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Model N Inc  (NYSE:MODN)
Q1 2019 Earnings Conference Call
Feb. 05, 2019, 5:00 p.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Greetings and welcome to the Model N First 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 call over to your host, David Barter. Please go ahead.

David Barter -- Chief Financial Officer

Good afternoon. Welcome to the earnings call for Model N's first quarter fiscal year 2019, which ended on December 31, 2018. This is David Barter, I am Model N's Chief Financial Officer, and with me on the call today is Jason Blessing, Model N's Chief Executive Officer.

Our press release was issued after 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 quarter of fiscal year 2019 performance and our financial outlook for our second quarter and full year fiscal 2019.

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-K and 10-Q filed with the SEC.

In addition, during today's call, we will discuss non-GAAP financial measures. These non-GAAP financial measures should be considered in addition to, not as a substitute for, or in isolation from GAAP results. Reconciliations of the non-GAAP metrics to the nearest GAAP metric are included in the earnings release issued today, which is available on our website. I encourage you to visit our Investor Relations website at investor.modeln.com to access our first 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 for our first quarter fiscal year 2018.

With that let me turn the call over to Jason.

Jason Blessing -- Chief Executive Officer

Thanks David. Good afternoon and thank you for joining us today on our Q1 2019 earnings call. Model N continues to focus on improving execution and this effort was rewarded by strong quarterly results that beat our guidance. Total revenue for the quarter was $35.1 million, Subscription revenue came in at $25.2 million, and adjusted EBITDA was $2.9 million. I'm particularly pleased that the over achievement in the quarter was driven by strength in recurring revenue.

This was a good quarter for us, and it puts us in a position to achieve our 2019 goal. This quarter is also another milestone on our path to improved growth and profitability and evolution as a SaaS company.

On our last earnings call, I outlined a series of strategic and operational programs I had implemented, based on my assessment of the company. The goal of the initiatives was to ensure continued customer success in our core vertical markets, while also driving improving levels of profitability, growth and cash flow.

Please allow me to recap the changes we made and then I'd like to structure the remainder of my prepared remarks, with progress updates in each of these key areas. First, I announced that we would be refocusing the company on the life sciences and high-tech market and then our go-to-market and product teams would be realigned to capitalize on the unique opportunities in these markets.

Second, given the different selling motion, I shared that we would be aligning our sales team to focus on customer sales and new logo acquisition. Furthermore, I shared that the primary focus of our customer sales team would be on customer success, expanding Model N's product footprint in an account, and transitioning on-premise customers to our cloud. I also shared that we had formed a center of excellence, dedicated to cloud transition. I'm very pleased with how our team has responded to these changes, and we are seeing encouraging progress. I'd now like to share more context on each of these important focus areas.

As discussed on our last earnings call, we had our best ARR bookings quarter in company history in Q4 and that momentum carried into Q1. I'm particularly pleased with the diverse mix of our bookings in the quarter. Deal volume is strong, account rep participation was broad, and we saw a nice balance between customer sales and new logo.

In addition, we saw a good mix of bookings between life sciences and high-tech and prove that we can win business with both medium and large-sized companies. I believe the diversity in our Q1 bookings represents further evidence that we are focusing on the right growth levers and I expect our execution to continue to improve with time.

During Q1, we added a healthy number of new logos and are on pace to close as many new accounts in the first half of this year, as we did all of last year. These new logos accounted for a material portion of our Q1 booking. As we have talked about in the past, we are less than 10% penetrated on a logo basis in the markets we serve, and I continue to believe that new logo acquisition is an interesting growth opportunity for us. This quarter supports this thesis, and I expect our execution in new logo acquisition will continue to improve, as our account executives have more time to develop their territory.

We also saw encouraging results around customer success and sales into our base, and I'd like to share a few highlights with you. The first was a large expansion deals at one of our existing high tech customers, that is one of the top producers in the world of microprocessors and graphical processing units. This particular customer has been a long time Model N user, and recently undertook a strategic initiative to further optimize revenue and margins, in an effort to maintain their market leading position.

As a part of this revenue management initiative, which was sponsored by their CEO, the customer expanded Model N usage from one to three products, and is in the process of rolling out the expanded solution to an additional 500 users. This is a great example of how strategic our software is, and how it helps our customers flourish in the dynamic end markets they serve.

