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Model N Announces Third Quarter of Fiscal Year 2018 Financial Results

SAN MATEO, Calif. — (BUSINESS WIRE) — August 7, 2018 — Model N, Inc., (NYSE: MODN), the leading provider of revenue management cloud solutions for the pharmaceutical, medical device, high tech, manufacturing and semiconductor industries, today announced financial results for the third quarter, which ended June 30, 2018.

“Model N exceeded its revenue and profitability guidance for the third quarter of fiscal 2018. The strong Q3 performance puts us on track to deliver record revenue, profitability and cash flow for the full year,” said Jason Blessing, Chief Executive Officer of Model N. “Over the last 90 days, I’ve enjoyed meeting with our customers, employees and investors and thank them all for their warm welcome. I’m also very proud of our blue-chip customer portfolio and the mission critical role our cloud solutions play in their businesses. My discussions also reinforce my belief that Model N has a great opportunity ahead of us.”

Third Quarter 2018 Financial Highlights:

Use of Non-GAAP Financial Measures

A reconciliation of GAAP to non-GAAP financial measures has been provided in the financial tables included in this press release.

Business Highlights:

Guidance:

As of August 7, 2018, we are providing guidance for the fourth quarter of fiscal 2018 and the full fiscal year ending September 30, 2018.

       
(in $ millions, except per share outlook)     Fourth Quarter Fiscal 2018     Full Year Fiscal 2018
Total GAAP Revenues 35.2 – 35.7 153.1 – 153.6
Non-GAAP income from operations 0.5 – 1.0 7.2 – 7.7
Non-GAAP net loss per share (0.03) – (0.01) (0.05) – (0.03)
Adjusted EBITDA 1.2 – 1.7 10.2 – 10.7
 

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, which ended June 30, 2018. The conference call can be accessed by dialing (877) 407-4018 from the United States or (201) 689-8471 internationally with reference to the company name and conference title, and a live webcast and replay of the conference call can be accessed from the investor relations page of Model N’s website at investor.modeln.com. Following the completion of the call through 11:59 p.m. ET on August 14, 2018, a telephone replay will be available by dialing (844) 512-2921 from the United States or (412) 317-6671 internationally with recording access code 13681148.

About Model N

Model N is the leader in revenue management solutions. Driving mission critical business processes such as configure, price and quote (CPQ), contract and rebate management, business intelligence, and regulatory compliance, Model N solutions transform the revenue lifecycle from a series of disjointed operations into a strategic end-to-end process. With deep industry expertise, Model N supports the complex business needs of the world’s leading brands in pharmaceutical, medical device, high tech, manufacturing and semiconductors across more than 120 countries, including Pfizer, AstraZeneca, Sanofi, Gilead, Abbott, Stryker, AMD, Micron, Seagate, STMicroelectronics, NXP, Sesotec, and Southern States. For more information, visit www.modeln.com.

Model N® is the registered trademark of Model N, Inc. Any other company names mentioned are the property of their respective owners and are mentioned for identification purposes only.

Forward-Looking Statements

This press release contains forward-looking statements including, among other things, statements regarding Model N’s fourth quarter and full year fiscal year 2018 revenue, , and other financial results as well as outlook for fiscal year 2018 and future prospects. 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 improve and sustain our sales execution; (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; (xi) changes in health care regulation and policy and tax in the United States and worldwide; and (xii) our ability to retain customers, and (xiii) acquisition-related risks from our acquisition of Revitas. Further information on risks that could affect Model N’s results is included in our filings with the Securities and Exchange Commission (“SEC”), including our most recent quarterly report on Form 10-Q and our annual report on Form 10-K for the fiscal year ended September 30, 2017, 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 income (loss) from operations, non-GAAP net loss, non-GAAP net (loss) income per share, and adjusted EBITDA. Non-GAAP gross profit excludes stock-based compensation expense, acquisition & integration related expenses, deferred revenue adjustment and amortization of intangible assets. Non-GAAP loss from operations and non-GAAP net loss exclude stock-based compensation expense, amortization of intangible assets, and acquisition & integration related expenses, deferred revenue adjustment and valuation allowance resulting from Revitas acquisition 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 and therefore we have not provided a reconciliation of forecasted Non-GAAP results with GAAP. 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 depreciation and amortization, stock-based compensation expense, acquisition & integration related expenses, deferred revenue adjustment, interest (income) expense, net, and other (income) expenses, net, and provision (benefit) for income taxes. Reconciliation tables are provided in this press release.

