Model N Inc (MODN) 2020 Q4 法說會逐字稿

Greetings, and welcome to Model N's Fourth Quarter and Full Year 2020 Earnings Conference Call. (Operator Instructions) As a reminder, this conference is being recorded.

I would now like to turn this conference over to your host, Ms. Gwyn 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 30, 2020. This is Gwyn Lauber, Model N's Director of Investor Relations. And with me on the call today are Jason Blessing, Model N's Chief Executive Officer; Reuben Gallegos, Vice President of FP&A and IR; and Cathy 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 the 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 metric 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.modeln.com to access our fourth quarter and 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, Gwyn, and good afternoon, everyone. Thank you for joining us today. Q4 was another strong quarter for Model N and punctuate 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 focused strategy implemented over 2 years ago is working even in these difficult times. Our success this quarter was powered by contribution from all of our go-to-market teams. We added 4 new logos. We had several expansions in our customer base, and we continue to sign new SaaS transition. 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 reduced the time and risk in testing and validation. This continuous improvement to our delivery model further reduces implementation time line, thereby increasing time to value for our customers.

Turning to our market. We saw success in both Life Sciences and High Tech. Our Life Sciences team added 3 new logos, including Arjo, which adds to our growing list of medtech customers. We were also selected at Organon, Merck's spin-off of their women's health trusted legacy brands and biosimilar businesses. Merck is a longtime Model N customer, and now we will provide Organon with our full suite of revenue cloud products.

Octapharma, one of the largest human protein product manufacturers in the world also joined the Model N family. Octapharma 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 believe 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 6 months, a record at the time. I'm very happy to announce that in Q4, their branded division went live in just 5 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 Seqirus 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 time line 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 chargebacks, improved script validation and other general improvements. British medical equipment manufacturer Smith & Nephew also took their first seasonal update since their SaaS transition and took advantage of several new contracting enhancements as well as improved regulatory compliance capabilities.

We also signed new SaaS transitions in Q4. Most notably, Johnson & Johnson started their journey to SaaS by kicking off a project to move its Model N infrastructure in Japan to our cloud. To achieve their tight time frame and business objectives, Johnson & Johnson determined that our solutions provided the most accurate reporting and compliance and that Model N 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 2 years. I am personally involved with our account team 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 1 of 3 essential projects that they will fund during the spinout 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 $0.14, which was ahead of our guidance of $0.07 to $0.09. 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 $0.48, up from $0.24 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 equivalents. 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 million to $40.6 million. We expect subscription revenue to be in the range of $29.4 million to $29.8 million. Non-GAAP income from operations is expected to be in the range of $4 million to $4.4 million and non-GAAP income per share in the range of $0.05 to $0.08, 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 million to $4.5 million. For the full fiscal year 2021, we expect total revenue in the range of $170 million to $172 million. We expect subscription revenue in the range of $122 million to $124 million.

Turning to profitability, we expect non-GAAP income from operations in the range of $17.6 million 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 million 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 2 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 Instructions) Our first question comes from the line of Chad Bennett with Craig-Hallum.

Great. Nice job to a strong year-end, Jason. And crew. So just on, Jason, when you're talking about -- which is obviously we've been hearing a lot of in software world, just kind of deal ramp structures, and I think you were even doing these somewhat from the get-go pre-COVID. Is there any way to 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 what are the puts and takes since I think you have been doing these deal structures for a while, of those deals that actually renew for their second year next year, if that's the case, that would have lift in [LS], too. Just any commentary would be great there.

Yes. 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 2, 2.5 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 1/3 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.

I'd also like to provide you just a little bit more color on the 2021 impact, the top line impact is 7 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 then just it seems like the momentum behind SaaS conversions continues despite the environment we're in. And I think you indicated of the top 10 pharma, you're working on a number of deals there. Personally, are you as kind of confident in SaaS conversion activity as maybe we're early in the -- 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 transition, and I'll share a little more color there as well. If you think about the last year, 1.5 years, 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.

Our next question comes from the line of Terry Tillman with Truist.

Yes. Jason, 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 in FY '21 from J&J? And then I had a couple of quick follow-ups.

Yes. 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 upgrade needs to be a move to the cloud.

Great. And maybe just as we look into FY '21, you gave us 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?

Yes. I'll answer the maintenance number, and then I'll ask Cathy to comment on RPO. So the guidance that we would give this year on maintenance is it's about 1/3 of our recurring mix, or at least we exited Q4 was at about 1/3, a little over. And we continue that -- we continue to believe that that maintenance stream will perform as we've guided in the past of declining low to -- or excuse me, 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 we generally view maintenance going down faster is a good thing because it indicates traction on the SaaS transition side. But that guidance of roughly 1/3 declining mid- to high single digits is how you should think about it from a modeling perspective.

