Model N, Inc.

Greetings and welcome to Model N fourth quarter and full year 2020 earnings conference call. At this time, all participants are in a listen-only mode. A question-answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. I would now like to turn this conference over to your host, Ms. Gwen Lauber, Investor Relations. Please go ahead, ma'am.

Good afternoon, and welcome to the earnings call for Model N's fourth quarter and fiscal year 2020, which ended on September 30th, 2020. This is Gwynne Lauber, Model N's Director of Investor Relations, and with me on the call today are Jason Blessing, Model N's Chief Executive Officer, Ruben Gallegos, Vice President of FP&A and IR, and Kathy Lewis, Chief Accounting Officer. Our earnings press release was issued after the close of market and is posted on our website. The primary purpose of today's call is to provide you with information regarding our fourth quarter and fiscal year 2020 performance and our financial outlook for our first quarter and full fiscal year 2021. 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.modelin.com to access our fourth quarter of 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 fiscal year 2019 results. With that, let me turn the call over to Jason.

Thanks, Gwen, and good afternoon, everyone. Thank you for joining us today. Q4 was another strong quarter for Model N and punctuates a strong end to our fiscal year. I will remember 2020 for all of the challenges we faced around the world, but also because this was a year where Model N continued to deliver profitable growth, strengthen our customer relationships, and take care of our employees. Today, I will provide you with insight into Q4 and our fiscal year 2020 results and give you an update on our business. I will conclude my prepared remarks with an update on fiscal 2021 guidance. Our results for Q4 exceeded all key metrics that we shared in our last quarterly update and demonstrate that Model N continues to execute well in this uncertain environment. Total revenue for the quarter was $41.5 million, an increase of over 13% from last year. And subscription revenue was $29.7 million, an 8% increase over last year. Our strong professional services revenue of $11.8 million highlights that our customers continue to prioritize their Model N projects due to the top and bottom line performance our products enable. Our results also continue to confirm that our focus strategy implemented over two years ago is working, even in these difficult times. Our success this quarter was powered by contributions from all of our go-to-market teams. We added four new logos, we had several expansions in our customer base, and we continue to sign new SaaS transitions. These results show that our teams and customers are settling in to remote selling and delivery. Also of note, when the pandemic started in the spring, we said we would use flexible deal structures to drive sales velocity, and this approach has had the intended positive impact. During Q4, we closed the highest quarterly deal volume in our company's history. The trade-off is these contracts contribute a lower amount of revenue in the near term, but we believe the company benefits significantly by continuing to close deals. This approach keeps our team engaged, shows strong partnership with our customers, and creates upside in our book of business when these contracts renew at more favorable economic terms. Our professional services team had another great quarter and a fantastic year. This team has worked closely with our customers to ensure that projects stayed on track as we worked remotely, which produced strong results not only in the quarter, but throughout the year. The team's ability to complete projects on time and on budget has been remarkable, and this year we celebrated a record number of go-lives, of which more than 90% were delivered on time. Much of the success is a result of our cloud delivery model, which significantly reduces the time to consume new innovation, and our new automation tools, which drastically reduce the time and risk in testing and validation. This continuous improvement to our delivery model further reduces implementation timelines, thereby increasing time to value for our customers. Turning to our markets. We saw success in both life sciences and high tech. Our life sciences team added three new logos, including Arjo, which adds to our growing list of MedTech customers. We were also selected at Organon, Merck's spinoff of their women's health trusted legacy brand and biosimilar businesses. Merck is a longtime Model N customer, and now we will provide Organon with our full suite of Revenue Cloud