Model N Inc (MODN) 2020 Q3 法說會逐字稿

Greetings, and welcome to the Model N Third Quarter 2020 Earnings Conference Call. (Operator Instructions) As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Mr. David Barter, Chief Financial Officer for Model N. Thank you, sir. You may begin.

Good afternoon, and welcome to the earnings call for Model N's third quarter of fiscal year 2020, which ended on June 30, 2020. This is David Barter, Model N's Chief Financial Officer. And with me on the call today is Jason Blessing, Model N's Chief Executive Officer. Our earnings press release was issued after close of market and is posted on our website, where this call is being webcast. The primary purpose of today's call is to provide you information regarding our third quarter performance, and our financial outlook for our fourth quarter and full year fiscal 2020. Commentary made on this call may include forward-looking statements. These forward-looking statements are based on management's current views and expectations as of today and should not be relied upon as representing our views as of any subsequent date. We disclaim any obligation to update any forward-looking statements or outlook. Actual results may differ materially. Please refer to the risk factors in our most recent Form 10-Q filed with the SEC. 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 a substitute for or in isolation from GAAP results. Reconciliations 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 2020 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 in fiscal year 2019. With that, let me turn the call over to Jason.

Thanks, David. Good afternoon, and thank you for joining us today. I sincerely hope you are all healthy and safe during these extraordinary times that we are living in. The Model N family is engaged and focused on growing our company and serving our customers. We've now been working remotely for almost 5 months, but continue to provide uninterrupted support to our customers, many of which are on the frontlines fighting the coronavirus pandemic.

We are dedicated to doing our part to help them during these challenging times. Today, I will provide you with color on Q3, give you an update on the demand environment and conclude with my perspective on our future. Our results for the third quarter exceeded the financial outlook we shared on our last quarterly update call and show that Model N is executing well in an uncertain environment. Much of this quarter's success stems from the mission-critical role our products play and the tangible ROI they provide for our customers.

I am also very proud of our delivery teams that continue to execute at very high levels despite working remotely. I am pleased to report that our customers remain committed to their Model N projects and they continue to engage with us on planning for the future and how they can leverage more of our products and services. Our results demonstrate Model N's resiliency despite the current environment. Total revenue for the quarter was $41.3 million, an increase of 19% over last year, and subscription revenue was $29.3 million, a 10% increase over last year. And strong professional services revenue highlights the impressive number of go-lives in the quarter and the importance of our products to our customers. We are also benefiting from the go-to-market strategy that we launched 2 years ago, enabling one team to focus on serving our customer base and another team to focus solely on new logos. And of course, we are benefiting from our focus on 2 resilient vertical markets, Life Sciences and High Tech.

I am very pleased to announce that our Life Sciences team added 2 new logos in the quarter, including a top 15 MedTech company. The company is a well-known brand that provides medical devices and therapies to patients around the world. The customer needed a partner who could provide an enterprise-class platform for global tenders and could also expand with the company as it moves forward on a multiyear project to modernize its global commercial processes. After evaluating their options, the company moves forward with Model N because we demonstrated that we could provide a best-in-class solution that would meet their needs today and into the future. They will start by deploying Model N's global tender management in 14 countries where nearly 500 users will leverage the system to process billions of dollars in tender agreements annually. We are excited about this first phase of our relationship, and we are working to expand our footprint with them over the next few quarters. This deal is a terrific example of how our new logo team is executing land and expand sales plays. This deal gives us a win today and also sets up the opportunity for future growth as we expand our relationship with the addition of new products and geographies.

Also in the quarter, an emerging biopharmaceutical company selected Model N to power its growing market access team. The company is focused on developing and commercializing therapeutic medicines for patients suffering from rare diseases. This new customer will use our revenue cloud to ensure their products are effectively brought to market to treat patients and improve their quality of life. To compete in the global marketplace, this company needed a partner who offered a platform that could support them at a dynamic commercial and regulatory landscape. They concluded that Model N was the only company that can support them now and as they grow in the future. I am encouraged by both of these new logos because they demonstrate that our sales teams can still initiate new relationships through remote selling. These deals are also important because they show that our value proposition and cloud solutions allow us to scale from a mid-enterprise pharmaceutical company, all the way up to one of the largest med tech companies in the world.

