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Q4 2019 · Earnings Call Transcript

Nov 10, 2019

Operator

Greetings and welcome to Model N Fourth Quarter 2019 Earnings 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 today, David Barter, Chief Financial Officer. Thank you, sir.

You may begin.

Dave Barter

Good afternoon. Welcome to the earnings call for Model N's fourth quarter and fiscal year 2019, which ended on September 30th, 2019.

This is David Barter, Model N's Chief Financial Officer and with me on the call today is Jason Blessing, Model N's Chief Executive Officer. Our earnings press release was issued after close of market and is posted on our website, where this call is being webcast.

The primary purpose of today's call is to provide you information regarding our fourth quarter and fiscal year 2019 performance and our financial outlook for our first quarter and full year fiscal 2020. Commentary made on this call may include forward-looking statements.

These forward-looking statements are based on management's current views and expectations as of today and should not be relied upon as representing our views as of any subsequent date. We disclaim any obligation to update any forward-looking statements or outlook.

Actual results may differ materially. Please refer to the risk factors in our most recent Form 10-Q filed with the SEC.

In addition, during today's call, we will discuss non-GAAP financial measures. These non-GAAP financial measures should be considered in addition to, not as a substitute for or in isolation from GAAP results.

Reconciliations of the non-GAAP metrics to the nearest GAAP metrics are included in the earnings release issued today, which is available on our website. I encourage you to visit our Investor Relations website at investor.modeln.com to access our fourth quarter fiscal year 2019 press release, periodic SEC reports, and the webcast replay of this call.

Finally, unless otherwise stated, all financial comparisons in this call will be to our results in fiscal year 2018. With that, let me turn the call over to Jason.

Jason Blessing

Thank you, David and good afternoon everyone. Thank you for joining us today.

I'm pleased to report another well-executed quarter with results ahead of our guidance. Total revenue for the quarter was $36.6 million and adjusted EBITDA was $5.1 million.

Our Q4 results punctuate an outstanding conclusion to fiscal year 2019. The impact of our strategic focus is having a material impact on the financial performance of the company, and I'm very excited about the momentum we are building.

I am proud of the importance the Model N team has placed on delivering strong results over the past year and I'd also like to thank our customers for their continued strong partnership. I believe we are still in the early days of realizing our potential as a vertical SaaS company.

Over the last year, we set the cornerstones for executing on our long-term strategy by focusing on our two core vertical markets; life sciences, and high tech. In these large under-penetrated markets, we have a significant market opportunity, a very favorable competitive position, deep domain expertise, and mission-critical products.

In order to capitalize on this opportunity, we made several key adjustments to the company just over a year ago. First, on our go-to-market team, we deployed our field resources into hunter and farmer teams to align around the distinct selling motion of each opportunity.

We also built a customer success function, something vital to the SaaS business model and a center of excellence, designed to help our on-premise customers plan for their transition to our cloud. Second, we simplified the delivery model for our customers with more templatized implementations.

And finally, throughout 2019, we bolstered the strength of the Model N team by adding executives with proven track records from leading enterprise SaaS companies. I am confident these changes have put the company on a path to drive profitable growth over the next several years.

We saw several examples of our focused strategy positively impacting our financial results in 2019, and there were a number of highlights in Q4. For example, a long-time customer and multibillion-dollar medical device leader, selected Model N to help power its multiyear corporate strategy.

The strategy covers a range of initiatives from maintaining category leadership, to entering new markets, to building new capabilities, all leveraging the power and scale of our cloud. Model N's products directly supported each of the strategic imperatives, and this was a critical part of the final executive approval, which I witnessed first-hand.

This win was a direct result of our focus and expertise in life sciences, our feature-rich product, and it was nurtured over the last year by our newly created customer success team. Also in life sciences, this quarter, a top 10 global biopharmaceutical company, selected Model N to support the integration of several acquisitions into a single global company.

The customer needed a partner who offered a platform that could quickly adapt to the changing commercial and regulatory landscape and could help accelerate its strategic transformation plans. After evaluating all options, the customer determined that only Model N offered the product, industry expertise and resources to support its growth plans and its goal of providing transformative health care globally.

These key wins illustrate the strength of our life sciences business and our commitment to customer success. We still have a lot of opportunity to drive significant growth in life sciences as we look ahead by expanding within our existing customer base and by adding new logos.

