Model N, Inc.
Q2 2017 Earnings Call Transcript

Published: 9 Aug 2017

[Operator:]

Ladies and gentlemen, greetings, and welcome to Model N’s Third Quarter 2017 Earnings Conference Call. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host Staci Mortenson of ICR. Thank you. You may begin.

[Staci Mortenson:]

Good afternoon. Welcome to the earnings results call for Model N's third quarter fiscal year 2017, which ended on June 30, 2017. With me today are Zack Rinat, our Executive Chairman and Chief Executive Officer; and David Barter, Model N's Chief Financial Officer. A press release was issued after the close of market and is posted on our website, where this call is being simultaneously webcast. The primary purpose of today's call is to provide you information regarding our third quarter fiscal year 2017 performance and our financial outlook for our fourth quarter and full fiscal year 2017. 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 and our quarterly reports on Form 10-Q for information on risks and uncertainties. Should any of these risks or uncertainties materialize or should our assumptions prove to 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 a substitute for or in 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 the third quarter fiscal year 2017 press release, periodic SEC reports and the webcast replay of this call. Unless otherwise stated, all financial comparisons in this call will be to our results for the comparable period of FY 2016. With that, let me turn the call over to Zack. Zack?

[Zack Rinat:]

Good afternoon and thank you for joining us today. I will start the call today discussing progress against our strategy for fiscal year 2017 and beyond, progress on the Revitas acquisition and Q3 fiscal year 2017 highlights. I will end my section of the call discussing the appointment of Neeraj Gokhale as our Chief Product Officer. David Barter, our CFO, will follow me with the financial details. Model N executed extremely well in Q3 fiscal year 2017, exceeding our guidance on both the top and bottom lines. Q3 fiscal year 2017 is the third consecutive well executed quarter and one where Model N delivered the strongest quarter in Model N history in key financial metrics such as revenues, percentage of recurring revenue and gross margins percentage to name a few. As we discussed in the previous call, the acquisition of Revitas created a unique strategic opportunities for Model N. We have developed and are laser focused on executing our integration strategy to deliver both financial and operational results. We are making the acquisition success for our customers and our shareholders. We realized the remaining cost synergies from the Revitas acquisition in Q3 fiscal year 2017. Since the acquisition, we eliminated duplicated G&A sales and marketing activities as well as redundant products outside the life sciences vertical. We believe we have executed this process with a very strong unified team in a much stronger company. We continue to focus on our customers and their success by delivering our strategy and vision for our revenue cloud product suite as well as Revenue Management as a Service, or RMaaS. On Wednesday August 2, we delivered the summer 2017 release on time across all our products including the powered by flex product we acquired from Revitas. As part of our integration strategy, we unified the engineering processes and product release schedule and now released the entire product line on a single date. The product team did an excellent job in the summer release meeting the scope as we committed internally for life sciences, high tech, emerging vertical and for both powered by flex and powered by Model N products. In particular, we met all previously planned Revitas product roadmap to enable our strategy. With summer 2017, revenue cloud for pharma for powered by flex will be offering a Revenue Management as a Service. The strategic value of our Revenue Cloud was demonstrated in Q3 fiscal year 2017 by significant number of go-live including those at Smith & Nephew, Edwards Lifesciences, J&J Japan, Stryker and Shire to name a few. Shire, which was a joint customer of both Model N and Revitas by or through the acquisition, went live with a single Medicaid solution as part of integration of Baxalta. Model N’s integration Medicaid solution enables Shire to eliminate outsourcing cost unified into one united Shire realized cost efficiencies of single system leverage analytics strategically and is the first step in transition to the cloud and Revenue Management as a Service, or RMaaS. J&J Japan went live with Chargebacks which ispart of our revenue cloud for MedTech. The Revenue Cloud for MedTech is interoperable with the SAP instance and delivers significant business positive efficiencies including the shutting down of an expensive legacy systems. The endoscopy division of Stryker went live with our revenue cloud for MedTech enabling Stryker to implement the shared services operation to execute contracting, rebating, reporting in other strategic revenue management processes. Within life sciences, the MedTech portion of our business has been strong as companies are taking advantage of our end to end revenue cloud offering. Model N enables MedTech companies to make the vision of CRM square the reality by integrating CRM, revenue management and the ERP into a powerful force for driving global revenue growth combining the front office and the back office. Our leadership with MedTech was further evident in Q3 by the addition of ICU Medical. ICU Medical is a provider of infusion care product mainly sold to hospital and institutions. ICU Medical recently acquired Pfizer’s infusion care businesses making them one of the larger players and leaders in the space. As part of this acquisition, ICU had the challenge of integrating the Pfizer business and moving off the Pfizer Systems way still adhering to government regulations. In addition, the head of common business process challenges of managing large scale processing, complex contracts, price transparency and expensive reporting with visibility into revenue and margin by channel, customer and product. ICU selected revenue cloud for MedTech for several key reasons including