products. OctoPharma, one of the largest human protein product manufacturers in the world, also joined the Model M family. OctoPharma is a global company committed to patient care and medical innovation and has recently been in the news because of their plasma blood therapies that are being used to combat COVID-19. Given the growth in their business, the company needed a solution that could scale globally while providing commercial and regulatory compliance. After considering several options, the company chose Model N because they believed that we could meet their needs today and support their plans for the future. On our Q2 call earlier this year, we reported that the generics division of Mallinckrodt, a multibillion-dollar global pharmaceutical company, went live on Revenue Cloud in six months, a record at the time. I'm very happy to announce that in Q4, their branded division went live in just five months, a new SaaS transition record for us. This go-live demonstrates not only the high-quality work of our professional services team, but also our commitment to driving rapid time to value for our customers. I am also happy to announce that flu vaccine manufacturer Securus went live in Q4. When we signed this deal earlier this year, I talked about the importance of their Model N project progressing quickly to support their growing business during a busy flu season. Utilizing our new express methodology, our professional services team was able to meet the customer's tight timeline and to get them live in order to meet their business demands this fall. Model N now provides this customer with a fully integrated solution that automates processes and reduces overpayments on rebates and chargebacks. We also had several of our early SaaS transition customers successfully take their seasonal updates this quarter. Gilead took their first update and implemented several new features that give them improved contracting capabilities, enhanced chargeback, improved script validation, and other general improvements. British medical equipment manufacturer Smith & Nephew also took their first seasonal update since their SAS transition and took advantage of several new contracting enhancements as well as improved regulatory compliance capabilities. We also signed new SAS transitions in Q4. Most notably, Johnson & Johnson started their journey to SAS by kicking off a project to move its Model N infrastructure in Japan to our cloud. To achieve their tight timeframe and business objectives, Johnson & Johnson determined that our solutions provided the most accurate reporting and compliance, and that Model N's SaaS platform offered better performance and reliability. As SaaS transition momentum picked up in 2020, we also saw increased interest from our top 10 pharma customers to move to our cloud. We are actively working with several of these customers to plan their move over the next few years. I am personally involved with our account teams in many of these deals as we work collaboratively with our customers to ensure that we find the best path forward to mutual success. Remote work is also proving to be a catalyst for SaaS transition. As customers look for solutions that allow them to adapt to this new normal while enabling their teams to remain productive, competitive, and compliant in a global marketplace. Turning to high-tech, this vertical continues to improve since being impacted in the spring by the global pandemic. In Q4, we added a new logo, executed several customer expansion deals, and celebrated multiple go-lives. The high-tech pipeline does remain below pre-pandemic levels as deals have pushed out, but the pipeline has continued to recover throughout the year. In Q4, we signed Cree as a new customer, as they prepare to spin out their semiconductor business into a new company. Cree is an innovative, leading supplier to multiple market segments, including renewable energy and other growth industries. They determined that Model N is one of three essential projects that they will fund during the spin-out to support the company's new operations. Cree currently relies on partners to manage their complex channel using manual homegrown solutions, which results in significant revenue leakage. We believe that Model N's pricing, quoting, and channel management applications will allow Cree to modernize their infrastructure, reduce revenue leakage, and support their future growth. We also had several successful go-lives in high-tech in the quarter, including an important one at AMD, which expanded to the full suite of Model N products and integrated our solutions with their front and back office systems. AMD is simplifying their