Our strategic focus is also resonating well in the high tech vertical, as evidenced by a healthy mix of customer base expansions and significant new logo activity in 2019. Specifically in Q4, a leading global memory and storage solutions provider expanded its Model N footprint, adding rebates, market development, fund management, and channel data management, which eliminated the need for a number of point solutions.

Our platform will provide full visibility into channel operations, including individual channel revenue, profitability, and real-time inventory levels. This level of insight will enable the management team to respond to dynamic market conditions in order to maximize revenue and profitability by channel.

I continue to spend a significant amount of time on the road with our customers and partners. I would like to share some of the themes that I've heard during recent travels.

While our financial results demonstrate that our strategy is working, specific customer feedback provides great insight on the potential of Model N over the next few years. The first theme is about strengthening relationships and building trust, attributes that are cornerstones of a great software company.

I hear from our customers that they've already felt the impact of our focus through more consistent account management and engagement with our recently built customer success function. Our customers operate in complex markets and value their relationship with Model N's domain experts, who help them use our technology to enable their corporate strategy and drive profitable growth.

Building trust with customers and consistently adding value as a journey, but I am proud of the progress we've made this year. And this is one area that we'll be relentless about enhancing over time.

The second key theme in all of my discussions is the importance of our customers moving to the cloud. One thing I noticed when I started at Model N is that as a company, we were not doing a good job of explaining to our existing on-premise customers, the value and approach of transitioning to our cloud.

As you can imagine, the IT infrastructure at any leading pharma company is complex. As I previously mentioned, last year, we created a SaaS center-of-excellence that included some of our best functional and technical experts to address this challenge.

Recently, I was in Europe having dinner with a global CIO at one of our top five pharma customers. He specifically cited the importance of the SaaS center of excellence in helping his team build a three-year road map to implement more Model N products and move all applications to our cloud.

This is a great example of where focus and trust are delivering results. And finally, I am struck by how dynamic our customers' end markets are.

M&A is very active in both life sciences and high tech. And our life sciences customers are dealing with an unprecedented level of regulatory change.

There are currently multiple proposals in the U.S. on how to streamline the cost of health care, while improving patient outcomes.

In Europe, where patient outcomes have been the driving factor in care, there is now an increasing focus on costs as populations age. Some countries in Europe are even piloting the rebate-based system that we use in the U.S.

as a way to incent more efficient distribution. The important point here is that our customers are dealing with very complex business environments and they see Model N as one of their top strategic technology partners to solve these issues and drive growth and profitability.

I'll end today by sharing something that I said at our Q3 company meeting. Like most CEOs, I want our team to celebrate success, but never be satisfied, always be striving to be better.

At our Q3 company meeting, I congratulated everyone on our strong year-to-date execution, and I encourage them to go home and tell their families and their neighbors, how proud they are to work at Model N and what great progress we're making. I then challenged them to come back to work on Monday and not be satisfied with anything that we've done so far.

After all, we had one more quarter to go and many, many opportunities in front of us in 2020 and beyond. We took nothing for granted in Q4, and I could not be more pleased with our team's performance.

This focus on continued improvement and strong results are important for us as we look forward to 2020 and beyond. Our results in 2019 demonstrate what is possible when we focus on our key markets and our customer success.

Given this, along with our favorable competitive position in the market, I believe fiscal year 2020 will represent the beginning of a long period of profitable revenue growth for Model N. Now, I would like to turn the call over to David to elaborate on our financial results and guidance.

David?

Dave Barter

Thank you, Jason. Our results for the fourth quarter and fiscal year 2019 exceeded our expectations.

Even more exciting, the company's strategic focus and the quality of the team's execution is starting to be reflected in our financial results. I believe Model N is in the very early days of growing and scaling as a vertical SaaS company, positioning us to deliver compelling profitable growth.

Now, I'd like to share with you some of the highlights from our fourth quarter and full fiscal year 2019. As a reminder, our fiscal year 2019 results were impacted by our adoption of ASC 606 and the shift of our business model to SaaS.

Total revenue for the fourth quarter was $36.6 million and above the top end of our guidance range. The outperformance reflects healthy subscription revenue growth which was $27.4 million.

Professional services revenue was $9.2 million for the quarter. Profitability was also strong in the quarter, and it too was above the top end of our guidance range.

Non-GAAP gross profit for the fourth quarter was $22.6 million or 62% of revenue. Non-GAAP gross margin for subscription revenue was 73%, a substantial improvement over the 67% in Q4 of fiscal year 2018.

