Nov 7, 2016
Operator
Greetings, and welcome to the Model N Fourth Quarter Fiscal 2016 Financial Results Conference Call. [Operator Instructions] As a reminder, this conference is being recorded.
I'd now like to turn the conference over to your host, Ms. Staci Mortenson, Head of Investor Relations.
Thank you. You may begin.
Staci Mortenson
Good afternoon. Welcome to the earnings results call for Model N's fourth quarter and full year fiscal 2016, which ended on September 30, 2016.
With me today are Edward Sander, 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 fourth quarter and full fiscal year '16 performance and our financial outlook for our first quarter and full year fiscal 2017.
Staci Mortenson
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 these forward-looking statements.
Staci Mortenson
In addition, during today's call, we will discuss our 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.
You can find additional disclosures regarding these non-GAAP measures, including reconciliations with comparable GAAP results, in our press release. I encourage you to visit our Investor Relations website at investor.modeln.com to access our fourth quarter and fiscal year '16 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 fiscal year '15.
Staci Mortenson
With that, let me turn the call over to Ed.
Edward Sander
Good afternoon. Thank you all for joining us today to discuss our Q4 and full fiscal year 2016 financial results.
Total revenue for the fourth quarter was $28.5 million, surpassing our guided range of $27.5 million to $28 million and up 12% from the same period one year ago. SaaS and maintenance revenues were $22.4 million for Q4 fiscal year 2016, up 32% from the same period last year and accounted for 79% of total revenue, contributing to our continued acceleration as a cloud solutions company.
Edward Sander
For the full fiscal year, total revenues were $107 million and up 14% year-over-year compared to fiscal year 2015. Our SaaS and maintenance revenue for fiscal year 2016 was $86.4 million, representing 50% year-over-year growth for the full fiscal year 2016 compared to 2015.
We believe this is another directional sign of the market demand for Model N's cloud-based Revenue Management platform.
Edward Sander
On the Q3 earnings call, in August, we shared 3 areas that were impacting our performance. The first was a slowing in the pace of full-scale migrations for existing on-premise deployments to the cloud by our life sciences pharma customers.
The second was the need to adjust our go-to-market approach for our Revvy business. And the third was performance in our high tech business that was below expectations.
We continued to see challenges during the fourth quarter and did not improve our execution as much as we'd hoped. While we're optimistic about the initiatives put in place, they are still work in progress which you'll see reflected in our guidance for fiscal year 2017, which calls for a relatively flat year-over-year total revenue growth.
Edward Sander
With that said, let me address what we saw in these areas that impacted our performance, what we're doing about it and the progress made to improve overall performance as well as why we remain confident about our business for fiscal year 2017.
Edward Sander
In our life sciences business, the pace of large-scale enterprise-wide cloud migrations was again below expectation. Although we did not see the pace quicken as we'd hoped, we did see customers migrating to the cloud as well as market demand for Model N's cloud-based Revenue Management solutions.
Shionogi is one example of a customer who chose to migrate from their on-premise system to Model N's Revenue Management Cloud platform. Shionogi is the U.S.-based subsidiary of and Shionogi & Co.
Ltd., a $3 billion biotechnology and pharmaceutical company based in Osaka, Japan. With more than 6,000 global employees, they market products in several therapeutic areas including women's health, anti-infectives, pain and cardiovascular diseases.
Shionogi Inc.' s U.S.
headquarters is based in Florham Park, New Jersey.
Edward Sander
Shionogi was operating an on-premise version of our end-to-end Revenue Management Application Suite across government compliance, managed care, commercial and revenue management intelligence for life sciences pharma. Shionogi decided to move their entire Model N footprint to the cloud and purchased an enterprise subscription to our Revenue Management as a Service or RMaaS offering to support their near-term growth, new product launches and more sophisticated user requirements.
Edward Sander
Another important example of a large pharma making a strategic, long-term decision to move its revenue management needs into the cloud was a decision made by a $10 billion U.S. subsidiary of a top 5 global pharma.
This firm specializes in eyecare products, and their mission is to provide innovative products that enhance quality of life by helping people see better. In 2011, they merged with another top global pharma and united 3 separate divisions into a single eyecare business, which is now their second largest division.