 

Model N Inc.
Condensed Consolidated Balance Sheets
(in thousands)
(unaudited)

 
    As of
June 30,
2018 		    As of
September 30,
2017
Assets
Current assets:
Cash and cash equivalents $ 57,645 $ 57,558
Accounts receivable, net 31,707 24,784
Prepaid expenses 3,307 3,733
Other current assets   405   1,013
Total current assets 93,064 87,088
Property and equipment, net 2,496 4,611
Goodwill 39,283 39,283
Intangible assets, net 35,977 40,156
Other assets   996   798
Total assets $ 171,816 $ 171,936
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable $ 1,383 $ 3,002
Accrued employee compensation 12,376 14,996
Accrued liabilities 4,041 4,979
Deferred revenue, current portion 54,902 49,186
Long term debt, current portion   5,995   4,753
Total current liabilities 78,697 76,916
Long-term liabilities:
Long term debt 52,846 52,452
Other long-term liabilities   1,651   1,307
Total long-term liabilities   54,497   53,759
Total liabilities   133,194   130,675
Stockholders' equity:
Common Stock 5 4
Preferred Stock — —
Additional paid-in capital 239,372 217,052
Accumulated other comprehensive loss (874 ) (502 )
Accumulated deficit   (199,881 )   (175,293 )
Total stockholders' equity   38,622   41,261
Total liabilities and stockholders' equity $ 171,816 $ 171,936
 
 

Model N Inc.
Condensed Consolidated Statements of Operations
(in thousands, except per share amounts)
(unaudited)

 
    Three Months Ended June 30,     Nine months ended June 30,
2018     2017 2018     2017
Revenues:
SaaS and maintenance $ 35,623 $ 28,530 $ 100,943 $ 78,427
License and implementation   3,994   5,714   16,975   17,137
Total revenues 39,617 34,244 117,918 95,564
Cost of Revenues:
SaaS and maintenance 14,599 12,439 40,489 34,527
License and implementation   1,846   3,333   10,018   11,106
Total cost of revenues   16,445   15,772   50,507   45,633
Gross profit 23,172 18,472 67,411 49,931
Operating Expenses:
Research and development 7,746 8,393 24,861 23,302
Sales and marketing 9,338 10,739 26,845 31,081
General and administrative   17,044   8,096   33,099   26,949
Total operating expenses   34,128   27,228   84,805   81,332
Loss from operations (10,956 ) (8,756 ) (17,394 ) (31,401 )
Interest expense (income), net 4,478 1,442 7,350 2,789
Other expenses (income), net   (344 )   3   (306 )   77
Loss before income taxes (15,090 ) (10,201 ) (24,438 ) (34,267 )
(Benefit) provision for income taxes   345   234   150   (3,742 )
Net loss $ (15,435 ) $ (10,435 ) $ (24,588 ) $ (30,525 )
Net loss per share attributable to common stockholders:
Basic and diluted $ (0.50 ) $ (0.36 )   (0.82 ) $ (1.07 )

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

Basic and diluted   30,749   28,936   30,042   28,464
 
 

Model N Inc.
Condensed Consolidated Statements of Cash Flows
(in thousands)
(unaudited)