sales process and positioning themselves for future growth by improving their data quality and harmonizing processes across business units with Model N. Now I'd like to elaborate on our financial results and provide fiscal year 2021 guidance. Our results for Q4 and fiscal year 2020 exceeded the guidance that we shared with you on our last call and demonstrate our ability to deliver profitable growth. Total revenue for Q4 grew 13% to $41.5 million and subscription revenue grew to $29.7 million an increase of 8% from a year ago. New subscription revenue expanded to over $19 million, an increase of just over 20% from last year. Professional services revenue was $11.8 million. Turning to profitability, non-GAAP gross profit for Q4 was $26.1 million, or 63% of total revenue. Non-GAAP gross margin for subscription revenue was 74%. Non-GAAP operating profit for the quarter was $6.8 million. Non-GAAP net income in Q4 was $5.1 million. We produced a non-GAAP net income per share of 14 cents, which was ahead of our guidance of 7 to 9 cents. Adjusted EBITDA for Q4 was $7 million. representing a margin of 17%. Turning to our full fiscal year 2020 results, total revenue was $161.1 million and subscription revenue was $116.2 million. For the full year, non-GAAP gross margin was 63%. Non-GAAP income from operations for fiscal year 2020 grew to $20.6 million compared to an operating income of $11.8 million in fiscal year 2019. Non-GAAP net income for fiscal year 2020 was $17 million, a significant increase from $8.1 million in the prior year. Non-GAAP net income per share for fiscal year 2020 was 48 cents, up from 24 cents in the prior year. Adjusted EBITDA for the year was $21.4 million compared to a profit of $13.1 million in fiscal year 2019. Moving on to the balance sheet, we ended our fiscal year with $200.5 million of cash and cash equivalent. Our cash balance reflects our healthy free cash flow of $14 million and the successful convertible debt financing completed in Q3. I'd now like to provide you with guidance on our fiscal year 2021. Our initial financial outlook for the year considers several important factors. First, in line with our guidance philosophy over the past couple of years, our outlook is based on a high degree of visibility. It also contemplates our pipeline, which has continued to grow despite the ongoing challenging macro environment. We also expect continued volatility to persist during 2021, which is likely to continue to cause some deal cycles to elongate. Our guidance also factors in the impact of fiscal year 2020 customer-friendly deal structures, which we expect to continue to utilize in 2021. For the first quarter of our fiscal year, we expect total revenue to be in the range of $40.2 to $40.6 million. We expect subscription revenue to be in the range of $29.4 to $29.8 million. Non-GAAP income from operations is expected to be in the range of $4 to $4.4 million, and non-GAAP income per share in the range of 5 to 8 cents, based on a fully diluted share count of approximately 37.5 million shares. Adjusted EBITDA is expected to be in the range of $4.1 to $4.5 million. For the full fiscal year 2021, we expect total revenue in the range of $170 to $172 million. We expect subscription revenue in the range of $122 to $124 million. Turning to profitability, we expect non-GAAP income from operations in the range of $17.6 to $19.6 million and non-GAAP income per share in the range of $0.27 to $0.35, based on a fully diluted share count of approximately 39 million shares. Adjusted EBITDA is expected to be in the range of $18 to $20 million. Before turning the call back to the operator for questions, I want to give you some final thoughts on our initial outlook for 2021. I am very pleased with the progress that we've made since I joined Model N over two years ago and how the team has performed in this truly unique environment. As I said at the start of the call, we have multiple proof points that our strategy is working. We are making progress in both the life sciences and high-tech verticals, adding new logos, and expanding within our customer base. And our professional services team is doing a fantastic job delivering on large projects, including SaaS transition, which drives future growth. I'm very encouraged by the activity that I see and the conversations that I've had with our customers. However, there does remain some uncertainty in the macro environment. That said, we will continue to invest and we will grow through these times, and I continue to be excited about our long-term future. Thank you for joining today's call. Now, I'll turn the call over to the operator for questions. Operator. Operator.