Another highlight of the quarter was the successful go-live of a major project at Pfizer as they continue their efforts to get current on Model N and eventually move to our cloud offering. This project was delivered remotely and is similar in scope and magnitude to the Novartis go-live that I mentioned last quarter. These on time, on budget projects are a testament to the quality of our team and our professional services methodology. The Pfizer and Novartis projects also highlight the steps being taken by top 10 pharmaceutical companies to move revenue management to the cloud.

Our delivery team also successfully completed several other projects during the quarter, including another successful SaaS transition at a top 25 global pharmaceutical company. This project is another proof point that our SaaS transition methodology is working, and this customer joins a growing list of companies utilizing our revenue cloud. As more leading life sciences companies successfully transitioned to revenue cloud, other customers have noticed and expressed an interest in beginning similar SaaS transitions. Today's remote work environment coupled with the dynamic regulatory landscape, highlight the importance that a cloud-first philosophy plays in remaining productive, competitive and compliant in a global marketplace.

In our High Tech vertical, we saw strength in the customer base as we expanded relationships, and we also had multiple go-lives during the quarter. AMD, Qualcomm, Micron and others added new Model N products to their footprint or expanded usage during the quarter. Also, AVX completed the rollout of our solution to their international team, the last in a multiyear global deployment road map.

I'm also excited about the work being done by our product organization and proud that they continue to ship high-quality releases on time, including our recent spring '20 release. This release included several new features and a major upgrade to our Intelligence cloud. The intelligence cloud features bring new artificial intelligence and machine learning capabilities that will allow customers to simulate win rates and optimal pricing models when drafting new contracts. These capabilities enable our customers to build better contracts that drive more profitable pricing arrangements with their channels. Given the current global economic uncertainty, I'd now like to share some details with you on what we are hearing from our customers and seeing in our pipeline.

Our customer base activity remains healthy, particularly in Life Sciences, and we continue to believe this vertical will be resilient through this cycle. Many Life Sciences companies enjoy durable businesses, and they continue to invest in systems like Model N to support profitable growth and changing compliance needs. The recently proposed changes to the Medicaid drug rebate program by the centers for Medicare and Medicaid are a great reminder of how dynamic the regulatory environment is, particularly in an election year. Cloud solutions are an important way that Life Sciences companies can efficiently keep up with the rate of change, and this acts as a natural tailwind for our new logo sales and fast transitions in our customer base.

Our High Tech vertical has seen increased variability since the beginning of the coronavirus pandemic. There have been green shoots in some areas where secular trends like 5G network build-outs and increased cloud computing consumption are driving healthy demand, while other customers have taken a more conservative posture towards new investments. As I talk to you today, the High Tech vertical does appear to be recovering, but it remains less predictable. As discussed on the last earnings call, we will continue to focus our sales efforts on pockets of strength in supporting our existing customers.

Before turning the call over to David, I'd like to give you some color on our pipeline. Typically, we cannot share this level of detail with you, but I felt it was important to make an exception this quarter due to the ongoing economic uncertainty. I do expect the macro environment to continue to elongate sales cycles for the next few quarters, and this is incorporated into our guidance, but the state of our pipeline suggests favorable long-term trends.

Specifically, our Life Sciences pipeline has been building and is currently at its high point for the year. We did see a decline in our High Tech pipeline in late spring as deals pushed out and this segment has not yet returned to pre-March levels. While High Tech has increased nearly 50% since its spring low, the sector continues to be less predictable than Life Sciences. We believe these relatively favorable pipeline trends are related to the fact that our products are mission critical, have a tangible ROI and can actually help customers manage their business in difficult times like the present.

Looking ahead, I remain enthusiastic about Model N's future. We have an amazing team that has adapted well to remote selling and delivery, and we are as focused on customer success as we have ever been. Our pipeline and business outlook are favorable. We are benefiting from 2 years of fine-tuning our go-to-market approach, and we are fortunate to serve 2 resilient vertical markets. This combination of factors gives me confidence that we will grow through this downturn and exit this chapter as a stronger company. I would now like to turn the call over to David to elaborate on our financial results and guidance. David?

