Good morning, welcome everyone. My name's Kyle Aikman. I'm on the healthcare technology and distribution team here at JP Morgan. We're thrilled to be hosting Model N today. I'm joined on stage by CEO, Jason Blessing, and CFO, John Ederer. Thank you both for coming. I figure we could just start out. Would you mind introducing Model N, your company, your clients and things of that nature first? Yeah, absolutely, Kyle. Thank you for hosting us. I actually just hit my 5-year anniversary at Model N last week, and the very first investor conference I did as a CEO was this conference. Wow. 1 thing I know for sure, 5 years later, I know a little bit more about the company than I did then. If you haven't heard of Model N, we're a vertical software company. We play in a category called revenue management, and the 2 verticals that we serve are life sciences and high-tech. About 85% of our business is life sciences. The simple way I always describe it to people is we sit at the nexus of the health of the human race and politics. As you can imagine, things get very complicated there, particularly around life sciences in terms of how med tech devices and pharmaceutical therapies are priced and brought to market. Our software, the simplest way to think about it is we are the commercial pricing system of record for the pharmaceutical industry as well as high-tech, again, pharma being 85% of our business. We track all of the pricing, all of the contracts, all of the incentives that pharmaceutical companies pay to the complex distribution network, to get their products to the patients who need it most. Our value prop to our customers is they are typically overpaying on the incentives that go back to the channel because of all the complex regulation. We typically save companies 3%-5% off their top line, which drops directly to their bottom line. Also as you can imagine, very high ROI products, which I'm sure we'll talk about the macro, also serves us well, but very rapid payback periods on our implementations because of the tangible ROI. And then the customers, just a sampling of our customers, we have all 10 of the global, top pharma customers and on the pharma side, and then, 7 of the top semiconductor companies in the world. Hopefully, that's helpful, and if none of that made sense, go check out my LinkedIn profile. I recently posted a funny thing since everyone loves ChatGPT stories these days. We asked ChatGPT in Dr. Seuss style, what does Model N do? I'm not gonna read that to you, but it's out there on LinkedIn if you look me up. I'm gonna table the ChatGPT question for a little bit later. Yeah. I wanted to start off, it sounds like a super sticky solution, with a clear value add. I was wondering if you talk about just the total opportunity for Model N, you know, where Model N is now and where it could go in terms of TAM? Yeah. The way we size our TAM today, with our current solution portfolio is it's roughly a $4 billion TAM. That TAM has been growing, and it's growing for a variety of reasons, in both TAM and demand. Why is the TAM growing? First of all, we serve 2 industries that have secular tailwinds behind them, high-tech and life sciences. In life sciences in particular, the demand in that industry continues to grow while regulations also continue to get more complex. There's a strong set of demand signals that come out of life sciences. In terms of us as a company and how we've been expanding our own footprint to capitalize on the TAM, aside from some of the secular tailwinds, we've been building new products. We've been launching 1 to 2 new products per year. Also have been focused on some very surgical, thoughtful expansion outside of the U.S. into EMEA, which as you probably all know, is also where a lot of global pharma companies are headquartered or at least have presence. That's super helpful. You know, you keep mentioning regulation. I was wondering if we could double-click on that. You know, what are some major regulation movements going on right now that are, you know, impacting your clients, and how is Model N helping there? Yeah, that's a great question. That's probably 1 thing that 5 years ago I certainly did not have a good enough appreciation for, but I certainly do today. One of the demand signals that's very positive for us right now in life sciences and pharma in particular, is there's a trifecta of legislative rules that are making their way through the system and being implemented, and that definitely has a positive impact for us. 3 examples, the trifecta, and I'll describe each 1 briefly, is 340B, State Price Transparency Management, and then the Inflation Reduction Act, that was implemented or came into law last year, still being implemented. Let me just take each one of these quickly and what they are and how we help our customers. 340B is actually a program that's been around for a long time. It was enacted as a part of the Affordable Care Act, Obamacare. The objective of 340B was to allow healthcare systems in disadvantaged locations to purchase therapies, medication for basically cost or next to no cost. They were, of course, intended to be administered in the community to raise the overall health and quality of life of those patients. What we've seen since this was enacted into law 16 plus years ago, is that healthcare systems are using their 340B program to purchase drugs in a low-cost area, and they're actually deploying those therapies in a high-cost area and charging, you know, 2-3x for them. It's actually become quite a moneymaker for some of the middlemen that distribute products. We've built a product that actually sits on top of an enormous data store, basically script-level data, as prescriptions are dispensed to patients. It's an engine that scrubs all of those scripts, looks for fraud, and also looks for the example that I just gave, where it was bought for 1 purpose and intended for another. You can't talk to a pharmaceutical company right now and not have a 340B discussion. We recently launched a product that we co-developed with 2 customers last year. They're live and in