Feb 6, 2017
Executives
Staci Mortenson - IR Zack Rinat - Executive Chairman and CEO Mark Tisdel - CFO
Analysts
Jackson Ader - JPMorgan Brian Peterson - Raymond James Chad Bennett - Craig-Hallum Patrick Walravens - JMP Securities
Operator
Greetings, and welcome to the Model N First Quarter Fiscal Year 2017 Earnings Conference Call. At this time, all participants are in a listen-only mode.
A question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder, this conference is being recorded.
I would now like to turn the conference over to your host, Staci Mortenson, Investor Relations. Thank you Ms.
Mortenson, you may begin.
Staci Mortenson
Good afternoon. Welcome to the earnings results call for Model N's first quarter fiscal year 2017, which ended on December 31, 2016.
With me today are Zack Rinat, Executive Chairman and Chief Executive Officer, and Mark Tisdel, Chief Financial Officer. Our press release was issued after the close of market and is posted on our website, where this call is being simultaneously webcast.
The primary purpose of today's call is to provide you information regarding our first fiscal year 2017 performance and our financial outlook for our second quarter and full-year fiscal 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 and documents filed with the Securities and Exchange Commission, including our annual report on Form 10-K and our quarterly reports on Form 10-Q for information on risks and uncertainties.
Should any of these risks or uncertainties materialize or should any assumptions prove to be incorrect, actual Company results could differ materially from those forward-looking statements. In addition, during today's call, we will discuss non-GAAP financial measures.
These non-GAAP financial measures should be considered in addition to, not as a substitute for or in isolation from, GAAP results. I encourage you to visit our Investor Relations website at investor.modeln.com to access our first quarter fiscal year 2017 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 fiscal year 2016. With that, let me turn the call over to Zack.
Zack Rinat
Good afternoon and thank you for joining us today. I would start the call today discussing Q1 fiscal-year ’17 operational priorities and operational results and then discuss our strategy for fiscal-year ’17 and beyond including an update on the Revitas acquisition.
Model N executed extremely well in Q1 fiscal-year ’17 exceeding our guidance on both the top and bottom line. Mark Tisdel, our CFO will follow me with the financial results.
Q1 fiscal-year ’17 was the highest recurring revenue and the second highest overall revenue in Model N history. When I re-assume the CEO role in November, my first priority was to focus on execution and deliver both financial and operational results.
My second priority was to capitalize on the statistic opportunity to acquire Revitas and close the deal. My third priority was to develop a detailed integration strategy to make the acquisition a success for our customers and our shareholders.
My first priority was to enhance the executive leadership of Model N. We made excellent progress on all of these priorities.
And I am very proud of our newly united Model N team. When we announced the Revitas acquisition, we stated that we believe that this acquisition is transformative for Model N and will benefit our customers and our shareholders.
As a reminder, Revitas was a provider of revenue management solutions for pharmaceutical industries since 1989 and serve 40 plus pharmaceutical companies, which accounted for about 95% of the business. Revitas customers included Eli Lilly, GSK, Baxter and Valeant.
Model N and Revitas shared a number of common customers including Pfizer, Merck, Sanofi, Novartis, AstraZeneca, J&J and Allergan. In addition to the pharma business, Revitas had more than 10 customers in key verticals such as industrial manufacturing and hi-tech that are aligned with Model N vertical expansion strategy.
These customers include LG Electronics, Carrier Corporation, Siemens Corporation, Kitco, and United Technologies. We discussed the fact that the life sciences industry is at an inflection point when revenue management is crystallizing is a strategic imperative.
Driving topline profitable growth is the number one strategic priority of most life sciences companies. At the same time, these companies need to comply and adapt to an unprecedented and evolving global climate of regulations as government both in the United States and globally try to optimize their healthcare spending.
Governments and other healthcare provider are demanding price transparency and seek a transition from traditional consumption-based pricing to new models such an outcome-based pricing. Finally, companies are looking for optionality in both acquire and divest in an M&A centric industry.
The focus of the new administration on cutting drug pricings and enhancing regulatory compliance is a strong testament to this inflection point as well as to the need for further innovation in revenue management. The industry is seeking a strategic partner to leverage technology such as cloud, SaaS, mobile, social and big data to capitalize on the strategic opportunities and overcome the strategic challenges.
Model N is now even stronger strategic revenue management partner for the life sciences industry at this critical moment. We now have 80 plus life sciences customers, 900 plus employees and global presence in 10 major locations.