[David Barter:]

Thank you, Zack. We continue to make progress driving growth, scaling the business and achieving the company’s operational and financial objectives. In particular, we had another strong quarter across our team metrics including SaaS and maintenance revenue growth, gross margin expansion and adjusted EBITDA. We are very focused on scalable growth that delivers meaningful margin and cash flow. We ended Q3 with a healthy balance sheet and operating at the full expense synergy run rate of $13 million annualized, which was the high-end of our guidance. As indicated in our press release, we exceeded both our revenue and profitability guidance for the third quarter. Total GAAP revenues for the third quarter were $34.2 million, a 23% increase from $27.9 million in total revenue in the year ago period and well above our guidance range of $33.5 million to $33.8 million. SaaS and maintenance revenues were $28.5 million for the quarter, a 25% increase year-over-year. This represents a new record in terms of our revenue mix and demonstrates that our transition to being 100% SaaS and maintenance is proceeding well. We’re encouraged by customer interest and adoption of revenue management as a service. Our license and implementation revenue was $5.7 million, an increase of 12% compared to the prior year period. The growth was positively impacted by the Revitas acquisition and the fact that their business was primarily on-premise. As a reminder, we no longer sell on-premise perpetual licenses and we expect this revenue line to continue to decline as we head into fiscal 2018. Our revenues in the third quarter reflect our acquisition of Revitas which contributed approximately $6 million to our SaaS and maintenance revenues and approximately $2 million to our license and implementation revenues. Our GAAP revenues also reflect a purchase accounting entry of $1.7 million. Before I move on to profit and loss item, I want to remind you that my commentary will be focused on non-GAAP results, which excludes the impact of purchase accounting. A reconciliation of non-GAAP to GAAP results is provided with our earnings press release issued early today. We continue to focus on the improvement of our gross margin and we made good progress during the third quarter as we continue to drive a higher mix of overall SaaS subscription contribution. Non-GAAP gross margin for the third quarter was $21.4 million, compared to $14.9 million in the third quarter of fiscal year 2016. Overall, non-GAAP gross margin in the quarter was 60%, a significant increase compared to the 53% in the third quarter of last year. We continue to see gross margin as a point of leverage from Model N over time as we move the business to 100% SaaS and maintenance in a cheap greater scale. Non-GAAP operating expense was $23.9 million in the third quarter of fiscal year 2017 compared to $19.2 million in the third quarter of fiscal year 2016 and $25.8 million in the prior quarter. Non-GAAP operating loss for the period was $2.4 million compared to a loss of $4.3 million in the third quarter of last year and better than our guidance of an operating loss of $3.5 million to $3 million. Non-GAAP net loss in the third quarter was $4.1 million compared with a net loss of $4.4 million in the third quarter of fiscal year 2016. On a GAAP basis operating loss for the period was $8.8 million compared to a loss of $8.5 million in the third quarter of last year. GAAP net loss in the third quarter was $10.4 million compared to the GAAP net loss of $8.6 million in the third quarter of fiscal year 2016. The difference is driven by the $1.4 million of expense associated with the financing of the Revitas acquisition. We produced a non-GAAP net loss per share of $0.14 based on a share count of 20.9 million shares compared to a non-GAAP net loss per share of $0.16 based on a share count of 27.6 million shares in the third quarter of last year. This was better than our guidance of a net loss of $0.19 to $0.17 per share. GAAP loss per share was $0.36 for the third quarter compared to $0.31 in the third quarter of fiscal year 2016. Adjusted EBITDA for the third quarter was negative $1.5 million, a