Thank you, Jason. Our results for the third quarter exceeded every measure in the financial outlook we shared on our last call, and represent a continuation of our track record of delivering strong performance. The past few quarters illustrate the impact of our strategic focus and how it leads to increasing levels of profitable growth. Total revenue for the third quarter grew 19% to $41.3 million, and subscription revenue grew to $29.3 million, an increase of 10% from a year ago. New subscription revenue expanded to $19 million, an increase of 27% compared to $15 million in Q3 of last year. As highlighted before, this growth was partially offset by a natural decline in our maintenance subscription contracts due to SaaS transitions, which resulted in revenue of $10.3 million, a decrease of approximately 12% compared to $11.7 million in Q3 of last year.

Professional services revenue was $11.9 million. This demonstrates that our customers view our projects as mission-critical to their businesses, and they have continued with these projects even during the dynamic environment. It's also important to highlight that our professional services revenue benefited in Q3 from a level of utilization that was higher than expected.

Now I'd like to turn to profitability. Our team executed well in the quarter, and our top line over performance meaningfully impacted the bottom line, reflecting our commitment to and focus on profitable growth. While we continue to opportunistically invest in our sales and product development teams, the absence of travel as well as our operational efficiencies enabled increased levels of profitability. Non-GAAP gross profit for the third quarter was $26.4 million or 64% of total revenue, an increase of 6 points from last year. Non-GAAP gross margin for subscription revenue was 74%, which is a new high watermark for us. Non-GAAP gross margin for professional services revenue was 40%. Non-GAAP operating profit for the quarter was $6.2 million. Non-GAAP net income in the third quarter was $5.2 million. We produced a non-GAAP net income per share of $0.15, which was ahead of our guidance of $0.05 to $0.07. Adjusted EBITDA for the third quarter was $6.4 million, representing a margin of 15%. All in all, Q3 was a well-executed quarter with strong financial results.

Moving on to the balance sheet. We ended the third quarter with $192.4 million of cash and cash equivalents. This reflects the $172.5 million raised from the issuance of convertible notes plus $40 million used to repay the term debt as well as the accrued interest and fees. Our cash balance also reflects our healthy free cash flow of more than $7 million year-to-date, which is more than a 50% increase over the prior year despite providing our customers with flexible billing and payment terms, which pushed cash flow out of the third quarter.

Turning to our outlook for the fourth quarter. We expect total revenue to be in the range of $40.1 to $40.5 million, representing approximately 11% year-over-year growth at the top end of the range. We expect subscription revenue to be in the range of $29 million to $29.4 million, representing growth of approximately 7% at the top end of the range. Non-GAAP income from operations is expected to be in the range of $4.5 million to $4.9 million and non-GAAP income per share in the range of $0.07 to $0.09, based on a fully diluted share count of approximately 36 million shares. Adjusted EBITDA is expected to be in the range of $4.6 million to $5 million. For full fiscal year 2020, we expect total revenue in the range of $159.7 million to $160.1 million. We expect subscription revenue in the range of $115.5 million to $115.9 million.

Turning to profitability. We expect non-GAAP income from operations in the range of $18.3 million to $18.7 million. And non-GAAP income per share in the range of $0.41 to $0.43 based on a fully diluted share count of approximately 35 million shares. Adjusted EBITDA is expected to be in the range of $19 million to $19.4 million.

Before opening up the call for questions, I'd like to share some final thoughts with you. I am impressed by our team's ability to adapt to the current environment in this new way of working. We are closing deals and bringing customers live on our platform. Our deal pipeline, as Jason highlighted, has continued to grow. We believe that we will continue closing deals, inclusive of new logos, customer base expansions and SaaS transitions. However, we expect that most deals will likely include a financial ramp.