production, this actually is a part of our pipeline, one of the highest demand products. The second area of interest is State Price Transparency Management. This is newer than 340B. It dates back to the Trump administration, where the Trump administration elected to defer federal transparency disclosures at a federal level. Of course, as often the case, the states were more than happy to step in and enact new legislation. It started in Vermont. We're now up to 22 different states have their own state price transparency rules. The way this works is if a drug manufacturer wants to sell a particular product in a state, they have to publicly state what the list price is. They have to publicly justify why it's priced the way it is. They have to disclose as they're raising prices and what the rationale is. We built a product. We co-developed this one with Pfizer. This is a new product that we launched last year. We've got double-digit customers now that are using that product. It's been very rapid adoption. The reason why it's been rapid is this legislation is now actually moving from the implementation phase to the enforcement phase. If you're non-compliant on a State Price Transparency Management regulation, can be up to a $30,000 a day fine until you're compliant. It's pretty painful. The newest is the Inflation Reduction Act, which, as everyone knows, was a broad body of legislation designed to bring cost relief or relief to Americans because of high inflation over the last couple of years. The impact of that on the drug industry is that legislation gives the U.S. government, specifically Medicaid, the authority to bypass all the middlemen in the distribution network and go directly to manufacturers and effectively set prices for a specific therapy. Also there's a lot of stringent requirements around price increases and penalties and all kinds of reporting associated with that. That's actually a change to an existing product that Model N has called Government Price Management. That one is less of a new market opportunity for us, but one that really does drive our core business. Its customers are racing to ensure that they're compliant as it's implemented over the last couple of years. I guess the punchline of the regulatory question is regulation, pharmaceutical regulation, it's like the tax code. It never gets simplified. It always just has new things that get added on top of it. Ultimately, Model N extracts away a lot of that complexity so our customers can focus on what's important to them, and that's getting their life-changing products to patients who need it most. I just had 1 follow up on the state-. Yeah. Price transparency, you know, that's being instituted state by state. Do you see demand, you know, concentrated in the states that are enacting it now? Is there, you know, crossover effect kind of across the nation as, you know, these prices become more transparent that, you know, people are looking at it and saying, "Hey, we haven't enacted it yet, but we still would like those solutions in these other states." How is that working out? California and Nevada are regarded, and it kinda depends on which side of this issue you're on, but best-in-class approach to this. The drug manufacturers would also say it's the most onerous approach. As many new states have been saying, "Hey, this is a new revenue opportunity for us," unfortunately, as is the case in a lot of things these days, it's also a political issue. Governments are seeing it as a politically positive thing to say they're taking a stand on pharma and drug prices, and they're tending to adopt some of these other regimes that have been implemented in California, Nevada, Vermont as well. It's more about taking the existing legislation from those states and moving it around to satisfy constituents and try and drive new revenue sources. That's super helpful. You know, just with more on regulation, it sounds like it's very labor-intensive for your clients if they don't have your solutions, at least to navigate this. Is there any, you know, specific example you could touch on just about how, you know, Model N solutions can alleviate labor demand and navigate these issues? Yeah, it's a great question. I think about the prospects that I get involved with that come to our doorstep. They have usually 2 problems. 1, they're on some old, antiquated custom system, and they're having trouble keeping up with the pace of change. In many cases have had compliance judgments against them that can be very expensive. Then oftentimes, like state price transparency laws is, you know, you just asked a great question about that. The laws are changing very quickly, and the compliance is and the enforcement is changing very quickly. A lot of times these Customers that come to us, they have a system issue, and they have a domain expertise issue. We're able to help them in a couple of different ways. 1, we have software that automates the solution and alleviates that problem. I had one of our customers, it was a top 10 pharma customer that I was meeting with just recently last week. They said, "You know, we think of Model N not as a software company, but as an industry center of excellence. You have the software that helps us with Government Pricing, you actually have some of the most famous people in Government Pricing." Believe me, that is a niche corner of the world where people are famous. For us, you're an invaluable strategic partner to us because you help us with the software, but also can advise on some of the intricacies of the new legislation. That's helpful. You know, again, just getting the message that super value add, super needed. I'm wondering how you align your sales force, you know, with that message and what your go-to-market strategy is for selling to new clients? At a high level, the way we go to market is we segment. As a vertical software company, domain expertise and being able to talk the value prop and get into the weeds on some of the regulatory aspects I was just talking about is very important. We do segment by life sciences and high-tech, and then