Second, we had two strategic, yet very different go-lives in the quarter, each of which is important because they demonstrate how our solution scales from emerging growth companies, all the way up to the largest most complex companies in the world. The first go-live is at Nevro, a new customer that we talked about on our Q3 2018 earnings call. Nevro is a growing global medical device company, that is subject to the same complex regulatory requirements as the largest life sciences companies in the world. Nevro turned to Model N to help manage these complex regulatory and revenue management challenges. I am happy to say that Nevro went live in under six months, on time and on budget. They are also a great example of how our cloud deployment model allows us to address a greater portion of the market.

The second go-live of note was at one of our largest customers, who is also one of the largest pharmaceutical companies in the world. This go-live was noteworthy for a number of reasons. First, the project retired a number of antiquated legacy platforms, resulting in significant IP saving. Model N is now the single source of truth for customer, pricing and contracting data, some of the most important information for a life sciences company given the profitability and compliance consideration. As a part of this upgrade, the customer also implemented a new Model N product, Validata, which helps companies with improved pricing compliance and profitability. This upgrade is driving better business execution, significant ROI and positions the customer to move to our cloud.

Speaking of our cloud; I'd like to share some broad context with you on the progress we are making in this important area of our business. First, all of our core products are exclusively available today in a cloud deployment model, and all of our contracts signed over the last three plus years are structured as Subscription agreements. We run the majority of our cloud applications on Amazon Web Services, and now have more than 60% of our customers live on one or more of our cloud products. We also have a number of large SaaS transition projects under way and I expect one of the largest of those customers, Gilead, to go live this year.

Gilead will be a great addition to our portfolio of SaaS customers, and will be an additional proof point for how our solutions scale from emerging growth companies, up to the largest most complex companies in the world.

The final point I will make on our cloud business is, as announced on our last earnings call, we've created a center of excellence internally to package up and leverage the best practices from our cloud sales and implementations to-date. I continue to be encouraged by the work this team is doing, and believe it will help accelerate our path to selling and delivering successful SaaS transitions over the next couple of years.

Before turning the call over to David, I want to close by thanking the team at Model N. Part of the reason I joined the company, is our great products that solve mission critical problems for our customers, and I was also incredibly impressed by how deep the domain expertise is at our company.

In addition, I've been inspired by the passion our team has for our future and how supportive they have been around focusing our business and evolving how the company is run. I have also been excited about the new talent that we've added at all levels since I joined the team. These new team members have augmented our domain expertise and brought additional SaaS strategy and operational skills. Our strong Q1 is a testament to this team, and I'm honored to be a part of it. I'm also excited about our future together, and feel we are well positioned to realize our 2019 goals.

With that I will turn the call over to David. David?

David Barter -- Chief Financial Officer

Thank you, Jason. The company executed well in Q1. We're building a company with healthy Subscription revenue growth, which will serve us well going forward. Strength in the business was driven by our Q1 bookings with both new and existing customers. Our focus on realizing greater efficiencies also contributed to bottom line performance and a significant improvement in cash flow.

Let's now turn to some first quarter highlights; as a reminder, the results for Q1 are based on the modified retrospective adoption of ASC 606. In addition, they also reflect the updated P&L format we've been discussing with you for the last several quarters.

In the first quarter, total revenues were $35.1 million and represent a healthy beat above our Q1 guidance range of $34 million to $34.4 million. The outperformance was driven by our Subscription revenues which now comprise 72% of total revenues, a meaningful improvement from last year. Our Subscription revenues were $25.2 million in the first quarter, nicely ahead of our guidance of $24.2 million to $24.6 million. It's important to note, our Subscription revenues reflect a headwind of approximately $1 million from the cumulative effect adjustment related to the adoption of ASC 606.

Professional Services revenues were $9.9 million for the quarter, in line with our expectations and represents meaningful progress, as the company drives down the cost and time of our implementations and further leverages partners. The overwhelming majority of Professional Services revenues in the quarter were for staff Subscription implementation, as we burn through the legacy perpetual license on premise implementation backlog.

Before I move on, I want to remind you that my commentary will be focused on non-GAAP results, which exclude the impact of stock-based compensation and the amortization of the intangible assets. A reconciliation of non-GAAP to GAAP results is provided with our earnings press release issued earlier today.