Our integration strategy focuses on customer satisfaction and retention and showing continuity and fulfilling commitment to our customers regarding products, projects, proposals and support. Model N will support and maintain the life sciences product and platforms of both companies.
As a key enabler, we are very successful in retaining the essential members of the Revitas team. While we did not extend job offers to everyone, 145 out of the 147 jobs offer that we did extend where accepted which included all life sciences engineering, project management, professional service, technical support, sales and solution personnel.
In addition, the Model N senior management team is now a mix of both Model N and Revitas leader. In particular, we have retained four key life sciences executive and gave then leadership position in the combined organization.
These four executives have a combined 52 years of experience with Revitas and will serve as our VP of Life Sciences Sales for the Americas, the VP of Life Sciences Technical Support, the VP of Life Sciences Professional Service and the VP of Life Science Engineering. We closed the acquisition on January 5 and immediately identified and executed upon cost synergies.
We eliminated duplicated G&A sales and marketing expenses as well as a redundant product outside life sciences vertical. We made reductions from both Revitas and Model N employees and still we exited this process with a very strong unified team.
Our main focus is on customers to ensure that we clearly communicated our strategy and received feedback. Four days after the announcement of the acquisition in December, we held our Executive Advisory Board Rainmaker X in New York City with a presentation from companies such as Merck, Novartis, Pfizer, Allergan and Corning.
The interaction with the customers continue with a series of webinars, emails, and most importantly, face-to-face meetings with key executives. Customers were happy with both our short-term and long-term vision for taking Revitas product to the cloud and by offering this product as Revenue Management as a Service.
Probably the strongest indication for customer alignment with our strategy was the purchase decisions that they made with both Model N and Revitas after the acquisition was announced in December. For example, J&J signed major deals with both Model N and Revitas in both medical device and pharmaceutical business.
J&J pharma business will run revenue cloud for US and global businesses both commercial and government utilizing transaction and analytical modules. The J&J medical device business will extend the deployment of revenue cloud to major new divisions for the US businesses.
Sanofi signed a major upgrade to the US revenue management application suite with Revitas. Gilead extended the revenue cloud for pharma by adding Model N, a discount to allocation management application to the revenue management application suite.
The discount to allocation management application is enabling pharmaceutical companies to enter into complex innovated bundle commercial contacting agreement while still accurately calculating prices for the US government programs such as Medicaid and Medicare. These prices are mandated on a monthly and quarterly basis and their accuracy helps to eliminate regulatory compliance risk.
We all added Ascensia Diabetes Care to our customer list. Established in 2016 through the acquisition of Bayer Diabetes Care by Panasonic's Healthcare Holding, Ascensia Diabetes Care is a global company dedicated to improving the health and lives of people with diabetes.
Ascensia subscribed to our revenue cloud for MedTech and will implement it with our express implementation methodology. Ascensia will leverage revenue cloud for MedTech to establish a global revenue management platform as they embark on the journey as an independent company.
Ascensia is a testament to the fact that where our Revenue Management as a Service offering is highly applicable to medium sized companies. In summary, we are off to an outstanding start for our combined journey and our early success in a testament to the strategic value of the acquisition for our customers and our shareholders as we one, drive revenue management as a strategic enabler for our customers and accelerate the growth of Model N; two, deliver comprehensive end-to-end revenue management solution and accelerate land-and-expand strategy by cross-selling and up-selling to the combined install base; three, accelerated transition of revenue management into the cloud and complete the transformation of Model N to 100% SaaS and maintenance revenue; four, realize significant cost synergies by accelerating the time to profitability for the company; and five, leverage combined resources to focus on material growth opportunities for Model N life sciences and beyond taking advantage of the significant market opportunity for revenue management.
I now want to shift gears from our life sciences and discuss our high-tech business. I'm delighted to let you know that we had an outstanding quarter in our high-tech vertical.
We added $14 billion global leader in data storage solution as a Model N customer. This leader is developing innovative products to enable people and business across the world to create, share and preserve the most critical memories and business data.
They subscribe to our revenue cloud for high-tech replacing the current system for pricing and channel management. The customer is implementing Model N’s deal management, channel management, deal intelligent and rebate management solution.
This global technology leader will leverage our revenue cloud to transform the revenue management process into a strategic end to end process. Specifically transforming disconnected processes in pricing, quoting, rebates claim and price protection into a single optimized business process.