Non-GAAP gross margin for professional services was 28%. Non-GAAP operating profit for the period was $4.8 million.

It also exceeded the top end of our guidance. This aligns with our commitment and focus on generating profitable growth.

Non-GAAP net income in the fourth quarter was $4.2 million. We produced a non-GAAP net income per share of $0.12, which was ahead of our guidance of $0.06 to $0.10.

Adjusted EBITDA for the fourth quarter was $5.1 million, which was well ahead of our guidance of $3.5 million to $4.5 million. This is a direct reflection of our strategy to invest in long-term growth, while driving enhanced levels of profitability.

Turning to the balance sheet, we ended the fourth quarter with $60.8 million of cash and cash equivalents. We generated $10.2 million of free cash flow in fiscal year 2019 and continue to strengthen the overall financial profile of the company.

As our free cash flow continues to improve, we expect to further reduce our outstanding debt and increase our net cash position. Turning to our full fiscal year 2019 results.

Total revenue was $141.2 million and subscription revenue was $105.2 million. For the full year, non-GAAP gross margin was 58%.

Non-GAAP income from operations for fiscal year 2019 grew to $11.8 million compared to an operating income of $8.7 million in fiscal year 2018. Non-GAAP net income for fiscal year 2019 was $7.5 million, a meaningful increase from $1.3 million in the prior year.

Non-GAAP net income per share for fiscal year 2019 was $0.22, up from $0.04 in the prior year. Adjusted EBITDA for fiscal year 2019 was a profit of $13.1 million compared to a profit of $11.5 million in fiscal year 2018.

Adjusted EBITDA margin grew by almost 25% or 200 basis points to approximately 9%. Looking ahead to fiscal year 2020, we're entering the year with healthy visibility.

As discussed on our last earnings call, our guidance reflects our new subscription revenue growing at approximately 20%, while revenue from our old maintenance subscription contracts continues to decline at a single-digit rate, consistent with our ongoing shift to SaaS. It's also worth noting that the midpoint of our guidance is in line with what we shared on our last call and the top end of our guidance reflects the continued quality of the team's execution, which we saw once again in Q4.

We're also encouraged by the expansion of our gross margin. We expect our non-GAAP gross margin to increase approximately two points to 60% in the coming year, which aligns with a non-GAAP gross margin for subscription of approximately 72% and a margin of 25% for professional services.

This enhanced level of profitability will allow us to make some targeted additions to our sales and product development organizations, which will help round out the existing teams. It's also important to note that our profitability guidance factors in some onetime costs associated with migrating the final 20 customers of our older cloud environments.

For full fiscal year 2020, we expect total revenue to range from $152 million to $155 million, and total subscription revenue to range from $113 million to $115 million. We expect non-GAAP income from operations in the range of $11 million to $14 million and non-GAAP income per share in the range of $0.22 to $0.31 based on a fully diluted share count of approximately 35.2 million shares.

Adjusted EBITDA is expected to be in the range of $12 million to $15 million. Please keep in mind that adjusted EBITDA tends to be seasonally lower in the first half of the fiscal year due to the rollout of our new marketing programs, our user conference and the payroll tax reset, and then profitability increases in the second half of the fiscal year.

For the first quarter, we expect total revenue to be in a range of $37 million to $37.4 million. And within this, we expect total subscription revenue to range from $27.6 million to $28 million.

This represents approximately 10% growth at the midpoint. Non-GAAP income from operations is expected to be in the range of $2.9 million to $3.3 million.

This would lead to a non-GAAP net income per share of $0.05 to $0.07 based on a fully diluted share count of approximately 34.3 million shares. Adjusted EBITDA is expected to be in the range of $3.2 million to $3.6 million, which represents over 15% growth at the midpoint of the range and almost 25% growth at the top end of the range.

I'm incredibly excited about the opportunity in front of us. I believe our fourth quarter and fiscal year 2019 results illustrate that our strategy is working well.

Our strategic focus on driving growth from new and existing customers in life sciences and high tech will prove to be the right one and we are well-positioned to execute on it. We're in the very early days as a vertical SaaS company.

As we continue to execute on our strategy, I'm confident we will deliver profitable growth, in line with our target model and further expand our market leadership. Thank you for joining today's call.

Now, I'll turn the call over to the operator for questions.

Operator

Thank you. At this time, we will conduct a question-and-answer session.

