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Model N Announces Third Quarter Fiscal 2014 Financial Results

REDWOOD CITY, Calif. — (BUSINESS WIRE) — August 5, 2014 — Model N, Inc., (NYSE: MODN), the leading revenue management solutions provider to the life science and technology industries, today announced financial results for the third quarter of fiscal 2014, which ended June 30, 2014.

“We made continued progress across a number of our strategic initiatives during the quarter,” said Zack Rinat, Founder, Chairman, and Chief Executive Officer at Model N. “I am pleased with the improvements we have made in both the consistency of our business and our sales execution throughout the year. These trends have given us increased confidence in our outlook, and we look forward to returning the company to growth in Fiscal 2015.”

Third Quarter Fiscal 2014 Financial Highlights:

Use of Non-GAAP Financial Measures

A reconciliation of GAAP to non-GAAP financial measures has been provided in the financial statement tables included in this press release. An explanation of these measures, including the reasons management uses each measure, is also included below under the heading "Non-GAAP Financial Measures."

Guidance:

As of August 5, 2014, we are providing guidance for the fourth quarter of fiscal 2014, the full fiscal year ending September 30, 2014, and some preliminary thoughts on the full fiscal year ending September 30, 2015.

Fourth Quarter Fiscal 2014 Guidance:

Fiscal Year 2014 Guidance:

Preliminary Fiscal Year 2015 Guidance:

Quarterly Results Conference Call

Model N will host a conference call today at 2:00 PM Pacific Time (5:00 PM Eastern Time) to review the company’s financial results for the third quarter 2014, which ended June 30, 2014. To access the call, please dial (877) 705-6003 in the U.S. or (201) 493-6725 internationally. Passcode is 13586425. A live webcast of the conference will be accessible from Model N’s website at: http://investor.modeln.com. Following the completion of the call, a recording will be available for one year for replay at: http://investor.modeln.com and a telephone replay will be available through 11:59 p.m. ET on August 12, 2014 by dialing (877) 870-5176 in the U.S. or (858) 384-5517 internationally with recording access code 13586425.

About Model N

Model N is the leader in Revenue Management solutions. Model N helps its customers maximize their revenue and reduce revenue compliance risk by managing every dollar that impacts their top line encompassing contracting, pricing, incentives, and rebates. Model N leverages its deep industry expertise to support the unique business needs of Life Sciences and Technology companies in more than 50 countries. Global Customers include: Actavis, Allergan, Amgen, Atmel, Boston Scientific, Bristol-Myers Squibb, Dell, Johnson & Johnson, Linear Technology, Merck, Marvell, Maxim, Micron, Nokia, Novartis, Novo Nordisk, ON Semiconductor, and STMicroelectronics. Learn more at: http://www.modeln.com. Model N is traded on the New York Stock Exchange under the symbol MODN.

Forward-Looking Statements

This press release contains forward-looking statements including, among other things, statements regarding Model N’s fourth quarter, full year fiscal year 2014 and full year fiscal year 2015 revenue and other financial projections, future prospects, and market opportunities. The words “believe,” “may,” “will,” “estimate,” “continue,” “anticipate,” “intend,” “expect,” and similar expressions are intended to identify forward-looking statements. These forward-looking statements are subject to risks, uncertainties, and assumptions. If the risks materialize or assumptions prove incorrect, actual results could differ materially from the results implied by these forward-looking statements. Risks include, but are not limited to: (i) delays in closing customer contracts; (ii) our ability to resolve our sales execution challenges; (iii) the timing of new orders and the associated revenue recognition; (iv) adverse changes in general economic or market conditions; (v) delays or reductions in information technology spending and resulting variability in customer orders from quarter to quarter; (vi) competitive factors, including but not limited to pricing pressures, industry consolidation, entry of new competitors and new applications and marketing initiatives by our competitors; (vii) our ability to manage our growth effectively; and (viii) acceptance of our applications and services by customers; (ix) success of new products; (x) the risk that the strategic initiatives that we may pursue will not result in significant future revenues; (x) our ability to retain customers. Further information on risks that could affect Model N’s results is included in our filings with the Securities and Exchange Commission, including our final prospectus, our most recent quarterly report on Form 10-Q and our annual report on Form 10-K for the fiscal year ended September 30, 2013, and any current reports on Form 8-K that we may file from time to time. Should any of these risks or uncertainties materialize, actual results could differ materially from expectations. Model N assumes no obligation to, and does not currently intend to, update any such forward-looking statements after the date of this release.