Micron extended the revenue cloud footprint by subscribing to the sales for semiconductors and rebate management applications. Sales for semiconductor is the first CRM solution for the semiconductor and components industry.
Sales for semiconductor combined the best of both world Salesforce Sales Cloud and Model N’s deep vertical expertise to deliver a vertically focused solution for CRM and one that is fully integrated with our revenue cloud. Some other significantly deals in the quarter including AMD, diodes, and microchips.
While I was pleased with our execution during the quarter, I'm even proud of the fact that we made significant enhancements to the executive team of Model N. Russ Mellott joined Model N on January 3 as Senior Vice President and Chief Revenue Officer reporting directly to me.
In addition, we hired a new Head of High Tech Sales from NetSuite, a new Head of Europe, Middle East, and Africa Sales from Salesforce and a new Head of Global Alliances from Saba. With our strength and leadership in sales team, we believe we can improve our execution and accelerate the growth of Model N in particular we’ve seen opportunity to increase the visibility and predictability of our revenue by accelerating the transformation of Model N’s business model to 100% SaaS and maintenance revenue.
I’m encouraged by the results of Q1 ’17 and excited about the rest of fiscal-year ’17 and beyond. Let me turn the call over to Mark to discuss our financially results and guidance.
Mark?
Mark Tisdel
Thank you Zack, before I begin, I'd like to remind you that our first quarter results are Model N standalone as the acquisition of Revitas did not close until January 5, 2017 at the start of our second fiscal quarter. Also, our Q2 and fiscal-year ’17 guidance will include the result of the combined companies.
I want to reiterate some of the points Zack highlighted above. First, not only was it a strong overall quarter for Model N but Revitas also had a very solid quarter as well.
Second, committed to making the tough cost decisions and we have completed our evaluation. We have identified significant cost savings from both Model N and Revitas and are adjusting the business accordingly.
We will recognize most of the synergies by the end of Q2 and we will exit Q3 at a full synergy run rate. We expect a total annualized cost synergies from the combination of Model N and Revitas to be between 11 and 13 million.
Third, and most important, we are very focused on ensuring the transition to Model N is successful for the Revitas customers, partners and employees. We know this is critical to the continued success of Model N and our efforts are well underway.
The first quarter was a strong start to the year and we believe we are well positioned in fiscal 2017 improve the company's financial performance. Total revenues for the first quarter were 28.1 million, above our guidance range of 27.2 to 27.7 million.
This compares to 24.5 million in total revenue in the year-ago period. Within total revenues, license and implementation revenues were 5.4 million and SaaS and maintenance revenues were 22.6 million for the quarter.
Q1 represents a 14% increase year-over-year in SaaS and maintenance revenue dollars for the same period. The mix of our revenues in Q1 were 81% SaaS and maintenance versus 19% license and implementation.
The company remains committed to driving the business towards 100% SaaS and maintenance revenue. Before I move on to profit and loss statements, I want to remind you that my commentary will be focused on non-GAAP results.
We can't provide a full GAAP to non-GAAP reconciliation at this point as certain items related to the purchase accounting from the transaction of Revitas are not ascertainable at this point. We expect to complete the full review of the purchase accounting within the next few weeks.
Gross profit for the first quarter was $15 million compared to $12.7 million in the first quarter fiscal 2016. Similar to recent quarters, gross profit in this quarter included the impact of roughly 270,000 from the amortization of capitalized software that began upon the launch of Revvy CPQ product.
Overall gross margin in the quarter was 53%, an increase compared to 52% in Q1 of last year. We continue to focus on the improvement of gross margins specifically on SaaS and maintenance lines.
We would expect a slight decrease in gross margin for Q2 of 2017 as we will be adding in the tax 2017 payroll and related taxes for our global services team. We would expect our gross margins to improve sequentially in Q3 and Q4 of 2017.
Total operating expense was 19.2 in Q1 2017 compared to 17.1 million in the first quarter of fiscal year 2016. A 2.1 million year-over-year increase was due to 900,000 continued investment in sales and marketing personnel program, 700,000 from the additional month of channel insight expenses, and $500,000 lower capitalization of development spend.
Operating loss for the period is 4.2 compared to a loss of 4.4 million in Q1 of last year and better than our guidance of an operating lot of 4.4 to 5.9. Net loss in the first quarter was 4.1, an improvement from a net loss of 4.4 million in the first quarter of fiscal 2016.