meaningful improvement compared to negative $3.1 million in the year ago period and a negative $4.4 million in the prior quarter. We reiterate our guidance that we expect to be adjusted EBITDA positive in the fourth quarter of fiscal year 2017 and we will continue to improve on our profitability in fiscal year 2018. At the end of the third quarter, our accounts receivable balance was $33.7 million. Our total deferred revenue was $52.5 million compared to $47.4 million at the end of our second quarter, which is an increase of 11%. Our cash and cash equivalents balance was $51.8 million compared with $53.7 million at the end of the second quarter. For the third quarter cash flow used by operations was $2.7 million, which after adding capital expenditures of $68,000 and capitalized software of $50,000 produced a negative free cash flow of $2.8 million. This compares to cash flow from operations of $0.5 million in the third quarter of last year, which after adding approximately $0.5 million of capital expenditures and capitalized software of $0.3 million produced a negative free cash flow of $0.3 million. Moving on let me now outline our guidance for the fourth quarter of fiscal year 2017 as well as our expectations for the full year of fiscal year 2017. Please note this guidance is GAAP revenue guidance and it includes the corresponding purchase accounting adjustment for Revitas. For our fourth quarter ending September 30, 2017, we expect total GAAP revenues to range from $34.6 million to $35.1 million. We expect the purchase accounting entry will be approximately $1.3 million. Non-GAAP loss from operations is expected to be in the range of $1 million to $500,000. This would lead to a non-GAAP net loss per share in the range of $0.09 to $0.08 based on a weighted average share count of 29.4 million shares and assuming approximately $1.4 million net interest expense and amortized debt financing fees. For the full year fiscal year 2017, we are raising our guidance and now expect total GAAP revenues to be in the range from $130.2 million to $130.7 million. This includes an estimated reduction from the purchase accounting adjustment of approximately $5.1 million. We continue to expect our ending annualized recurring revenue, or ARR, to be between $46 million dollars to $48 million. This represents 31% to 36% year-over-year growth. We are also raising guidance for our non-GAAP loss from operations. We expect it to be in the range of $13 million to $12.5 million, an improvement compared to our prior guidance of a loss from $14.5 million to $14 million. Non-GAAP net loss per share is expected to be in the range of $0.63 to $0.62 based on a weighted average share count of 28.7 million shares compared to our prior guidance of $0.68 to $0.66. We remain focused on cash and reiterate our guidance of an ending cash balance at September 30, 2017 of $50 million to $52 million as previously shared. We now expect cash flow from operations to be breakeven or slightly positive in Q4. Before I turn the call over for question, I would like to make some high-level comments on how we are thinking about the business for fiscal year 2018. We will provide you with more detailed guidance when we report our fourth quarter. We are focused on several key objectives driving growth with revenue management as a service as we move the business towards 100% SaaS and maintenance revenue, improving the visibility and predictability of our revenues. With this we would expect to see ongoing declines in our license and implementation revenue. Two, delivering scale and meaningful levels of profitability through improvements in our gross margin and effectively managing expenses. We would expect to be EBITDA positive throughout fiscal year 2018. And three, building the business to generate sustainable levels of cash flow. We would expect to be cash flow positive from operations in the back half of 2018 and we will payback a portion of the debt related to the Revitas acquisition. Again I will share detailed guidance for the first quarter and fiscal year 2018 when we report our fourth quarter results. With that let me turn the call over to the operator for questions. Operator?