To aid its strategic objectives of reigniting growth, accelerating innovation and competing better in emerging markets, they subscribed to Model N's CPQ solution last quarter. After helping them transform how they address global pricing with their subscription to Revvy GPM last year, this top 5 global pharma is now modernizing their price execution, deal approval, quoting and complex agreement processes with Revvy CPQ.
Edward Sander
Lastly, Sobi is another good example of a company who chose Model N's Revvy cloud platform over on-premise solutions to support their revenue management needs. Swedish Orphan Biovitrum, also known as Sobi, is a $2.86 billion pharmaceutical headquartered in Stockholm, Sweden, spanning 24 countries and delivering therapies to patients in 67 countries across the globe.
They are a leading integrated biopharmaceutical company dedicated to bringing innovative therapies and services to improve the lives of rare-disease patients and their families. Sobi's portfolio is primarily focused on hemophilia, inflammation and genetic and metabolic diseases.
Sobi subscribed to Model N's Revvy GPM and Revvy CPQ solutions. They viewed our Revvy GPM solution as the clear market-leading cloud solution for managing global pricing in life sciences, and they viewed our tailored CPQ solution for life sciences as having the best fit for their needs out of the cloud.
Sobi purchased these solutions to manage the continued expansion of their growing global product portfolio, more efficiently setting pricing in the launch of new products and upgrade their existing pricing databases into a single global master in the cloud.
Edward Sander
Revenue Management remains a mission-critical business process for companies focused on maximizing their revenue potential and driving growth. Model N's cloud platform addresses the continuum of revenue management needs from complex pricing, quoting, contracting, rebate and incentive management that natively integrate by design into companies' critical Salesforce.com, Oracle and SAP backbones.
Edward Sander
As we've noted, in our larger opportunities, we see the opportunity for cloud transformation projects for revenue management escalating to broader enterprise-wide programs. We believe these programs in turn will increasingly be tied to large IT initiatives, driving more deal complexity and longer cycles.
So to help with this, we built a consulting team of some of the market's best value engineering talent for life sciences from SAP and Accenture, among others, who have done this before and have experienced driving transformational change in large-scale IT projects. At the same time, we are strengthening these competencies within our sales organization and investing in Model N's partner ecosystem function.
We're optimistic that these initiatives will aid the pace of customers' journeys to the cloud.
Edward Sander
Moving on to our Revvy business. I spoke about some of the challenges we faced in our third quarter.
In the fourth quarter, we began to see traction in our Revvy business. We also entered into a significant expansion of our Salesforce partnership, which I'll speak about in a minute.
I've already shared several examples of customer wins last quarter within our Revvy portfolio. Sesotec is another good example of the traction we saw for our Revvy solutions and one of Model N's first customer wins in the manufacturing space.
Edward Sander
With customers in over 60 countries, Sesotec GmbH is a leading manufacturer and developer of inspection, separation and sorting systems for the food, pharmaceuticals, plastics, wood, glass and recycling industries. Sesotec systems are used in process, packaging and production lines throughout these industries and the specialized preparation of materials for recycling.
Sesotec subscribed to Model N's Salesforce-native Revvy CPQ solution for SAP and SAP Variant Configurator in the manufacturing industry space to support their need to improve data accuracy related to quoting, selling and reporting across their sales organizations and channels. After a market review, they chose Model N because they viewed it as the best solution offering seamless interoperability between their SAP, ERP and Salesforce CRM systems in the manufacturing space.
Edward Sander
Now back to Salesforce. I'm also pleased to share that Model N significantly expanded its Salesforce partnership last quarter, specifically geared to support our Revvy portfolio of products.
Model N is now a platinum-plus Salesforce partner, one of just 35 globally, and we have several initiatives already underway to more broadly offer our portfolio of Revvy solutions across the Salesforce ecosystem. In addition to elevating our level of collaboration to this strategic new tier, we also announced the release of 3 new solution offerings resulting from this new chapter in our partnership with Salesforce.
Edward Sander
The first new offering is Revvy Sales, a powerful industry-specific extension for Salesforce Sales Cloud, specifically designed for the high-tech semiconductor industry. The second new offering is Revvy CLM for salesforce, a comprehensive contract management solution that streamlines the lead to cash process.