within each of those vertical sales forces, we have a team that's dedicated to new logos, hunting. The only way they can retire quota is signing new logos. We have, underneath our customer base team, we have a team that I actually call them hunters in the zoo, because a lot of customer base sales people don't like the term farming because it implies they're not killer salespeople. I will tell you, selling new products to pharma companies, I mean, they're very sophisticated buyers, you need a very sophisticated rep who understands their need. We have a team that's dedicated to cross-selling and upselling. As a cloud company, we also have a customer success team that's pretty standard, focuses on renewals and customer sat issues. Of course, we never have those. If they ever crop up, we have the team ready. They have some small value add services they can sell as well. That's helpful. Just wanted to touch on it. On your last earnings call, it was almost proactively you mentioned you're seeing potential slowdown in these sales cycles. I was just wondering, is this a specific issue to high-tech life science, how that's happening by the way you verticalize your business? Is it just general budget tightening that you're seeing, or is it, you know, more concentrated to a specific headwind depending on the industry? Yeah, it's a great question, Kyle. I think a CEO and a CFO, neither person can go out in public these days without being asked about the macro and asked about ChatGPT. You just have to- It's coming, I promise. I know it's coming. Yeah, we proactively talked about it on the call. We feel really good about our products and how they're strong ROI and how we're serving strong end markets that have secular tailwinds. In large pharma, again, having spent a couple days over the last week with some of our largest customers, they're still investing. A lot of it is also the regulatory aspect that continues to have them invest and push them in that direction. I would say on the high-tech side, and we've talked about this publicly on our earnings call, that sector, relative to life sciences, was more conservative Mm-hmm during the pandemic as they were trying to assess what would happen to demand. I think as we've now come into an environment of rising interest rates, if you're a capital-intensive business, starting to really be thoughtful about how you're investing, and then, you know, potentially with a, an impending recession and a decrease in demand, we've definitely seen high-tech buyers get more conservative this year. We do happen to have a product that helps high-tech companies with cost and driving profitability. You know, it has the value prop has continued to resonate. We talked about u-blox, a new semiconductor company that we signed up, last quarter. You know, great example of a company that's still flourishing and growing and taking advantage of the supply chain, issues. Yeah, I would say customers in high-tech have been, you know, more focused on ROI, more focused on a couple of additional approvals than we may have seen in the past, and just overall continue to have a more conservative posture relative to life sciences. That's super helpful, I'm going to slowly segue to AI. The first question I had is just on new product generation. How do you come up with ideas of new products, you know, internally, just strictly for building out? You know, is this customer-led demand that you would then develop? You know, how are you thinking about your new product strategy in the coming years? Yeah, it's a great question. What we've kinda said publicly to our customers is that our goal is to come out with 1 to new products per year. As I've now been here 5 years and I think about the take rate with customers, particularly on life sciences in highly regulated environments, a couple of new products or evaluating a couple new products and implementing a new product per year feels about right in terms of the cadence. We've been pretty good, especially as we've been getting customers moved to the cloud, and we've been able to repurpose some of our R&D capability. We've been able to stick to that. I think one of the things that I've learned, and this is a little bit of motherhood and apple pie and enterprise software, is that you should never build a product unless you have at least a couple customers who are willing to buy it and be a part of a guide group to shape how it gets built. 1 thing I have learned here, given the complexity of the regulations, particularly in life sciences, having a couple of customers whose market access teams, whose black belts on regulation will help advise and work with my experts to build a new product has been invaluable. I, you know, mentioned State Price Transparency Management. It's public, it's in a press release. We partnered with Pfizer to build that product. First customer went live. Pfizer is viewed as an industry leader, a lot of people have followed them. It's been fun to start to build new products. As we've gotten customers current, we can co-innovate with them. Yeah, that's super exciting. I love the co-innovation model, you know. Speaking of innovation, you know, are you utilizing AI more and more in the new products you're creating? Is this something that's been built in, you know, to Model N practices historically too? Obviously, is generative AI something that you could see a use case for in the future for the business? Yeah. I'll give you a quick vignette that kind of covers today, tomorrow, and in the future. We have been using this type of technology in our products for years before it was as popular as it is today. I'll give you a great example. We have a product that's called International Launch Excellence, and it's designed to help market access teams in Europe think through how they price and sequence products that they bring to market. The way sequencing of products coming to market in Europe works is by country. The way pricing for pharmaceutical companies in Europe or products in Europe works is what's called reference pricing. 