Non-GAAP gross profit for the first quarter was $19.9 million, which is a 57% margin. Gross margin for Professional Services was 26% and gross margin for Subscription revenues was 69%, which is a meaningful improvement over the 64% margin in Q1 of fiscal 2018. We expect to see Subscription revenue gross margin improvement, as we move through the year, and we expect to achieve our full year target of 70%. Non-GAAP operating profit for the period was $2.5 million. This exceeded our non-GAAP operating profit guidance of $1.5 million to $1.9 million, and reflects our focus on scaling the business.

Non-GAAP net income in the first quarter was $848,000. We produced a non-GAAP net income per share of $0.03 based on 31.5 million shares. This was ahead of our guidance of a non-GAAP net loss per share of $0.01 to a non-GAAP net income per share of $0.01. Adjusted EBITDA for the first quarter was $2.9 million, which is well ahead of our guidance of $2 million to $2.4 million. This reflects the beat in our Subscription revenues.

At the end of the first quarter total deferred revenue was $42.5 million. This reflects the adoption of ASC 606. The cumulative effect adjustment reduced deferred revenue by approximately $8 million. We've also made adjustments in terms of how we contract, which lowered deferred revenue by approximately $7 million. The changes we believe will make it easier for our customers to transition to the cloud. As I've shared on prior calls, deferred revenue is not a perfect metric for our business.

We ended December with $52.2 million of cash and cash equivalents compared with $56.7 million at the end of the fourth quarter. Free cash flow used was $4.4 million in Q1, a meaningful improvement from the prior year period when we used $9.8 million. As a reminder, the payment of our corporate bonus and our Q4 sales commissions naturally impact cash flow in Q1.

We also paid a dividend tax of approximately $500,000 in Q1 associated with the repatriation of our cash from India to the US. We remain confident in our ability to meet our annual free cash flow target of $8 million to $10 million.

During the quarter we paid down $250,000 in debt, and then at the start of Q2, we paid down another $4.75 million. As our free cash flow continues to improve, we expect to further reduce our outstanding debt.

Before I provide guidance, I'd like to provide a little context on how we are thinking about the rest of fiscal 2019. As we sit here today, we have improved visibility into our Subscription revenue outlook, due to the strength of Q1. We are focused on scaling Model N as a SaaS company and building a healthy base of recurring revenues. We're also focused on driving higher levels of profitability with our cloud based products. We continue to expect professional services revenues will range between 25% and 28% of total revenues for the full year. But for modeling purposes, it is reasonable to assume we will be toward the lower end of this range, given our focus on SaaS. We believe this is a significant improvement over last year, when our Professional Services revenues represented 39% of total revenues in Q1. For Q2, I expect the gross margin for Professional Services to decline to approximately 10%. This is an expected and temporary reduction in the Professional Services gross margin, and it's in line with transitioning our staff from on-premise to SaaS projects. We do expect our margin to decline and return to the mid 20% range by the second half of the year.

For the second quarter ending March 31, 2019, we expect total revenues to be in a range of $34.3 million to $34.7 million and within this, we expect total subscription revenues to range from $25.4 million to $25.8 million. At the top end of the range, this represents a 2.4% sequential growth. On an annualized basis, this translates to approximately 10% growth and it aligns with our rate of growth at the end of fiscal year 2018.

Non-GAAP income from operations is expected to be in the range of a loss of $100,000 to income of $300,000. This would lead to a range of a non-GAAP net loss per share of $0.05 to $0.03 based on a weighted average share count of 31.9 million shares. Adjusted EBITDA is expected to be in the range of $300,000 to $700,000. When modeling Q2 please take into consideration the Professional Services gross margin I noted earlier, the seasonal increase in payroll tax and our rainmaker customer event in March. These Q2 factors represent approximately $2.5 million in one-time EBITDA pressure and will not impact our second half profitability metrics.

For full fiscal year 2019, we are reiterating our guidance and expect total revenues to range from $138 million to $142 million, and within this, we continue to expect total subscription revenues to range from $100 million to $105 million. We continue to expect total GAAP revenues to include an ASC 606 impact of approximately $7.2 million. We expect non-GAAP income from operations in the range of $7 million to $11 million and non-GAAP income per share in the range of $0.05 to $0.17 based on a weighted average share count of 32.4 million shares.

Adjusted EBITDA is expected to be in the range of $8.5 million to $12.5 million. We continue to expect free cash flow to be in the range of $8 million to $10 million, a meaningful improvement from fiscal year 2018.