   
Nine Months Ended June 30,
2018     2017
Cash Flows From Operating Activities:
Net loss $ (24,588 ) $ (30,525 )
Adjustments to reconcile net loss to net cash used in operating activities
Depreciation and amortization 6,410 5,866
Stock-based compensation 19,312 6,935
Amortization of debt discount and issuance cost 686 502
Deferred income taxes (581 ) (4,019 )
Other non-cash charges (30 ) 239
Loss on debt extinguishment 3,142 —
Changes in assets and liabilities, net of acquisition:
Accounts receivable (6,833 ) (7,561 )
Prepaid expenses and other assets (102 ) 2,592
Deferred cost of implementation services 488 1,289
Accounts payable (1,752 ) (854 )
Accrued employee compensation (2,541 ) 1,482
Other accrued and long-term liabilities (639 ) (1,085 )
Deferred revenue   6,386   8,875
Net cash used in operating activities   (642 )   (16,264 )
Cash Flows From Investing Activities:
Purchases of property and equipment (165 ) (290 )
Acquisition of businesses, net of cash acquired — (47,773 )
Capitalization of software development costs   —   (335 )
Net cash used in investing activities   (165 )   (48,398 )
Cash Flows From Financing Activities:
Proceeds from exercise of stock options and issuance of employee stock purchase plan 3,008 2,457
Proceeds from term loan 49,588 48,686
Debt issuance costs (145 ) (806 )
Principal payments on loan (50,000 ) —
Early payment penalty   (1,500 )   —
Net cash provided by financing activities   951   50,337
Effect of exchange rate changes on cash and cash equivalents (57 ) 7
Net decrease in cash and cash equivalents 87 (14,318 )
Cash and cash equivalents
Beginning of period   57,558   66,149
End of period $ 57,645 $ 51,831
 
 
Model N Inc.
Reconciliation of GAAP to Non-GAAP Operating Results
(in thousands, except per share amounts)
(unaudited)
               
Three Months Ended June 30, Nine months ended June 30,
2018 2017 2018 2017
Reconciliation from GAAP net loss to adjusted EBITDA:
GAAP net loss: $ (15,435 ) $ (10,435 ) $ (24,588 ) $ (30,525 )
Reversal of non-GAAP items:
Stock-based compensation expense 12,030 2,487 19,312 6,935
Depreciation and amortization 1,983 2,373 6,410 5,866
Deferred revenue adjustment — 1,710 627 3,810
Acquisition and integration related costs — 711 — 5,476
Interest expense (income), net 4,478 1,442 7,350 2,789
Other expenses (income), net (344 ) 3 (306 ) 77
(Benefit) provision for income taxes   345   234   150   (3,742 )
Adjusted EBITDA $ 3,057 $ (1,475 ) $ 8,955 $ (9,314 )
 
Three Months Ended June 30, Nine months ended June 30,
2018 2017 2018 2017
Reconciliation from GAAP revenue to revenue before deferred revenue adjustment:
GAAP revenue: $ 39,617 $ 34,244 $ 117,918 $ 95,564
Deferred revenue adjustment (d)   —   1,710   627   3,810
Revenue before deferred revenue adjustment $ 39,617 $ 35,954 $ 118,545 $ 99,374
 
Three Months Ended June 30, Nine months ended June 30,
2018 2017 2018 2017
Reconciliation from GAAP gross profit to non-GAAP gross profit:
GAAP gross profit: $ 23,172 $ 18,472 $ 67,411 $ 49,931
Reversal of non-GAAP expenses:
Stock-based compensation (a) 699 586 1,972 1,482
Amortization of intangible assets (b) 476 476 1,428 1,218
Acquisition and integration related expenses (c) — 196 — 419
Deferred revenue adjustment (d)   —   1,710   627   3,810
Non-GAAP gross profit $ 24,347 $ 21,440 $ 71,438 $ 56,860
Percentage of revenue before deferred revenue adjustment 61.5 % 59.6 % 60.3 % 57.2 %
 
Three Months Ended June 30, Nine months ended June 30,
2018 2017 2018 2017
Reconciliation from GAAP loss from operations to non-GAAP

loss from operations:

GAAP net loss from operations: $ (10,956 ) $ (8,756 ) $ (17,394 ) $ (31,401 )
Reversal of non-GAAP expenses:
Stock-based compensation (a) 12,030 2,487 19,312 6,935
Amortization of intangible assets (b) 1,381 1,418 4,181 3,211
Acquisition and integration related expenses (c) — 711 — 5,476
Deferred revenue adjustment (d)   —   1,710   627   3,810
Non-GAAP income (loss) from operations $ 2,455 $ (2,430 ) $ 6,726 $ (11,969 )
 