At this time, we will be conducting a question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star 2 if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary for you to pick up your handset before pressing the star keys. One moment while we pull for questions. Our first question comes from the line of Chad Bennett with Craig Callum. You may proceed with your question.

Great. Thanks. Thanks for taking my questions. Nice job to a strong year-end, Jason and crew. Thanks, Chad. So, just on, you know, Jason, when you're talking about, which is obviously... we've been hearing a lot of in software world, just, you know, kind of deal ramp structures. And I think you were even doing these, you know, somewhat from the get-go pre-COVID. You know, is there any way to, you know, quantify kind of the impact in the outlook from those deal structures and maybe how you're thinking about just independently the SaaS business growth-wise next year relative to previous expectations? And just, you know, what are the puts and takes since I think you have been doing these deal structures for a while of, you know, those deals that actually renew for their second year, next year, if that's the case, that would have lift in them, I assume. Just any commentary would be great there.

Yeah, that's a fantastic question, Chad, and a great place to start. So as you point out, we started doing deal ramps when I got to the company roughly two, two and a half years ago. And as we fast forward to where we sit today, deal ramps did have our largest impact on how we guided for this year. And I want to give you a little bit more color on that. Pre-COVID, we were ramping roughly a third of our deals, and a lot of it honestly was on the new logo side. And post-COVID or during the COVID era now, that number is closer to 50%. And as I said in my prepared remarks, with our best deal volume in company history in Q4, that is definitely a tactic that is resonating with customers today. I'd also like to provide you just a little bit more color on the 2021 impact. The top line impact is seven figures, and so it is baked into our guide, but we do think that deal ramps are going to continue to be a way that we take deals off the street and create long-term value, which is ultimately why we're here. And then also, to your question about when do some of these contracts start to renew, we have seen some of the early deal ramps that we did renew at full value. And our SaaS gross renewals continue to be high 90s. That's what gives us confidence in doing deal ramps. But as those deals have renewed, they've renewed at full value. Customers feel good about the solution. that they're getting. And so we'll continue to have a natural tailwind over the next couple of years from some of the deal ramping that we're doing during the COVID era.

Got it. No, that's very helpful from a color standpoint. And it seems like the momentum behind SaaS conversions continues despite the environment we're in. And I think you indicated you know, of the top 10 pharma, you're working on a number of deals there personally. Are you as kind of confident in SAS conversion activity as maybe you were, you know, early in the, you know, and maybe pre-pandemic is the way to ask it, and kind of the momentum that you guys are seeing there, has anything kind of changed your view?

No, I would say, in fact, every day that goes by, I get more comfortable around SaaS transitions, and I'll share a little more color there as well. You think about the last year, year and a half, we have demonstrated that we can consistently move customers to SaaS, do it on time, on budget, with a high degree of quality. Customers who've moved to our SaaS offering are enjoying the benefit of rapidly consuming new innovation. They also talk about better system performance, better stability. And when you combine that with remote work as the new normal, certainly for the foreseeable future, there's a number of proof points there that have been enough to really get the attention of top 10, top 15 customers And then there's a number of them engaged with us in detailed planning for transitions over the next 12 to 18 months. Got it. Thanks. Nice job again. Thanks, Chad.

Our next question comes from the line of Terry Tillman with Truist. You may proceed with your question.

Yeah. Hey, Jason. Thanks for taking my questions. And I appreciate all the perspective and details, particularly around these ramp deals. One question I had about is J&J. Maybe you could talk a little bit more about kind of the size and scope of this transition. And I think you remarked that Japan will be the first area. But how much impact will there be to subscription revenue and FY21 from J&J? And then I had a couple quick follow-ups.

Yeah, so the impact on our revenue from J&J in 2021 is contemplated in the current guidance. And we're working very closely with the executives at J&J on a broader program to get them fully current and in our cloud over the next couple of years. They had some specific requirements in Japan to get their instance there or the products that they use there upgraded. And so it just made business sense for us to start there. That's why Japan first. And that's the first step in what I think is going to be a 12- to 18-month program to get them current. They last upgraded a few years ago, so they are on track to do an upgrade anyway. And we're communicating to all of our top 10, top 15 customers that this round of upgrades needs to be a move to the cloud.

Great. And maybe just as we look into FY21, you give the total subscription revenue, but how do we think about maintenance? And then the second part of the question is, given the nature of some of these flexible deal terms, maybe is RPO kind of increasingly more relevant, and could you share with us the RPO? Thank you.

Yeah, I'll answer the maintenance number, and then I'll ask Kathy to comment on RPO. So, The guidance that we would give this year on maintenance is it's about a third of our recurring mix, or at least we exited Q4 with it about a third, a little over. And we continue to believe that that maintenance stream will perform as we've guided in the past of declining mid to high single digit. And that could bump up over 10% in quarters where we may have a large SaaS transition. that occurs. But, you know, we generally view maintenance going down faster as a good thing because it indicates traction on the SAS transition side. But that guidance of roughly a third declining mid to high single digits is how you should think about it from a modeling perspective. And then, Kathy, would you like to comment on RPO?

Absolutely. Hi. So the total RPO at the end of our fiscal year is roughly $165 million. And the current portion of that is $87 million. And as we discussed on previous calls, and as Jason mentioned, the RPO will continue to be impacted by the deal structures that we're contemplating.