Non-GAAP Financial Measures

We have provided in this release financial information that has not been prepared in accordance with accounting standards generally accepted in the United States of America (“GAAP”). We use these non-GAAP financial measures internally in analyzing our financial results and believe they are useful to investors, as a supplement to GAAP measures, in evaluating our ongoing operational performance. We believe that the use of these non-GAAP financial measures provides an additional tool for investors to use in evaluating ongoing operating results and trends and in comparing our financial results with other companies in our industry, many of which present similar non-GAAP financial measures to investors.

Non-GAAP financial measures should not be considered in isolation from, or as a substitute for, financial information prepared in accordance with GAAP. Investors are encouraged to review the reconciliation of these non-GAAP financial measures to their most directly comparable GAAP financial measures below. A reconciliation of our non-GAAP financial measures to their most directly comparable GAAP measures has been provided in the financial statement tables included below in this press release.

Our reported results include certain non-GAAP financial measures, including non-GAAP gross profit, non-GAAP loss from operations, non-GAAP net loss, weighted-average shares outstanding, non-GAAP net loss per share, and adjusted EBITDA. Non-GAAP gross profit excludes stock-based compensation expense, LeapFrogRX compensation charges and amortization of intangible assets. Non-GAAP loss from operations and non-GAAP net loss exclude stock-based compensation expense, LeapFrogRX compensation charges, amortization of intangible assets, changes in fair value of preferred stock warrant liability, and restructuring charges as they are often excluded by other companies to help investors understand the operational performance of their business and, in the case of stock-based compensation, can be difficult to predict. In addition, stock-based compensation expense varies from period to period and company to company due to such things as differing valuation methodologies and changes in stock price. Adjusted EBITDA is defined as net loss, adjusted for LeapFrogRX compensation charges, depreciation and amortization, stock-based compensation expense, restructuring charges, interest and other (income) expenses, net, and provision for income taxes. Reconciliation tables are provided in this press release.

 
 
Model N Inc.
Condensed Consolidated Balance Sheets
(dollars in thousands)
(unaudited)
    June 30,     September 30,
2014 2013
Assets
Current assets:
Cash and cash equivalents $ 103,170 $ 103,350
Accounts receivable, net 17,946 16,140
Deferred cost of implementation services, current portion 249 491
Prepaid expenses 2,463 3,225
Other current assets   413     342  
Total current assets 124,241 123,548
Property and equipment, net 6,801 7,871
Goodwill 1,509 1,509
Intangible assets, net 670 918
Other assets   1,256     626  
Total assets $ 134,477   $ 134,472  
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable $ 255 $ 468
Accrued employee compensation 11,532 13,941
Accrued liabilities 2,002 2,848
Deferred revenue, current portion 26,264 19,131
Capital lease obligations, current portion   26     318  
Total current liabilities 40,079 36,706
Long-term liabilities:
Deferred revenue, net of current portion 2,480 3,507
Other long-term liabilities   678     641  
Total long-term liabilities   3,158     4,148  
Total liabilities   43,237     40,854  
 
Stockholders' equity:
Common stock 4 3
Preferred stock - -
Additional paid-in capital 168,530 156,032
Accumulated other comprehensive loss (224 ) (302 )
Accumulated deficit   (77,070 )   (62,115 )
Total stockholders' equity   91,240     93,618  
Total liabilities and stockholders' equity $ 134,477   $ 134,472  
 
               
Model N Inc.
Condensed Consolidated Statements of Operations
(dollars and shares in thousands, except per share amounts)
(unaudited)
Three months ended June 30, Nine months ended June 30,
2014 2013 2014 2013
Revenues:
License and implementation $ 8,073 $ 16,419 $ 27,449 $ 43,362
SaaS and maintenance   11,196     10,828     34,029     30,785  
Total revenues 19,269 27,247 61,478 74,147
Cost of revenues:
License and implementation 3,812 7,527 12,955 19,887
SaaS and maintenance   5,302     4,865     15,917     14,169  
Total cost of revenues   9,114     12,392     28,872     34,056  
Gross profit   10,155     14,855     32,606     40,091  
Operating expenses:
Research and development 4,814 4,063 14,362 12,665
Sales and marketing 6,664 5,256 18,293 16,362
General and administrative 5,403 3,883 14,518 11,518
Restructuring   (43 )   —     26     —  
Total operating expenses   16,838     13,202     47,199     40,545  
(Loss) income from operations (6,683 ) 1,653 (14,593 ) (454 )
Interest (income) expense, net (3 ) 85 (10 ) 326
Other expenses, net   24     (48 )   111     664  
(Loss) income before income taxes (6,704 ) 1,616 (14,694 ) (1,444 )
Provision for income taxes   96     81     261     230  
Net (loss) income   (6,800 )   1,535     (14,955 )   (1,674 )
Net (loss) income attributable to common stockholders   (6,800 )   1,535     (14,955 )   (1,674 )
Net (loss) income per share attributable to common stockholders:
Basic $ (0.27 ) $ 0.07   $ (0.62 ) $ (0.12 )
Diluted $ (0.27 ) $ 0.06   $ (0.62 ) $ (0.12 )

