Model N, Inc.

Greetings and welcome to Model N second 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. 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, Director of Investor Relations. Thank you. You may begin.

Good afternoon, and welcome to the earnings call for Model N's second quarter fiscal year 2021, which ended on March 31st, 2021. 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, John Ederer, Chief Financial Officer, Ruben Gallegos, Vice President of FP&A and IR, and Kathy Lewis, Chief Accounting Officer. Our 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 second quarter fiscal year 2021 performance and our financial outlook for the third 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 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.modelend.com to access our second 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 our call. Today, I'm pleased to share highlights from Model N's second quarter. Looking back over the last year, I am amazed at how much progress Model N and our customers have made despite the challenging environment. I am proud of the positive impact our customers have had fighting the pandemic and helping us deal with these challenging times, and we are humbled to have played a small part in their efforts. I am once again happy to report that our quarterly results exceeded our expectations. Our success this quarter was driven by a healthy mix of large SaaS transitions, customer expansions, and new logos from both high tech and life sciences. Our professional services team, despite being remote, also continues to execute well on project delivery and is playing a critical role in moving our customers to the cloud. Today, I will provide more detail on our business, plus I will share some market insights that we revealed at our recent customer event, as well as some perspective on the rest of the year before turning it over to John. Our strong Q2 performance was powered by two large SaaS transitions and continued strength in our professional services business. Customer expansions and business services, which we recently acquired from Deloitte, also made significant contributions to our results. Total revenue, subscription revenue, services revenue, adjusted EBITDA, and non-GAAP EPS all exceeded our guidance for the quarter. I am also pleased to report that we are well ahead of our plan to integrate Deloitte's business services team, which we purchased approximately 130 days ago. We have been able to accelerate many of the operating synergies planned for later this fiscal year and the next through renegotiating key supplier contracts and thoughtfully managing other expenses. We have also integrated our sales teams, which we believe will allow us to fully capitalize on this important market opportunity in the coming years. Our outlook for the year reflects the solid progress we were making with this business. As we've discussed previously, One of our largest near-term growth opportunities is the transition of our on-premise customers to Model N's revenue class. This is important because it simplifies our business model, which we believe will continue to drive operational efficiencies. SaaS transitions are also important because they are a catalyst for cross-sell and up-sell opportunities as customers modernize their Model N applications and renew their relationship with us for the long term. Since the announcement of J&J's SaaS transition last quarter, our sales team continues to make significant progress planning out SaaS transitions with our remaining Life Sciences customers. Industry reports published by IDC and Gartner support what we're hearing from customers and prospects, stating that pharmaceutical and biotech companies are prioritizing cloud applications in their IT budgets. and analysts are projecting that this vertical will continue to see IT investment in 2021 and beyond. We believe that life sciences companies will accelerate their digital transformations and leverage cloud-based solutions like Model N to improve overall regulatory and commercial compliance, which directly touches top and bottom line performance. As an example, during the quarter, another top five pharma company, Novartis, joined J&J and started their SaaS transition. This particular customer has been with Model N for over 10 years and understands the value of our offerings because they help them simplify the complexity of their US operations. After evaluating our cloud offerings, including new functionality combined with the ease of taking updates, Novartis decided that Model N is the best partner for them for the next 10 years. We believe that Model N's cloud platform will provide them with the agility necessary to handle today's dynamic operating environment. Also in the quarter, a top five med tech company and a global leader in diabetes care and also a longtime Model N customer kicked off their SaaS transition. In doing so, they also expanded their product footprint to include Validata. Validata is a great product that helps customers audit high-volume rebate claim submissions against the actual contract to ensure accurate payments. In this case, we are replacing an aging custom-built on-premise solution with Model N's validated cloud offering. This is a great example of how SaaS transitions are a catalyst for customers to evaluate new Model N products. For business reasons, this customer also needs to complete their go-live this year and given Model N's strong track record for delivery, they felt that we are the best partner to help them with their objectives and their digital transformation. We remain very actively engaged with all of our customers, particularly our Life Sciences Big Ten customers, who are increasingly looking to Model N SaaS offerings to help them compete in their dynamic markets while remaining compliant in an ever-changing regulatory environment. I am pleased with the progress that our sales and professional services teams continue to make with our customers, and I believe that we will continue to see strong adoption of our cloud products by our largest customers over the next several years. In the quarter, our professional services team continued their strong execution as they lead our customers to the cloud and maintain a very strong track