The third new offering is an exciting new example of the depth of our new partnership and the modular capability of our Revvy cloud platform. Revvy for Salesforce CPQ is a suite of products designed to work seamlessly with Salesforce CPQ.
Collectively, they help businesses streamline contract negotiation and red-lighting processes as well as enhanced quote management, profit analysis and deal modeling for Salesforce CPQ customers. With this new offering, we are demonstrating the flexibility of our Revvy portfolio to offer modular solutions that can be unbundled from our cloud platform to target specific pinpoint business needs.
Edward Sander
We're incredibly excited about our new platinum-plus partnership with Salesforce. Through it, we plan to build unique and highly complementary technology on the force.com platform much faster while leveraging Salesforce.com's expanded reach into thousands of accounts globally.
It's a great example of how we're expanding our channel partner ecosystem to drive more effective go to market and broader distribution for our solutions in order to drive growth.
Edward Sander
Lastly, I spoke about how our high tech business was below expectation due to performance and consolidation in the semiconductor market. While we continue to see consolidation activity, we're optimistic that our Q4 sales leadership changes and additions to the sales team with enterprise veterans possessing deep expertise are working.
Edward Sander
Ampleon is a good example of how our new sales team is driving business in spite of consolidation in the industry. Ampleon is a global semiconductor manufacturer headquartered in the Netherlands, spun off from NXP following the acquisition of its radio frequency power business in 2015.
The global company focuses on mobile broadband, multi-market and radio frequency energy electronic products for a wide range of applications such as cellular base stations; radio, TV and broadcasting; radar; air traffic control; cooking lighting and industrial lasers, among others. Ampleon purchased Model N's Deal Management solution for the high-tech industry to seamlessly manage its global pricing, quoting, contracts, opportunities and registrations in the cloud.
They also purchased our Channel Management solution for the high-tech industry to manage their debits, point-of-sale, channel contracts and credit claims in the cloud. You'll recall that Model N expanded its high-tech solution portfolio with our Channelinsight acquisition at the same time last year.
Edward Sander
Ampleon selected Model N over in-house solutions and competing vendors because of the completeness and modularity of the system. They could use its functionality as they needed it, when they needed it, as well as its interoperability with their SAP platform.
I'm optimistic about the contributions this team will deliver to Model N's high tech business, contributing to a promising pipeline for fiscal year 2017. We also believe the Salesforce partnership I just spoke of will help considerably in this area of our portfolio.
Our cloud solution offering is addressing companies' revenue management needs, and we believe we have the opportunity to return Model N to historic growth rates, but we know we need to execute better. We had challenges in the second half of fiscal year 2016 and we believe we're addressing them with the initiatives I've outlined.
Our expectations are that we'll see improved business and bookings trends as we move throughout the year. While we know we have work to do, I remain confident that there is meaningful opportunity to accelerate the move to cloud-based revenue management and transform how revenue management is done in the industry.
Edward Sander
I'd now like to turn the call over to Mark to discuss more of our financial results and guidance for Q1 and fiscal year 2017. Mark?
Mark Tisdel
Thank you, Ed. Total revenues for the fourth quarter were $28.5 million, above our guidance range of $27.5 million to $28 million.
This is up 12% from $25.4 million in total revenue in the year-ago period. Also, SaaS and maintenance revenues were $22.4 million for the quarter, up 32% from Q4 2015.
License and implementation revenues were $6.1 million.
Mark Tisdel
Our shift towards SaaS and maintenance revenue is continuing to progress and these revenues accounted for 79% of total revenue. This is a 1,200 basis point improvement from the 67% of total revenue in Q4 fiscal 2015.
We reported 81% SaaS and maintenance revenue for fiscal 2016 as a whole, up 2,000 basis points from fiscal 2015.
Mark Tisdel
Our GAAP gross profit for the fourth quarter was $14.9 million compared to $13.8 million for the fourth quarter of fiscal 2015. GAAP net loss for the fourth quarter was $7.8 million compared to $5 million in the fourth quarter of fiscal 2015.
GAAP loss per share was $0.28 for the fourth quarter compared to $0.19 in the fourth quarter of fiscal 2015.