[Operator Instructions] Our first question comes from Koji Ikeda with Oppenheimer. Please proceed with your question.

Koji Ikeda

Hey guys congrats on a nice close to the finish of your fiscal year. A question here on your new recent hire, the Chief Product Officer and on the Chief Revenue Officer you hired earlier this year.

So, on the new Chief Product Officer, why now, what's sort of the thought process there? And I guess, at a very high level, how should we be thinking about any changes to the overall vision or product roadmap from here?

And then on the Chief Revenue Officer, now that Chris has been in the seat for about half year or so and yes, at the beginning of your next fiscal year, should we anticipate any changes to the go-to-market strategy or sales force alignment or even sales force capacity? Any sort of help would be helpful there.

And I've got one follow-up for you.

Jason Blessing

Okay, great. Good question Koji.

Good to talk to you. So, let me take both of those individually.

First, I'll start with Suresh. Since I -- Suresh Kannan, our new Chief Product Officer.

Since I took this job, I've committed to our company, our customers and our investors that I'm going to do my best to have the strongest team on the field. And as I got to know Suresh, I really liked his background.

He's got a very strong engineering background, having started his career as a senior member of the technical staff at IBM and then Oracle. He is also very strong operationally, and I think is going to be instrumental as we continue to scale the company.

A couple of the other unique things that stood out about his background that I liked is he's got 14, a little over 14 years of life sciences background, working at various different companies. So, he brings a tremendous amount of domain expertise.

And at IMS and Quintiles, in particular, he had some great experience building data products, data offerings. And I really like that about his background as well and I think that can be an opportunity for us.

The final thing I would say about Suresh is, he is one of the most commercially oriented product leaders that I've met in my now nearly 30 years of enterprise software. So, I think he's going to also be very additive to our growth strategy over the next couple of years.

He comes in with a good orientation around that. And I think he's also going to be very active in the field, helping Chris Lyon and the sales team close deals.

So, as has been the case with every one of these changes, it's been made from a position of strength. And I really feel like I'm making good on my commitment to continue to improve our overall bench from an executive perspective.

In terms of Chris, I would say Chris really slipped in seamlessly to running our sales organization. As I talked about, almost 12 months to the day, we made some changes in our go-to-market team and how we were structured and how we are organizing and deploying resources.

And as I got to know Chris and started thinking about him for this role, he really -- we had very similar views on how to better organize and really inflect growth in the company. And so I'd say that transition with Chris coming in was about as seamless as it can be.

And I think even more importantly, Chris has really built the foundation on top of which we can continue to invest. He's been making some upgrades selectively in sales leadership.

He's built out a world-class sales operations and enablement function, all of which, I would say, position us well to continue to thoughtfully add capacity in our sales function to an extent to drive growth as we exit 2020, but really to set up 2021 and beyond.

Koji Ikeda

Jason thanks for that. And my follow-up questions are for Mr.

Barter. Any chance you could provide the ending mix of maintenance and SaaS revenue exiting the fourth quarter that would be helpful.

Thank you.

Dave Barter

Certainly, I'd be happy to give a little color. Over the course of the year, we obviously -- the mix between the SaaS and when we think of the new subscriptions versus the maintenance continued to nudge up where we finished last year -- just for color, we finished at a mix of about 52% to 48% between the SaaS and then the legacy maintenance.

And where we ended this year, we crossed 55% and just shy of about 58%, 42%. 58% -- just about 58% SaaS and 42% legacy maintenance.

Koji Ikeda

Got it. Thank for taking my questions and congrats one a great quarter.

Dave Barter

Thanks Koji.

Operator

Our next question comes from Jackson Ader with JPMorgan. Please proceed with your question.

Jackson Ader

Great. Thanks.

Good evening guys. My first question, actually, let's just follow-up on the subscription versus the maintenance mix.

So, I think in the supplemental slides, it said there was an implication here for the fourth -- first quarter, I should say, that new subscription revenue should be up about 20% and maintenance declining in the mid-single-digits. So, if we just look at the 20% growth in new subscription revenue, how much of that is still coming from on-premise transition?

And how much is just coming from brand new, either logos or revenue?

Dave Barter

Great question, Jackson and thanks for joining us today. The growth throughout last year was a lot of it had to do with just this organization around hunting and farming.

And so I think that's one of the elements that got us really exciting. And so the preponderance of our growth given the daily ratable model is that it really reflects that idea of going after new logos and expanding relationships within the customer base.