Weighted average number of shares used in computing net (loss) income per share attributable to common stockholders

Basic   24,794     22,798     24,214     13,647  
Diluted   24,794     26,072     24,214     13,647  
 
               
Model N Inc.
Condensed Consolidated Statements of Cash Flows
(dollars in thousands)
(unaudited)
Three months ended June 30, Nine months ended June 30,
2014 2013 2014 2013
Cash flows from operating activities:
Net (loss) income $ (6,800 ) $ 1,535 $ (14,955 ) $ (1,674 )
Adjustments to reconcile net(loss) income to net cash used in operating activities:
Depreciation 829 477 2,543 1,414
Amortization of intangible assets 83 82 248 247
Stock-based compensation 2,662 1,807 7,450 3,306
Loss on disposal of property and equipment — 2 — 2
Amortization of debt discount — 61 — 81
Changes in fair value of preferred stock warrant liability — - — 671
Provision for doubtful accounts — - — 9
Deferred income taxes 9 31 29 90

Changes in operating assets and liabilities, net of acquired assets and liabilities:

Accounts receivable 2,448 (5,035 ) (1,806 ) (7,767 )
Prepaid expenses and other assets (159 ) (370 ) 128 (1,861 )
Deferred cost of implementation services 176 15 265 305
Accounts payable (38 ) 1,592 (212 ) 1,899
Accrued employee compensation 435 2,275 (2,342 ) 2,699
Other accrued and long-term liabilities (374 ) (308 ) (906 ) 1,271
Deferred revenue   3,022     (331 )   6,106     (1,376 )
Net cash provided by (used in) operating activities   2,293     1,833     (3,452 )   (684 )
Cash flows from investing activities:
Purchases of property and equipment (985 ) (339 ) (1,503 ) (811 )
Capitalization of software development costs — (976 ) — (2,698 )
Purchase of short-term investments   —     -     —     (63 )
Net cash used in investing activities   (985 )   (1,315 )   (1,503 )   (3,572 )
Cash flows from financing activities:
Proceeds from initial public offering, net of offering costs of $7.6 million — — — 101,064
Proceeds from exercise of stock options and employee stock purchase plan 211 255 5,049 768
Payments for deferred offering costs (6 ) (586 ) (6 ) (2,562 )
Principal payments on capital lease obligations (71 ) (144 ) (292 ) (442 )
Principal payments on loan   —     (3,958 )   —     (5,208 )
Net cash provided by (used in) financing activities   134     (4,433 )   4,751     93,620  
Effect of exchange rate changes on cash and cash equivalents   4     (31 )   24     (54 )
Net change in cash and cash equivalents 1,446 (3,946 ) (180 ) 89,310
Cash and cash equivalents at beginning of period   101,724     109,024     103,350     15,768  
Cash and cash equivalents at end of period $ 103,170   $ 105,078   $ 103,170   $ 105,078  
 
 
Model N Inc.
Reconciliation of GAAP to Non-GAAP Operating Results
(dollars and shares in thousands, except per share amounts)
(unaudited)
    Three months ended June 30,     Nine months ended June 30,
2014     2013 2014     2013

Reconciliation from GAAP net income (loss) to adjusted EBITDA

GAAP net (loss) income : $ (6,800 ) $ 1,535 $ (14,955 ) $ (1,674 )
Reversal of non-GAAP expenses:
Stock-based compensation 2,662 1,807 7,450 3,306
Depreciation and amortization 912 559 2,791 1,661
LeapFrogRx compensation charges 80 200 381 614
Restructuring (43 ) — 26 —
Interest (income) expense, net (3 ) 85 (10 ) 326
Other expenses (income), net 24 (48 ) 111 664
Provision for income taxes   96     81     261     230  
Adjusted EBITDA $ (3,072 ) $ 4,219   $ (3,945 ) $ 5,127  
 
