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Model N (NYSE:MODN)
Q1 2020 Earnings Call
Feb 04, 2020, 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 2020 earnings conference call. [Operator instructions] Please note, this conference is being recorded. I will now turn the conference over to your host, David Barter, chief financial officer. Mr.

Barter, you may begin.

David Barter -- Chief Financial Officer

Good afternoon. Welcome to the earnings call for Model N's first quarter of fiscal-year 2020, which ended on December 31, 2019. This is David Barter, Model N's chief financial cfficer; 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 first-quarter performance and our financial outlook for our second 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-K 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 2020 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 2019. With that, let me turn the call over to Jason.

Jason Blessing -- Chief Executive Officer

Thank you, David. Good afternoon, everyone, and thank you for joining us today. We began our fiscal-year 2020 with momentum based on our strong execution over the past five quarters. I am pleased to report that our Q1 performance built on that momentum and we delivered results that exceeded guidance.

Total revenue for the quarter was $38.4 million, an increase of 9% over last year. And subscription revenue was $28.2 million, a 12% increase over last year. Our results demonstrate the positive impact of our strategic focus and continuing evolution as a vertical SaaS company. The results also highlight a commitment to delivering improving levels of growth and profitability, something I committed to 18 months ago on my first earnings call as the CEO of Model N.

We are proving that a more focused Model N is a better Model N for customers, employees and shareholders, and I would like to thank each of these important constituents for their continued support. As I look ahead, I continue to feel that we have a tremendous opportunity in front of us. In 2020, I expect to see continued improvement in our growth and profitability, particularly as our go-to-market strategy continues to mature. My confidence reflects not only our past performance, but also the knowledge that entering the year, we have an experienced leadership team in place, sales momentum and mission-critical products that help our customers drive top-line growth, profitability and compliance.

It is also important to note that our SaaS transition center of excellence is entering the year with proven delivery experience gained across a number of successful projects. And finally, our professional services team, which is a well-established strength of our company, continues to deliver complex global projects on time and on budget. Even though we are still in the early stages of scaling the company, we are starting to show the characteristics of a market-leading vertical SaaS company, thanks to new customers who have consistently been a material part of total bookings over the last several quarters. We also recently crossed an important milestone of having more than 70% of our customers in the cloud using an average of 2.4 cloud applications per customer.

This represents more than a three times increase over the last several years, and it helps illustrate the rate of change at the company. Equally interesting to note, our customer mix is also nicely balanced between mid-sized businesses and large global enterprises, which demonstrates that our cloud delivery model allows us to economically access a broad part of our total market. This is another proof point that our strategy is taking root. Delving into our customer base is a key element of our go-to-market strategy.

We serve to vibrant markets and the opportunity expand usage of revenue. Cloud is significant given the breadth and complexity of our customer sales channels, for example, in the first quarter. We expanded our relationship with a leading generics and specialty-branded pharmaceutical company that wanted to unify past acquisitions on to a single solution and standardize on model and revenue cloud. Similar to Gilead Sciences and our other customers the transition to our cloud platform, we will provide the agility to adapt quickly to new government regulations, the scalability and performance required to deliver growth across multiple channels, all while enjoying a lower total cost of ownership.

Now we would like to share some stories about customers that recently went live on revenue cloud as go lives were another highlight of the quarter. The first is Biogen, a pioneer in neuroscience that completed their transition from our on-premise applications to our cloud platform, this $13 billion global company wanted a modern revenue management platform with improved capabilities and performance. They also wanted a solution that would lower their total cost of ownership yet still allow them to stay compliant in today's fluid regulatory environment. Biogen is also the first sales cycle that I engaged in after joining Model, and so it is particularly satisfying to see their project go live.

I am also pleased to announce that Novo Nordisk, a $17 billion healthcare company and a recognized innovator, has also successfully transitioned to our revenue cloud. The successful completion of this project allows Novo to stay compliant in their core markets and also provides a modern toolset that is now deployed globally across their organization. Our products also provide Nova the IT infrastructure to support their growth as they move into new markets. This project is a great example of how our product supports compliance and the growth strategies of some of the largest healthcare companies in the world.