1 country, Finland, may say, "Hey, we'll pay the average of what the other Nordics are paying, less 5%." I'm just making that up. All countries in Europe have those type of rules in place, our product ingests all of those rules and then can do simulations, pricing simulations, and make recommendations to market access teams of, "Go to this country first. It's the most profitable country. Go to this country second. It's the second-most profitable country, and it won't erode the pricing in any of these other countries." It also, for products that are in market, it can do the same simulations if you're thinking about discounting. If you're gonna discount in Italy, here's the effect in Switzerland, as an example. This has been a very powerful and exciting product for our customers. It's in the market today. It's a product we've been selling for the last few years. If I think about tomorrow, or maybe better said, next week or in 2 weeks, we have our user conference coming up, and we're rolling out a new product called Medibot. Medibot is a new product that will take all of the Medicaid claims data ingested into our system, do a bunch of different validations on it to look for everything from fraud to other irregularities of errors and so forth, flag those, and then actually go so far as to make recommendations to Medicaid administrators and say, "You just got 1 million lines from Kaiser in California," or from California, excuse me. "Here's actually the 10% that need human intervention." That's a product we're rolling out at our user conference in a few weeks. As we look forward, I think we can get more sophisticated in terms of contracting strategies, which are the most profitable contracting strategies for pharma companies. That's ultimately, if you're testing a product for 10 years in trials, all of the money is made or lost in how you what you charge for it and how you incentivize the channels to distribute it. I think that's an area there's a ton of data out there. It's a lot of unstructured data, and it's a lot of distributed data. That's an example of something I see in the future that's ripe for a technology like this. It's very exciting. You know, speaking of contracting, more specific to Model N, I was wondering if you could talk about the SaaS transition. You know, really, what's the benefit, you know, for your clients to adopt the SaaS model? Where are we at in this process and where are we going? Yeah, great question. What I've seen is there's a pattern that's emerged for customers and there's a few things. There's really 3 things that stick out for customers. 1 is our products are so compute-intensive for some of the simulations that I was just talking about in dealing with the vast data stores of script-level information. On-premise systems were starting to hit compute constraints and it manifests itself in just performance issues. I mean, I had a customer tell me, you know, "We used to run this 1 job to reconcile a contract with CVS, and it took 3 days to run. Now on Model N Cloud with elastic computing, it runs in a few hours." Performance has been a huge thing. Again, we were just bumping up against the limits of on-premise physical hardware. The second is no upgrades. Obviously, just kind of inherent in the cloud paradigm. We take that for granted, but I took it for granted having worked at cloud companies for 15 years before coming to Model N. You know, if you remember back in olden times, it would take a year plus to upgrade a system, and it would cost millions of dollars. Now it takes anywhere from 6 to 10 weeks to fully consume, test, and deploy a fully regulated validated update in Model N. The third is just getting access to innovation and regulatory packs. Customers, it's an untenable situation for a pharma company to be out of compliance and support on a key regulatory system like Model N, and then also getting access to some of the new innovations. It's been a value prop that's resonated, and I think a statistic we've talked about publicly that really drives it home is we've been able to get, as we've converted $1 of maintenance over to recurring, that recurring has been about 2 and a half to $3. It really shows you the value that customers place. We've committed to disclosing yearly where we're at, and at the beginning of our fiscal, we said we're a little over 70% in terms of life sciences customers that have converted, and we've just continued to chomp away at it the last few quarters. That's super exciting. I want to open it up to Q&A before I get too more specific on the Model questions, if anyone has any. We have a mic runner. Yeah, just 2 things. 1, Could you help me understand, like, how you expand your wallet share with your customers? Is it by drug or, you know, you have the top 10 pharma, so how do you further penetrate within them? What are you seeing from the small mid biotech customers and prospects, in terms of just we've seen weakness in funding from that group as well? Yeah, I'll take the last part first. I always have to kind of clarify definitions of mid-market. I mean, to us, a mid-market customer would be a billion-dollar company, you know, we tend to kind of cut off where we sell at $500 million and below, $250 million and below. Our sweet spot is really $5 million-$750 million and above. By definition of that scale, you've probably got 2 or 3 approved therapies that are in market, and you're hitting complexity issues around regulation like I described. Because of how we segment and where we go to market and the problems we solve, we tend to just be with the bigger companies. I think, yeah, the smaller biotech companies, they've struggled, but we don't really sell there. In terms of monetizing our customer base and expanding wallet share, there's basically 3 patterns that we see. 1 is just expanding usage, and that can come through just bringing new divisions online or new products. The second is expanding geographically, and then I kind of lump the first one together. It's new products. Divisions, geographies, and new products are the way we expand. Also we've benefited also from the large pharma companies being acquisitive and some of the biotech companies that you talked about that are in trouble or perhaps didn't have the cash runway they needed getting acquired by large pharma. That always to us is a benefit because they're bringing new users, new revenue management with us. Any more questions? Looks like one in the front. In terms of the pricing structure of the revenue model, do you charge clients based on either their product lines, for example, if you have 1 drug, I'll charge you 1 times, if you have 2 drugs, it's 2 times, or you charge on a per usage basis or some other metrics? Thanks. That's a great question. You wanna take that? Sure. I loved the cell phone analogy earlier. No worries. There's basically 2 vectors to our pricing model. 