As you saw within the press release, there was a SaaS transition, but we'll happy to give a little bit more color on in the quarter. But the bulk of what we've been booking is really just what I think of as bookings related to how most SaaS companies grow.

Jason Blessing

Yes, Jackson, this is Jason. If I can just add some color on to that.

I mean, I've really been trying to impress this point on investors and analysts throughout the year that the vast majority of our growth is coming from signing new logos and expanding footprint within existing customers, which you would expect because those are the two biggest growth levers that we have, and honestly, dwarf the SaaS conversion opportunities. So, it is, in some respect, full of averages, you would expect to see that.

And we have really been focused on, honestly, all three of them and seen a nice mix of all three of them contributing to bookings throughout the year.

Jackson Ader

Great. Okay, that is helpful.

I appreciate the additional color. The follow-up for you, David.

I just want to clarify one point that you made on the professional services gross margin. So if we expect that, I think, to tick up to 25% this year.

And one of the headwinds on adjusted EBITDA or profitability is going to be one-time-related expenses from migrations. So, what are those expenses and where are they going to show up?

Because I figured that they would show up in professional services, but -- professional services cost of goods, but any help there would be great.

Dave Barter

Yes, that's a great question. So, I think maybe just to kind of build on your question.

I think what I highlighted in the remarks, where we had about 20 customers on older clouds and this is something that we've been working on over the last couple of years of moving all customers to that one code base that we had mounted on AWS. And obviously, efficiently developing code and, obviously, keeping customers current on an evergreen code base.

And so there are some costs in professional services. There are some costs actually in -- on the recurring side just -- as you can imagine, you almost have a customer incurring cost in both the new environment and in the old environment, while you're running parallel and getting them to cut over.

And so that will compress margins a little bit and we've given ourselves a little bit of room to work. Obviously, as you've kind of -- as you covered us, you realize how focused we are in customer success.

And so we're making sure that we really tackle this well, and we get the job done right. So, those are the two lines that would absorb the bulk of the cost.

Jackson Ader

All right. Thanks guys.

Operator

Our next question comes from Chad Bennett with Craig-Hallum. Please proceed with your question.

Chad, your line is live. We'll move on.

The next question is from Ryan MacDonald with Needham. Please proceed with your question.

Ryan MacDonald

Hi Jason and David. Thanks for taking my questions.

I guess, just first on -- regarding the large med device company announcement and the transition there, what should we expect in terms of sort of time frame on that transition? Is it something that we should see similar to the process you took with Gilead?

And what sort of, I guess, as you're trying to drive these additional customer migrations, are you seeing or expecting to see sort of an uplift on the maintenance line similar to what you've discussed in the past, I believe, is in the two to three times range? Thanks.

Jason Blessing

Yes, I'll comment on the project and then let David add some color. Ryan, I'll say that the good news here is we are getting more efficient at these and learning as we have now done multiple of them.

Our very first one that we did was at Gilead, and we wanted to make sure we took the time and put in the effort to make that first large transition successful and so that was a little over 18 months. And now we've got two very large projects that are in flight, Biogen and Novo.

Biogen will go live here before the end of the calendar year, Novo in the first of the year after the holidays. Both of those projects have been in the neighborhood of 10 to 12 months.

And then the one that we talked about on the call today is more towards the Novo and Gilead ilk in terms of size and complexity, and that one's going to be somewhere around 12 months, plus or minus a month or two, but closer to a year. So, we are -- we're driving pretty significant efficiencies in these projects as we get more and more under our belt.

Ryan MacDonald

Excellent. And I guess -- yes, David, go ahead.

I'm sorry.

Dave Barter

Well and just in terms of your question on the book ends and the economics, this particular deal structure fits the mold of the other ones and so we continue to see that multiplier and that framework to be appropriate.

Ryan MacDonald

Excellent. And then I guess, just terms of a follow-up.

Jason, particularly as you're out meeting and discussing or talking to customers quite often. I guess, two questions on that.

One, as you look at the budget cycles, particularly in the life sciences segment, given that there are more digital transformations going on, do you view that sort of the conversations around budgets are moving beyond sort of an annual discussion versus more of a two to three-year discussion to meet the needs of that transformation? And then secondly, on product, what are you hearing from customers that perhaps they're asking for in the product pipeline?

And should we expect some additional investments there with the new Chief Product Officer coming in to sort of meet those needs? Thanks.