We also saw a number of successful go-lives on our cloud products that are designed to support the unique requirements of markets outside of the United States. One example is serving a global pharmaceutical company headquartered in France that went live on our global price management solution, which replaced a legacy homegrown application. Serbia's 49 different therapies are administered to over 100 million patients each day, and our products ensure that these therapies are dispensed at the proper price based on local agreements across 149 different countries. This is our first deployment at Serbia, and it is a great example of how we are able to land and quickly add value for a customer, which opens the door to expand over time.

Finally, Mölnlycke healthcare, a $1.6 billion Swedish medical solutions company, recently rolled out contract lifecycle management and global tender management in the U.K., Germany and France as a part of a global deployment of our products. They also began the second phase of their project in the United States to address their commercial business. Model N project is replacing a patch work of custom and point solutions and we'll provide Mölnlycke with a modern cloud platform that gives insight into all of their pricing and contract data. The success we're having in the field with customers is a reflection of the excellent delivery capabilities of our services team.

Our deep domain expertise and life sciences and high tech and the value our customers get from using our solutions, these successful go lives will serve as important references in future sales opportunities. I am excited as I look forward to the rest of the year. As I said at the beginning of the call, I believe we are still in the early stages of scaling and building a great vertical SaaS company our strong results over the past six quarters now, including Q1 show that we are well-positioned to have a strong year. I would now like to turn the call over to David to elaborate on our financial results and our guidance.

David?

David Barter -- Chief Financial Officer

Thank you, Jason. Our results for the first quarter of fiscal-year 2020 exceeded the financial outlook for all revenue and profitability measures we shared with you last quarter and extended the strong performance. We delivered throughout fiscal-year 2019 these results are further evidence. We are making progress growing and scaling as a vertical SaaS company, while also delivering improved profitability.

Total revenue for the first quarter grew 9% to $38.4 million. The outperformance reflects healthy subscription revenue of $28.2 million, an increase of 12% from a year ago. The growth is a direct result of our strong sales execution, which led to new subscription revenue of $17.5 million, as highlighted on our last call. This growth was partially offset by a natural decline in our maintenance subscription contracts, which resulted in revenue of $10.7 million.

Professional services revenue was $10.2 million for the quarter. Now I'd like to turn to profitability. Our team executed well in the quarter, and our top-line overperformance, meaningfully impacting the bottom line, reflecting our commitment to and focus on generating profitable growth. Non-GAAP gross profit for the first quarter was $23.5 million or 61% of total revenue, an increase of 400 basis points from last year.

Non-GAAP gross margin for subscription revenue was 72%. Non-GAAP gross margin for professional services revenue was 31%. Non-GAAP operating profit for the quarter was $4.6 million. Non-GAAP net income in the first quarter was $4.1 million.

We produced a non-GAAP net income per share of $0.12, which was ahead of our guidance of $0.05 to $0.07. Adjusted EBITDA for the first quarter was $4.8 million, representing a margin of 12.5%. All in all, we believe Q1 was a very well-executed quarter with strong financial results. Moving on to the balance sheet.

We ended the first quarter with $55.8 million of cash and cash equivalents. In line with our established cadence, we repaid $5 million of debt in early January. With this payment, we've repaid fully the seller's note associated with the Revitas acquisition and only a portion of the term loan with Wells Fargo remains. We remain focused on strengthening the balance sheet.

Turning to our financial outlook for the second quarter and full year. We remain confident our strategy is working well, and we are in the early days in our evolution as a growing and profitable vertical SaaS company. Based on our first-quarter overperformance and our continued confidence in the business, we are increasing our full-year expectations for total revenue and raising the midpoint for profitability. For the second quarter, we expect total revenue to be in the range of $38.8 million to $39.2 million, representing 12% growth at the midpoint.

