Nov 10, 2020
Operator
Greetings and welcome to the Model N Fourth Quarter and Full Year 2020 Earnings Conference Call. At this time, all participants are in a listen-only mode.
A question-and-answer session will follow the formal presentation. [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..
Gwyn Lauber
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 close of market and is posted on our website..
The primary purpose of today’s call is to provide you information regarding our fourth quarter and fiscal year 2020 performance, and our financial outlook for our first quarter and full year fiscal 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 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 results in fiscal year 2019 results. With that, let me turn the call over to Jason.
Jason Blessing
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 relationship 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 modeling 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 continued to confirm that our focus strategy implemented over two years ago is working even in these difficult times. Our success this quarter was powered by contributions from all of our go-to market teams.
We added four 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 unintended positive impact. During Q4, we close the highest quarterly deal volume in our company's history.
The trade-off is these contracts contribute a lower amounts 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-Live, 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 timeline, thereby increasing time to value for our customers. Turning to our markets, we saw success in both life sciences and high tech.
Our life sciences team added three new logos, including Arjo, which adds to our growing list of Medtech customers. We were also selected at Organon, Merck spin off of their women's health trusted legacy brands in 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 six months, a record at the time.
I'm very happy to announce that in Q4 their branded division went live in just five months, a new SaaS transition record for. 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 timeline, 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 chargeback, improve script validation, and other general improvement.
British medical equipment manufacturer, Smith & Nephew also took their first seasonal updates in 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 and infrastructure in Japan to our cloud. To achieve their tight timeframe 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 move to our cloud. We are actively working with several of these customers to plan their move over the next few years.
I am personally involved with our account teams and 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.
Turn into high tech. This vertical continues to improve since been impacted in the spring by the global pandemic.
In Q4, we added a new logo, executed several customer expansion deals and celebrated multiple Go-Live. The high tech pipeline does remain below pre pandemic levels, as deals have pushed up, but the pipeline has continued to recover throughout the year.
In Q4, we signed Korea as a new customer, as they prepare to spin out their semiconductor business into a new company. Cree [ph] is aninnovative leading supplier to multiple market segments, including renewable energy and other growth industry.
They determined that Model N is one of three essential projects that they will fund during the spin out to support the company's new operation. Cree currently relies on partners to manage their complex channel using manual homegrown solution, which results in significant revenue leakage.
We believe that Model N 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-Live in high tech in the quarter, including an important one at AMD, which expanded to the full suite of Model N product and integrated our solutions to 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 a head 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 to $40.6 million. We expect subscription revenue to be in the range of $29.4 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 operation 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 [ph]. 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 a head 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 equivalent. 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 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 [Technical Difficulty].
Unidentified Analyst
Got it. 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, the top 10 pharma, you're working on a number of deals there personally.
Are you as kind of confident in SaaS conversion activity? Is maybe you were early in the -- maybe pre-pandemic is the way to ask it.
And kind of the momentum that you guys are seeing there is anything kind of changed your view?
Jason Blessing
No. I would say in fact, every day that goes by, it get more comfortable around SaaS transitions, and I'll share a little more color there as well.
You think about the last year, year and a half, 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 is 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.
Unidentified Analyst
Got it. Thanks.
Nice job again.
Jason Blessing
Thanks, Jeff.
Operator
Our next question comes from the line of Terry Tillman with Truist. You may proceed with your question.
Terry Tillman
Yes. Hey, Jason.
Thanks for taking my questions. And appreciate all the perspective and details particularly around these ramps 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 two subscription revenue in FY 2021, from J&J?
And then I had a couple quick follow-up.
David Barter
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 of 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 are the products that they use they are upgraded.
And so it just made business sense for us to start there. That's why Japan first.
And that's the first step and 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 upgrades needs to be moved to the cloud.
Terry Tillman
Great. And maybe just as we look into FY 2021, you give us the total subscription revenue, but how do we think about maintenance?
And then the second part of the question is, given the [Technical Difficulty].
David Barter
Maybe a little bit more color on that, pre-COVID, we were ramping roughly a third 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 seven 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 continued 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.
Terry Tillman
Got it. 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? Is maybe you were early in the -- maybe pre-pandemic is the way to ask it.
And kind of the momentum that you guys are seeing there, is anything kind of changed your view?
Jason Blessing
No. I would say in fact, every day that goes by, I get more comfortable around SaaS transitions, and I'll share a little more color there as well.
You think about the last year, year and a half, 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 is 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 year. And modernize their infrastructure and take advantage of the SaaS delivery model.
But we have definitely seen other customers that are approaching the SaaS transitions as more of a transformational effort inside of their companies. And that can range from rolling out Model N more broadly to other divisions.
And I'm personally involved in one of our big SaaS transitions. Right now, we're talking about doing that.
It can be everything from that to just simply adopting new features, new modules that we've released, that the customer has not consumed yet.
Terry Tillman
And then lastly, as we think about kind of what's been driving some of these new deal signings more recently, obviously we're hopeful that kind of a global rollout of vaccine will be coming soon. But I guess, what's been the biggest driver for customers buying new modules?
Are they looking toward 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 left by the side, in the very current environment that you hopefully will start to pick back up?
Jason Blessing
Yes. It's a mix of things.
And it varies a little bit across the different verticals. On Life Sciences, as we talked about.
With Seqirus signed earlier this year. Arjo who we sign this quarter.
