. Diodes runs all of its global pricing, quoting, contracting, and channel management functions on our Revenue Cloud. Model N software has supported Diodes' business as they have scaled from $400 million to over $1 billion in revenue. Diodes recently leveraged the latest version of our platform to drive a global rollout of the shift in debit process across all of its global channels, helping the company increase revenue through consistent price execution and better visibility into end market pricing. Diodes also added our Channel Data Management solution to collect, correct and cleanse the data of tens of thousands of end customers served by over 90 sales channels. Our products are helping Diodes gain better visibility into channel sales and market share so they can better align their sales and marketing investments.

This deployment also enabled Diodes to integrate a recently acquired company and establish a unified platform for commercial operations. This is another great example of where the cloud delivery model and our products enable our customers' business strategy of growing through acquisition.

ICU Medical develops, manufactures and sells technology used in vascular therapy, oncology and critical care applications. ICU Medical recently acquired the Hospira Infusion division from Pfizer and the combined company is modernizing the revenue management systems on the Model N Revenue Cloud. During the quarter, ICU Medical's Canadian business went live on our platform with contracting, pricing and reporting. The Canadian business is also ramping up to include rebates and charge-back processing and payments, Contract Lifecycle Management and accruals. In addition to strong sales and customer success, we continue to innovate on our product portfolio as evidenced by our summer release. For customers large and small, we believe our 3x a year release cadence is the best way to introduce innovation to our platform and stay current on regulatory requirements.

As a reminder, at our Investor Day earlier this year, we indicated that our product team is focused on 3 core themes, which are cloud optimization and user experience, business intelligence and industry network solutions. With the summer release, business users now have access to real-time analytics and recommendations during the quoting process. This new capability enables optimal pricing decisions for both direct sales as well as indirect channel sales. Additionally, enterprise sales teams can now manage complex pricing schemes and rebate programs during the contract life cycle process. This allows our customers to optimize net pricing at the time of sale and then improve contract compliance in overall contract economics over the life cycle.

In response to the ever-changing international regulatory environment, business users now have access to multiple reference pricing baskets and configurable rules, which enables improved pricing, compliance and launch sequencing. We also continued to focus on optimizing our cloud infrastructure, which is what gives us confidence that we are on the path to driving better product gross margins over the next several quarters. These are just a few examples from our summer release.

I'm very excited about our product road map as we continue to channel all of our new innovation into our cloud products.

In conclusion, we are making great progress as a company on our commitment to delivering profitable growth, while helping our customers with their digital reinvention strategies. It has been an exciting 90 days, as my discussions with customers and employees reinforce my belief that Model N has a great opportunity ahead of it.

With that, I will turn the call over to David. David?

Thank you, Jason. This was another strong quarter for Model N. There were a number of highlights, including SaaS and maintenance revenues, adjusted EBITDA and free cash flow.

In the third quarter, SaaS and maintenance revenues were $35.6 million, and included in this, is approximately $24.9 million of recurring revenue and $10.7 million of professional services related to the implementation of SaaS subscriptions. Recurring revenue increased sequentially at a healthy rate. Professional services increased in line with our customer go-live activity and was a bit higher than forecasted. License and implementation revenues were $4 million, a $2.2 million decline from our Q2 results. This was slightly lower than our expectation and reflects our drive towards 100% SaaS. We continue to expect a meaningful sequential decline in Q4 as we focus on SaaS and bringing down the on-premise implementation backlog.

Total revenues for the third quarter were $39.6 million, a 16% increase from $34.2 million in total revenues in the year-ago period, and above our guidance range of $39 million to $39.5 million.

Before I move on, I want to remind you that my commentary will be focused on non-GAAP results, which excludes the impact of purchase accounting and the amortization of the intangible assets. It also excludes the impact of stock-based compensation, which was higher than usual in the third quarter due to onetime expense associated with the resignation of our CEO and the related transition agreement. A reconciliation of non-GAAP to GAAP results is provided with our earnings press release issued earlier today.

Non-GAAP gross profit for the third quarter was $24.3 million compared to $21.4 million in the third quarter of fiscal year '17. Overall, non-GAAP gross margin in the third quarter was 62% compared to 60% in Q3.

During the quarter, the business made healthy progress in our cloud optimization initiative. This will enable the business to deliver the recurring revenue gross margins in fiscal '19 that we outlined on Analyst Day.