We expect subscription revenue to be in the range of $28.4 million to $28.8 million, representing growth of approximately 10% at the midpoint. Non-GAAP income from operations is expected to be in the range of $1.4 million to $1.8 million and non-GAAP income per share in the range of $0.01 to $0.03 based on a fully diluted share count of approximately 34.9 million shares. Adjusted EBITDA is expected to be in the range of $1.8 million to $2.2 million. Please keep in mind, adjusted EBITDA tends to be seasonally lower in the second quarter due to the payroll tax reset, our Rainmaker users conference and the rollout of our new marketing programs.

For full fiscal-year 2020, we expect total revenue in the range of $154 million to $156 million and subscription revenue in the range of $113 million to $115 million. Turning to profitability. We expect non-GAAP income from operations in the range of $12 million to $14 million and non-GAAP income per share in the range of $0.25 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 $13 million to $15 million.

We remain very excited about the opportunities ahead as we continue to scale as a vertical SaaS company. Our results indicate our strategy is working and we are executing well. We are optimistic fiscal-year 2020 will represent another successful year. We believe we will continue to move toward our longer-term objectives of profitable growth and market leadership.

Thank you for joining today's call. Now I'll turn the call over to the operator for questions.

Questions & Answers:


Operator

[Operator instructions] Our first question is from Ryan MacDonald, Needham & Company. Please proceed with your question.

Ryan MacDonald -- Needham and Company -- Analyst

Yeah. Good afternoon, Jason and David. Congrats on a great quarter. Great to see that we're announcing yet another customer that's signing up to migrate over to the cloud-based solution.

We believe that's now two large customers over the last two quarters here. I guess, as we think about for the remainder of the year, can you talk a bit about what the pipeline looks like for potentially additional migrations. And now that you have two large migrations that are going to be under way, will there be any required additional resources that you need to add in terms of headcount to be able to get those migrated in a timely fashion if we do see, again, increased demand in the pipeline for more migrations? Thanks.

Jason Blessing -- Chief Executive Officer

Yeah. Good afternoon Ryan. Thanks for the question. So yes, the SaaS transition was definitely one of the starring roles in our story this quarter.

And as we've talked about over the last 18 months, we really put a lot of spade work into this effort last year to make sure customers understood our offering, understood the pricing, and even more importantly, understood the path to get from where they are to our cloud. So as the last year, one and a half years has gone on, we've continued to see momentum, as you pointed out, two important go-lives that we talked about in our prepared remarks at Novo and Biogen. I think one thing that's also important to point out about one of those -- about those projects that we've mentioned in the past, both of them have been about 50% faster and more cost effective versus projects that had come before them. And then we do have a number of different projects under way right now that are in different stages of progression, and you can expect that we'll continue to talk about those deals as they get closer to go live and do actually go live.

And I would also say the final point is our pipeline around SaaS transitions as we enter this year is stronger and more clear than it's ever been, as we've really been covering off, call it, our top 20 customers and working with them on a road map of how they're going to move to the cloud over the next couple of years.

Ryan MacDonald -- Needham and Company -- Analyst

Excellent. And just a quick follow-up on that point. Now that you have some large names that have gone live like Gilead, Novo, Biogen, how should we start to think about the expansion opportunity and how that becomes unlocked now that they are live in the cloud and their willingness or appetite to adopt more cloud modules now that they're live?

Jason Blessing -- Chief Executive Officer

Yes. Certainly, it enables the large $400 million expansion opportunity that we've talked about over the last year or so. Many of the new products that we're able to sell that go into the calculus behind that $400 million are products that we've built and deployed only in the cloud. So they're cloud-native architectures, hence on our cloud-native architecture.

And so as customers get their core products live, those add-on sales, it does remove some of the friction from the sales process.

Ryan MacDonald -- Needham and Company -- Analyst

Excellent. And then just one quick follow-up for David. Just a question around RPO. I know that's a metric that you've been giving more consistently.

What was that metric during the quarter? And how should we start to think about that on a comparability from a year-over-year growth perspective? Thanks.