[Operator:]

Thank you. Ladies and gentlemen, we will now be conducting our question-and-answer session. [Operator Instructions] Our first question comes from the line of Jackson Ader from JPMorgan. Please go ahead.

[Jackson Ader:]

Great, thank you. Hey, guys.

[Zack Rinat:]

Hey, good afternoon.

[Jackson Ader:]

First question from me, I guess, we'll start with Zack. So, how – one of the levers for growth I think in the life sciences business that you've talked about in the past is potentially further penetrating the mid-market, it sounds like in the high-end things are going well, but any updates may be on the logos further down in the market size?

[Zack Rinat:]

Yeah, sure. When you look at kind of the focus of the company over the last six months from the acquisition was really to continue to execute on the integration strategy and actually bring kind of lot of products together and created the – creating the cost synergies between kind of the two companies. With the release that we did in August 2 last week, we basically enable right now the revenue clouds for a pharma powered by flex basically to be available as Revenue Management as a Service. And we’re very excited about kind of move out there. When you look at further penetration to the market, our business is progressing well. We announced actually ICU as part of the call that we just had in this very significant mid-sized kind of medical device company, if you look at the expansion that we just spoke with Alkermes, it’s another mid-sized company. So, it’s progressing well across the high-end of the market as well as with the mid-market.

[Jackson Ader:]

Okay, and then just to quickly follow up David. On the expense side and with all of the – the synergies now being reaped, should we expect then the expenses on an absolute basis or I guess on a non-GAAP basis to grow off of this base as we head into 2018? Or do you think that you've pretty much staffed where you would like to be in and think should hold flat?

[David Barter:]

Yeah, I look at it this way. We have set up an integration plan and there were synergies that respect out and I think we've executed very well to that, but I think in terms of how we view the business, it's not a static view in the sense, but we do look for opportunities for scalable growth. And so we do continue to look for kind of margin expansion both kind of in terms of both gross margin and operating margins. So I think we're going to continue to look for ways to better run the business.

[Jackson Ader:]

Okay.

[Zack Rinat:]

Yeah, and based on when you look at the plan for the company for fiscal year 2018, we believe that actually we’ve [indiscernible] company, as David mentioned, we can have better operational leverage and actually the company is staffed correctly. And we feel actually that we can actually go with cost structure and optimize the cost structure.

[Jackson Ader:]

Okay, all right. That’s great. That’s helpful. Oh, quickly, if I can just follow-up. Dave, did you say that do you expect 2018 adjusted EBITDA to be positive throughout the year meaning each quarter or was it just the entirety of fiscal 2018 just to clarify.

[David Barter:]

Yeah, exactly, we expect each quarter to be positive.

[Jackson Ader:]

Okay, okay, all right. Thanks guys.

[David Barter:]

Definitely, thank you.

[Operator:]

Thank you. Our next question comes from line of Chad Bennett from Craig-Hallum. Please go ahead.

[Chad Bennett:]

Great, thanks for taking my questions. Great job on the quarter guys.

[David Barter:]

Thank you, Chad. I appreciate that.

[Zack Rinat:]

Thank you, Chad.

[Chad Bennett:]

Yeah and then just another maybe point of clarification, David. In speaking about 2018, did you indicate you expect to be profitable for the entire year of – for the – maybe not every quarter, but on an annual basis next year?

[David Barter:]

So when we think about profitability, again I think we're very focused on adjusted EBITDA and we will be adjusted EBITDA positive every quarter. So, I think, we’re still working through all of the details of our plan, but we have ambitions around expanding both our growth and our operating margins.

[Zack Rinat:]

And we will give kind of the specific guidance in November and we will be guide through the next – from next fiscal year.