1 are the products or modules that you buy. The second is your usage of them. For us, we tend to use revenue as a proxy for usage. We look at revenue bands and assume a certain transaction volume is gonna be associated with that level of revenue, and we price accordingly. One of the things we do set up with customers are revenue bands, and so as they move up through those thresholds, our price increases accordingly. For example, in rare drugs, each drug costs you $500,000, whereas hypertension drugs, each 1 costs you $1,000 a year. Obviously the usage could be dramatically different. In rare disease, you only have 1,000 patients. Hypertension, you've got millions. How do you reconcile these 2? For us, it gets reconciled in the revenue. In each of those models for the pharmaceutical company, they're gonna drive additional revenues. It's that additional revenue flowing through our system is how we ultimately charge for the subscription. What I meant is the usage pattern or frequency is dramatically different, right? It is different. At the end of the day, I mean, we have Sandoz, for example, largest generic manufacturer, and they're large, they're large revenue and volume. You know, again, it's indexed to revenue. Novartis is a customer as well. Lots of the therapies you're talking about in their oncology division. It's still ultimately indexed to the revenue of the manufacturer, not the pricing model that they use when they go to market. For example, a lot of the oncology therapies are outcome based. You only pay the hundreds of thousand dollars per therapy if you have the clinical outcome that's expected, or at least reimbursement can often be tied to that. We're less about the pricing metrics, whether it's hypertension or diabetes or oncology, and it's more about the total revenue of the company. I was wondering if we'd circle back to capital allocation from a margin standpoint, you know, as SaaS becomes a larger part of the mix, you know, where margins could go and then, you know, how you think about then reinvesting some of that margin. Yeah. A couple of questions embedded in there. When you look at our Model N and our approach, frankly, if you've heard us over the last couple of years, you've heard us talk about profitable growth. We are investing to drive top-line growth, but we're also very conscious of what we're dropping to the bottom line and work to improve profitability each year. I think you've seen that in our recent results, and you can see that reflected in our guidance. In terms of the SaaS piece of that in particular, the SaaS revenue has been increasing as a percentage of the total subscription revenue. That mix is increasing, and that benefits us in 2 ways. 1, it benefits us on the top line because the SaaS piece is the fastest-growing part of our subscription line. The second area is really on the profitability side. As we get more and more customers over to the cloud, we have an opportunity for leverage and scale in terms of our support organization in the cost to revenue line, as well as on the R&D side of things. It's the same concept. We have R&D people that are dedicated to our legacy products, and they're also helping customers transition. As we get through that activity, and we focus solely on the cloud, we can move more resources to new product innovation and pay the same dollars. We anticipate getting points of leverage on both of those areas. That's super helpful. you know, a little under 2 minutes left, I was just wondering, you know, what are you most excited for in the H2 of the year then going into the new year? It's a good question. Well, first of all, I mean, I've been in enterprise software for 30-plus years now, and I think one of the things I love every day, getting out of bed and going to work about my job is we get to work with some of the most influential companies in the world. We talked at one of our town hall meetings during the pandemic about how 19 of our top 20 customers were making products that were directly helping to combat the front lines of the pandemics, PPE, vaccines, ventilators, everything. I mean, to me, first of all, it's just an inspirational group of customers to meet with. Second thing I'm excited about is I actually get to see them in person more now. As I kinda intimated earlier, been on the road a lot lately, meeting with customers. We're actually having our user conference, Rainmaker, I think it's mid-June is the date. It's the first Rainmaker in person that we've had in, I think it's 3-plus years. So I'm super excited for that. I think the third that's exciting for me is, you know, we have end of life for our on-premise products here in December. We're gonna have substantially converted or at least have projects in flight to get all of our customers moved to the cloud. It's been a lot of heavy lifting and hard work over the last 3 years. As we start to come out the other side of the SaaS transition chapter of Model N, I'm super excited to build new products and co-innovate with our customers and bring new things to market that ultimately add value for our customers whose mission is to change and improve the overall health of the human race. It's, it's fun to be a part of that. Super exciting. Well, thank you so much for coming. It's a pleasure to have you. Thank you, Kyle. Appreciate it. Thank you.