David Barter -- Chief Financial Officer

Yeah. What you'll see you, when we file the Q, which we'll file tonight, you'll see it tomorrow, is that RPO for Q1 was just over $142 million, so kind of up from Q4 about $15 million. So we're real pleased with the performance, I think, as Jason had highlighted. And this, obviously, you've tracked us so well, Ryan, you know that this represents a mix of our standard three-year contracts with some of our one-year contracts.

And so I think we're real pleased with our execution this quarter.

Ryan MacDonald -- Needham and Company -- Analyst

Excellent. Thank you very much.

David Barter -- Chief Financial Officer

Thank you so much.

Jason Blessing -- Chief Executive Officer

Thanks, Ryan.

Operator

Our next question is from Koji Ikeda, Oppenheimer. Please proceed with your question.

Koji Ikeda -- Oppenheimer and Company -- Analyst

A nice quarter guys. I just wanted to dig in a little bit more on that subscription line item, and it sounds like with commentary on the SaaS versus maintenance mix there that the SaaS revenues grew well above that 20% market that you have out there. And it also sounds like you had some pretty good OPT transition in the quarter, too. So I guess, other than the OPT transitions, could you talk a little bit more about the bookings mix between the new customers and the existing customers? I mean, was it 50-50, 60-40? Any sort of color there would be helpful.

Jason Blessing -- Chief Executive Officer

Yeah. Hi, Koji. I'll take that one. So I would actually characterize this quarter as very similar to the last five quarters that have been similarly well executed.

And the story behind each one of those quarters has been, we had really nice contribution from both verticals, life sciences and high tech and a really nice mix between new logo and customer sales. And so yes, that mix has kind of been bumping around 50-50, maybe it's 40-60 in a given quarter. But yes, this was another quarter where we saw a nice contribution from new logos and then our spade work that I referenced really starting to pay off in the customer base with a couple of nice SaaS transition deals.

Koji Ikeda -- Oppenheimer and Company -- Analyst

Got it. Thanks, Jason. And then maybe a question, a follow-up for David. Nice result on the subscription line accelerating at 12% here, and the guide for the second quarter on the subscription revenue implies another double-digit growth quarter.

But thinking about the second half, with the guidance for the full year on subscription revenue just being the same, it implies a pretty big slowdown in the second half. Is there anything to point out there that's causing that to happen? Or is that an element of conservatism? I mean, is there something else that we should be thinking about there in the second half? Thanks for taking my questions.

David Barter -- Chief Financial Officer

Absolutely. Thanks, Koji, for the question. That's a great one. I think we felt good about the execution in this quarter, which is why we did adjust the range and adjust our financial outlook.

When we think about subscription revenue, obviously, we're 13 weeks or a quarter into the game. And so right now, as I look at new logos and some of the deals that are working their way through the pipeline, as well as some of our customer base expansions, some of those deals ultimately do include ramps and they include some deal structures. And so we've just given ourselves plenty of room to work right now, not knowing exactly how those deals will actually come together. And so just being sensitive to rev rec, that's what I would want you to think about in the guidance as of right now.

Koji Ikeda -- Oppenheimer and Company -- Analyst

Thanks for that. Thanks for taking my question, guys.

Operator

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

Chad Bennett -- Craig-Hallum Capital Group LLC -- Analyst

Great. Thanks for taking my questions. Nice job also on the quarter, guys. Maybe just kind of following up or on top of the question before on subscription revenue.

I guess if you look at whether it's RPO or billings are always tricky in a conversion model, but your billings number looked off the charts good this quarter. But I have to imagine, the December quarter and the September quarter are a significant amount of your renewal business in a year. And I see your subscription as a percentage of -- or SaaS as a percentage of subscription business went up four points sequentially. Just in a roundabout way, it seems like the SaaS business is accelerating and doing really well, especially in the last couple of quarters.

Is there anything we should infer by any of those metrics that I just rattled off, David?

David Barter -- Chief Financial Officer

Well, I think, Jason actually really framed it up very nicely in his remarks around what we've done over the last six quarters. And obviously, I think you're right that that's percolating through a lot of metrics that you're highlighting, whether it's RPO or the calculated billings. Obviously, there are a variety of metrics different people look to. But we do feel like that the execution is coming together.