record for quality and on-time delivery. As someone who started my career in professional services, I feel that the level of quality in this team is some of the best I've seen in my 25 plus years in software. This team also continues to innovate around our implementation methodology by leveraging our expertise from working with our largest customers and investing in new approaches to enable companies of any size to be successful using Model N's products. This team's work is greatly appreciated by our customers and admired by everyone at Model N. During the quarter, we also had several successful customer go-lives. For example, a top 10 biopharmaceutical company that focuses on new approaches to life-threatening illnesses and chronic conditions went live with their upgrade to the full suite of Model N products. During this project, the customer also took advantage of several new enhancements in our product, and retired the majority of their legacy customizations. This project is a great example of a two-step approach that some of our customers are taking to move to the cloud, an initial project to get them current and cloud-ready before taking the next step and moving to SaaS. On our call exactly one year ago, as the uncertainty caused by the pandemic was increasing, I stated that we would continue to invest in key growth areas, including our new logo sales team. It's our belief that leaders invest during economic downturns, and this allows them to accelerate into the recovery. Building out our new logo sales team is one such example, and this investment is leading to new customers as the economy starts to recover. We also made an important move in Q2 by training our new logo team to sell our business services offering. Historically at Deloitte, business services relied heavily on big Deloitte to drive sales, and as a result, they had a relatively small sales team. Now at Model N, our entire new logo team is enabled to sell the service along with all of our other core product offerings. I expect this to drive growth as we are able to serve a larger portion of the market and sell however a customer wants to buy revenue management. During the quarter, we also signed a new logo with the European division of a global biotech company that is dedicated to developing transformative cancer therapies. This new customer will use our global pricing management and international reference pricing solutions to better compete in their European market. This deal actually signed in January, and I'm pleased to report that the customer is already live on Model N. This is a great example of our new logo team opening an account, creating future cross-sell opportunity, in this case their U.S. operations, and then our professional services team delivering a rapid packaged implementation. Our high-tech business continues to recover and has made steady progress since this time last year. In the second quarter, we signed Targus, a new logo and a well-known global supplier of computer accessories and peripherals. The high-tech team has also had success with cross-selling and up-selling efforts, adding new products in select accounts, such as channel data management and our high-margin recurring revenue education offering. I believe that the increased activity that we're seeing in our high-tech vertical, particularly following our Rainmaker customer event, suggests that this vertical is on its way to recovering. Now I'd like to talk briefly about some of the insights from our state of revenue report that we published at our recent Rainmaker customer event. I think sharing this information with you is important as it will help you to understand some of the trends that we're seeing in our vertical markets and why we believe that we are well positioned for the future. In life sciences, the headline is that change is the new normal and gone are many of the approaches from the last 20 years. Regulatory environments in the U.S. and abroad are increasing in complexity, and many life sciences companies believe the impact on their business in 2021 will be even bigger than in previous years. Model N's domain expertise allows us to simplify this complexity for our customers and easily provide updates through our SaaS delivery model. Second, the pandemic has had a significant impact on our customers and their revenue management processes. During the pandemic, customers developed therapies in record time and had to determine how to price and bring them to market, all while working from home. As our customers adapted to this new reality, it reinforced the need for an agile, best-in-class cloud approach to revenue management. In high tech, I'd also like to highlight a couple of key trends. First, artificial intelligence is moving from a much hyped technology to an important business enabler that can have a positive impact on how customers manage channel economics. Model N is leading the industry in this area with the introduction of AI into our core revenue management products, which helps customers make better, faster decisions around deal economics. And the second key trend in high tech is that industry consolidation, combined with increasing channel complexity, is resulting in the need to have better visibility and financial controls. Model N offers a full suite of applications, including channel data management, rebates and market development funds management, and pricing that enables a unified approach to the channel for our customers. The full state of revenue report, which includes a significant amount of additional detail, as well as replays from our Rainmaker customer event, are available on our website. I invite you to take a look at them and learn more about the products and the industries that we serve. In closing, I'm pleased with our results for the quarter. I'm proud of how our team is executing, and I am optimistic about the opportunity ahead for Model N. The increasingly complex regulatory and business environments present significant challenges for our customers, but an opportunity for Model N to help them navigate and thrive in this world, given our team's deep domain expertise and our vertical solutions. I'd now like to turn the call over to John to discuss our Q2 financial results and provide an update on our guidance. John?