Three Months Ended June 30, Nine months ended June 30,
2018 2017 2018 2017
Numerator:
Reconciliation between GAAP and non-GAAP net loss:
GAAP net loss: $ (15,435 ) $ (10,435 ) $ (24,588 ) $ (30,525 )
Reversal of non-GAAP expenses:
Stock-based compensation (a) 12,030 2,487 19,312 6,935
Amortization of intangible assets (b) 1,381 1,418 4,181 3,211
Acquisition and integration related expenses (c) — 711 — 5,476
Deferred revenue adjustment (d) — 1,710 627 3,810
Deferred tax valuation allowances (f)   —   —   —   (4,165 )

Non-GAAP net income (loss) attributable to Model N Inc.
common stockholders

$ (2,024 ) $ (4,109 ) $ (468 ) $ (15,258 )
Denominator:

Reconciliation between GAAP and non-GAAP net loss per share
attributable to Model N Inc.
common stockholders:

Weighted average number of shares used in computing
GAAP dilutive net loss per share

  30,749   28,936   30,042   28,464

GAAP dilutive net loss per share attributable to Model N Inc.
common stockholders

$ (0.50 ) $ (0.36 ) $ (0.82 ) $ (1.07 )

Non-GAAP net income (loss) per share attributable to Model N Inc.
common stockholders

  (0.07 )   (0.14 )   (0.02 )   (0.54 )
 
Three Months Ended June 30, Nine months ended June 30,
2018 2017 2018 2017
Amortization of intangibles assets recorded in the statement of operations:
Cost of revenues:
SaaS and maintenance $ 476 $ 476 1,428 1,218
License and implementation   —   —        
Total amortization of intangibles assets in cost of revenue (b)   476   476   1,428   1,218
Operating expenses:
Research and development — — — —
Sales and marketing 905 942 2,753 1,993
General and administrative   —   —   —   —
Total amortization of intangibles assets in operating expense (b)   905   942   2,753   1,993
Total amortization of intangibles assets (b) $ 1,381 $ 1,418 $ 4,181 $ 3,211
 
Three Months Ended June 30, Nine months ended June 30,
2018 2017 2018 2017
Stock-based compensation recorded in the statement of operations:
Cost of revenues:
SaaS and maintenance $ 326 $ 290 961 742
License and implementation   373   296   1,011   740
Total stock-based compensation in cost of revenue (a)   699   586   1,972   1,482
Operating expenses:
Research and development 744 512 2,144 1,273
Sales and marketing 986 835 2,517 1,744
General and administrative   9,601   554   12,679   2,436
Total stock-based compensation in operating expense (a)   11,331   1,901   17,340   5,453
Total stock-based compensation (a) $ 12,030 $ 2,487 $ 19,312 $ 6,935
 

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, gross profit, loss from operations, net loss, weighted average shares outstanding and net loss per share, which are adjusted to exclude certain legal expenses, Channel Insight and Revitas acquisition related costs, deferred revenue adjustment and valuation allowance resulting from Revitas acquisition, stock-based compensation expense, amortization of intangible assets 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, net loss or basic and diluted net 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 expenses incurred 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 is a non-cash item. We believe that the exclusion of stock-based compensation expense provides for a better comparison of our operating results to prior periods and to our peer companies. In the third quarter of fiscal year 2018, the Company issued the Mr. Rinat 572,601 common shares, with fair value approximately $10.5 million, in connection with his transition agreement when he resigned as Chief Executive Officer and Chairman of Board. Mr. Rinat’s 375,234 performance-based restricted stock units were cancelled and the previously recorded expense of approximately $2.0 million was reversed into general and administrative expenses.

(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 2017, we acquired Revitas, as part of the acquisition we incurred certain non-recurring integration costs. We believe that exclusion of these acquisition related adjustments and costs provides for a better comparison of our operation results to prior periods and to our peer companies.

(d) Represents deferred revenue adjustment resulting from purchase price accounting that is related to the Revitas acquisition and is a non-cash item. As such, we believe this adjustment provides for a better comparison of our operation results to prior periods and to our peer companies.

(e) In the third quarter of fiscal 2018, we recorded approximately $3.1 million of expense in connection with the repayment of our first term loan, of which approximately $1.6 million is non-cash unamortized discounts and deferred financing costs and $1.5 million in prepayment penalty. The charges were recorded as interest expense.


Contact:

Investor Relations Contact:
ICR for Model N
Staci Mortenson, 650-610-4998
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