Mark Tisdel
Before I move on, I want to remind you that unless otherwise specified, all of the metrics that we'll be discussing from here on this call are non-GAAP results. Our non-GAAP metrics exclude stock-based compensation and other one-time items.
A complete reconciliation of GAAP to non-GAAP results is provided in our earnings press release issued earlier today and available on the Investors section of the website.
Mark Tisdel
Non-GAAP gross profit for the fourth quarter was $15.8 million compared to $14.3 million in the fourth quarter of fiscal 2015. Similar to recent quarters, gross profit in this quarter included an impact of roughly $700,000 from the amortization of capitalized software that began upon the launch of Revvy products.
Overall, non-GAAP gross margin in the quarter was 55%, up from 53% last quarter and compared to 56% in Q4 of last year.
Mark Tisdel
Non-GAAP loss from operations was $2.9 million compared to a non-GAAP loss from operations of $1.7 million for the fourth quarter of fiscal 2015. Non-GAAP net loss in the fourth quarter was $3 million compared to a net loss of $1.8 million in the fourth quarter of fiscal 2015.
We produced a non-GAAP net loss per share of $0.11 based on a share count of 27.8 million shares compared to a net loss per share of $0.07 based on a share count of 26.5 million shares in the fourth quarter of last year. This was in line with our guidance of non-GAAP net loss of $0.11 to $0.13 per share.
Mark Tisdel
Adjusted EBITDA for the fourth quarter was negative $1.7 million compared to negative $700,000 in the year-ago period. We ended the fourth quarter with $66.1 million of cash and cash equivalents, which is down from $70.1 million at the end of the third quarter.
This was consistent with the amount we guided to for Q4 2016. At the end of the fourth quarter, our accounts receivable balance was $19.9 million and our total deferred revenue was $30.8 million.
Mark Tisdel
For the fourth quarter, cash flow used in operations was negative $4.6 million, which after adding CapEx of approximately $500,000 and capitalized software of $200,000, produced a negative free cash flow of $5.3 million. This compared to a cash flow used by operations of negative $2.9 million in the fourth quarter of last year, which after adding approximately $300,000 of CapEx and capitalized software of $700,000, produced a negative free cash flow of $3.9 million.
Mark Tisdel
Turning to fiscal year 2016. Revenue grew 14% to $107 million, with SaaS and maintenance revenue increasing 50% to $86.4 million.
Our GAAP gross margin for the fiscal year was 50% compared to 56% at fiscal 2015. Non-GAAP gross margin for the year were 53% compared to 58% in the prior year.
Annual recurring revenue or ARR at September 30 was $35.1 million, reflective of the booking challenges we experienced in the second half of the year.
Mark Tisdel
GAAP loss from operations was $32.7 million compared to a loss from operations of $19.1 million for fiscal 2015. Non-GAAP loss from operations for the fourth quarter was $2.9 million compared to an operating loss of $1.7 million in the fourth quarter of fiscal 2015.
GAAP net loss for the fiscal year was $33.1 million compared to $19.6 million in the prior fiscal year. Net loss per share was $1.21 for the fiscal year compared to $0.76 in fiscal year 2015.
Non-GAAP net loss for fiscal year 2016 was $17.4 million compared to a loss of $7.6 million in fiscal 2015. Non-GAAP net loss per share for fiscal 2016 was $0.64 compared to a net loss per share of $0.30 in the prior year.
These figures were impacted by our transition to a more recurring revenue model. Adjusted EBITDA for fiscal year 2016 was a loss of $12.6 million compared to a loss of $3.3 million in fiscal year 2015.
Mark Tisdel
Moving on, let me now outline our guidance for the first quarter of fiscal year 2017 as well as our expectations for full fiscal year 2017. For the full fiscal year 2017, total revenues to range from $105 million to $107 million.
We currently have visibility into approximately 77% of fiscal year 2017 revenue. This compares with approximately 75% at September 30, 2015.
We expect SaaS and maintenance revenue to increase from 81% of total revenue in fiscal '16 to 85% to 87% of total revenue in fiscal 2017, continuing the conversion of our business model. This includes our license and implementation line decreasing 30% to 40% versus fiscal year 2016.