Non-GAAP operating expense was $21.9 million in Q3 compared to $23.9 million in Q3 of last year and $20.9 million in the prior quarter. Non-GAAP operating profit for the period was $2.5 million compared to a loss of $2.4 million in Q3 of last year. This is ahead of our non-GAAP operating profit guidance of $1.2 million to $1.7 million. Non-GAAP net loss in the third quarter was $2 million compared to a net loss of $4.1 million in the third quarter of last year.

It's important to remember that the $3.1 million of cash and noncash refinancing expenses we announced in May are reflected in the non-GAAP net loss. We produced a non-GAAP net loss per share of $0.07 based on 30.7 million shares, compared to a net loss per share of $0.14 based on 28.9 million shares in the third quarter of last year. This was ahead of our guidance of non-GAAP net loss per share of $0.09 to $0.11 per share.

Adjusted EBITDA for the third quarter was positive $3.1 million, a meaningful improvement compared to a negative $1.5 million in the year-ago period and well ahead of our guidance range of $2 million to $2.5 million.

At the end of the third quarter, total deferred revenue was $55.8 million, which was in line with our expectations. We ended the third quarter with $57.6 million of cash and cash equivalents, up from $51.8 million at the end of the third quarter. Free cash flow from operations was over $4 million. This compares to cash flow used in operations of negative $2.7 million in the third quarter of last year.

Before I provide guidance for Q4 and fiscal year 2018, I'd like to build on what I shared on our last call and provide some updated perspective on the principles guiding the financial management of the business. We remain focused on several key initiatives. One, transitioning the business to 100% SaaS. For fiscal year 2018, we still expect SaaS and maintenance revenues to be between 86% and 88% of total revenues. And more importantly, it will be well above 90% in Q4. This reflects our focus on building the SaaS business. The backlog for fiscal year 2019 is down to approximately $1.5 million, which is ahead of our Analyst Day forecast. The backlog will be burned off the first 2 quarters of fiscal year '19. Two, we feel extremely confident in meeting our commitment to be profitable in each quarter. The entire company is focused on growing the business, while delivering meaningful levels of profit. Adjusted EBITDA was strong again in Q3 and were driving the business to deliver healthy profit in Q4, while optimizing the business for the FY '19 margins that we outlined at Analyst Day. Three, building the business to generate sustainable levels of cash flow. We expect to be free cash flow positive in Q4. And as a result, we also expect to be free cash flow positive for the full fiscal year, which is a year ahead of schedule.

As previously discussed, we paid down $5 million of debt at the beginning of July in line with the terms of the [seller note]. We also paid down a small portion of the debt associated with the new term loan from Wells Fargo we announced in May. With the improved outlook for the company, we are also planning to reduce our debt by another $5 million in the first half of fiscal '19.

Moving on, let me now outline our guidance for the fourth quarter of fiscal year '18 as well as for the full year. For our fourth quarter ending September 30, 2018, we expect total GAAP revenues to range from $35.2 million to $35.7 million. This reflects the step down in license and implementation revenue that I've been highlighting for the last few quarters. It also reflects a return to a more normal mix of professional services for SaaS implementations.

Professional services as a percentage of revenue, was higher than normal in Q3 as we worked towards some key project milestones and customer go-lives. The guidance also reflects recurring revenue growth in line with our typical range. Non-GAAP income from operations is expected to be in the range of $0.5 million to $1.0 million. This would lead to a non-GAAP net loss per share in the range of $0.03 to $0.01 based on a weighted average share count of 31.5 million shares.

Adjusted EBITDA is expected to be in the range of $1.2 million to $1.7 million. As mentioned on our last earnings call, our Q4 adjusted EBITDA exit rate will not be reflective of the underlying adjusted EBITDA run rate of the business. We believe our business is set up very well from improved levels of profitability and cash flow in fiscal year '19 in line with what we discussed at Analyst Day.

For the full fiscal year 2018, we are raising the midpoint of our guidance. We now expect total GAAP revenues to range from $153.1 million to $153.6 million. As we transition the business to SaaS, we expect license and implementation revenues to be approximately $1.5 million in Q4 as we burn through the backlog. We now expect non-GAAP income from operations in the range of $7.2 million to $7.7 million and non-GAAP loss per share in the range of $0.05 to $0.03, based on a weighted average share count of 30.4 million shares.