We're very focused on accelerating the pathway to profitability as we will discuss below in our guidance. On a GAAP basis, operating loss for the period was 7.7 million compared to a loss of 7.7 in Q1 of last year.
GAAP net loss in the first quarter was 7.6 million, a improvement from the GAAP net loss of 7.8 million in the first quarter of fiscal 2016. We produced a non-GAAP net loss per share of $0.15 based on the share count of 28 million shares compared to the non-GAAP net loss per share of $0.16 based on a share count of 26.8 million shares in the first quarter of last year which was better than our guidance of a net loss of $0.16 to $0.18 per share.
GAAP loss per share was $0.27 in the first quarter, an improvement compared to $0.29 in the first quarter of fiscal 2016. Adjusted EBITDA for the first quarter was negative 3.5 million compared to a negative 3.2 million in the year-ago period.
We ended the first quarter with 52.4 million of cash and cash equivalents, down from 66.1 million at the end of the fourth quarter. The decrease in cash was due to the delay of some customer payments at December 31, which is a normal process of our customers retaining cash until early January.
Our cash balance is also reflective of payments of some of the legal and accounting costs related to Revitas transaction. In addition, at December 31, 2016 we have placed $5 million into the escrow in connection with Revitas transaction that was returned to us on January 5, 2017 when the transaction closed.
Otherwise we would have ended the first quarter with 57.4 million in cash and cash equivalents. At the end of our first quarter, our accounts receivable balance was 19.3 million and our total deferred revenue was 26.5 million.
We had a number of transactions in Q1 2017 in which the billings did not incur until after December, 31 which impacted both our accounts receivable and deferred revenue balances. These billings occurred early in January as scheduled and we fully expect to receive the cash in accordance with the agreement.
We are very focused on cash and reiterate our guidance of the ending cash balance at September 30, 2017 of 50 million to 52 million as we previously shared. For the first quarter, cash flow used by operations was 8.2 million, which after adding CapEx of approximately 200,000, capitalized software of 275,000 and the $5 million placed in an escrow as part of the acquisition of Revitas, produced a negative free cash flow of 13.7 million.
This compared to cash used by operations of 7.3 million in the first quarter of last year, which after adding approximately 400,000 of CapEx and capitalized software of 500,000 produced a negative free cash flow of 8.2 million. Moving on, let me now outline our guidance for the second quarter of fiscal 2017 as well as our expectations for full 2017.
As a reminder, our guidance includes the acquisition of Revitas. For our second quarter ending March 31, 2017, we expect total revenues to range from 33.5 million to 34 million.
This represents GAAP revenue prior to the deferred revenue impact from the purchase accounting adjustment which as discussed previously, is not yet ascertainable. Non-GAAP loss from operations is expected to be in the range of 6.5 million to 6 million.
This would lead to a non-GAAP net loss per share in the range of $0.26 to $0.28 based on a weighted average share count of 28.4 million shares and assuming approximately 1.5 million in net interest expense. We forecast a strong collections quarter for Q2 as Q1 was a significant renewal quarter for both Model N and Revitas.
For the full fiscal 2017, we now expect total revenues to range from 130 million to 134 million. This is an improvement from our prior guidance of 128 million to 133 million.
This increase is driven by the solid Q1 2017 performance by both Model N and Revitas. We expect our ending annualized recurring revenue or ARR to be between 46 million and 48 million.
This represents a 31% to 36% year over year growth. Please note that a majority of the transactions Revitas booked historically were perpetual license deals but as we previously discussed, we will be selling subscription based SaaS deals going forward.
The guidance represents GAAP revenue prior to the deferred revenue impact from the purchase accounting adjustment which is not yet ascertainable. The final purchase accounting entry has not yet been determined.
Non-GAAP net loss from operations is expected to be in the range of 15 million to 16 million, an improvement compared to our prior guidance of a loss of 17 million to 16 million. Non-GAAP net loss per share is expected to be in the range of $0.69 to $0.66 based on a weighted average share count of 28.7 million shares, an improvement compared to our prior guidance of $0.73 to $0.70.
Please note as mentioned above, we’ve already identified the synergies to be realized from the transaction and we believe we will be at the fully realized synergy run rate exiting our third quarter ending June 30, 2017. As mentioned above, the expected annualized synergies from the combination of Model N and Revitas will be approximately 11 million to 13 million.