[Chad Bennett:]

Okay, and then deferred revs, what you pointed out David were up I think very strongly sequentially and since its apples to apples with Revitas in there. Can you give us a sense for – I assume that that sequential growth was mainly driven through our RMS or SaaS, deferred revenue not necessarily maintenance renewals or any kind of color there?

[David Barter:]

Well, you’re right 100%, but it is all organic and kind of represents us operating as kind of one company. And so, you're right. The only way we're going to market right now is with cloud services and so that’s kind of what drives everything in the P&L.

[Chad Bennett:]

Okay. And then maybe last one for me if I can. Non-GAAP line too or I guess SaaS and maintenance gross margins were a little bit above 66%. I assume you expect continued improvement there. Any type of idea of kind of how we should think about that heading into next year, David?

[David Barter:]

It’s probably a little bit early. I think you know – overall I think what we had took was when we’re kind of meeting with you in the back of June and at all the conferences that we continue to expect the gross margins to improve a couple of points year-over-year, but we’ll provide detailed guidance again in November.

[Chad Bennett:]

Got it. Nice job again. Thanks.

[Zack Rinat:]

Thank you.

[David Barter:]

Okay, thank you.

[Operator:]

Thank you. Our next question comes from the line of [indiscernible]. Please go ahead.

[Unidentified Analyst:]

Hey, thanks for taking my question. My first question is can you give any color of what you're seeing from customers in the marketplace? So are they, I mean, one product more than expected or less than expected? Are you seeing demand from smaller life science in addition to from mid-sized life science in addition to large life science?

[Zack Rinat:]

Yeah, so when you look at kind of the market again the focus of the company over the last six months was to execute on kind of that integration strategy to continue to deliver for our customers and really positioning the product to be consume across the board as Revenue Management as a Service. From a demand point of view, I would say that the market right now is acting well. I would note the character of this as a heated market, but it’s a market that is moving nicely. There is a lot of focus right now and some of the new regulation coming right now from the new administration and trying to figure out the impact that it’s going to have if any through the way that we think about the revenue management. And then we see actually companies actually looking at global price management and the ability to manage prices on a global basis and some of the challenges that exist on global is front center to the way people think about their business. Then we see a strong interest and across the board actually for the medical device space. With the revenue cloud for medical device, we have a very strong solution right now that encompass all the way from the front office and enable first the people productivity through configure, price and quote, or CPQ, and CLM contract lifecycle management all the way through the spectrum of how you handle contracting and rebate and incentives and leverage analytics in a very kind of powerful way. So we see this market in particular right now strong interest across the board in both mid-market as well as the high-end of the market.

[Unidentified Analyst:]

Great. And can you summarize, what kind of effect has the continuing turmoil in Washington Health Care Reform had you so far? And do you expect it to have any further impact over the next six months?

[Zack Rinat:]

So, the way that we look at this is everybody is anticipation about what’s going to come – come next. It’s very clear that there is going to be a drive towards higher regulation. For example, there was a paper published on the notion of outcome based contracting and changing the business model from people service to lot of risk sharing and outcome base. And companies are moving in this direction over there. And they are going to look at these growths from a business point of view as related to the offering, but definitely from a system point of view as ability to drive it. And I think for the companies in this space, its very clear that they need to have agility and ability to accommodate the changing regulatory and those wanted to coming right now in over time and they also important in the move to the cloud and to SaaS as this system deliver a much better flexibility and agility. So that’s where we see a lot more acceptance and accommodation and drive towards the cloud.

[Unidentified Analyst:]

Great. Thank you.

[Operator:]

Thank you. Our next question comes from the line of Brian Peterson from Raymond James. Please go ahead.

[Brian Peterson:]

Good evening, gentlemen and thanks for taking the question and congrats on the quarter. So Zack, I don’t know want to – can you give us sense for how some of the Revitas customers had talked about the Flex product portfolio versus the kind of legacy Model N portfolio, any updates to where constantly we are thinking there?