And again, you're seeing it in a broad spectrum of metrics.

Chad Bennett -- Craig-Hallum Capital Group LLC -- Analyst

I guess, maybe a more blunt way of asking, there's really no reason why subscription revenue should decelerate from where we are today looking out as far as you can see at this point?

David Barter -- Chief Financial Officer

Well, in a short answer, that is no. We don't see any deceleration. But again, I think, Chad, one of the things that I probably learned and I've been reminded of by our customers is they will take down deals and the deals will be kind of on their timeline with their structure. And so I continue to feel really good about the deals we're taking down and ultimately how they're going to play out from a rev rec standpoint.

But we will give ourselves some room to work to make sure as we work our way through the second half of the year that there are great deals for the next three to five years, not just for the next couple of quarters. And so we're still committed to that kind of thoughtful, profitable growth that has worked so well for us.

Chad Bennett -- Craig-Hallum Capital Group LLC -- Analyst

Got it. And then maybe last one for you, David. The subscription business did better than anybody expected. But service, I think, at least in terms of how I was looking at it, did a fair amount better.

And it appears, at least for the guide for the March quarter, that this kind of $10 million plus run rate on the professional services side is going to continue. Is this a run rate that continues throughout the year? Can you give us any color for the back half for that line item?

David Barter -- Chief Financial Officer

That's a great question. I mean, I think you look at the full-year guidance, the pace at which we operated in Q1 and what I projected for Q2, I'm kind of holding it constant at that level. As you know from tracking us so well, Chad, we're very committed to tightening up with the templatized implementations and phasing in more partners. And so we kind of continue to factor that in.

Equally, we're very focused on customer success. So we have to step up a little bit, we will. But that playbook, again, that has helped us so well over the last 18 months, we're going to continue to use it. So kind of stay at the current volume, and then we'll update you if we end up having to step up and play a slightly larger role.

Chad Bennett -- Craig-Hallum Capital Group LLC -- Analyst

Perfect. And maybe a quick last one for Jason. Jason, from a go-to-market or kind of sales capacity standpoint, how do you feel in terms of where you're at here in the new year? Again, I think your SaaS business is, at least under the hood and maybe even showing up in the revenue number, accelerating quite nicely. Are you comfortable that you have what you need right now? Or do we need and expand the capacity a little bit more aggressively throughout the year? Thanks.

Jason Blessing -- Chief Executive Officer

Yeah. Thanks for that, Chad. So as you know, we did a lot of work on our sales team over the course of the last year. And as we come into this fiscal, I'm very happy with how Chris Lyon and the team are progressing.

We entered this year, 2020, with a very strong leadership team and probably the cleanest pipeline that we've had in our company history. And then we continue to fine-tune the hunter-farmer model that we've talked about over the last year, one and a half years. I think our conviction based on the different selling motions for us, our conviction is that is absolutely the right way to handle our go-to-market. And we continue to invest opportunistically in sales capacity with an eye toward 2021 and 2022.

And the nice thing about our customer base and our prospect base is they're really focused in three areas: California, the mid part of the U.S. and the Northeast. And so we've been opportunistically feathering in sales capacity in those areas where we see we have warm territories and opportunity.

Chad Bennett -- Craig-Hallum Capital Group LLC -- Analyst

Nice work. Thanks.

Jason Blessing -- Chief Executive Officer

Thanks, Chad. Thanks so much.

Operator

Our next question is from Jackson Ader, JP Morgan. Please proceed with your question.

Jackson Ader -- J.P. Morgan -- Analyst

Great. Thanks. Thanks for taking my questions, guys. First one is for you, Jason.

Those cloud penetration or cloud adoption metrics, right, 70% of your customers are using a cloud product and the 2.4 being the average number of products. Which of those metrics do you think will pick up more significantly here in the next 12 to 24 months? And then do you have a preference for which of those really moves up?