We also expect that we will continue to provide our customers with flexible billing and payment terms. Our initial financial outlook for fiscal year 2021 will factor in these variables. It will include a high degree of revenue coverage and it will hedge for the macro environment. It's also important to note that our visibility for any given fiscal year builds over the first couple of quarters. In November, I will provide a preliminary perspective on fiscal year 2021. And then in line with past years, I will provide an updated outlook as we move through the first half of the year. Thank you for joining today's call. Now I'll turn the call over to the operator for questions. Operator?

(Operator Instructions) Our first question comes from the line of Joe Vruwink with Baird.

Jason, I wanted to go back to the pipeline comments. In the past, I think you alluded to the fact that in this type of environment may be getting in front of the new logo and being able to get buy in behind the ROI revenue cloud provides, maybe the thought was it would be more challenging, and it certainly doesn't seem like that's the case. So I'm wondering if you could just unpack; a, is just the health of the verticals you target has been a source of resiliency? B, is it Model N zone execution? You talked about the go-to-market strategy. Or c, how much do you attribute the success to the product itself and the fact that it's easy to get up and running? These accelerated 22, 23 week implementation time lines or just really the value of the cloud in this type of environment. Curious if any of those factors maybe command more attribution right now.

Yes. Thanks for the question, Joe. So it's quite honestly a mix of all of those factors. And if I had to force rank them, I would start with the quality of our go-to-market team and how they're selling and some of the changes that we've made over the last couple of years. I think we've got the right team in place right now and have changed our approach to really front-load the qualification stages and building of the ROI in conjunction with the customers. So that has served us well, frankly, over the last couple of years, and it certainly serves us extremely well in a time when deals are being scrutinized more by CFOs and CEOs.

The second thing that I would say is in our favor, particularly in Life Sciences, but also in High Tech, is I do think these are 2 very resilient markets, particularly in the case of Life Sciences, where these are just durable businesses. And in many cases, the therapies being provided are not negotiable. There -- people are very dependent on them. And I would also say that, in many cases, the demand for customers' therapies and products have actually gone up during this period of COVID.

So the market is certainly a part of it. And then yes, our delivery capabilities, as we've talked about on the last couple of calls, are just excellent. And that does help get customers more comfortable that the ROI that we talked about early in the sales cycle is actually going to be realized through high quality, on time, on budget delivery. So it's really a combination of the things you mentioned.

And then if I can follow-up, and maybe this isn't the right forum to update long-term targets, but there was a thinking once upon a time that maybe 20% growth for the new SaaS revenues was a sustainable rate, I think you're going to do better than 20% in a pretty challenging environment this year. When you reflect on the successes you've had in building the Life Sciences pipeline, High Tech coming back strongly, can you maybe say directionally whether 20%? Is it better than 20% by some degree? Just your thoughts there.

Yes. We continue directionally to feel very comfortable with that number. And as we've demonstrated over the last several quarters, including this quarter, that number has been north of 20%. And we think with the resiliency of Life Sciences, and then particularly the positive tailwind that SaaS transitions are providing, we continue to feel comfortable that that number can be above 20%.

Our next question comes from the line of Terry Tillman with SunTrust.

We're actually Truist Securities now. I should make sure I get that stated. A solid job in the quarter, and I do appreciate the sales pipeline color that was incrementally helpful. I guess, Jason, there's always regulatory changes and it's kind of normal course of business, but you did call out Medicaid and the change. Is this one different than other times in the past when there's been regulatory changes? And is there anything in kind of the new sales pipeline that kind of reflects maybe yet another change that's just going to create more fluidity and a reason to talk to Model N? And then I have a follow-up.

Yes. I would say, generally speaking, the dynamic regulatory environment presents challenges for our customers, but it's ultimately an opportunity for Model N. And as I mentioned in my prepared remarks, as we go into an election cycle, the regulatory environment continues to be very dynamic, both Republicans and Democrats are both, in theory, pushing for the same thing of more price transparency and lower out-of-pocket costs for the consumer, particularly low-income and the elderly. Both parties have a different way of dealing with this, but both of them are not going to necessarily be less complex ways of addressing the issue. So that is a reason to talk to Model N and some of the pipeline dynamics that I talked to, we can directly see line of sight to the dynamic regulatory environment, driving people to our doorstep looking for some help and some relief.