[Zack Rinat:]

Yes, so basically we are new, look at this we – have Revitas product and Model N product, right now it’s we call revenue cloud and as you know we deliver the Revitas’ Flex product but we did what is call the best of both which is really ability to integrate the best product from the Model N portfolio and actually one from Revitas across the board. And when you look at the product that we have in terms of the contract lifecycle management, in terms of global price management and some of the analytics product and actually a product that we just announced last week, which is a tender management, which helped the company's to manage revenues on a global basis through a tendering process, that basically now an end-to-end integrated solution that is willing to kind of not to consume. So that’s one aspect of the product line. The second aspect of this was really the notion of taking what we have done at Model N is starting to move and the solutions to cloud and to revenue management as a service. We released this product a week ago, this was a second release that we have done together and now we can actually start implementing these solution for the Revitas’ customer with an end-to-end revenue cloud solution and there is a lot of interest across the board from the Revitas customer to leverage this best solution into a move half of the business to kind of north of the cloud. So now it’s going to enable us to work with them to implement it now that the product is available. So that’s kind of where we are from a progress on the Revitas customer.

[Brian Peterson:]

Got it, thanks Zack and that’s actually a good segue into my question. So I don’t know if you were really wanted to take this. But obviously the results have been strong over the last few quarters, just curious why that wouldn’t translate into an increase in the ARR guidance for the year? Thanks guys.

[David Barter:]

Absolutely, I think, we’ve executing kind of a beat and rise when I think we think about the ARR guidance. We look at it from the vantage point that we are continuing to grow the business very well. I think the mid-point of our ARR guidance is about 34% which we think we feel kind of very good about the ARR guide. But we also recognize that we deal with lots of large customers and deals can ultimately come in a variety of sizes. So I think when you are in a vertical market and you sell to very large multinational and very large multibillion dollar pharma companies or medical device companies or even high tech companies, I think we judiciously plan and we conservatively plan for ultimately how we will contract with them.

[Zack Rinat:]

Yes, so from our point of view, we believe that 34% growth, the midpoint that we mentioned kind of good target and I think that you remember that this quarter our fourth quarter is a summer quarter and most of the deals they have been in September and we don’t want to put ourselves in a position where we need to do unnatural acts in September and closed kind of our businesses. And we give ourselves the kind of flexibilities to close deals in September, or October, or November and drive the business to make sure that we have kind of good economics for deal.

[Brian Peterson:]

Understood. Thanks guys.

[David Barter:]

Hey thank you.

[Operator:]

Thank you ladies and gentlemen. [Operator Instructions] Our next question comes from the line of Jessica McHugh from Dougherty & Company. Please go ahead.

[Jessica McHugh:]

Hi there, thanks for taking my question. You mentioned a couple wins earlier, but I was wondering what sort of traction are you seeing in the high tech vertical, versus six months ago? And what gives you confidence that you can increasingly win deals in that vertical?

[Zack Rinat:]

We need to spend a lot more time about the high tech vertical just by the nature of the fact that we just need to position, we intend to speak more on Life Sciences. But the high tech vertical is kind of is moving nicely and it’s kind of performing well. I believe that the product that we have right now is the most comprehensive end-to-end solution for the high tech business. We were positionally strong in semiconductors and then we started our expansions through more of OEM and to other parts of kind of on the high tech. As part the release last week we also released a product that is called Marketing Development Funds, which is a type of revert that you can manage across the Board that is very important for OEM and companies. And I think that the notion of again creating an end-to-end solution that enables you to accomplish the front office with CRM, CPQ, and with – situation and all the way to the specific processes, it’s extremely strong product – kind of product offering. So when I look at the funnel, when I look at the deals and when I look at the expanse of the product, I feel very good about where we are from the evolution of the vertical.