We are also raising our guidance for adjusted EBITDA. It is now expected to be in the range of $10.2 million to $10.7 million.

Before I turn the call over for questions, I'd like to provide a brief update on 606. As mentioned in our SEC filings and at Analyst Day, we will be adopting the new revenue standard through the modified retrospective approach. This means that we will be booking a cumulative catch-up on October 1. For full year fiscal 2019, I'm still expecting the cumulative catch-up for the recurring revenue to be in the range of $3 million to $4 million, which is in line with what I presented at Analyst Day. We will finish our work in Q4 and present it to our auditors for review so that we are ready for the new fiscal year. When we report Q4 results, I will provide detailed guidance for Q1 and the full year fiscal 2019, which will include the final commutative catch-up figures, so that it's easy for you to update your financial models.

With that, let me turn the call over to the operator for questions.

(Operator Instructions) Our first question is coming from the line of Steve Wardell with Chardan.

This is for the CEO. You mentioned meeting with customers. Can you just give us a sense of what are the biggest issues that you found going on in their lives? And how does that translate into your products and your feature and functionality?

Yes, Steve. So this is Jason Blessing. I appreciate the question. Great to meet you. I would say speaking to our customers, there's a few things that are going on in their lives right now. One, and especially considering that we have such a big footprint in Life Sciences, that's a very dynamic market right now, dynamic market that's going through significant regulatory pressures, significant amount of M&A and a significant amount of global competition. And so for that market and generally for the markets that are seeing those type of pressures, our products in helping them manage their pricing, manage how they go-to-market, manage how they sell through complex channels, really help them deal with some things that are very top of mind. I would also say specifically, we continue to see a lot of M&A across all of the segments and particularly as we've ported our products to cloud, that can be a strategic enabler of acquisition strategies for our customers. So yes, it's a very dynamic environment right now that we sell into and the regulations, the growth, the competition and M&A are all key drivers.

The next question is coming from the line of Brian Peterson with Raymond James.

So first off, you guys mentioned some incentives that you were going to be implementing to get some customers over to the cloud. Just could you expand on that a little bit?

Yes. Brian, thanks for the question. I'll take that initially. So there's really a couple of things that we're doing to get customers to move. The first is something that we refer to as ramps. And ramps are essentially where we ramp the revenue over the lifetime of a contract to better match up with the deployment that a customer is going through and the value that they're getting for the system -- from the system. This also helps with a fairly common objection that we get of customers not wanting to have to pay for 2 systems, their old legacy on-premise system and the cloud system during the deployment. So ramps are certainly a big part of it. The other, I would say, are the sandbox pods that I alluded to in the prepared remarks. The reality of the market that we sell into, it's very large, but it's also heavily regulated and many of our customers are just very thoughtful about how they manage change in their environment, particularly around compliance-based systems. And so, sandbox pods, kind of a prototype environment are a great way to get customers on to the on ramp and moving to the cloud. So those are really the 2 biggest ones.

Got it. Okay. That makes a ton of sense. And maybe just a high level one, maybe for David in this case. But you guys broke out at the Analyst Day, I think it was 23% is your penetration rate into the top 25 Life Sciences customers. As we think about that incremental opportunity, that 70% plus, can you help us understand how much of that would be the on-premise transition versus incremental, in upsell or cross-sell of the portfolio?

Yes. Absolutely. Thank you, Brian. So when we think about it, I think, Brian, maybe there's several vectors and maybe I can build on your question. Obviously, there is a product dimension. There's kind of a business unit and a geography dimension as well. And then there's absolutely the transition. And so the transition plays into certainly part of it, but I think we still have very good opportunity. And so there's a very substantial piece of that opportunity that really is along the lines of selling in all of the products. And then quite frankly, kind of filling or painting in all of the different business units across the geography. And so I think of those, really it may be the primary growth levers, if you will, around building the business. And certainly the transition as we've tried to share is a great economic opportunity. But as we think about playing off and growing the business, it's really just one of the legs of -- or one of the vectors that we have available to us.

Our next question is coming from the line of Chad Bennett with Craig-Hallum.

So I jumped in at the tail end of Jason's prepared remarks. So pardon me if I'm being redundant. But -- so I guess, a couple of things. Any type of mention of conversion activity in the quarter and kind of where we are there and the progress we've made from that standpoint? And then, any type of update on where we are tracking relative to our SaaS ARR target exiting this quarter that we gave at the start of the year?