I'm pleased with our strong first quarter results. We're growing the company the right way on the back of subscription revenues, which leads to enhanced levels of profitability and shareholder value. We're focused on execution and delivering on both our 2019 and our longer-term goals.

With that let me turn the call over to the operator for questions. Operator?

Questions and Answers:

Operator

At this time we will be conducting a question-and-answer session. (Operator Instructions). Our first question comes from the line of Koji Ikeda from Oppenheimer. Please proceed with your question.

Koji Ikeda -- Oppenheimer & Co -- Analyst

Great, thanks for taking my question and congrats on the quarter. Just a question here on the fiscal 2019 guidance, just thinking about the outperformance in fiscal 1Q, really across growth and profitability, but only a reiteration of guidance, is that just a bit of conservatism baked in or really is there something more in there that we should be thinking about?

Jason Blessing -- Chief Executive Officer

Hey Koji, this is Jason. Appreciate the question and the participation on the call. So we came into this year with a lot of momentum and strong visibility into our key metrics, including over 80% visibility into our revenue number. We certainly feel great about Q1 and I think we're on track to have a very good Q2 and see a path to our plan, and I personally just like to see some continued execution on the company's behalf. And I think with that comes the opportunity to raise guidance. But no, there is no -- nothing kind of underlying beyond what you've read in the press release and heard in our prepared remarks. We are really happy with the momentum in the business right now.

Koji Ikeda -- Oppenheimer & Co -- Analyst

Great, thanks for that. And then just one question here on the recurring revenue, maybe I missed this in the prepared comments, but did you happen to give what the SaaS revenue contribution was to recurring revenue?

David Barter -- Chief Financial Officer

We did not. And right now, I think we're looking at it as as a bundle of subscription contracts, and I think we're working with customers in that way.

Koji Ikeda -- Oppenheimer & Co -- Analyst

Okay, great. Thank you for taking my questions.

Jason Blessing -- Chief Executive Officer

Thanks Koji.

Operator

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

Kevin McElligott -- Raymond James -- Analyst

Hi guys. Kevin here on for Brian. Thanks for taking my call. You've talked previously about scaling back sales efforts for customers outside of life sciences or high-tech verticals this year. But I guess, continuing to support those customers going forward. I know those are smaller areas for you, but would you expect to see any changes across that customer base and do you think those are verticals that you potentially look to come back to over the intermediate term?

Jason Blessing -- Chief Executive Officer

Yes, thanks, Kevin. We're really excited about our two core verticals of life sciences and high-tech, and as I said on my prepared remarks, we are less than 10% penetrated from a logo perspective and just see a ton of additional opportunity in the white space in our customer base. So we don't feel like we have to step too far outside of those core markets right now to drive growth, and I think Q4, Q1 are good examples of that. That said, we have committed to products that are sold into other verticals that we'll continue to support them and support those customers, and have not changed that policy.

Kevin McElligott -- Raymond James -- Analyst

That's helpful. And then given some of the recent proposals for changes across the rebate and drug pricing landscape, I'd be curious to hear how you see that potentially impacting your business going forward, and do you think that's something that could simplify or maybe further -- add further complexity I guess, to revenue management within your customer base?

Jason Blessing -- Chief Executive Officer

Yeah. Well I wish I had a crystal ball that would tell me what's going to happen in Washington. So yes, I mean, great question. There has been lot of of changes proposed. The biggest of which are adopting reference based pricing here in the United States, like the rest of the world does and then overhauling the rebate system that's paid to different distributors of pharmaceutical therapies. So at this point, these things have been proposed. I will tell you that having visited the majority of the 10 largest life sciences company over the last six months, this is a boardroom topic. And I would say that prevailing wisdom in those boardrooms, is there are going to be changes. This is such an important topic with voters and with Washington. And I think for us it is a tailwind, because it is going to increase the complexity of how products are priced and sold here in our market. I think we can continue to expect regulatory and reporting pressures to show that providers are -- excuse me, that manufacturers are being compliant with updated pricing. So I do think something is going to happen here. I do think it's a net tailwind for us. And I do also think it really reiterates and underscores how important our products are to helping our customers deal with the complex regulatory pricing regimes that they live under.

Kevin McElligott -- Raymond James -- Analyst

That's very helpful. Thank you.