Got it. And I'm going to be savvy here and ask a 2-part question that will involve, David, because I don't want to leave them out of this. But as you look at your top 20 customers, and it's nice to see another top customer like Pfizer going live. They're upgrading. I think you mentioned Novartis past quarter. So Jason, the first part of the question relates to kind of 3 months since the last time we had an update, how do you feel about some of your top life science customers and the trajectory and the timing of their SaaS transition? And then maybe for David, just to add into this, is how do we think about the maintenance decline rate going forward, kind of similar to low double-digit like we've been seeing?

Yes. So there's -- so the momentum behind SaaS transitions continues, particularly with the top 5, top 10 pharma companies, Novartis and Pfizer, are both recent examples. And I think some of the secular trends persist as I talked about in the first part of your question, Terry, the regulatory environment continues to be very dynamic. M&A continues to persist. And now we have a workforce that's largely working from home this entire year, and it's going to continue into 2021. And so a cloud-first approach to some of these mission-critical solutions resonates more now than ever with our customers. And so I expect the momentum that we have enjoyed at the end of 2019 throughout this year 2020 to continue to persist, quite honestly, for the next couple of years. David, do you want to take the second part?

And then, Terry, in regards to revenue retention rates for maintenance, I think we still find maintenance to be very sticky. So I think I said last year at this time, we kind of think about churn in that area being roughly mid-single digits. And I think as you've seen maintenance track this year, with the exception of SaaS transitions, it kind of continues to hang into that level. So I think the product will continue to power customers on-prem, and then they will continue cutting over to the cloud.

We'll move on to our next question, which comes from the line of Ryan MacDonald with Needham & Company.

I just continue to be really surprised and obviously pleased with the strength on the professional services side. Is there any, I guess, marked shift there that you've seen over the past few months in terms of bringing those more in-house versus externally? I know there's been some news about sort of M&A with some of your partners with competitors. Has that shifted the way you think about implementations and managing the migrations internally versus externally?

Ryan, this is Jason. I'll answer that. It hasn't. In fact, we have continued to be very friendly with our partner ecosystem, our implementation partner ecosystem. And as our business grows, we continue to grow that part of the business as well, particularly as we go through SaaS transitions over the next couple of years, there's going to be a significant amount of demand out there for services. And so knowing that, we continue to foster the ecosystem.

That being said, the current strength that we've seen over the last couple of quarters in professional services and expect to continue to see into Q4 is really just representative of the strong sales that we've enjoyed throughout the year, and particularly some of these large SaaS transitions that are in flight. So it's more reflective of the current state of the business versus any changes in strategy.

Excellent. And then as a follow-up, as we think about sort of R&D expense and investments there moving forward, how does the evolving regulatory environment impact the potential spend there? And are you doing anything new around we've heard more about sort of outcomes-based contracting and pricing, particularly in the pharma space, is there any incremental dollars of investment that you'd be putting there to sort of meet this evolving need?

Yes. I mean, certainly, if you just look at the capacity of our Life Sciences team, a good portion of it is just addressing the ongoing regulatory requirements, and we do have some basic functionality in our product today that supports outcome-based pricing. In fact, most of our oncology customers price based on that model. So that's actually something that we handle today. And then I would also say just kind of bumping it up a level. If you look at our current expense envelope and the investment in product, we think we can address and absorb a lot of these regulatory changes that are coming on the Life Sciences side. That said, we have stated on past calls, we're going to continue to invest in product as we build a durable long-term company. But I would expect -- you should expect that to be more on the margins, not a step change in investment levels.

We'll move on to our next question, which comes from the line of Brian Peterson with Raymond James.

Kevin here on for Brian. You've mentioned in the past making some of your newer products available to customers to show them some of the capabilities that they maybe haven't historically leveraged. And I'm wondering if you've seen that contributing much to recent pipeline activity levels. And anything anecdotal you could share on attach rates or upsell for those initiatives, just in the context of the broader expansion opportunity?