Jason Blessing

Yes. So, in terms of the state of affairs and budget, the simple answer to your question is absolutely.

We really have gone through now our top 15, 20 customers and with our customer success function worked very closely with them to build multi-year roadmaps for investment that really align behind their corporate strategies. And I will tell you the life sciences companies that I think are going to continue to dominate and be the household names in this industry over the next 10 to 15 years are ones that are thinking in much broader time horizons with their corporate strategy.

So, the simple answer to that is yes. And I think in addition to digital transformation, the other two trends that are really driving thoughtful investment now are continued M&A and companies thinking about what categories they want to dominate and what new markets and geographies they want to get into.

And then, obviously, the regulatory environment has not slowed down and the changes in rate of pace there. So the simple answer to that is the end markets, I think, continue to be very robust.

In terms of what our customers continue to partner with us on and some of the key themes that we're driving from a road map perspective, they really fall into three different areas. The first is just better analytics to drive better decision-making, and this kind of comes in two forms.

One is just around what does the ideal deal look like for us based on our history, so we can sign more profitable business. And then, in particular, one of the things that's very important for companies that sell-through complex channels is just getting better visibility into revenue leakage.

But you can neatly package that all up into better analytics. The second area where we continue to invest and work very closely with customers are around the changing regulatory landscape, a lot of changes and new experiments that are being piloted in both Europe as well as the U.S.

markets, which together are the majority of global pharmaceutical sales. And then the last area that we've been investing in is just to make our products easier to implement and easier to use and administer for us as a cloud provider.

And so that's come in the form of better testing tools, better tooling and instrumentation in the product, better instrumentation tools. And you really see this.

This area, in particular, is really what's enabling SaaS transitions. And some of the gross margin improvements that you've seen.

And I suspect with Suresh coming aboard, there will be some incremental investment around the edges, but we do feel like, right now, in our product organization, we've got it appropriately resourced and may look to opportunistically tuck-in some new skill sets.

Ryan MacDonald

Excellent. Thanks a lot.

Congratulations.

Jason Blessing

Thanks Ryan.

Operator

Our next question comes from Brian Peterson with Raymond James. Please proceed with your question.

Kevin Ruth

Hi, guys. Kevin here on for Brian.

Thanks for taking my call. I wanted to follow-up on that last point, I guess, to ask about some of the investments you've made surrounding the toolkits and templates, you mentioned to support customers as they look to move to the cloud.

Can you remind us where you are now with some of those efforts and then maybe related to that, can you talk a little bit more about your SI and partner network? And how you see that contributing now that they're a little more seasoned following some of the recent conversion work?

Jason Blessing

Yes. Okay, great question -- or a great series of questions.

So, first of all, on the partner side of things, our partners have been important in driving bookings as well as some of the delivery of our projects and have been very involved in some of the SaaS transitions that we've done specifically in the last year. And so to me that continues to be a strategic opportunity for us.

We hired a new executive at the company in the first half of -- well, actually to be factually correct, probably near the middle of the fiscal year to continue to capitalize and build more momentum in that function. So, I do think that is -- that continues to be an area of opportunity for us.

And there's going to be a lot of work out there with -- between SaaS transitions, new logos and some of the regulatory changes that I just talked about. So, there's a great deal of interest, and I think we're well positioned to capitalize on it, particularly with some of the renewed focus internally.

In terms of toolkits, I'll give you a couple of specific examples that we've used that you can also start to triangulate in our results. First of all, as we started to do more SaaS implementations, with that have come more standard approaches to configuring and implementing our product.

And so we have an express implementation methodology that's now applicable to a mid-market life sciences customer, honestly, all the way up to some of the larger divisions in global multinationals. That's played an important role in enabling some of growth this year.

And as our services business has kind of been rightsized as we started to do more and more selling like a SaaS company, you see that the SaaS -- excuse me, the professional services dollars are more like one and a half times to two times recurring revenue dollar. So, that's a direct benefit of the emphasis we've put on more efficient implementations.

The second tool or suite of tools we've built is around testing. One of the largest objections to any life sciences customer, in particular, to changing a system that handles their regulatory needs is having to get it revalidated by their own internal audit.

And so we've put a tremendous amount of effort into building an automated test suite that works with our vanilla product that dramatically shrinks test cycles, helps customers manage risk, and get signed off more quickly from internal audit.

Kevin Ruth

That's very helpful. Thanks guys.

Jason Blessing

Thank you.