Octapharma, who we sign 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 has 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 quarters in this theme persisted into this quarter, we're really focused on growth companies that have innovative products that themselves are selling into growth end market. And so Cree is 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 note 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.
Terry Tillman
All right, great. Thank you for taking my question.
Jason Blessing
Thanks, Matt.
Operator
Our next question comes from the line of Ryan McDonald with Needham & Co. You may proceed with your questions.
Ryan McDonald
Yes. Good evening, Jason.
Thanks for taking my question. As we look at the outlook, obviously, we've gone 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 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? Thanks.
Jason Blessing
Yes. Thanks, Ryan.
So there's a couple points I'd make here. First of all, ramping up 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, that 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 a life sciences 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 areas, we continue to invest in our product team on the heels of announcing a new Chief Product Officer, particularly in the areas that 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.
Ryan McDonald
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 of a bit quicker?
Thanks.
Jason Blessing
Yes. I'm glad you asked about channel impact in that partner, so one of the things that partnerships.
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 incentives 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 complete value.
Operator
Our next question comes from a line of Joe Vruwink with Baird. You may proceed with your question.
Joe Vruwink
Great. Hi, everyone.
Jason, it sounds like you've gotten to the point, if ramps became somewhat more common, two, two and a half 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 in the RPO with the renewals?
How much larger do those tend to be?
Jason Blessing
Well, there's a few moving parts in that Joe, and let me just kind of give you the high level framework. In the two and a half plus years that I've been here, we've been working on standardizing all of our contracts and moving towards three-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 a third 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 ramped two and a half 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 ramp deals renewing that they overcome the ramping that we're doing on 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.
Joe Vruwink
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 seven figure headwind with the ramp structure being incorporated into that outlook. You also had, once upon a time a target that maybe 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 and get the benefits of these ramps?
Jason Blessing
Yes. 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.
Joe Vruwink
Okay. Thank you.
That's helpful. I'll leave it there.
Jason Blessing
Thanks, Joe.
Operator
Our next question comes from the line of Brian Peterson with Raymond James. You may proceed with your question.
Unidentified Analyst
Thanks. Hey, guys, 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?
Jason Blessing
Kevin, would you mind repeating the first part of that question. Our line broke up a little bit.
Unidentified Analyst
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?
Jason Blessing
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 deals flipping out. Both Cree and octapharma were actually two deals that we had in our pipeline, and we're intending to close really right at the beginning of, 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 live, right, and just need more attention on the economics and approvals versus completely going away.
Unidentified Analyst
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?
What do you see as the key areas that should drive that incremental adoption over the next two to three years?
Jason Blessing
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 one of the two top two 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 healthcare providers or payers, depending on what their business model is. In the customer base, there's two things that thematically are important, we've already talked about SaaS transitions, quite a bit, but some of our products that enabled 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, the white space that we still have there. And again, the profile of customers or prospects that we see they are really growth tech companies that have growth end markets that really need to bolt in the infrastructure to scale their businesses.
Unidentified Analyst
That's helpful. Thanks Jason.
Jason Blessing
Thanks, Kevin.
Operator
Our next question comes from the line of Gene Mannheimer with Dougherty & Co. You may proceed with your questions.
Gene Mannheimer
Thanks. Good afternoon.
Congrats on the great year end. I was hopeful for maybe an update on the new CFO appointment.
If you could provide any color there. And 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? Thanks.
Jason Blessing
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 transitioned out of -- was announced, so four or five weeks ago. And I will share two 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've 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 six or seven products that we have to sell to customers, and where are we at from a penetration perspective?
Gene Mannheimer
Yes. That's correct.
Jason Blessing
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 $100 million 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 is a multi hundred million dollar opportunity.
And that's why we're investing there.
David Barter
Gene, the annual number we talked about before is 130 customers in the cloud on the average of two -- is about two and a half products. We have that in our supplemental as well.
Operator
Okay. Our next question comes from the line of Joe Goodwin with JMP Securities.
You may proceed with your question.
Joe Goodwin
Hi, Jason. Thank you for taking my question.
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.
Jason Blessing
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 190 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.
Joe Goodwin
Got it. Thank you.
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?
Thank you.
Jason Blessing
Yes. In terms of the overall pipeline dynamics in life sciences, we did see a little bit of a dip very early in the pandemic, and then a very consistent up into 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 timeframe.
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 that those pre pandemic levels.
Joe Goodwin
Great. Thank you.
Jason Blessing
Thanks, Joe.
Operator
Our next question comes from the line of Jackson Ader with JP Morgan. You may proceed with your question.
Jackson Ader
Great. Thanks for taking my questions, guys.
If we could actually just follow up on that last bit there, Jason, on the high tech side and the recovery. So, 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 and 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?
Jason Blessing
Yes. Thanks for the question.
Jackson, and good to hear from you. I would say, 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.
Jackson Ader
Okay. And then just a quick follow up, maybe on regulation, given kind of the way things have at least appear like they're going to shake out and with mixed leadership, I guess, going forward in the U.S., 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 yes, just updated thoughts on kind of this mixed leadership we have in U.S.?
Jason Blessing
Yes. This is 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.
Jackson Ader
Yep. Makes sense.
All right. Thank you.
Jason Blessing
Thanks, Jackson.
Operator
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.
Jason Blessing
Well, thank you, operator. We appreciate everyone joining in 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.
Operator
Thank you for joining us today. This concludes today's conference.
You may disconnect your lines up this time.