Model N, Inc.

Greetings and welcome to the Model N first quarter 2021 earnings conference call. At this time, all participants are in a listen-only mode. A question and answer session will follow the formal presentation. Should anyone 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 the conference over to your host, Gwyn Lauber, Investor Relations. Please go ahead.

Good afternoon. And welcome to the earnings call for Model N's first quarter fiscal year 2021, which ended on December 31st, 2020. This is Gwen Lauber, Model N's Director of Investor Relations. And with me on the call today are Jason Blessing, Model N's Chief Executive Officer, John Ederer, Chief Financial 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 first quarter fiscal year 2021 performance and our financial outlook for our second 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 relief issued today, which is available on our website. I encourage you to visit our investor relations website at investor.modelm.com to access our first quarter fiscal year 2021 press release, periodic SEC reports, and the webcast replay of this call. Unless otherwise stated, all financial comparisons in this call will be to our fiscal year 2020 results. With that, let me turn the call over to Jason.

Thanks, Gwen, and good afternoon, everyone. Thank you for joining us today. I'm pleased to report that we started our fiscal year 2021 with results that exceeded expectations and delivered record total and subscription revenues. The strategic focus on our key vertical markets continues to produce results that support our belief that a focused Model N is the best Model N for our customers, employees, and investors. With our deep domain expertise and mission critical products, we are focused on developing innovative solutions that meet our customers' needs and on developing strategic relationships with them so they can effectively deliver their life-changing products to the world. In support of this ambition, in Q1, we acquired Deloitte's pricing and contracting solutions business, which will allow us to better serve more customers in the life sciences market with a powerful combination of software and business services to meet this market's unique needs. With this acquisition, we are beginning a new transformative chapter for Model N, which I believe will be even better positioned for growth over the next several years. Later in the call, I'll share more about the strategic rationale of this acquisition, and John will then provide updated guidance for fiscal year 2021. Before talking more about the acquisition, I'd like to start by discussing our very strong organic performance in Q1, which included signing the largest deal in company history. Total revenue, subscription revenue, services revenue, adjusted EBITDA, and non-GAAP EPS all exceeded our guidance for the first quarter. In addition, subscription revenue growth returned to double digits. and margins improved across the board compared to the same period last year. I am proud of these results because they demonstrate that the demand for our products and services remains strong. Part of our Q1 success was a result of our maniacal focus, particularly on our largest customers, where we are working to expand our solution footprint and transition them to our SaaS offerings. The Big Ten, as we refer to them, represents a group of some of the largest life sciences companies in the world that depend on Model N for their revenue management needs. All of these companies are longtime customers, and many of them are looking to Model N's SaaS offerings to help them compete in this dynamic market, remain compliant with changing regulations, and allow their employees to maintain productivity while working from home. We have a focused team of solution experts and sales professionals working with our executive team and this elite group of customers to chart an accelerated path to our SaaS solutions. I am very pleased with the progress that this group continues to make. One of the lighthouse accounts in the Big Ten is Johnson & Johnson, one of our largest customers and the largest life sciences company in the world. As you may recall, last quarter, we announced that J&J Japan started a project to move to our revenue cloud. Continuing with their cloud-first strategy, in Q1, J&J's U.S. pharma division elected to begin their transition to Model N revenue cloud, which resulted in the largest deal in Model N's history. This deal is also significant because it includes a new, cutting-edge Model M product that we will partner with J&J to develop that will also be available to resell to other customers. Increasingly, we are seeing SaaS transitions act as a catalyst for cross-sells and upsells, and in select strategic situations, opportunities to partner with customers to build entirely new products as they recommit to Model M for the next 10 years. J&J Pharma's SaaS transition is also significant as remaining on-premise customers will take comfort in following this industry leader and will look to benefit from the new innovation we are building in our cloud products. We believe that we are uniquely positioned to partner with the largest pharma companies in the world as we move them to our SaaS solution and innovate together in the cloud. The success of our Big Ten program is truly a team effort and once again demonstrates what Model N can do when we focus. Also in the quarter, we added a leading U.S. biotechnology company as a new customer. The new customer's mission is to leverage science to bring life-changing medicines to the world, which includes their COVID-19 antibody cocktail that has been in the news recently. The customer determined that they needed a solution that will provide agility as they introduce new products and allow them to adapt to new government regulations as they scale and deliver across multiple markets. The customer felt that Model N Revenue Cloud would not only deliver the solution that they needed today, but also offer a broader footprint that they could adopt over time. During Q1, Bristol-Myers Squibb went live with the first phase of a global Model N project. As part of its acquisition of Celgene, BMS needed a solution that would provide one centralized platform to improve operational efficiencies and allow for the visualization of pricing in real time. In addition to upgrading their existing platform, BMS added new Model N products, including Global Launch Excellence and Global Pricing Management Analytics, to improve their international pricing and compliance. It was important to deliver the first phase of this project as it sets up the rest of the program for success and further adoption of Model N. This project is also a great example of how Model N is benefiting from life sciences M&A and helping our customers integrate and realize their overall business cases for these important transactions. Our professional services team also had another remarkable quarter and delivered a new record number of successful go-lives. It continues to amaze me how tirelessly this team works to ensure that each project meets the customer's needs. Despite working remotely, our team continues to execute at a very high level, and this past quarter delivered over 90% of our projects on time and on budget. Customer success is one of the linchpins of our go-to-market strategy into maintaining high revenue retention rates. Turning to high tech, Micron was one of several high-tech go-lives during the quarter. In Q1, this leader in memory and storage solutions went live on Model N rebate management. By adding the rebate solution, Micron will be able to automate numerous manual processes, improving the effectiveness of its channel programs and its partner engagement. Last year, as we do each year, we ran our formal long-range planning process. and we did an assessment of our market opportunities and looked at how Model N can better serve life sciences companies and expand our total addressable market. The acquisition of Deloitte's pricing and contracting solutions business is the first strategic move that we made as a result of our strategy work. This deal is important for three key reasons. First and foremost, it significantly expands our total addressable market enabling us to sell to companies from pre-revenue up to some of the largest companies in the world that prefer to buy a software plus services revenue management solution. The Deloitte solution is software designed to be sold with business services to help companies run their market access functions. The addition of business services is significant for us because it allows us to sell how customers of any size want to buy, and it unlocks a sizable segment of the market that we were not accessing in the past. Second, we are getting great modern technology with this acquisition that will be used in future Model M products. We are also getting a new analytics product, Gross to Net, that can be sold to all of our life sciences customers today. Finally, this acquisition also brings us great new talent. We are getting domain expertise, which is prized in this complex market, along with a great engineering team. In total, we believe that the addition of the Deloitte business expands our total addressable market by approximately 40%, and the scale of our combined team will allow us to better serve the life sciences industry. As we combine our two teams, I also believe that we will be able to drive significant operational improvements by taking what was a subscale business within Deloitte and combining it with Model N. We have proven expertise driving operational efficiencies, having delivered notable improvements in Model N's adjusted EBITDA from negative 12% to over plus 13% during the three years following the Revitas acquisition. We have already identified several opportunities to drive cost synergies around things like application hosting, as well as revenue synergies that should drive profitability back to pre-acquisition levels in about four quarters. We believe the short-term hit to profitability is a worthwhile trade-off to drive additional growth this year and in the future, to strengthen Model N's market position, and to expand our total addressable market opportunity in such a meaningful way. Finally, I believe the combination of our teams will result in a formidable company with more scale and talent that will allow us to better serve the industry and build the next chapter in Model N's growth story. Now, I'll turn the call over to John to discuss our Q1 financial results and provide updated guidance.