Three months ended June 30, Nine months ended June 30,
2014 2013 2014 2013
Reconciliation from GAAP gross profit to non-GAAP gross profit:
GAAP gross profit: $ 10,155 $ 14,855 $ 32,606 $ 40,091
Reversal of non-GAAP expenses:
Stock-based compensation (a) 373 455 1,328 773
Amortization of intangible assets (b) 61 60 182 181
LeapFrogRx compensation charges (c)   50     126     238     383  
Non-GAAP gross profit $ 10,639   $ 15,496   $ 34,354   $ 41,428  
Percentage of revenue 55.2 % 56.9 % 55.9 % 55.9 %
 
Three months ended June 30, Nine months ended June 30,
2014 2013 2014 2013
Reconciliation from GAAP gross profit to non-GAAP gross profit:
for license and implementation:
GAAP gross profit - license and implementation: $ 4,261 $ 8,892 $ 14,494 $ 23,475
Reversal of non-GAAP expenses:
Stock-based compensation (a)   206     240     752     370  
Non-GAAP gross profit - license and implementation $ 4,467   $ 9,132   $ 15,246   $ 23,845  
Percentage of revenue 55.3 % 55.6 % 55.5 % 55.0 %
 
Three months ended June 30, Nine months ended June 30,
2014 2013 2014 2013
Reconciliation from GAAP gross profit to non-GAAP gross profit:
for SaaS and maintenance:
GAAP gross profit - SaaS and maintenance: $ 5,894 $ 5,963 $ 18,112 $ 16,616
Reversal of non-GAAP expenses:
Stock-based compensation (a) 167 215 576 403
Amortization of intangible assets (b) 61 60 182 181
LeapFrogRx compensation charges (c)   50     126     238     383  
Non-GAAP gross profit - SaaS and maintenance $ 6,172   $ 6,364   $ 19,108   $ 17,583  
Percentage of revenue 55.1 % 58.8 % 56.2 % 57.1 %

 

Three months ended June 30, Nine months ended June 30,
2014 2013 2014 2013
Reconciliation from GAAP research and development to non-GAAP research and development:
GAAP research and development: $ 4,814 $ 4,063 $ 14,362 $ 12,665
Reversal of non-GAAP expenses:
Stock-based compensation (a) (310 ) (305 ) (972 ) (457 )
LeapFrogRx compensation charges (c)   (1 )   (1 )   (10 )   (32 )
Non-GAAP research and development $ 4,503   $ 3,757   $ 13,380   $ 12,176  
 
Three months ended June 30, Nine months ended June 30,
2014 2013 2014 2013
Reconciliation from GAAP sales and marketing to non-GAAP sales and marketing:
GAAP sales and marketing: $ 6,664 $ 5,256 $ 18,293 $ 16,362
Reversal of non-GAAP expenses:
Stock-based compensation (a) (721 ) (686 ) (1,931 ) (1,399 )
Amortization of intangible assets (b) (22 ) (22 ) (66 ) (65 )
LeapFrogRx compensation charges (c)   (11 )   (56 )   (65 )   (144 )
Non-GAAP sales and marketing $ 5,910   $ 4,492   $ 16,231   $ 14,754  
 
Three months ended June 30, Nine months ended June 30,
2014 2013 2014 2013
 
Reconciliation from GAAP general and administrative to non-GAAP general and administrative:
GAAP general and administrative: $ 5,403 $ 3,883 $ 14,518 $ 11,518
Reversal of non-GAAP expenses:
Stock-based compensation (a) (1,258 ) (361 ) (3,219 ) (677 )
LeapFrogRx compensation charges (c)   (18 )   (17 )   (68 )   (55 )
Non-GAAP general and administrative $ 4,127   $ 3,505   $ 11,231   $ 10,786  
 
Three months ended June 30, Nine months ended June 30,
2014 2013 2014 2013
Reconciliation from GAAP (loss) income from operations to non-GAAP (loss) income from operations:
GAAP net (loss) income from operations: $ (6,683 ) $ 1,653 $ (14,593 ) $ (454 )
Reversal of non-GAAP expenses:
Stock-based compensation (a) 2,662 1,807 7,450 3,306
Amortization of intangible assets (b) 83 82 248 246
LeapFrogRx compensation charges (c) 80 200 381 614
Restructuring (e)   (43 )   —     26     —  
Non-GAAP (loss) income from operations $ (3,901 ) $ 3,742   $ (6,488 ) $ 3,712  
 