[Jessica McHugh:]

Okay thank you. And then David I have one for you. We talked about SaaS gross margins, for licence gross margins it looked that was better than typical for the quarter on a non-GAAP basis. We know that segment is pretty unpredictable, but I was wondering what contributed to the better margin in the quarter? And how should we think about license gross margins going forward? Thank you.

[David Barter:]

It was kind of a combination of factors on the licence and implementation and obviously Jessica I know you know the story very well we don't have license, it’s just implementation related to the legacy perpetual deployment. And so we ended up this quarter with just a slightly better mix of contractors, and certainly have some headwinds from some legacy contracts that we had picked up. But arguably the mix was a little bit better this particular quarter. So it was probably a little bit higher, higher than we normally expect. But obviously it's one where, I think, from a modeling perspective probably trended a little bit closer to what the average has been over time.

[Operator:]

Thank you. Our next question comes from the line of Pat Walravens from JMP Group. Please go ahead.

[Pat Walravens:]

Great, thank you. My first question would be for you David and may be Ed I’m not sure if you commented on this at all. But any hints in terms of how we should think about revenue for the next year?

[David Barter:]

It’s a little early, we'll provide more detailed guidance in November.

[Pat Walravens:]

Okay. And does that – I mean are you seeing any competition these days? Is it – if so where are you seeing and how does it work?

[Zack Rinat:]

Of course, we see – kind of now we see completion and we see competition across the Board in the verticals – kind of across the verticals the kind of – that we have. As you know kind of in Life Sciences we see a competition from some of the largest ERP players in particular SAP. The competition has been for over the last couple of years and kind of no change. In kind of the high tech space we see competition for companies that address a portion of the revenue management cycle. And people have to advice price management or price optimization and companies that are providing solutions for channel data management or channel management, so there’s the competition that we see there. And in the emerging verticals we see a competition from CPQ and CLM vendors. That’s the competition that’s we see.

[PatWalravens:]

Great. And then some of the sort of large potential acquires in this space, have this point of view, which I think you’re going to disagree with, but I would love to hear your thoughts. So one of the thoughts is that, it’s better to acquire horizontal SaaS companies than vertical and the rationale being that the vertical ones are tougher to scale globally. What’s your perspective on that?

[Zack Rinat:]

I’m not sure that I can put myself in the shoes of the larger kind of acquirer, but basically when I look at this – when I look at the software market in general, I think that when you look at vertical solutions by the nature this is the only solution that enables you to define a competitive advantage, because it’s vertical, it’s the solution that really enable you to compete with the other companies in the space. I think that companies such as Veeva, companies such as Guidewire, and companies such as Medidata and Model N, I think, we prove that we can create kind of sustainable competitive advantage and leadership in the kind of in this space. So I think that this is the focus right now, the last company is on the horizontal is SaaS platform. That’s why you can see actually that the large players, they acquire companies like Ariba and Concur and Success Factors and a lot of horizontalize companies and to a degree it’s good because its enable actually verticalize companies to focus on achieving a high value solutions to the market and partner with companies in a very significant way. That’s my perspective on that.

[PatWalravens:]

Great. Thanks for the perspectives.

[Operator:]

Thank you. Ladies and gentlemen, there are no further questions in queue at this time. I’d like to turn the floor back over to management for closing comments.

[Zack Rinat:]

Thank you all for attending our call today. And we’re very excited about the performance of the company year-to-date delivering a third consecutive strong quarter. We’re very excited about our ability to deliver adjusted a positive EBITDA and turning the company in the steps to being a profitable and operating cash flow positive. We think it’s a major milestone. And we’re looking forward to our next call, where we’re going to give you a guidance for fiscal year 2018. And thank you very much for joining the call.

[Operator:]

Thank you, ladies and gentlemen. This does conclude our teleconference for today. You may now disconnect your lines at this time. Thank you for your participation and have a wonderful day.