John Ederer : Yes. No, thank you. Good question. And I would say it’s a few areas. So first of all, I think we’ve just had a very steady and continuous dedication to profitable growth. And so it’s part of the culture here, frankly. And so each year, as we set our targets, we aim to drive growth but also drive incremental profit to the bottom line. In terms of some of the areas that we see leverage up and down the P&L. One is on the gross margin line. So there’s a few things that help there. One, just becoming a fully dedicated Cloud business and not having to spread our resources across different elements helps us, the revenue mix also helps. So the SaaS portion is more profitable than some of the Subscription Services. And so as that increases as a percent of the total, that helps our gross margins, as well.
And then on the operating expense side of things, we’ve been investing in sales and marketing to drive bookings growth, where we’ve been able to pick up some leverage is on the R&D side, where we don’t have to support as many products out there. And we also see some opportunity for leverage on the G&A line.
Operator: Your next question comes of Craig Hettenbach with Morgan Stanley.
Unidentified Analyst : It’s McCoy on for Craig. John, as you think about kind of the 2024 guidance. Can you talk about a little bit about how much that assumes new customers versus kind of upsell and cross-sell? And then just on 2024, is there anything we should think about as far as billings throughout the season? I know kind of renewals are coming up in this quarter and maybe in Q1, just anything to think about going forward?
John Ederer : Yes. Of the, I guess, the composition of the overall growth, you kind of hit on them, but the key growth drivers remain largely the same. So we will still have some growth from SaaS transition activity, as well as new logos and cross-sell upsell. Increasingly, we’re seeing more and more focus on new logo activity and the cross-sell, upsell. And we’ve done quite a bit of work internally to get organized around those two opportunities, focusing in on top 100 accounts and really doing quite a bit of work to identify, where the white space opportunities are with our existing customers. And so that’s all work that we’ve been and will continue. And those will be key drivers for FY ’24 again. In terms of the billings and some of those cycles, we did see a little bit more variability last year. Particularly with some of the anniversary billings of larger SaaS transition deals. And I would expect we’ll see a little bit of that again in FY ’24.
Operator: And your next question comes from the line of Rishi Jaluria with RBC.
Rishi Jaluria : First, maybe I want to follow up in terms of thinking about expansions for next year, so I understand with the SaaS NDR, you’re starting to kind of taper off some of the benefit from the SaaS transition, you’ll still get some next year. How should we be thinking about kind of NDR both next year, as well as maybe longer term, as you get completely through the SaaS transition. And then I’ve got a quick follow-up.
John Ederer : Sure. I’ll start with that one. So it’s interesting when we first introduced this metric, we talked about a range for net retention in the 110% to 115% range. And then we proceeded to beat that, I think each quarter. We have gotten benefit over the last year from SaaS transitions. And so as you’ve seen our SaaS ARR growth rate ramp up and then come back down to the target, our net retention metric has done the same thing. If I think longer term and look at a 15% to 20% target rate for SaaS revenue. In that scenario, I would expect net retention to be in the mid-teens with maybe the remaining 5 points of growth coming from new logo activity.
Rishi Jaluria : Got it. That’s helpful. And then I would love to touch on kind of cash flow. I mean you’re showing EBITDA margins continue to expand. How should we be thinking about cash conversion over time? And maybe kind of bridging that delta between adjusted EBITDA and free cash flow?
John Ederer : Yes. No, it’s a good question. And I would say that, the cash flow relative to adjusted EBITDA was a little bit off in fiscal ’23. If you look at our accounts receivable and our DSO metric, it actually crept up a little bit year-over-year. A big piece of that, unfortunately, was a receivable, a large receivable that came in on October 2, instead of September 30. So that would have changed the results for us, DSO and free cash flow. Having said that, I think when we look forward, we would expect cash flow to be closer to adjusted EBITDA. There’s really not much below that in capital expense, we do somewhere in the neighborhood of $1 million a year in capital expense. And so your adjusted EBITDA should trend to free cash flow over time.
Operator: Your next question comes from the line of Nick Mattiacci with Craig-Hallum.
Nick Mattiacci : This is Nick on for Chad Bennett. So Jason, it would be great if you could just talk a little bit about your of Model N’s opportunity internationally. Can you just talk about what needs to happen outside of the U.S. to capture this opportunity? And if there’s anything fundamentally different about those markets, maybe from a compliance or regulatory standpoint? Or is it more about just getting the right sales and marketing infrastructure in place?
Jason Blessing : A little bit of everything you touched on, Nick. So first of all, U.S. market and how pharma companies are regulated is unique. It’s really the only market in the world that has this level of complexity and government involvement. As we look in Europe, as an example, a lot of pharma products are bought through Central Health Ministry and through a tendering process, basically in auction. The pricing in Europe is also a little bit different in the countries will negotiate agreements pharma companies, where the price they’re willing to pay might be the average of, call it, 5 countries that look like them. So that are similar GDP and similar state of advancement in their healthcare systems. So how they’re bought, how they’re priced are different.