All right. Thank you. Thanks, Terry.

Our next question comes from the line of Matt VanVleet with VTIG. Terry, proceed with your question.

Yes, hi. Thanks for taking the question. Maybe just a little clarification first on the ramp deal impact on the 21 guidance. You mentioned it's a roughly seven-figure impact, but just curious if that's relative to the now 50% in there as an incremental amount to about the third that you mentioned, or if that's all of the 50% that's creating that seven-figure headwind there.

Yeah, it assumes all of the 50% that we saw over the last couple of quarters, and it assumes that we'll continue to ramp deals at a similar rate. I don't know that it goes much higher, but at a similar rate in the first half of the year, which will have a little bit of additional impact on top line.

Great. Thanks. And then I guess also thinking about what the conversations with SaaS transitions are progressing and Maybe, you know, on some of those prospective customers, will those continue to be sort of very piecemeal and almost kind of a land and expand element? Or are some of the discussions a little more holistic and undertaking some bigger projects potentially?

Yeah, it's a great question, Matt, and it varies by account. Some customers are really just looking to get current and modernize their infrastructure and take advantage of the SaaS delivery model. But we have definitely seen other customers that are approaching the SaaS transitions as more of a transformational effort inside of their companies, and that can range from rolling out Model N more broadly to other divisions. I'm personally involved in one of our big SaaS transitions right now where we're talking about doing that. Maybe everything from that to just simply adopting new features, new modules that we've released that the customer has not consumed yet.

And then lastly, as we think about kind of what's been driving some of these new deal signings more recently, obviously, We're all hopeful that kind of a global rollout of a vaccine will be coming soon. But I guess what's been the biggest driver for customers buying new modules? You know, are they looking toward that type of event? Is there anything in particular within the portfolio that's been in much higher demand and maybe conversely improved? anything that's been sort of trailing or left by the side in the very current environment that you hope will start to pick back up?

Yeah, it's a mix of things, and it varies a little bit across the different verticals. On life sciences, as we've talked about, with Securus signed earlier this year, Arjo, who we signed this quarter, OctoPharma, who we signed this quarter, these are all companies that are benefiting from or seeing demand go up from COVID and modernizing their business infrastructure. So, you know, there is some benefit from that. We also, last year, and I think it's going to continue into this year, have seen a lot of M&A announced in life sciences, and we generally benefit from that as well because the spun out companies will often select Model N because it's what they're familiar with to be the infrastructure for the new company. And I would say this combination of remote work and a fluid regulatory environment continues to just drive customers to do SaaS transitions and get current. You know, on the high-tech side, as I've talked about the last couple quarters and this theme persisted into this quarter, you know, we're really focused on growth companies that have innovative products that themselves are selling into growth and market. And so Cree as a new logo is a great example of that. AMD, which I think everyone considers a growth bellwether, is another company we continue to spend a lot of time and have a lot of success with. So on the high-tech side, though, it is more focused on growth companies, market leaders, and those who are really trying to strengthen their top and bottom line performance in a difficult environment.

All right, great. Thank you for taking my question. Thanks, Matt.

Our next question comes from the line of Brian McDonald with Needham & Co. You may proceed with your question.

Yes, good evening, Jason. Thanks for taking my question. As we look at the outlook, obviously we've gone through the top line impacts, but as we look sort of further down onto the bottom line, a little bit of margin compression being assumed in the guidance right now. Can you talk about the areas in which you're investing incrementally into the next fiscal year? and how you think about sort of the balance of growth and profitability as you're sort of seeing this impact from the ramping deal structures? Thanks.

