Model N, Inc.

Greetings, and welcome to Model N First Quarter Fiscal 2022 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 a conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Carolyn Bass, Investor Relations for Model N. Thank you. You may begin.

Good afternoon. Welcome to Model N's first quarter of fiscal 2022 earnings call. This is Carolyn Bass, Investor Relations for Model N. With me on the call today are Jason Blessing, Model N's Chief Executive Officer, and John Ederer, Chief Financial Officer. Our earnings press release was issued at 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 of fiscal 2022 performance, and to offer a financial outlook for our second quarter and fiscal year ending September 30, 2022. The 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 financial measures should not 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 press release issued today, which is available on our website. I encourage you to visit our IR website at investor.modelin.com to access our first quarter 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 2021 results. And with that, let me turn the call over to Jason.

Thanks, Carolyn. Good afternoon, everyone, and thank you for joining our call today. Our first quarter results outperformed across the board, exceeding all key guidance metrics, including total revenue, subscription revenue, professional service revenue, and adjusted EBITDA. Excellent sales execution, professional services utilization, and strong renewals drove the top line performance. This, combined with disciplined expense management, resulted in very strong bottom line performance as well. I am very proud of our team and the excellent quarter we posted to start the year. As we look ahead, we remain focused on driving profitable growth. And as discussed on the last call, we are targeting to exit our fiscal year 2022 at a 20% ARR growth rate as our cloud business accelerates. Two important Q1 metrics stand out to me that I'd like to highlight. First, our SaaS ARR grew by 23% year over year, and Q1 was the best gross bookings quarter in the company's history. As we've noted over the past few quarters, we have a strong pipeline, and it is encouraging to see this convert to booked business. All of our growth levers contributed to our strong quarter, as well as continued growth and pipeline. To recap, our strategic growth levers are SaaS transitions that occur as we move our on-premise customers to the cloud, cross-sell and up-sell to our existing customers, new logo acquisition, and finally, international expansion. In short, we had a great start and we feel good about the year ahead. In Q1, we closed four SaaS transitions. As discussed on the last call, we expect this to be a pivotal year as we start projects to move a substantial part of our remaining on-premise customers to the cloud. This final phase of SaaS transitions is important because it has a positive impact on our ARR growth this year and acts as a catalyst for cross-sell and up-sell. And over the long term, getting all of our customers to the cloud allows us to simplify our business model and operations, which enables us to get more leverage out of our investments. Q1 demonstrates continued momentum in our SaaS business. Given the success we are seeing with SaaS transitions, we also continue to see our maintenance decline at an accelerating rate compared to recent levels. We view this as a positive. as it is evidence that our strategy to recast Model N as a cloud company is working. One final point to illustrate the progress we are making as a cloud company and how strategic our products are is our net dollar retention rate. For the 12-month period ending on December 31, 2021, our net dollar retention rate was 119%, in excess of our target of 110%. Alongside our strong gross retention rate, we view these metrics as proof points that we are building a durable and valuable SaaS business. Next, I'd like to share some quarterly business highlights. Q1's overperformance was driven by a healthy contribution from all growth levers. We signed new logos, four SaaS transitions, numerous customer base expansions, and we also enjoyed strong renewals. And similar to last quarter, we closed a healthy mix of deals from both our life sciences and high-tech verticals. Turning to SaaS transitions, during the quarter, we signed multiple large customers, including Striker, AstraZeneca, Abbott Diagnostics, and ConMed. AstraZeneca is a terrific case study of why our customers are moving to our cloud. A key factor to AstraZeneca starting their SaaS transition is the value of our automated testing capabilities, which are specifically designed for pharma companies to more easily test and validate system updates in a regulated environment. This, in turn, allows them to stay current, take advantage of innovation, and stay compliant in an ever-changing regulatory environment. Turning to Stryker, this is a strategic digital transformation initiative designed to build a strong foundation for future operations and growth. Stryker will be consolidating two legacy Model M instances into one cloud implementation that will serve as the global blueprint that they will eventually roll out to their other divisions. Stryker is also experiencing growth through acquisition and a single scalable version of Model N will support this growth today and into the future. Also during the quarter, we signed a new logo in Life Sciences, a top 50 pharma and biotech company headquartered in Japan. This customer purchased global price management to consolidate their pricing practices across their global markets. I expect our team will be able to quickly demonstrate value to this customer and look for ways that we can expand our relationship in the future. Turning to high tech, we continue to see improved traction in this part of our business. We selectively added talent to the high tech team last year based on trends in our pipeline and a belief that this sector would pick up in 2022, and we are in fact seeing the fruits of this investment. During the quarter, our sales