And Chad, by conversion progress, are you referring to on-premise to cloud transitions, OPT transitions?

Right. Yes.

Yes. So great. Okay. Good question. I'll take that one. So I've spent a significant amount of my time in the first 90 days out on the road talking to customers. And I will say this in every single one of these conversations, the on-premise to cloud transition comes up. And I would say that all of our customers absolutely view this as an inevitability, not something that may or may not happen. And I consistently hear from customers are excited about a few things: First of all, the improved economics of moving to the cloud as well as the new innovation and our road map of moving to the cloud. That said, as you know, a large part of our installed base is in Life Sciences. And we're working with our customers on a very thoughtful transition that addresses their concern around change in their environments, particularly around systems that are compliance oriented. And so as we've guided in the past, I think this continues to be a multi-year effort that starts with discussions, thoughtful planning, mutually beneficial economics, and ultimately, some type of prototyping and pilot work to get the customer comfortable that we're both ready for the transition. One of the things I believe we did mention in the remarks, it's probably before you join Chad, we've got about 12 sandbox pods as we refer to these prototype environments in place today with customers. So that's a great marker by the way for future projects. I would also say that we are encouraged by our pipeline trend, which is up significantly year-over-year, Q4 to Q4 comparison of last year. And in large part, this is due to our customers' interest in moving to our cloud solutions.

Great. SaaS?

And then -- yes. Exactly. And Chad, I think it's a great question on the SaaS ARR. I think one of the things, Chad, as you've been tracking the company closely, we've been really quite frankly working hard, and I think we communicated this in March. We've started with ramps, and we started with sandbox pods and quite frankly, layered in some of the other tools like future effective dates to get customers and make it easy to say, yes. And so I think we've made healthy progress to the $60 million. Arguably, Chad, something that's been on my mind is obviously making good progress to being able to grow consistently within those book-ins that we shared in March of 12% to 15%. And so I think we've made good progress to the $60 million. I'd say it's less clear whether we'll hit at the end of this year or in the first half of next year, but what I think what we're seeing in the business is actually really healthy progress. And as I look at our pipeline and our opportunities and how we're engaging with customers, I think we're in a good spot to -- with the deal structure as we're putting into place to grow both the installed base, but also kind of feed the growth from the top end. So I feel like we're making good progress.

The next question is coming from the line of Jackson Ader with JPMorgan.

Jason, if we can start with you. Now that you've been in the 3, 4, 90 days or so, and especially in the light of the pipeline growth that you just mentioned in response to Chad's question, how do you feel like -- as you look at the current staffing within the business, how do you feel like the level of the headcount looks like? How comfortable are you with it? And then specifically, maybe sales reps, how do you think that's going to trend as you move forward?

Yes. Thanks, Jackson, for the question. So let me give you some high-level context and then get into the specific question. As I said, when I joined the company and participated on the call 90 days ago, I said I was very committed to the profitable growth that the company has charted and continues along. We also talk about the size of our TAM. I think the TAM that we sell into is very high and it's very large and very attractive. But as I've mentioned, it's also highly regulated. So as a result, customers thoughtfully manage the risk and the rate of change in their system infrastructure. That said, after being here now for 90 days, I am comfortable with the guidance that we've given historically in Analyst Day of growing top line 12% to 15% over the long run and continuing to make progress on profitability. And just to put that number into perspective, you may ask, is that good or bad? That number implies that we're growing approximately twice the Life Sciences software market. So I do think it's a good growth rate in a highly regulated market and implies that we're taking market share in our core market. If we do see the opportunity to pick up the growth rate and invest more, we're always looking at that, but are still committed to maintaining a nice trajectory around profitability and growth. Now with respect to your specific question, I think our business is adequately resourced right now. I think we've got a good team. We've got the right-sized team. And right now, it's just about focusing on organic execution and focusing on concluding our evolution to the SaaS business model.

Okay. Great. Thank you. And one quick one for you, David. You mentioned the $3 million to $4 million impact on headwind on revenue from 606. You also mentioned at the Analyst Day you'll probably get a little bit of a bump from amortizing sales commissions of about $1 million. I just want to double check if that is still what we should be expecting for 2019.