Yeah, thanks, Brian. So there's a couple points I'd make here. First of all, ramping of deals does have a bit of an impact on gross margins, and you're seeing some of that. in the guidance because we still have to provide AWS environments for these customers that are kicking off projects. And there's a base cost there. And then depending on storage and transaction requirements, the cost of delivering those deals in the short term can be a little high as we're ramping revenues. So that's a little bit of color on the gross margin side of things. And then, you know, a little color more broadly speaking on investment, because I think this is a really important part of our story. When the pandemic started, we said that we would continue to surgically invest in areas that we think drive long-term value. And given this viewpoint, we've continued to top grade and selectively invest in sales. We've built out a life sciences new logo team, which didn't exist 12 months ago. I'm very excited about the progress of that team. I would say right now our high-tech team is, in terms of sales, is appropriately sized. But on the life sciences customer sales team, I do see some opportunity to selectively invest there, particularly with the growing pipeline of SaaS transition and expansion deals in our customer base. And then the final area is we continue to invest in our product team on the heels of announcing a new chief product officer. particularly in the areas of bolstering some of our leadership capabilities in our product organization. We've been investing in engineering capabilities and then also in our cloud operations as that part of our business really takes off.

Excellent. And then as a follow-up, it was great to see the new partnership you announced with Channel Impact recently. Just wondering sort of the strategic rationale around that partnership and how you think that can help perhaps get that pipeline in the high-tech vertical back to pre-pandemic levels a little bit quicker. Thanks.

Yeah, I'm glad you asked about channel impact and that partnership. So one of the things that we see that's very common on the high-tech side of things, particularly when we're doing transformational projects, is companies need help redesigning their pricing structure and the channel incentives that they use to drive profitable growth through their channels. We have the software that enables them to implement those strategies, and we have some of that domain expertise in-house, but Channel Impact really brings that strategic consulting viewpoint so that together we can give high-tech customers a complete viewpoint and complete value.

Our next question comes from the line of Joe Brewink with Baird. You may proceed with your question.

Great. Hi, everyone. Jason, it sounds like you've gotten to the point if ramps became somewhat more common two, two and a half years ago, you've gotten to the point where you have some renewals under your belt. I'm just wondering when you compare the TCV or what ultimately is getting put into RPO with the renewals, how much larger do those tend to be?

Well, there's a few moving parts in that, Joe, and let me just kind of give you the high-level framework. In the two and a half plus years that I've been here, we've been working on standardizing all of our contracts and moving towards three-year contracts. So, you know, we've certainly seen the benefit of that. But then, you know, as I stated, we've also, in conjunction with that, you know, started ramping roughly a third of our deals. And now in the COVID era, we've seen that go up to 50% of our deals, which does have somewhat of an impact on short-term RPO. And then we are starting to see the benefit of some of those deals that we ramped to two and a half years ago as they renew. And I would say the positive thing there is we've continued to see deals renew at very high rates, upper 90s on our ARR. And we expect that to continue. But we're not yet at that tipping point where we have enough historically ramped deals renewing that they overcome the ramping that we're doing in a high deal volume quarter like Q4. But I do think over the next 12 to 18 months, that does start to equalize and become a tailwind.

So I guess my follow-up to that, I think for 2021, the expectation is that top-line subscription growth is maybe more like high single digits. And I appreciate that, you know, the seven figure headwind with the ramp structure being incorporated into that outlook. You also had, you know, once upon a time, a target that maybe revenues could sustain 12 to 15 percent with all the different moving pieces. Is the thought that with the ramp deals that are maturing and flipping around to eventually becoming tailwinds, that it's more like 15%? Is it better than 15%? Just kind of how do you think about the model directionally if we look out a few years and Model N gets the benefits of these ramps?

Yeah, that's a good question, Joe. So I think, you know, pre-COVID and pre-increased ramping, you know, we started to see the potential of Model N and saw us approaching, you know, that mid-teens growth. And, you know, we do believe that post-pandemic that things will get back into that normalized mid-teens range. And we think we benefit from both some of the ramp deals and building a backlog right now that we've been doing, plus just a return to more normal selling motions. We benefit from both of those things.

Okay. Thank you. That's helpful. I'll leave it there.

Thanks, Joe.

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

Thanks. Hey, guys. Kevin here on for Brian. As I think about the record deal volume this quarter, can you help to parse out the impact from new business development versus any potential chiming shifts from earlier in the year? And how should we think about go-forward sales cycles relative to recent activity levels?