And then, Cathy, would you like to comment on RPO?

Absolutely. 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.

Our next question comes from the line of Matt VanVliet at BTIG.

Maybe just a little clarification first on the ramp impact -- ramp deal impact on the '21 guidance, you mentioned the roughly 7-figure impact. But just curious if that's relative to the now 50% in there as an incremental amount to about the 1/3 that you mentioned or if that's all of the 50% that's creating that 7-figure headwind there.

Yes. 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. And then, I guess, also thinking about what the conversations with SaaS transitions are progressing and maybe 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?

Yes. 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 transition as more of a transformational effort inside of their companies, and that can range from rolling out model in 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 the 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? Are they looking towards that type of event? Is there anything in particular within the portfolio that's been in much higher demand? And maybe conversely, anything that's been sort of trailing or less by the side in the very current environment that you hope will start to pick back up?

Yes, 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 Seqirus signed earlier this year; Arjo, who we signed this quarter; Octapharma, 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 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.

On the High Tech side, as I've talked about the last couple of quarters, and this theme persisted into this quarter, we're really focused on growth companies that have innovative products that themselves are selling into growth end markets. 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.

Our next question comes from the line of Ryan MacDonald with Needham & Co.

So as we look at the outlook, obviously, we've come through the top line impacts. But as we look sort of further down on to 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 what -- 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?

Yes. Thanks, Ryan. So there's a couple of 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, those deals can -- 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 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 in Life Science a 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.

Yes, I'm glad you asked about Channel ImpACT and that partner, so one of the things -- 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 incentive 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 a complete value.

Our next question comes from the line of Joe Vruwink with Baird.

Great. Jason, it sounds like you've gotten to the point if -- ramps became somewhat more common, 2, 2.5 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 2.5-plus years that I've been here, we've been working on standardizing all of our contracts and moving towards 3-year contracts. So we've certainly seen the benefit of that. But then, as I stated, we've also, in conjunction with that, started ramping roughly 1/3 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 ramp 2, 2.5 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 right now. 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, the 7-figure headwind with the ramp structure being incorporated into that outlook. You also had, once upon a time, a target that may be revenues could sustain 12% to 15% 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?

Yes. It's a good question, Joe. So I think pre-COVID and pre-increased ramping, we started to see the potential of Model N and saw us approaching that mid-teens growth. And 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.

Our next question comes from the line of Brian Peterson with Raymond James.

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 timing 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.

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 is 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?

Yes. 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 SaaS transition. So you can think about it being tilted north of 50% towards customer base. And I'm glad you asked the question about the deal slipping out. Both Cree and Octapharma were actually 2 deals that we had in our pipeline, and we're 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 -- 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. Yes, 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 2 to 3 years?

Yes. So I think we still have a very interesting white space just in new logo acquisition, that is in and of itself in the 1 of the 2, top 2 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 I think of that as white space in the new logo market, and we typically will land there with our provider module to help customers manage the contracting and delivery of products to the health care providers or payers, depending on what their business model is.

In the customer base, there's 2 things that thematically are important. We've already talked about SaaS transition 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 that's an important one as well.

And then on the High Tech side, as we kind of look generally at our pipeline, it is tilted a bit more towards new logo acquisition and the white space that we still have there. And again, the profile of customers, 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.

Our next question comes from the line of Gene Mannheimer with Dougherty & Co.

Congrats on the great year-end. Was hopeful for maybe an update on the new CFO appointment, if you could provide any color there? 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.

Yes. 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 4 or 5 weeks ago.

And I will share 2 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 have 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 6 or 7 products that we have to sell to customers and where are we at from a penetration perspective?

Yes, that's correct.

Yes. Got it. Yes. So 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 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 base and monetizing it independent of SaaS transitions as a multi-hundred million dollar opportunity, and that's why we're investing there.

And Gene, the annual number we talked about before is 130 customers in the cloud on the average of 2 -- about 2.5 product. We have that in our supplemental as well.

Our next question comes from the line of Joe Goodwin with JMP Securities.

Jason, 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 version -- existing version on-premise into the cloud? Is there any dynamic there? Any color would be great.

Yes. 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 do -- 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 environment.

Got it. 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?

Yes. In terms of the overall pipeline dynamics, in Life Sciences, we just 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 time frame. 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.

Our next question comes from the line of Jackson Ader with JPMorgan.

Great. 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?

Yes. Thanks for the question, Jackson. Good to hear from you. I would say the -- 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, given kind of the way things that, at least, appear like they're going to shake out and with mixed leadership, I guess, going forward in the U.S., what is -- 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 just updated thoughts on kind of this mixed leadership we have in the U.S.

Yes. 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.

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.