We expect loss from operations in a range of $21 million to $20 million, and non-GAAP loss per share in the range of $0.73 to $0.70 based on the weighted average share count of 28.7 million shares.
Mark Tisdel
The annual recurring revenue is expected to range from $44 million to $46 million, an increase of 25% to 31% over fiscal year 2016. Please note we define annualized recurring revenue as the monthly recurring revenue at September 30, 2017, multiplied by 12.
We expect to exit fiscal year 2017 with a cash balance of $55 million to $57 million.
Mark Tisdel
In light of our current revenue forecast for fiscal 2017, we're reviewing options to drive further efficiencies in our business and we are optimistic that we'll be able to do so while continuing to invest in initiatives that are essential to restoring high levels of growth for the long term. We will provide a further update in this regard after we completed our review process in Q1.
Mark Tisdel
For our first quarter ending December 31, we expect total revenue to range from $27.2 million to $27.7 million; net loss from operations in the range of $5 million to $4.4 million. This would lead to a non-GAAP net loss per share in the range of $0.18 to $0.16 based on a weighted average share count of 27.9 million shares.
Mark Tisdel
We'll now open the floor for your questions.
Operator
[Operator Instructions] Our first question comes from Tom Roderick from Stifel.
Matthew Van Vliet
Matt Van Vliet on for Tom. I guess first off, curious what the specific changes to the sales organization that you referenced were done in the quarter, maybe what to expect here in the next couple of months as well.
And then in addition to that, what changes have been made to the overall sales process and training program or incentive program to help spur on more of the SaaS sales and get this thing turned around?
Edward Sander
Sure, Matt. Good to speak with you today.
This is Ed speaking. So let me address both your questions in terms of what we've done differently within the sales organization and then what we're doing to invest in enablement.
Within the sales organization, there's one specific change that we mentioned that we made in the quarter, and that's the introduction of new leadership for our high tech sales team. That person has been with us and he's already met a number of our key customers, and we can already see changes in terms of how he's managing for the business.
He's also brought in new sales team members that I'd also mentioned that have expanded the team and the scope. So that is really the specific change that we've made.
We are investing in the partner ecosystem, as I've mentioned, and we have a finalist candidate that is very close to start. He's going to be running the entirety of that function for us as we continue to invest.
So from a go-to-market perspective, those are the changes that we made within the organization. In terms of enablement and training, we're doing a number of things.
I spoke in our last earnings call about some of the focus that David Miller within our product marketing organization has added. We are continuing to invest in the training and enablement function, delivering more tools to our teams.
One of the other disciplines that we've added is a result from the investment that we've made into this value engineering competency that I also mentioned. And we have a number of joint activities that we're doing in partnership with Salesforce as a result of the go-to-market engagement that we have with them through that partnership.
Matthew Van Vliet
Okay. And then obviously, the big news over the last several quarters in the CPQ space has been the Salesforce acquisition of SteelBrick.
How do you feel like that's impacting your business? You obviously made some changes around the Revvy CPQ go-to-market here, but did that put a pause on some customers all of a sudden want to look more closely at that?
Or how do you see your positioning relative to the functionality of the Salesforce CPQ product?
Edward Sander
Well, that's actually -- Matt, that's an area that we're pretty excited about right now. So you'll recall, I highlighted 3 customer stories actually that chose Model N for their CPQ needs: the top 5 global pharma, Sobi and Sesotec.
In terms of how we're working directly with Salesforce, we've taken a collaborative approach. SteelBrick has -- certainly does have an offering in the market.
Historically, we had not seen that offering in the majority of our deals. But what we've chosen to do in that partnership is work together.
There are specific capabilities that we have within our CPQ offering that we've chosen to partner together on and offer in combination with Salesforce's CPQ product. Those are some of the additional new product offerings that I'd mentioned.
So we're very excited about the partnership. We're very optimistic about what it can bring back to Model N, and we look forward to working with the broader Salesforce organization to bring Model N's Salesforce CPQ support capabilities to a much larger portion of the market.
Operator
Our next question comes from Sterling Auty from JPMorgan.
Jackson Ader
This is Jackson Ader on for Sterling tonight. A couple of questions.