Operator

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

Chad Bennett -- Craig-Hallum -- Analyst

Great, thanks for taking my questions. Nice job, guys, on the quarter. So Jason, maybe one for you. Real good color on and good to see kind of the go-live activity in the quarter. I mean the life sciences go-live that you mentioned, where effectively, you're the single source truth across customers, pricing and contracts. I mean, I think it probably goes without saying, is there any other customer where you are the single source of truth across that very important data in my mind? And what is the potential at this life sciences customers to grow from here, or are you effectively kind of where you want to be, and this is the game plan for the rest of the 150 plus customers or however you want to phrase it?

Jason Blessing -- Chief Executive Officer

Hi Chad. Good to talk to you. So wow, lots of great questions in there. So first and foremost, I would say, the go-live that I referenced is -- it's the blueprint of where our life sciences customers are getting to or trying to get, and getting to a single source of truth. So that's point number one. Point number two, I will say, this is a great example of where the cloud is a catalyst for us, to have discussions with these customers, to modernize their system, consolidate systems, eliminate customizations, and get ready to move to our cloud, and that's kind of how this project started and what was one of the main objectives of it.

I would say for this particular customer, I was out there visiting at the end of last calendar year, and their feedback to me was, Jason, this project that we have just completed is not just a blueprint for us, but its a blueprint for the rest of our company, and we've done this is essentially a small part of our company and we've got 100 or so other operating units around the world that we want to roll this out to. So whether you're talking about the specific example that I think will be a showcase for the rest of our customers that just went live or those in the future, this is the opportunity for us, Chad, and we are literally just getting started on it. And this is why we've talked about our install base and selling into it as being such a unique opportunity, and why I wanted to make sure we've got the majority of the company focused on it.

Chad Bennett -- Craig-Hallum -- Analyst

So significant runway left even with that customer, is a fair characterization?

Jason Blessing -- Chief Executive Officer

We feel good about the runway in that account, and we feel good about the runway and how it applies to other accounts.

Chad Bennett -- Craig-Hallum -- Analyst

Awesome. Sounds good. And then maybe a follow-up for me, it was good Jason to hear the -- that Celgene, I think is anticipated go-live. I guess considering the proposed acquisition by Bristol-Myers, I guess is there any kind of risk there, how do you view that scenario playing out?

Jason Blessing -- Chief Executive Officer

Yeah. So a few things that I would share both Bristol-Myers and and Celgene are both big customers of ours and use different footprints of our products inside of their respective companies. And so we are very actively working with both companies on their integration planning. I frankly see it as an opportunity, Celgene has had a little bit bigger footprint. So I think it is an opportunity for us to demonstrate the value we're adding there and potentially expand inside of a larger company.

I would also add that, we have multiple projects going on right now at Celgene, including a couple that have just spun up in the last couple of weeks. And I think, that's an important point to make, because it really underscores that M&A does not absolve life sciences companies from operating in this complex regulatory environment or operating profitably and returning to their shareholders. So we're very actively engaged in both accounts and I'm pretty optimistic about what will happen.

Chad Bennett -- Craig-Hallum -- Analyst

Good to hear you winning new business and everything's on plan. And then maybe one last one, quickly for David. Just on this deferred revenue language, David, and the $7 million kind of contract related adjustment there, I guess any further elaboration on kind of what that is? And then secondarily, is this a onetime kind of $7 million adjustment in this quarter, and does it recur going forward? Thanks.

David Barter -- Chief Financial Officer

Great question, Chad. So it is onetime and it has to do with ASC 606, and it just happens to do with the new body of literature, and so one of the elements that we've included in our contracts is just some added flexibility that allows you to move from one contract to another, by virtue of the language, just the literature require that ultimately we don't get to count it as deferred, even though it's contractually mandated payments under a contract. But by virtue, I can allow you to adopt new cloud products or transition your economics to buy more cloud products. It ultimately has the effect of actually reducing the deferred. It just -- it happens to be just a different regime of literature in this case.

Chad Bennett -- Craig-Hallum -- Analyst

Okay. Thanks guys.

David Barter -- Chief Financial Officer

Absolutely. Thank you, Chad.

Operator

Our next question comes from the line of Ryan MacDonald from Needham. Please proceed with your question.