Jason Blessing -- Chief Executive Officer

Yesah. I mean, I think the cloud penetration as a percent of our total customer base is probably going to move quicker for two reasons. One, as we've talked about, new logos are picking up momentum and we're only selling cloud products today, we don't sell any on-premise offerings anymore. And then as also talked about the momentum in the customer base for customers who are converting from on-premise to the cloud is also picking up.

So I think that percent penetration kind of has a double whammy from new logos and customer base. And then I think the penetration in terms of total portfolio of products in each customer drafts nicely behind that.

Jackson Ader -- J.P. Morgan -- Analyst

OK, that makes a lot of sense. Then the follow-up for you, David. The SaaS transition that was announced in the quarter, not the go-live, the new agreement, is that a ramped deal? A ramped deal structure is still kind of the preferred contract here?

David Barter -- Chief Financial Officer

They are. And this one does have a ramp. The customer does have to deprecate an on-premise investment as part of their shift.

Jackson Ader -- J.P. Morgan -- Analyst

OK. And then a real quick follow-up then. Just remind us, under 606, do you have to straight line even these ramped deal structures? Or are you able to actually get some of the growth in a ramped deal?

David Barter -- Chief Financial Officer

Yes, that's a great question. Under 606, this particular transaction will be smooth, given the nature of how the customer wanted to deploy. Other transactions will tend to start smaller, and they will get bigger. So we work pretty closely with the customer to figure out what they want, and ultimately, that dictates the final deal and the revenue accounting.

Jackson Ader -- J.P. Morgan -- Analyst

All right. Awesome. Thank you.

David Barter -- Chief Financial Officer

Thanks Jackson.

Operator

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

Joe Goodwin -- JMP Securities -- Analyst

Guys, this is Joe, on for Pat. Thank you so much for taking our question. Just on the SaaS transition, the time has, obviously, improved, as well as the cost efficiency there. How should we think about this going forward? I mean do you still see a lot of room for improvement there? Any color on that would be great.

Jason Blessing -- Chief Executive Officer

Yes. In terms of the efficiencies, there's probably another 10% or 20% that we can wring out in terms of time and cost. But I don't know that it's a material amount at this point beyond that range. I'm actually very happy with the progress we've made over the first dozen or so that we've worked on.

Joe Goodwin -- JMP Securities -- Analyst

Got it. Thank you. And then just a quick follow-up. Can you provide us any update or commentary on the potential regulatory tailwind that you might receive?

Jason Blessing -- Chief Executive Officer

Yes. So in that question, I assume you're referring to the elections and the cost of healthcare that's been such an important part of both parties' platform. So what I would say is, like most Americans, we're watching this very closely. And I think for me, the importance and the discussion around this in terms of the election has been very positive, because it really shows how strategic our products are and how important this space is.

And it's also a great reminder for us and our customers how important it is for them to stay current, which is where we would implement any regulatory changes that are required as a result of legislation in Washington. So beyond that, I think we certainly have another nine months or so, where we're going to have to figure out what happens with the election. And then depending on who wins that may or may not bring regulatory change. But what I've told everyone who's trying to develop a strong bull or bear thesis on this topic, we got a ways to go to get to the election, and then there would be further multiple hears to drive any meaningful change through the legislature.

So I think, again, in the short term, this is a good thing for us, because it heightens the importance of how strategic our products are. But ultimately, the system in Washington is designed to work slowly.

Joe Goodwin -- JMP Securities -- Analyst

All right. Thanks so much.

Operator

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

Brian Peterson -- Raymond James -- Analyst

Gentlemen, congrats on the strong quarter. So we've had a few high-profile migrations on the SaaS side. It seems like the sales cycles there have really improved with both of you at the helm. Just on a high level, are you expecting sales cycles for these transitions shortened going forward? Or are there proof points related to implementations or customer references that you think some of the customers will need to see?

Jason Blessing -- Chief Executive Officer

I think the body of evidence that customers need to see, we now have that. And if you think back to March of last year, we didn't have any large go-lives, and we've now talked about multiple large go-lives on global companies. We have a number of projects in flight. And so I think the proof points around can Model N handle large global customers, the road map on how to go from on-premise to the cloud, we've really made a lot of headway there.