Yes. We have -- as we have made all of our products deployable in the cloud, it is much simpler, as you would expect to have customers try products out in sandboxes. And this has been a very effective tool that we've used, particularly in our installed base, where they perhaps had a footprint of products for a number of years, perhaps even on premise products. And we really have utilized sandboxes to do 2 things: one, expose customers to new releases and new products that they maybe have not had exposure to in the past and do it in a very cost-effective way. And then we've also used sandboxes in a fairly major way to get large customers comfortable that our products scale and can handle their volumes from a cloud perspective. And it's really been one of the catalysts that's helped us overcome some of the objections in SaaS transition deals. So it has played an important role.

Got it. That's helpful. And then I know you mentioned offering some flexible billing and payment terms to customers. But can you speak to any changes you're seeing in the time line for renewal activity? And have there been any changes in those conversations with customers, say, over the last several months?

It's a great question. I think, overall, the -- I'd say the time lines are, I'd say, are largely in line with what we expected and what we shared back in May. I think customers right now, certainly, depending upon where they sit in the ecosystem, whether they're on more the discretionary side or whether they're right in the -- maybe the wheelhouse of the response to COVID that probably have different needs in terms, but I'd say largely the need for structures, I'd say, continues as we expected, and the cadence is roughly in line with how we thought about it in May.

Our next question comes from Matt VanVliet with BTIG.

I guess, as you look forward towards the back half of the calendar year and into calendar '21, obviously, hope is that there will be some vaccine and other therapeutics coming through to help with the COVID pandemic. But have you seen an increase? Or has there been more sales activity with some of your customers to understand what that end market is going to look like? Obviously, there hasn't really been a precedent for something on such global scale demand all at one time, and as soon as it can get done. But just curious what your conversations are with customers, what you’re talking to them about and maybe which of your modules are most in-demand as they look forward to that event.

Yes. Thanks for the question, Matt. So 24 of our top 25 Life Sciences customers all have offerings that are things related to the pandemic. And so, certainly, continuing to invest in Model N and have Model N be available in the cloud so that their remote workforces, which I believe are going to continue to persist well into 2021, that continues to be one of the main subjects of conversation with current customers. Current customers also are looking to expand footprint as they may be addressing new segments or new geographies, again, in many cases, in response to the pandemic.

And then we certainly have seen an uptick in our new logo pipeline as smaller growing pharmaceutical companies that have a therapy that can be used in a number of different ways in the pandemic are seeing cracks in their commercial systems and need to modernize whether they're selling to the private sector -- private health care sector in the U.S. or plan to do government sales. And we do see demand in both of those areas in the U.S. and that is one of the dynamics along with the regulatory landscape that I talked about earlier that continues to drive pipeline and demand for products.

Great. And I guess, as we look at what deferred revenue balance look like and sort of on a calculated billings basis, big jump last quarter, and kind of slowed down here. Are there any, I guess, customer payments, or back to the question on renewals, that may be pushed out of the quarter? Or how we should think about that overall metric as we look into the end of the fiscal year and beyond?

It's a great question. I think, fundamentally, when you think about our go-to-market and how we work with our industry, what they're accustomed to about 30% of the time is we'll have quarterly structures, as I think we highlighted on the last call. We had a couple of customers that requested that we adjust the billing terms and shift their invoicing cycle out to our Q4, which effectively had an impact on deferred revenue, had an impact on some of these metrics. And I think what you'll find is we continue to, I'd say, leverage some of our learnings from the past cycle just to be flexible with customers. So that will ultimately impact things like deferred revenue or could impact RPO as we ultimately provide flexible contracts to our customers. So I think as we kind of work our way through this part of the economic cycle, you'll probably see deferred revenue get pushed around a little bit as we adapt to the needs of our customers.

Our next question comes from the line of Nick Mattiacci with Craig-Hallum.

This is Nick Mattiacci on for Chad Bennett. So it looks like subscription gross margin ticked up pretty decently this quarter over last. Just any more color there would be helpful. And then how should we think about gross margins going forward, especially as SaaS becomes a larger mix of subscription revenues?