We continue to believe this combined organization will accelerate its pace towards profitability and we now expect to be adjusted EBITDA positive in Q4 2017. As highlighted above, we expect our cash balance ending September 30, 2017 to be approximately $50 million to $52 million.
In fiscal 2017, Model N is committed to three key financial metrics. Number one, overall revenue growth.
Number two, driving towards a 100% SaaS and maintenance business. And number three, accelerating our path to sustained profitability and operating cash flow.
The acquisition of Revitas coupled with a solid Q1 overall quarter for both companies is driving Model N towards these three goals. We look forward to seeing you at our Analyst Day in New York City on Monday February 13th, where we will spend some time walking you through the combined operations, product portfolio and strategic initiatives for Model N.
We now open the floor for your questions.
Operator
[Operator Instructions] Our first question is from Jackson Ader of JPMorgan. Please go ahead.
Jackson Ader
Thank you. Hi, guys.
First question from me is, was there anything different in this quarter? You mentioned the billings slipping out into the second quarter.
Was it more than you expected, more that it has been in years past? I think seeing that $4 million decline in deferred revenue just kind of spooked me a little bit.
Mark Tisdel
Yes. So good question.
Jackson. So yeah, if you look back traditionally, our operating cash burn is heaviest in our Q1.
A lot of that factor is the timing of the renewals that we have a lot of renewals fall at the end of the Q1 time period and we collect that cash in the Q2 time period. As pertaining to this quarter, there was a couple of different elements.
One is, we had a couple of agreements with customers that we signed in Q1 where they requested that we invoice them the first week of January. So as compliant to that agreement, we did that, wouldn't impact revenue, but did obviously impacted deferred revenue and AR.
So the cash is still expected to be collected in this quarter. So really the only thing it impacted was AR and deferred revenue.
Secondly, we had a couple of renewals, which was renewed by December 31st where we did not receive the POs and enough time to invoice in the quarter, but those POs have been received. We have invoiced the customers and we expect to collect the cash on time.
So those were the two elements that had a negative impact on AR and deferred revenue in Q1.
Jackson Ader
Okay. And then a follow-up.
The Revitas business -- are you guys going to allow any upfront license purchases for Revitas products or is it all going to be SaaS? And if it's going to be some sort of transition, when would you expect the Revitas revenues to move that way?
Zack Rinat
Yeah. So with the exception of [indiscernible] we do not sell perpetual licenses anymore.
We sell subscriptions and then SaaS subscriptions. So this is the only two models that we are selling right now.
Operator
Thank you. The next question is from Brian Peterson of Raymond James.
Please go ahead.
Brian Peterson
Hi, guys. Thanks for taking the question.
So I wanted to hit on the updated fiscal year outlook a bit. Is there any way to parse that out between some of the improvement areas you have focused on for the legacy model in and then maybe some better-than-expected revenue and cost synergies as it relates to Revitas?
Mark Tisdel
Hi, Brian. Good question.
So a couple of different items. The way that we look at the business going forward is not Revitas and Model N.
It's the combined entity. That is the way that we approach the cost structure.
So as we -- Zack mentioned in his section, we view that as integrated company and we made adjustments to the ongoing business from both the Model N and the Revitas perspective. So we’ve spent a lot of time on that in the integration period up to the acquisition.
And as Zack mentioned, we executed on it very quickly and very efficiently in the quarter. So we feel very strongly that we did a great job on analyzing the cost structure, the duplicate cost structure and our ability to gain synergies very quickly after the acquisition.
Zack Rinat
Yeah. And just to add to what Mark has aid, the report you just heard from me and Mark was related to Q1 and we reported this as Model N as an independent company, like pre the acquisition with Revitas and I hope that we communicated well that we had a very strong quarter and very strong execution across the board, both in our life sciences business and actually in our high-tech business.
So we feel strong about the foundation of the business. We feel that actually Revitas is a great, a boost to a business that is already working well and we believe that the combined company is going to execute very well for fiscal year ’17 and beyond, but just to make sure that we clearly communicate, the entire product line of the company, in both life sciences and in high-tech and Revitas business executed very well in the quarter.
Brian Peterson
That's good to hear and especially on the high-tech side, I know that had an end market that with the M&A, the results weren’t where you wanted them a couple of quarters, any color on what’s changed this quarter to drive some of these deals and upsells that you’ve signed?