Ryan MacDonald -- Needham & Company -- Analyst

Hi, good afternoon, Jason and Dave, congrats on a nice quarter. I guess first off, just expanding upon one of the previous questions around the regulatory environment; obviously there are a number of proposals out there. I guess within the customer base and as you're having customer conversations, does this tighten regulatory environment? Obviously, you've talked about it being a net tailwind. But in the near term does that cause a bit of paralysis among customers in making decisions or purchasing decisions, as they're trying to figure out the environment?

Jason Blessing -- Chief Executive Officer

Hi, Ryan. Yes, great question. And ones that have certainly been asking on my own travels in our life sciences customer base. I'll share one additional piece of --- two additional pieces of context to help understand that one. First of all, in the short term, as I mentioned, companies still are compelled to be compliant with current regulations, compelled to deliver results to their shareholders and their Board and investors. So I don't think first and foremost, I don't see anyone taking their eye off the ball as the game is played today. The other thing that I will share, that is just again I would say been kind of an aggregate bit of feedback and dialog I've had with customers, is they think it's going to take anywhere from 12 to 18 months to get resolution on what exactly gets done. And then there's going to be potentially an equal amount of time to actually implement it.

So I think most prevailing wisdom is there, we were probably two to three years out from being compliant. We can't stop running the business today and abiding by today's regulation, while we wait for Washington to sort this out.

Ryan MacDonald -- Needham & Company -- Analyst

Got it, got it. That's really helpful. And then along the lines of some of the strategic changes you made, you talked about a lot last quarter and some of the nice returns you're seeing thus far. As you're looking out into the remainder of the year, what additional adjustments do you feel that need to be made within the sales organization? And do you feel that as you're looking out at opportunities, is it more of -- do you need to address additional sales capacity at all or demand generation as you're trying to balance out that net new logos versus expansion within the existing base?

Jason Blessing -- Chief Executive Officer

Yes, I mean, the way to think about that is that somewhat on the margins, I think most of the realignment that we did was in Q4 of last year, as we had visibility and line of sight to the full year numbers, and then really as we entered Q1, the realignment of our sales force was largely complete and frankly set the sales force up to have, I think better years, because they were more aligned with the growth levers and in areas of the market that we are strong and have the chance to win our disproportionate amount of business.

I think as a part of that alignment, your question is insightful. As a part of that alignment, we also realigned all of our marketing programs and demand generation to focus on the growth levers. I outlined the trends, they are also favorable, as we talked about on the last call, and this is a common theme again on this call, that our pipeline is up significantly versus the prior year period. So we continue to see great momentum there.

And then, as I said, at the beginning it's kind of on the margins. We are doing a little bit of hiring, if you were to go out and look at our website, right now, you'll see that we are doing some hiring in life sciences on the hunting front, and to me that's an area of the team that needs to be augmented. We've got great customer sales teams in both high-tech and life sciences. Let's say we've got strong shops (ph) as well in high-tech hunters and I think getting a couple of additional life sciences hunters, really rounds out the team. And I have say, I'm optimistic about that. I have been involved in interviewing some of the final candidates, and I think where we're getting a great look at some good talent.

Ryan MacDonald -- Needham & Company -- Analyst

Great, thanks very much.

Jason Blessing -- Chief Executive Officer

Thanks Ryan.

Operator

Our next question comes from the line of Peter Lowry with JMP Securities. Please proceed with your question.

Peter Lowry -- JMP Securities -- Analyst

Great, thank you. Is there anything you've seen in terms of any change in your view of how fast large life sciences companies will go through their digital transformations?

Jason Blessing -- Chief Executive Officer

Yes, hi Peter. I mean it's top of mind for every customer that I go and visit and along with that transformation comes modernizing their internal systems to drive more agility and responsiveness to the market. And I think we're starting to see that desire to get current modernized systems and drive digital transformation in some of the own result -- in our own results that we've posted, 60% of our customers are now running products in the cloud. We've got nearly 20 life sciences customers that are running our core revenue management products in the cloud, and over a dozen or so customers that are in various stages of modernizing their infrastructure, moving from on-premise to the cloud.

So I still think this is -- it remains a very interesting growth opportunity for us, and that's why we are so focused on it. I think one final point I would make on that is, reiterating what I said in the script. In addition to all the customers that we have live today running our cloud products, we've got a really important go-live coming up with Gilead, who is one of the largest life sciences companies in the world, that's betting their future on digital transformation and better business agility to accommodate their M&A strategy, and I think that's going to be one great additional proof point for us, as we go through this year.