And I do view that as something that's going to accelerate sales cycles and decision-making over the next few years. And certainly, in my discussions with our largest 20 customers, all of them view moving their Model N products to the cloud as an inevitability, and I still continue to see this being an important tailwind for us over the next couple of years.

Brian Peterson -- Raymond James -- Analyst

Got it. And maybe one for David. Just as a follow-up, I know we had the guidance for fiscal-year '20. But as I think about the philosophy in terms of investing in growth and then the potential leverage of a vertical software model, directionally, how should we think about margin leverage versus investing in growth kind of beyond the FY '20 guidance? Thanks, guys.

David Barter -- Chief Financial Officer

Thanks for your question. I think the way we're thinking about, and I guess, the way we've approached it consistently as we still feel like our target model is the right framework to have in mind. I think as Jason highlighted earlier, I think one of the benefits of a vertical model is the density of the sales quarters that we have between the Northeast, the West Coast and even in the heartland, as we kind of work from Chicago all the way through Minneapolis. And those are the areas where we'll continue to get scale.

And so we'll continue to add resources in a thoughtful way. But the great part about this is these resources become very productive and very accretive to the company. So we'll continue to operate within the balance of the target model and continue to kind of cultivate the plan.

Brian Peterson -- Raymond James -- Analyst

Good to hear. Thanks, David. Thanks so much.

David Barter -- Chief Financial Officer

Thanks Brian.

Operator

Our next question is from Gene Mannheimer, Dougherty & Company. Please proceed with your question.

Gene Mannheimer -- Dougherty and Company -- Analyst

Thanks, guys. Congrats on all the progress as well. Just two questions from me. Your gross margin was exceptional in the quarter and you talked about the revenue over-attainment, the large go-lives.

I'm just wondering, was there anything else that may have been onetime this quarter, because your guidance implies that the remaining quarters won't be as strong from a margin perspective? And I recognize also the seasonality you called out in the second quarter.

David Barter -- Chief Financial Officer

Well, thanks, Gene. Well, I think going into the year, we felt like if you thought about gross margin last year at about 58%, we thought it would be up about two points. Obviously, this quarter at 61%, it was a little bit better. I think we'll continue to operate the business efficiently.

I think as I highlighted in the previous call, we did have some customers from older infrastructure that will be moving over to the modern infrastructure. And so some of that headwind will hit us a little bit later in the year. But right now, I think we're actually operating pretty close to the plan, call it, up a little bit.

Gene Mannheimer -- Dougherty and Company -- Analyst

Got you. In respect to the sales organization, Jason, I appreciate the color you offered before about how you're hiring opportunistically there. We know that a year ago, in Q1, you stepped up your hiring of reps focused on net new business, and that appears to be paying off very well. And I'm just wondering how your hiring this year compares to last year's adds, is it moderated or about the same level?

Jason Blessing -- Chief Executive Officer

It's about the same. And I would also say it's been fairly evenly distributed between life sciences and high tech and then further evenly distributed between new logo acquisition and customer sales and customer success. All of those different growth levers we have are meaningful, and I think we've done a really nice job of thoughtfully feathering in capacity to take advantage of each one of those opportunities, but it has been across the board.

Operator

We have reached the end of the question-and-answer session. And I will now turn the call back over to David Barter for closing remarks.

David Barter -- Chief Financial Officer

Thank you so much. We really appreciate everyone joining today's call, and we look forward to seeing everyone at upcoming conferences.

Operator

[Operator signoff]

Duration: 40 minutes

Call participants:

David Barter -- Chief Financial Officer

Jason Blessing -- Chief Executive Officer

Ryan MacDonald -- Needham and Company -- Analyst

Koji Ikeda -- Oppenheimer and Company -- Analyst

Chad Bennett -- Craig-Hallum Capital Group LLC -- Analyst

Jackson Ader -- J.P. Morgan -- Analyst

Joe Goodwin -- JMP Securities -- Analyst

Brian Peterson -- Raymond James -- Analyst

Gene Mannheimer -- Dougherty and Company -- Analyst

More MODN analysis

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