Kevin, would you mind repeating the first part of that question? Our line broke up a little bit. Oh, I apologize. I was just trying to get a sense of...

I guess parsing out the record deal volume that you saw this quarter and how was that composed from new business development versus any potential timing shifts from some of the deals that may have gotten pushed from earlier this year?

Yeah, it's a good question. So our bookings continue to be slightly tilted towards customer base just because of some of the naturally larger deals in the base and fast transition. So You can think about it being tilted north of 50% towards customer base. And I'm glad you asked the question about deals flipping out. Both Cree and OctoPharma were actually two deals that we had in our pipeline and were intending to close really right at the beginning of the pandemic. And both of those deals just simply needed more attention on the deal structure and a couple of additional approvals. And so I think, you know, I'm glad you asked that question because it shows that we are seeing deals slide right and just need more attention on the economics and approvals versus completely going away.

Okay, yeah, that's helpful. And then maybe just at a higher level, as you think about the broader white space opportunity, can you help to frame which products you're most optimistic about? And what do you see as the key areas that should drive that incremental adoption over the next two to three years?

Yeah, so, you know, I think we still have a very interesting white space just in new logo acquisition. That is in and of itself in one of the top two fastest growing pipeline areas in the company. That's a new team that we've built out over the last 12 months, as I mentioned earlier. So, you know, I think of that as white space, you know, in the new logo market. And, you know, we typically will land there with our provider module to help customers manage the contracting and delivery of products to the healthcare providers or payers, depending on what their business model is. In the customer base, there's two things that, you know, thematically are important. We've already talked about SaaS transitions quite a bit, but some of our products that enable customers to effectively handle the tendering. process and the go-to-market process in Europe, I think, are going to continue to be quite interesting. Those present unique opportunities for us as we're going through SaaS transitions. So, you know, that's an important one as well. And then on the high-tech side, as we, you know, kind of look generally at our pipeline, it is tilted a bit more towards new logo acquisition and and the white space that we still have there. And, again, the profile of customers or prospects that we see there are really growth tech companies that have growth end markets that really need to bolt in the infrastructure to scale their businesses. That's helpful. Thanks, Jason. Thanks, Kevin.

Our next question comes from the line of Gene Manamer with NPR. Daughtry and Coe, you may proceed with your question.

Thanks. Good afternoon. Congrats on the great year end. I was hopeful for maybe an update on the new CFO appointment, if you could provide any color there. And I wanted to ask about product density. I think that's a number you give or used to give about once a year and just want to know where it was, where it is today, and where you'd like that to be going forward.

Thanks. Yeah, thanks for the question, Gene. So first on the CFO search, we have hired a retained search firm. We kicked the search off shortly after David's transition out of the company was announced, so four or five weeks ago. And I will share two positive things on the search. First of all, we've had very strong market response and a lot of excitement about the long-term future of Model N. So we've got a number of candidates who've engaged and also a number of active candidates that are working their way through the process. So I've been very pleased with the response there. And then in terms of product density, I assume, Gene, you're talking there about kind of our six or seven products that we have to sell to customers and where are we at from a penetration perspective? Yes, that's correct. Yeah, got it. Yeah, so, you know, we continue to make great progress there, and it's part of the reason why, as I mentioned in one of the earlier questions, one of our investment areas is in the customer base and investing more in sales there. And, you know, we still have a significant multi-hundred million dollar opportunity just continuing to sell products into our customer base. There's a few different plays that we can run there. We can take existing footprint that a customer has and deploy it into other divisions in a company. And then depending on where we've landed in a company and what their business model is, there are other products that we can sell them to accommodate government contracting, go to market in Europe, or the commercial market here in the U.S. So Again, we continue to view that customer-based and monetizing it independent of SaaS transitions as a multi-hundred-million-dollar opportunity, and that's why we're investing there.

Gene, the annual number we talked about before is 130 customers in the cloud on the average of about two and a half products. We have that in our supplemental as well.

Okay, our next question comes from the line of Joe Goodwin with JMC Securities. You may proceed with your question.