Peter Lowry -- JMP Securities -- Analyst

Great. And then one quick question for David. It looks like professionals -- implementation gross margins will drop pretty quickly and then rebound. Can you just give some color and sort of what's going on, I guess, in particular, next quarter?

David Barter -- Chief Financial Officer

Absolutely. I think what I tried to highlight is and suggest is that, we're just at that point where we wrapped up our on-premise projects in Q1. And so, there is a little bit of a lag or a low as -- before moving on to new projects. And so you see a little bit less utilization. But as you know, I mean we've managed utilization and costs pretty well over time. So I think it's, as I suggested, it's pretty temporary in nature.

Peter Lowry -- JMP Securities -- Analyst

Great, perfect. Thank you.

Operator

Our next question comes from the line of Stephen Wardell with Chardan Capital Markets. Please proceed with your question.

Stephen Wardell -- Chardan Capital Markets -- Analyst

Hey guys, congrats on the quarter.

Jason Blessing -- Chief Executive Officer

Thank you, Stephen.

Stephen Wardell -- Chardan Capital Markets -- Analyst

Can you give us a little color on what's going on in the minds of your sales prospects? Are there any issues that is driving their interest? Which products are they most interested in?

Jason Blessing -- Chief Executive Officer

Yes. So, great question. So this thing that really drives demand for our products, whether it's in life sciences or high tech is a combination of profitability and margin considerations, as well as -- especially in life sciences, this acute focus on regulatory compliance, pricing compliance, etcetera. And so, while there are two very different industries, there is definitely a big focus in both of them on profitability and compliance. I would also say that, certainly mid-market customers, which is obviously where we see a lot of demand in new logo. Most of these are fairly complex businesses, despite the fact that they are mid-market, and so they have complex enterprise requirements and view software as one of the key ways to automate their business, drive better profitability, drive regulatory compliance. Fortunately, they are not immune to these things as emerging growth companies.

Stephen Wardell -- Chardan Capital Markets -- Analyst

Great, thank you.

Operator

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

Gene Mannheimer -- Dougherty & Company -- Analyst

Thanks. Good afternoon and congrats on a good start to the fiscal year here. I have two questions. Dave, what would we think about maintenance this year, which I recognize is embedded in the -- in your subscription line, should we still think about that to be flattish to down 5% or so?

David Barter -- Chief Financial Officer

I still think of it as flattish to slightly down. And so I think what I shared last call still feels like kind of the right type of outlook in perspective.

Gene Mannheimer -- Dougherty & Company -- Analyst

Okay. So that hasn't changed there. And then with respect -- Jason, I think you talked about the strength of bookings in the quarter and said they were -- seem to be weighted, I think more to new logos versus expansions. Can you give us a little bit more on that, is it 80-20 new to existing, 70-30? How should we think about that?

Jason Blessing -- Chief Executive Officer

That's a good question, Gene and thank you. You know what I would say about the quarter is. I like the diversity of bookings. We were -- we had a nice diversity between our core industries of life sciences and high-tech. We had a nice diversity of emerging growth companies and large enterprise. One of the other things I mentioned in my prepared remarks, is we also saw really nice participation across the board from our reps that service those different industries. And then, yes, I mean very strong new logo acquisition. We don't break that out publicly. But I did share that, because I think it's a great example of how underpenetrated these markets are and how we'd focus -- we can drive a material amount of bookings from new logo. So I would leave it is a material amount in the quarter.

Gene Mannheimer -- Dougherty & Company -- Analyst

Right. Thank you. Appreciate it.

Jason Blessing -- Chief Executive Officer

Thanks Gene.

Operator

Ladies and gentlemen, we have reached to end of our question-and-answer session, and this does conclude today's teleconference. You may now disconnect your lines at this time. Thank you for your participation.

Duration: 43 minutes

Call participants:

David Barter -- Chief Financial Officer

Jason Blessing -- Chief Executive Officer

Koji Ikeda -- Oppenheimer & Co -- Analyst

Kevin McElligott -- Raymond James -- Analyst

Chad Bennett -- Craig-Hallum -- Analyst

Ryan MacDonald -- Needham & Company -- Analyst

Peter Lowry -- JMP Securities -- Analyst

Stephen Wardell -- Chardan Capital Markets -- Analyst

Gene Mannheimer -- Dougherty & Company -- Analyst

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