Zack Rinat
Yeah. I think the company has been much better focused execution on the market across the board.
We have an extremely strong product line in the high-tech space. We see a lot of convergence right now between the front office and the back office and revenue management is paramount to a rich inflection point.
And when you look at what we did with this particular deal that we announced in others and you look at the product suite, it's right there where the high-tech company needs and on one hand, ability to integrate to a sales force into the CRM and then the ability to execute the quoting and the rebate management. And I think that the company executed well because the company was focused on execution and on customers which made a big difference for the results.
Brian Peterson
Got it. Understood.
Thanks, Zack. And maybe one more for me, this is a high-level question, but if we were to look at maybe your top 10 or 15 potential customers in the life sciences business and if we were to think about where your revenue penetration is today versus maybe where it could be, what penetration rate would we be at now and maybe what are the few swing factors that could get you all the way up to the top?
Thank you
Zack Rinat
Sure. So basically when you look at the top 10 pharmaceutical companies, we have relationship with all of them, but at the same time, we believe that there is a huge opportunity to expand our relationship there.
Let's start with the basic act that we were successful in moving the customers to the cloud but still there is a large portion of them that can move to the cloud. In addition when you look at the penetration there and they have some of the application, but not all of the applications.
Some of them are doing the commercial, some of them are doing the regulatory and some of them are doing the analytical parts of our application suite. So there is a way to complete it by providing an end-to-end solution there.
Then you go further ahead and you look at the international component of the business and yeah, we were successful in also penetrating some of them, but there is a large opportunity to go and to include the execution system to overlay the management and a variety of the others. So I personally believe that there is a huge runway still for remodeling in the current market and now that we are a combined company, we can start working with them in a much more strategic way to start moving their end to end solution to the cloud and to overlay these other applications.
Operator
Thank you. [Operator Instructions] And the next question is from Chad Bennett of Craig-Hallum.
Please go ahead.
Chad Bennett
Great. Thanks for taking my questions.
So Mark, can you maybe give us a real time look at the balance sheet at the December quarter and balance sheet really doesn't matter at this point. Can you give us an idea where cash and debt is today?
Mark Tisdel
Well you know the deposition is at the 60 million that we disclosed at the acquisition and our cash position is relatively what we reported at the end of the quarter. And I think there's always going to be swings within a quarter Chad as you know.
As I mentioned earlier and I mentioned in the call, Q1 for us is a very strong renewal quarter. Zack also spoke about the strong execution by both Revitas and Model N in the quarter.
So as I mentioned in my note, we do expect Q2 to be a very strong collections quarter.
Chad Bennett
Okay. And then the ARR range that you gave 46 million to 48 million, exiting this year, is that a SaaS ARR metric.
Mark Tisdel
Yes. That is a SaaS AR metric.
That is correct, so that’s consistent with the information we shared last year, remember, we ended at about 35.2 million at September 30. So that’s an extension of that through September 30, 2017.
Chad Bennett
And that's just pure SaaS subscription revenue?
Mark Tisdel
Yes.
Chad Bennett
Okay. Got it.
And how -- I guess, do you think, how long will it take to I don't know if convince is the right word, but to shift Revitas customers to adopt your combined SaaS or cloud based solutions. Is it going to kind of take this fiscal year to get the sales cycle going and get people to really move that direction or can it happen sooner than that?
Zack Rinat
Yeah. So it’s going to take time and it's going to take time in two stages.
I think the first stage is for new customers right now, we’re only going to sell them subscription and for the companies that are currently on the on premise solution, it’s going to take it to enable the product and the solution the same way that we did it for Model N and move the companies in this direction. This is not something that you flip the switch and companies are moving there.
At the same time, you can look at the Model N history where we converted the 81% of our revenues to recurring revenues and I feel that we can do it actually faster with the Revitas customers because we have the methodology, we have the IP, we have to know how to do it and actually we are already in the mid of the execution there. So I feel that we're going to start to do it in this fiscal year, but it's going to take a faster shape in the next fiscal year after that.
Mark Tisdel
And Chad to add on to Zack’s comment, as we mentioned in the past, Revitas traditionally had a perpetual license model. They were moving towards a subscription model.
So they had aided in that direction with their current customers. As we’ve talked to customers and the pipeline for Q2 and in the transactions that occurred in Q1, our Q1, their customers are very willing to adopt to that methodology.