Hi, Jason. Thank you for taking my question.

Just on the SaaS transition, when a customer is going through that conversion, do they need to be upgraded to a more recent or most recent on-prem version before going to the cloud, or can they just go from really any existing version on-premise?

into the cloud? Is there any dynamic there? Any colors of the grid? Yeah, thanks for the question, Joe. So the answer is it depends. Most customers do have an initial step to get current and then make a move to our cloud offering. And this is, again, where we're trying to take a very customer-friendly approach and take the right approach for that customer. Some customers say, hey, I want to get current and move to the cloud all in one motion. And others say, I want to get current, stabilize, and then move to the cloud, say, 90 days or 180 days after the upgrade. So we see both approaches. There's pros and cons to each. But at the end of the day, we do what the right thing is for the customer and the right thing for their environments. Got it. Thank you.

And then just a follow-up, if I may. On the pipeline, I understood it's recovering. Can you talk about kind of the cadence of that recovery? Has that recovery been, let's say, accelerating as you move through the fourth quarter and up until today? Thank you.

Yeah, in terms of the overall pipeline dynamics in life sciences, You know, we did see a little bit of a dip very early in the pandemic and then a very consistent up and to the right recovery throughout the year. And I believe that's going to continue to occur as we move into 2021. And then on the high tech side, it's been more of a more muted but steady recovery since the March timeframe. And we're now above COVID shock levels, COVID shock to our pipeline levels, but still not at pre-pandemic levels. But I do expect over the next few quarters, we will get back to those pre-pandemic levels. Great. Thank you. Thanks, Jeff.

Our next question comes from the line of Jackson Ader with JPMorgan. You may proceed with your question.

Great. Thanks for taking my questions, guys. If we could actually just follow up on that last bit there, Jason, on the high-tech side and the recovery.

Do you feel like that there is – are you just waiting for demand from the customers to come in, or are there certain things that sales – Not necessarily discounts, but just sales programs or incentives that you can do to try and make it more enticing for that side of the house to move a little bit more quickly. Yeah, thanks for the question, Jackson. Good to hear from you. You know, I would say there's been a couple of things that we've really been focused on in high tech during this period. The first is making sure that we've got the right team on the field. As I talked about more broadly, we see cycles like this as an opportunity to top grade and pick up key talent and make sure that we've got the right team. So we've been focused on that. We've also been very focused on outbound pipeline development. One of the values of being a vertical software company, as you would know well, is we're not trying to be all things to all people. We have a set of named accounts. And so our business development reps and account executives have been very focused on outbound prospecting and, again, targeting those customers who are willing to buy now and taking advantage of some of the incentives that we can add to help them move along, but also building longer-term pipeline for the next 12 to 18 months has been a very important focus as well to set us up for the recovery. Okay. And then just a quick follow-up, maybe on regulation, you know, given kind of the way things at least appear like they're going to shake out and with, you know, mixed leadership, I guess, going forward in the U.S., can you just kind of update us on how the company views either increased regulation, deregulation? I know you mentioned it in Life Science, but Yeah, just updated thoughts on kind of this mixed leadership we have in the U.S. Yeah, this has probably been one of the most interesting topics that I get asked about since I've been at the company. And I've said pretty consistently all along that I don't see regulations getting any simpler. In fact, regardless of who's in the White House, I think they probably continue to be fairly complex. And that benefits us, honestly, in both of our markets in high-tech and life sciences because we are the product and the partner that helps customers unravel that complexity and drive top-line and bottom-line improvements. So I don't see it changing to the negative side for Model N. I see it actually continuing to be a positive part of our value prop. Yep, makes sense. All right, thank you. Thanks, Jackson.

Ladies and gentlemen, we have reached the end of today's question and answer session. I would like to turn this call back over to Mr. Jason Blessing for closing remarks.

Well, thank you, operator. We appreciate everyone joining our call today and all of the great questions, and we look forward to talking with all of you throughout the quarter. Thank you very much, and good night.

Thank you for joining us today. This concludes today's conference. You may disconnect your lines at this time.