Yes. Thanks, Nick, for the question. I appreciate it. I think if you go back a couple of quarters, we had talked about some investments we were making in our delivery model and some of those investments now are starting to work their way through and produce some dividends. So 74% is a new high watermark for us. I think we feel good about how we're serving our customers in the delivery model. And I think 74% is probably about where we stay here. Obviously, we're continuing to work on how we support our customers and deliver. And if you think about that long-term model, it had an upper limit at about 75%. And clearly, that is not an ending point, but our goal is to continue modernizing how we work and support our customers and find ways to get more productive. But 74% is a good place for us to be right now.

Our next question comes from the line of Gene Mannheimer with Dougherty & Company.

Congrats on the great quarter and guide. Jason and Dave, just in terms of free cash flow, $7 million, I think, in the first half, plus. And following your typical seasonality, I mean, have you -- did you or can you provide any free cash flow guidance for the year?

Thanks, Gene. And it's a little -- it's more $7 million for the first 3 quarters of the year, just to clarify as to where the progress that we've made. Gene, I think we're still working our way through Q4 and obviously working our way through the deal structure. So it's probably a little bit hard to look at it. Admittedly, we're continuing to -- as I kind of shared, I think, in one of my earlier replies, just continuing working with our customers in adjusting terms. But I think it is one where you'll find that we're continuing to build on the success that we've had this year. And then obviously, we're starting to look forward to next fiscal year and starting to work towards setting up that year.

All right. That's helpful color, Dave. And the bookings that you're seeing, how should we think about that in terms of wallet share expansion of your existing base versus so-called market share wins vis-à-vis net new logos?

Yes. Thanks, Gene. I'll take that one. We've seen Q3 -- and Q2, actually, Q2 and Q3, play out in a similar fashion and that it's just been easier given the macroeconomic environment. It's been easier to do customer base expansions where we've already got master services agreements in place. And long-term relationships built on trust. That said, as I mentioned in my commentary on the pipeline, we do continue to see very strong performance in our Life Sciences pipeline and our overall company pipeline is higher today than it was on the first day of the quarter. And that new logo growth is driving that as well. So I think as you often see in economic cycles like this, customers definitely contribute to a good section of the bookings. However, market leaders also capture market share. And I expect that we will continue to do both for the next few quarters.

Our next question comes from Jackson Ader with JPMorgan.

I guess on the -- I'd like to follow-up on the gross margin line of questioning. I know, David, you said you plan on kind of being around the 74% level for subscription gross margin. But I'm just curious on the actual dollar spend, we saw it come down. Where do you expect the increased efficiency on a dollar basis to come from those subscription -- on the cost of subscription line?

Sure. I think, largely, we've completed a lot of the work that we had highlighted earlier in the year. We still have a little bit more work to do. So there is still some redundancy in spend between the modern infrastructure that we've put in place. And then we have not terminated all of the agreements for some of the legacy infrastructure. And so as we terminate those contracts and they come to an end then on an absolute dollar basis, that's where you would find some incremental savings.

Okay. That makes sense. And then looking out to the next maybe year or a couple of years, I know you've mentioned the flexibility that you're going to provide customers on payment terms. But I want to I want to press a little bit on the ramp deal structures for new logos. Are you seeing new customers increase their demand for these types of -- that type of structure at the initial outset?

We are. I think we are seeing that in this climate, depending upon where you sit within the ecosystem. Some customers are already working towards the next calendar year. And as a result, as they think about these projects that may go-live in 5 months or so, they're thinking through how do they start investing arguably for what the horizon looks like. And Jackson, that puts us in a spot where from a deal structure, we'll try and align it, so that they're ultimately escalating their economics and their -- and what they pay Model N as they're capturing some of the benefits in the ROI for the platform. So we're happy to work with them as they start to prepare for the future state.

It appears we have no additional questions at this time. So I'd like to pass the floor back over to Mr. Barter for any additional closing comments.

Thank you, operator. We greatly appreciate everyone joining today's call, and we look forward to speaking with you throughout the quarter. Please be well and take care. Thanks so much.

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