One really, I guess, is high level. As far as the conversions are concerned from on-prem to SaaS, is this more about demand or is it just people dragging their feet?
What is the main driver here? Or is it sales execution issues?
What would you say is probably the leading issue as far as getting conversions?
Edward Sander
Sure, Jackson. It's good to speak with you today.
This is Ed. So in terms of the conversions that we're seeing, there is a concentration and that's within our life sciences pharma business, and specifically, it's within the large-scale IT projects that we typically see at the top end of the food chain.
In terms of what's happening and what's driving it, it's really a continuance of what we talked about during our last earnings call. Companies when they make this case for change, it is a transformational initiative within their organization.
And inherently, it's actually a good thing for the industry and a good thing for Revenue Management because the desire to move to cloud is absolutely happening, and we even talked about an example of that with the Shionogi customer story that I mentioned a couple of moments ago. When we see these large-scale initiatives beginning to unfold across an organization, they involve significant gating, there is a desire to see payback at different stages within a much larger project and a complexity within the plan before it's actually approved for capital expenditure.
This is one of the key reasons why we've invested in the value engineering consulting capability that I mentioned. These are people that are very familiar with this nuance to large-scale IT projects, and we're optimistic about their contribution.
Now in terms of sales execution, we do believe that the majority of the issues with these large-scale IT migration projects are on how they're managed, which is why we're also investing in enabling the partner ecosystem. Partners in large SIs that are already in place within our large pharma customers are receiving training for Model N on Revenue Management applications.
We basically feel that the more resources that we can offer to our customers, the more we'll be able to help them in their journeys for migration.
Jackson Ader
Okay. And then another follow-up on the Salesforce.
So you just mentioned adding some headcount in the high-tech Salesforce space. Do you expect to add more sales headcount either in high tech or in life sciences as 2017 moves forward?
Edward Sander
Well, we always evaluate of the constitution of our sales organization based on the forecast and our ability to meet that coverage. So we are always looking at the sales organization and rightsizing it.
In terms of the specific expansion that I spoke of, we have expanded the high tech sales team. We are optimistic about the opportunities that we see there and I talked about one of them recently with the Ampleon deal.
But we are also significantly investing in the focus and support that we have within our partners and alliances function to support not only business in life sciences and high tech, but also the optimism that we have for the outputs of the Salesforce relationship.
Operator
[Operator Instructions] And our next question comes from Chad Bennett from Craig-Hallum.
Chad Bennett
So are we expecting -- in the '17 guide, it basically implies that your line 1 revenue at the midpoint goes down to about $15 million. I guess, I assume that's the right number.
Secondly, is there much line 1 license revenue left and is that mostly just professional service related?
Mark Tisdel
Hey, Chad. It's Mark.
So in reference to your earlier point, we landed a little over $20 million for the year in line 1. So with our current visibility, we're seeing about a $6 million to $8 million haircut off of that number.
So roughly, $12 million to $14 million is where we believe it will land in the line 1 revenue, so a little bit below the $15 million you indicated. As far as the mix we've talked about, you can see reflected in the gross margins, there is very little license in that line that's being amortized out over time.
And we don't anticipate booking many perpetual licenses with services and going through our POC model as we move forward. As we've indicated, our focus is really around the recurring side of the model, which is why we guided for the line 2 revenue to go from 81% to 85% year-over-year.
That's really the focus of the business and continues to be the focus of the business.
Chad Bennett
So I jumped on the call a little late, but I think I saw your SaaS ARR exited the year at about a little over $35 million, which is essentially what you talked about exiting this year as being your target. You upped it in the first quarter, you upped it in the second quarter, I guess to take a -- so takeaway would be second half bookings on the SaaS side were pretty much modest at best, or nil.
Is that the takeaway we should think about?
Mark Tisdel
Yes, I think the way to think about it, Chad, was the first half of the year was much stronger in the SaaS bookings than the second half of the year. And I think Ed had reflected on it in the last 2 calls, the breakdown between the high tech and the Revvy pieces and execution issues that we've had in that area.
So yes, originally, in the beginning of the year, we guided $35 million to $36 million and we came within that guidance range. We did have a strong first half of last year, but we did not execute well in the second half of the year.