Yes. The commission is probably the last piece and so I'll provide that update. We're just finishing up that review with PwC, and that's why I didn't provide that update. I have no reason to believe it's [spreading] a lot from that, but since I haven't completed the final procedures with PwC, that was the reason for leaving it out of the prepared remarks. Yes. We're just-- like I said, we're kind of completing all of the audit work right now.

(Operator Instructions) Our next question is coming from the line of Gene Mannheimer with Dougherty & Company.

Jason, welcome aboard as well. What is the metric on the number of cloud subscriptions per customer right now? Or is that a number you only give annually? And then, my follow-up would be on -- the on-premise backlog, I think I heard you say it'll go to 0 in Q1 of next year. So then is it fair to say there will be no longer any perpetual license revenue beginning in Q2?

Absolutely. Yes. Gene, we are averaging about 2 subscriptions, just under per customer and so that's an annual stat that we provide. And I think we had a put trend in the Analyst Day presentation. And so we'll continue to refresh that as we continue to execute the land-and-expand motion. In regards to the backlog, I do think it'll actually burn into Q2. And so by Q2 of fiscal year '19, I think the on-premise backlog will be fully expired at that point.

Gene, one thing I would add on top of what David said, 2 subscriptions per customer, and we've got over 80 customers now running our apps in the cloud. So again, we're seeing nice usage and scale in the infrastructure.

Our final question is coming from the line of Ryan MacDonald with Needham & Company.

First, starting with you, Jason. You talked earlier about -- in the Q&A about that you think that the organization is adequately resourced right now in terms of size of the team. But can you talk about perhaps in terms of strategy, given your experience selling a SaaS solution and particularly in the manufacturing industry, if there is any sort of tweaks that you'd be making or shifts in strategic focus to address the opportunity in this new market for Model N?

Yes. Thanks for the question, Ryan. That's a good one. So yes. So I'm 90 days in now and I've spent probably 2/3 of my time out in the field meeting with customers and investors. And really ramping up on the business very quickly. There's 2 things that stand out to me: One, and we talked about some of this at Analyst Day, I think there is a significant near-term catalyst with getting our core Life Sciences market move to our cloud solutions and also selling our core Life Sciences market, more of the products that we built like global pricing, global tenders, some of our analytics offering. So I actually think there is still a lot of juice to squeeze in our core market around Life Sciences. And then yes, as you point out -- so I actually have a lot of experience in manufacturing, having just spent the last 5 years selling into this market. And I'll offer you a couple of thoughts there. First of all, I don't think of manufacturing as a vertical. I actually think of it as a global economy that is made up of many different sub-verticals, sub-verticals that have their unique requirements. Some of them have their own unique regulatory requirements as well. So it's a complex market. But that said, we do have a nice growing portfolio of customers in this emerging area for us. I think in the past, we've talked about Toro as a lighthouse customer that we're working very closely with in this area and they're also a very happy customer. So it's still early days for us. And I do think we need to be thoughtful about how -- what type of prospects we pursue in this market. I think customers that have complex products, complex channels that they sell to and corresponding rebates that they pay are a good fit for us, given our heritage in Life Sciences. But I do think we have to be very thoughtful and choose selectively where we play in the manufacturing space. I think if we do that well, that can be a very nice complement to a growing Life Sciences business.

Got it. And then a quick clarification on the sandbox pod. You mentioned, you have about 12 in place with customers today. Is this a relatively new strategy where all 12 of these pods were put into place or implemented in the third quarter here? Or is this something similar that you started out with on the 2 Life Sciences customers that already did sort of go through the OPT with you guys?

This was actually a kind of post-OPT, and I think it was probably kind of roughly around Analyst Day, when we first started experimenting and having some appetite from customers. And so I think it kind of falls into those -- that category of second half, things that we've started to do to make it easier to say yes, and begin that journey to the cloud. And so it is something that's really been burning -- kind of building in -- kind of working its way into our go-to-market since kind of late winter to early spring.

Thank you. We have reached the end of our question-and-answer session. So I'd like to pass the floor back over to Mr. Blessing for any additional concluding comments.

Thank you, operator. We have no additional remarks at this time, and thank you for everyone -- to everyone for joining the call. Have a great night.

Ladies and gentlemen, this does conclude today's teleconference. You may disconnect your lines at this time, and we thank you for your participation.