team signed Soladyne Technology, a global provider of flash drive technology that was recently spun out of Intel. This win was highly competitive as the company conducted a rigorous market review of vendors, as well as an analysis to determine if they should buy a solution. In the end, based on the breadth of our platform, our experience working with market-leading tech companies and our ability to hit their aggressive implementation timelines, they selected Model N. It's exciting to see a global company being designed from the ground up, select Model N's global pricing and deal management, channel management, and rebate management products as foundational investments for the new entity. We also continue to see our land and expand sales strategy pay dividends. During the quarter, we had numerous expansion deals with key customers, including AMD, DIODES, Marvell, and Western Digital, among others. AMD is a great customer and relies on Model N's channel data management and revenue cloud applications and critical systems. Our solutions have supported AMD's organic and inorganic growth in recent years. As a result, we have earned their trust to move the newly acquired Xilinx business onto Model N. As they fold Xilinx into their portfolio, we believe we are well positioned to continue to support their growth and expand our relationship in the future. Turning to professional services, our team had another great start to the year. In Q1, we had several successful go-lives, including projects at Jazz Pharmaceuticals, Pfizer, Novartis, and Teva Europe. As you may recall, we welcomed Jazz Pharmaceuticals as a new customer in Q4, and they went live in Q1 with our global price management solution. For some background, Jazz merged with GW Pharma earlier this year to form a 3,000-plus person company focused on delivering life-changing therapies for serious diseases. Our team worked with their users in Europe and an IT team in the U.S. to successfully and rapidly deliver this project. This engagement leveraged our express methodology, a rapid time to value implementation approach that we've refined over the last couple of years. The express methodology is a templatized approach to implementing Model N that allows customers to go live quickly and benefit from the best practices that we've collected from dozens of successfully completed projects. The duration from project inception to go live took just 13 weeks and is a testament to our unique implementation approaches and our delivery excellence. Our services team continues to deliver on time, on budget, and at best-in-class margins. I expect the strength to continue our services business in 2022 as the team has built a substantial backlog. Q1 marks the one-year anniversary of our acquisition of the business services offering from Deloitte. This business expands our total addressable market and enables us to sell a differentiated portfolio of software and services to pre-commercial clients up to the largest life sciences companies in the world. We continue to see our business services M&A thesis validated with a solid Q1 performance, which included an expansion at an existing customer, one of the world's largest pharmaceutical companies based in Germany. The business services team has enjoyed a long-term partnership with this customer, and we have continued to expand this relationship since the acquisition in support of their growth plans. We also expanded our relationship with Acorn, an existing Model N software customer to now include business services Medicaid processing. This shows the potential to cross-sell business services into existing Model N customers. For Medicaid processing, Acorn needed a partner that could provide an integrated technology and services solution that would help them efficiently leverage industry best practices. As I reflect on the one-year anniversary of the business services acquisition, I continue to be bullish on the addition of this solution to our portfolio. We integrated this business a full two quarters ahead of plan, improved the overall profitability, and most importantly, hit our internal sales plan in year one. The addition of business services gives us ultimate flexibility to tailor offerings to meet our customers' needs today and into the future. This truly sets ModelN apart in the marketplace. Turning to innovation, our long-standing relationships with our customers and deep domain expertise allows ModelN to proactively innovate and deliver more value to our customers. On our last call, I introduced a new product, State Price Transparency Management. Just last week, we announced the general availability of this offering. This product was co-developed with Pfizer, one of our longtime customers. This product will help our customers more efficiently address new state drug pricing laws enacted over the last few years across 22 states and counties. These new laws require drug manufacturers to report information about any new drug launches or price changes, as well as the justification for the change. State price transparency management is unique because it's built natively on our cloud platform, and it's the first new product that we've built that can be consumed as software as a service or as a business service. This flexibility provides our customers with choice on how they manage the rapidly evolving set of state regulatory requirements and continues to support Model N's role as a trusted advisor. Let me just by reiterating that I am extremely pleased with our execution in Q1, and I feel that we are on track to meet our objectives this year. We've built a solid foundation and are laser focused on our strategic growth levers, and I believe that we will continue to drive profitable growth in 2022 and beyond. I would also like to thank the great team that we have at Model M for their efforts in Q1 and over the last several years. I'm proud of how our team continues to execute, and this gives me optimism for the year ahead. I'd now like to turn the call over to John to discuss our Q1 financial results and provide an update on our guidance. John?