Three months ended June 30, Nine months ended June 30,
2014 2013 2014 2013
Numerator:
Reconciliation between GAAP and non-GAAP net (loss) income:
GAAP net (loss) income: $ (6,800 ) $ 1,535 $ (14,955 ) $ (1,674 )
Reversal of non-GAAP expenses:
Stock-based compensation (a) 2,662 1,807 7,450 3,306
Amortization of intangible assets (b) 83 82 248 246
LeapFrogRx compensation charges (c) 80 200 381 614
Changes in fair value of preferred stock warrant liability (d) — — — 670
Restructuring (e)   (43 )   —     26     —  
Non-GAAP net income (loss) attributable to Model N Inc. common stockholders $ (4,018 ) $ 3,624   $ (6,850 ) $ 3,162  
Denominator:

Reconciliation between GAAP and non-GAAP weighted average shares used in computing diluted net (loss) income per share attributable to Model N Inc. common stockholders:

Weighted average number of shares used in computing GAAP diluted net (loss) income per share 24,794 26,072 24,214 13,647
Assuming the conversion of preferred stock at the beginning of each period — — — 4,515
Effect of dilutive securities (stock options, restricted stock unis, warrants and ESPP)   —     —     —     2,846  
Weighted average shares used in computing non-GAAP diluted net income (loss) per common share   24,794     26,072     24,214     21,008  
GAAP diluted net (loss) income per share attributable to Model N Inc. common stockholders $ (0.27 ) $ 0.06   $ (0.62 ) $ (0.12 )
Non-GAAP diluted net (loss) income per share attributable to Model N Inc. common stockholders $ (0.16 ) $ 0.14   $ (0.28 ) $ 0.15  
 

Use of Non-GAAP Financial Measures

To supplement our condensed consolidated financial statements presented on a GAAP basis, Model N uses non-GAAP measures of adjusted EBITDA, net (loss) income, weighted average shares outstanding and net (loss) income per share, which are adjusted to exclude LeapFrogRx compensation charges, stock-based compensation expense, restructuring charge, amortization of intangible assets and changes in fair value of preferred stock warrant liability and includes dilutive shares where applicable. We believe these adjustments are appropriate to enhance an overall understanding of our past financial performance and also our prospects for the future. These adjustments to our current period GAAP results are made with the intent of providing both management and investors a more complete understanding of Model N’s underlying operating results and trends and our marketplace performance. The non-GAAP results are an indication of our baseline performance that are considered by management for the purpose of making operational decisions. In addition, these non-GAAP results are the primary indicators management uses as a basis for our planning and forecasting of future periods. The presentation of this additional information is not meant to be considered in isolation or as a substitute for operating (loss) income, net (loss) income or basic and diluted net (loss) loss per share prepared in accordance with generally accepted accounting principles in the United States. Non-GAAP financial measures are not based on a comprehensive set of accounting rules or principles and are subject to limitations.

While a large component of our expense in certain periods, we believe investors may want to exclude the effects of these items in order to compare our financial performance with that of other companies and between time periods:

(a) Stock-based compensation is a non-cash expense accounted for in accordance with FASB ASC Topic 718. Stock-based compensation expenses are excluded from our non-GAAP income because stock-based compensation amounts are difficult to forecast due in part to the volume and timing of stock option and restricted stock grants and the volatility of our common stock. We believe that the exclusion of stock-based compensation expense provides for a better comparison of our operation results to prior periods and to our peer companies.

(b) Amortization of intangible assets resulted principally from acquisitions. Intangible asset amortization is a non-cash item. As such, we believe exclusion of these expenses provides for a better comparison of our operation results to prior periods and to our peer companies.

(c) In January 2012, we acquired LeapFrog Rx for initial cash consideration of $3.0 million as well as potential additional payments to former LeapFrogRx shareholders totalling up to $8.3 million which are expected to be incurred through January 2015. These additional payments are, among other things, subject to future continued employment and are therefore considered compensatory in nature and are being recognized as compensation expense (LeapFrogRx compensation charges) over the term of each component. We believe that the exclusion of these expenses provides for a better comparison of our operation results to prior periods and to our peer companies.

(d) Preferred stock warrant was classified as liability and was marked to market in each period until the preferred stock warrant was converted to common stock warrant upon the closing date of IPO. The change in fair value of preferred stock warrant liability was a non-cash item. We believe that the exclusion of this expense provides for a better comparison of our operation results to prior periods and to our peer companies.

(e) On September 30, 2013, the Company recorded a workforce reduction restructuring charges primarily related to employee separation packages, which included severance pay, benefits continuation and outplacement costs. We believe that the exclusion of this expense provides for a better comparison of our operation results to prior periods and to our peer companies.


Contact:

Investor Relations Contact:
ICR for Model N
Greg Kleiner, 650-610-4998
Email Contact
or
Media Contact:
Model N
Brenda Christensen, 650-610-4683
Email Contact