So as Zack indicated, the other portion of that is converting existing customers to the cloud overall.
Chad Bennett
Okay. So one last one for me, probably for Mark.
Mark, on the revenue range that you gave for this fiscal year, the revenue segments, should they change much 80-20 from what they have been or were last quarter or will there be much change there I guess?
Mark Tisdel
Yeah. I would expect to be in that 80-20 range in the beginning of the year for us Q2 to Q3.
And as we move ahead, I would expect that to increase on our SaaS and maintenance line. So obviously, Revitas had some transactions that they had booked previous to the acquisition.
We’re executing on the delivery of the implementations for those customers, but we do have the opportunity to go in and move those customers to the cloud, probably not going to happen in the next couple of quarters, but the long term outcome is our expectations are that we will increase our staff and maintenance line long term.
Operator
Thank you. Our next question is from Patrick Walravens of JMP Securities.
Please go ahead.
Patrick Walravens
Great. Thank you and congratulations on getting all that done in the quarter.
I have one for Zack and then maybe two for Mark. So Zack, you mentioned in the script early on eliminating some redundant products, I was wondering if you give us a little more color on what means.
Zack Rinat
Yeah. Revitas had a product that was called contract wise.
It was contract life cycle management solution that was sold actually to outside the life sciences business. It actually had two customers that purchased this product.
We have our own product, contract life cycle management that is built on force.com as and it is widely used including in the life sciences industry by the companies like AstraZeneca and Phillips and others. While this was an early stage product, Revitas had spent quite a significant amount of resources on that engineering organization, in particular in US and we did not take this product forward.
Patrick Walravens
Great. Okay.
That’s helpful. And then Mark, I guess two questions, maybe you can break apart your estimates a little better.
Just give us some sense of, like on the cost synergies, the 11 million to 13 million, are there some chunks that we can think about that that falls into?
Mark Tisdel
Yeah. So it really falls into two main buckets, Pat.
One is around the people and two is around what I'll call kind of everything else. So people part of that represents the majority of the cost savings, those adjustments to the headcount have been made.
We talked about January 5th we announced to the individuals and we made the moves very quickly and adjusted the organization accordingly. So those synergies have already been realized.
The remaining synergies which are minor as compared to the headcount have to do with consolidations for example in facilities. We had a facility in Philadelphia for example that closed on January 31st.
We have a facility, a duplicate facility in new work out here that we're going to sublease. And then there's obviously some overlap in marketing programs, et cetera.
But a majority of the synergies related to headcount have already been realized. And there's just some minor synergies that we will gain as we move through Q2 into Q3.
Patrick Walravens
Okay, great. And then a similar question because I am anticipating that the big question I'm going to get tomorrow is going to be the difference between, you guys clearly feel good about how you execute in the quarter and yet the billings number.
So it's just between my estimate and then what I calculate, there's like an $8 million -- $7 million or $8 million difference. What would be the chunks for that, like what made up the shortfall in billings?
Mark Tisdel
Yeah. So I think there was an earlier question that was asked by Jackson around this topic.
So there was really two items. One of them was we did have a pair of contracts that customers signed in Q1.
More effectively, they acquired or requested us to invoice them the first week of January. So it only impacted AR and deferred revenues, it did not impact obviously revenue for us and then there was some of the renewals that we had that we did not receive the purchase order for the customer until after we had closed the month of December.
And therefore, they fell into AR and deferred revenue in second quarter, but as I indicated earlier, we’re obviously going to collect that cash on a timely basis as well. So it's purely a timing difference.
You're estimate is very close to ballpark as far as the impact of that, but it's purely a timing difference for us and that's why as I mentioned earlier, we expect to have a very strong collections quarter in Q2.
Patrick Walravens
Great. And was it like 50-50 just ballpark?
Mark Tisdel
It was about 40-60 new contracts versus renewals.
Operator
Thank you. We have no further questions at this time.
I'd like to turn the conference back over to management for closing remarks.
Zack Rinat
Yeah. Thank you very much for joining the call today.
We appreciate it. We are very excited about Q1.
We believe that the company executed very well. We are also very excited about the Revitas acquisition and how we got started and we look forward to seeing you at the Analyst Day next Monday in New York City.
Thank you for joining.
Operator
Thank you. Ladies and gentlemen, this does conclude today's teleconference.
You may disconnect your lines at this time. Thank you for your participation.