Chad Bennett
And do you expect maintenance -- how do you expect maintenance? Is maintenance -- can it hold relatively flat this year or do you expect that to be down?
Mark Tisdel
No, we expect maintenance to -- for fiscal year '17, to be relatively flat to fiscal year '16. I think we've talked about in the past that our retention rate for the SaaS and maintenance line is extremely strong.
We do have an annual increase, which is very tied with CPI. So we do expect that number to remain relatively flat in 2017 to 2016.
Operator
Our next question comes from Patrick Walravens from JMP Securities.
Patrick Walravens
So Ed, as I look at this, it seems like it's a pretty complex situation, right? I mean, you have multiple platforms, multiple industries, there's a model transition, there's a sales transition.
You want to grow, of course, but you want to be efficient, too. And thank you for all the detail on this call but just -- I was wondering if you could just step back for us and just sort of help us figure out like at a high level, what is the strategy?
Where is this business headed? And maybe, is there anything in your experience that you can relate this to and how that played out?
Edward Sander
Sure. First of all, Pat, good to speak to you again.
I don't believe that -- from the beginning in our conversations that we've had, we've talked about consistency in the company's strategy. Nothing has changed or is really different.
We haven't taken a course change in the company's overall strategy. It is to help bring a singular Revenue Management platform in the cloud that is integrated and addresses core competencies that the market has told us and also, that we've helped define along the way, as being fundamental prerequisites to help a company manage its revenue management processes better.
That's the name of the game and that's our core approach. We have areas of competency where our industry-specific knowledge allow us to deliver a unique solution to customers, and it's in the life sciences and the high-tech space.
We mentioned one deal this past quarter, Sesotec, that actually is a first entrée into potentially looking at expanding into a new space, and that's discrete manufacturing for us, but the strategy remains unchanged. So Pat, what we've done in this complex situation -- these are complex projects.
I have seen them before in my past, in the prior companies that I worked in. When you have large, complex projects, companies tackle them in different ways.
There are times where it is a very large, strategic, multi-year initiative and the vendor then steps into place and helps the customer on that journey. We have a number of examples of those and I talked about Shionogi, they're entering into their journey.
Two customers that I didn't talk about actually that have recently gone live using Model N's Revenue Management as a Service solution are Merck and Astellas. They have made that journey from an on-prem world to a cloud world.
So it's one of the reasons why we've done 2 significant investments because they are pages from the playbook of successful plays where I've seen this managed in the past and in prior chapters. And that is having a value competency that can offer consulting resources to an organization to help them understand how to tackle the journey for any large IT transformational project.
I've seen this done extremely successfully in other companies, and I'm optimistic that we're going to deliver this competency because some of the resources that we have, and we've added into our value engineering team, I worked with before in other firms. The other area where I've seen success being delivered to a company who's embarking on a major project is to have consistency within their partner ecosystem.
When the same resources that are involved in another large IT project are also trained and well versed on the solutions that Model N has to offer, the bridges are more easily traversed, the connections between the projects are more easily managed. And even something as simple as the PMO project teams have better knowledge of the intersection points.
This is one of the reasons why we are investing more within our partner ecosystem function and why we're setting up programs that, for Model N, are going to help these other firms, certification, centers of expertise, centers of practice for those teams. So these are some of the things that we're doing, Pat.
I have seen these things done before and we're optimistic about the results we'll deliver Model N and our customers.
Operator
[Operator Instructions] And our next question comes from [indiscernible] from Craig-Hallum.
Unknown Analyst
Sorry guys, my questions have already been asked. Thanks, though.
Operator
And if there are no further questions. I will turn the floor back over to management for any closing comments.
Edward Sander
Thank you, everyone, for coming into the call today. We have shared the output of fiscal year.
We've given you our views into fiscal year 2017. We do recognize some of the areas that impacted business performance in 2016 and we've shared some of the initiatives that we've put into place, that are underway and that we feel optimistic about.
We are looking forward to fiscal year 2017, and we're also looking forward to seeing you at our upcoming Analyst Day. Thank you very much for your time today and enjoy the rest of your afternoon.
Operator
This concludes today's teleconference. Thank you for your participation.
You may disconnect your lines at this time.