Operator

Our next question comes from Pat Walravens, JMP Securities. Please proceed with your question.

Patrick Walravens

Awesome. Thanks very much and nice job you guys.

So, Dave, I might have missed it, and if so, forgive me, but did you give the SaaS ARR growth?

Dave Barter

I did not. I did not include that among the metrics that we published this time.

Patrick Walravens

Okay. Do you want to give it?

Dave Barter

Well, so the metric that we've been using and kind of getting people acquainted with is really just a reaction pat around RPO. And so I'd say that RPO, I think, just as we've been phasing in metrics, I think we've been getting people comfortable with that.

And then obviously, we want to break out the life sciences and the high tech. So, I think the RPO for the quarter, which you'll see in the K, was, I think, a real reflection of the bookings path and what you'll see is that we finished a little bit over $127 million, so up about 24%.

Patrick Walravens

You just anticipated my second question. Okay.

So, RPO was a little over $127 million?

Dave Barter

Right, that's correct. In the current portion since I know you guys double-click into the current quarter?

Yes. Well, no, that's fine.

I mean, it's a metric that we've been getting people comfortable using because that's -- while I think it's part of 606, and just -- it's a good indicator. So, the current portion climbed to just over $64 million, up about 11%.

Jason Blessing

And Pat, this is Jason. Good afternoon.

I'll add a couple of bits of color on top of what David said. So, implied in the guidance is, and the results are recurring revenue growing at 20%, and bookings continue to grow at a slightly healthier clip than that.

Patrick Walravens

Right. And then David, how much was the $127 million up year-over-year?

Dave Barter

Well, we weren't -- so 606 and the adoption of RPO went hand in hand. So, we actually didn't have that calculus for last year.

So, I think if you went back to Q3, again, and how RPO has been building over the year, in Q1, actually, it started off at $80 million and has climbed progressively since then up to the current $127 million--

Jason Blessing

Right. So, starting next year, we're going to have year-over-year comparison.

Dave Barter

We're going to release year-over-year comparison, but this is our first year of just wrapping up 606.

Patrick Walravens

And so since we're probably going to all project it, do you want to give us any sense for what we should be doing with the RPO? Was that the booking just over 11% comment, Jason, that you were--?

Dave Barter

What -- so, I think Jason was just trying to get some healthy flavor in terms of the kind of the bookings continue to be very healthy, and that's what's actually feeding that 20% new subscription growth that we had talked about and actually included in the investor supplemental. So, I think that was the color that we're trying to provide.

Patrick Walravens

Right. So -- and just so I don't get things wrong.

So, if I were to project RPO growing 20% next year, would that be right or would that be sort of misinterpreting the situation?

Dave Barter

I'll tell you what, why don't we do a little more analysis for you before we say and I'd rather give you a good framework on how to grow RPO.

Patrick Walravens

Okay. All right.

And then Jason--

Dave Barter

It was -- it just wasn't a matter of -- from a guidance perspective, that's all. So, I'd rather give you -- take a little bit of time to give you -- again, publicly release something that has really good fidelity.

Patrick Walravens

Okay. So, a couple of quarters ago, we were talking about the whole Trump and rebates and prescription pharmaceuticals.

What happened to that? I think it died, right?

Can it come back?

Jason Blessing

Yes is the short answer. So, Trump actually decided to abandon that.

He started to get -- or his administration started to get some pretty negative feedback on the time and cost it was going to take to implement the necessary changes from an industry perspective. But as you might expect, particularly in an election year, both parties have now filled that void with competing proposals.

And I do think something is going to happen in this area over the next 12 to 18 months. And interestingly enough, I was -- and I mentioned this in the script, but I was just over in Europe visiting a bunch of customers.

And over there, where they're having populations live longer than ever in a healthcare system that's really struggling to keep up, they're actually thinking about implementing rebates as a way to try and drive efficient distribution in the system. So, I think the takeaway here is this environment is going to continue to be very dynamic over the next couple of years, and that's good for us because we are the system of record for compliance.

Patrick Walravens

Okay, great. Thank you, both very much.

Jason Blessing

Thanks Pat.

Operator

At this time, I would like to turn the call back over to Mr. David Barter for closing comments.

Dave Barter

Thank you. No further comments.

Thanks everyone for joining us today. We really appreciate it.

Operator

Thanks. This does conclude today's teleconference.

You may disconnect your lines at this time and have a great evening.

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