Model N Announces Second Quarter of Fiscal Year 2019 Financial Results

SAN MATEO, Calif.–(BUSINESS WIRE)–Model N, Inc., (NYSE: MODN), the leading provider of cloud revenue
management solutions for Life Sciences and High-Tech companies, today
announced financial results for the second quarter, which ended March
31, 2019.

“Our results represent another well-executed quarter for the Company
with revenue and profitability above our guidance and it builds on the
momentum we’ve demonstrated over the last several quarters,” said Jason
Blessing, Chief Executive Officer at Model N. “Our hard work on
operations and customer success is allowing us to get improving leverage
in the business: leverage in sales due to our more focused go-to-market
plan; leverage in our operations, as evidenced by our improving
subscription gross margin and cash flow; and, perhaps most importantly,
leverage in our solutions as evidenced by the successful SaaS transition
at Gilead Sciences.”

Business Highlights:

  • New Customer Acquisition – The success we had in Q1 continued
    into Q2. Through the first half of fiscal year 2019, we’ve added as
    many new customers as we did in all of fiscal year 2018. During Q2,
    the new customer mix was diverse, ranging from emerging companies to
    larger, established enterprises, as well as international customers.
    We believe new customer acquisition will continue to be a growth lever
    for us.
  • SaaS Transition Go-Live – We are pleased to announce Gilead
    Sciences is now live on our cloud platform. While we have been selling
    cloud subscriptions for several years and more than 60% of our
    customers are using at least one product in the cloud, Gilead Sciences
    is the first top 15 global pharma company to retire their on-premise
    system and transition 100% to SaaS. This project is a key milestone
    for Model N and it provides other customers with a great template on
    how to transition from a legacy on-premise solution to SaaS.
  • Rainmaker – Our 15th annual user conference welcomed over 500
    customers, prospects and partners. The program included executive,
    product, technical and usability tracks as well as industry experts
    who led discussions on critical revenue management topics such as the
    new HHS Safe Harbor proposal for Life Sciences and the substantial
    increase of channels for High Tech.
  • IDC and Market Research Reveals Cloud is Top C-Suite Priority – IDC’s
    research concluded cloud is the top digital transformation investment
    priority for pharma and biotech companies and more than 90% plan to
    deploy revenue management in the cloud in 2020. Our own survey of Life
    Sciences and High-Tech C-suite executives showed that companies who
    adopt best-in-class, cloud-based revenue management solutions
    significantly outperform their peers against their core metrics
    including increased cross-sell, lower revenue leakage, profit margin
    expansion and stock price growth.

Second Quarter 2019 Financial Highlights:

  • Revenues: Subscription revenues were $25.9 million compared to
    $24.0 million for the second quarter of fiscal year 2018. Total
    revenues were $34.8 million compared to $39.2 million for the second
    quarter of fiscal year 2018 which reflects the adoption of ASC 606,
    the increased focus on selling cloud-based software to customers in
    Life Sciences and High-Tech and the expected reduction in professional
    services for legacy on-premise implementations.
  • Gross profit: Gross profit was $18.1 million compared to $22.0
    million for the second quarter of fiscal year 2018. Gross margins were
    52% compared to 56% for the first quarter of fiscal year 2018.
    Non-GAAP gross profit was $19.6 million compared to $23.2 million for
    the second quarter of fiscal year 2018. Non-GAAP gross margins were
    56% compared to 59% for the second quarter of fiscal year 2018.
    Non-GAAP subscription gross margin for the quarter was 70% compared to
    64% for the second quarter of fiscal year 2018 as we drive scale.
  • Income (loss) from operations: GAAP loss from operations was
    $(4.7) million compared to a GAAP loss from operations of $(2.4)
    million for the second quarter of fiscal year 2018. Non-GAAP income
    from operations was $1.5 million compared to non-GAAP income from
    operations of $2.2 million for the second quarter of fiscal year 2018.
  • Net loss: GAAP net loss was $(5.9) million compared to a net
    loss of $(3.9) million for the second quarter of fiscal year 2018.
    GAAP basic and diluted net loss per share attributable to common
    stockholders was $(0.18) based upon weighted average shares
    outstanding of 32.0 million, as compared to net loss per share of
    $(0.13) for the second quarter of fiscal year 2018 based upon weighted
    average shares outstanding of 30.0 million.
  • Non-GAAP net income: Non-GAAP net income was $0.4 million as
    compared to $0.7 million for the second quarter of fiscal year 2018.
    Non-GAAP diluted net income per share was $0.01 based upon weighted
    average diluted shares outstanding of 33.0 million, as compared to
    $0.02 for the second quarter of fiscal year 2018 based upon weighted
    average diluted shares outstanding of 31.3 million.
  • Adjusted EBITDA: Adjusted EBITDA was $1.8 million compared to
    $3.0 million for the same period of last fiscal year.
  • Cash and cash flow: Cash and cash equivalents as of March 31,
    2019 totaled $54.1 million. During the quarter, we paid down $4.8
    million in debt and we are now in a positive net cash position. Net
    cash provided by operating activities was $0.5 million for the first
    six months of fiscal year 2019, compared with net cash used in
    operating activities of $(5.0) million in the prior fiscal year
    period. Free cash flow was $0.3 million for the first six months of
    fiscal year 2019, compared with free cash flow used of $(5.1) million
    in the prior fiscal year period.

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

Guidance:

As of May 7, 2019, we are providing guidance for the third quarter of
fiscal year 2019 and the full fiscal year ending September 30, 2019.

The adoption of ASC 606 continues to be a headwind to our fiscal year
2019 financial results. Of the $7.2 million cumulative effect adjustment
on total revenues resulting from the adoption of ASC 606, the majority
has been recorded in our year to date fiscal 2019 results.

       
(in $ millions, except per share)     Third Quarter Fiscal 2019     Full Year Fiscal 2019
Total GAAP Revenues (1) 33.9 – 34.3 138.5 – 140.5
Subscription (1) 26.0 – 26.4 103.0 – 105.0
Non-GAAP income from operations 1.4 – 1.8 8.0 – 11.0
Non-GAAP net income per share 0.00 – 0.02 0.10 – 0.17
Adjusted EBITDA 1.8 – 2.2 9.5 – 12.5
 

(1) The cumulative effect adjustment of the adoption of ASC
606 on subscription revenues for the remainder of fiscal year 2019 is
expected to be approximately $0.1 million.

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
second quarter of fiscal year 2019, which ended March 31, 2019. 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 May 14,
2019, a telephone replay will be available by dialing (844) 512-2921
from the United States or (412) 317-6671 internationally with recording
access code 13689325.

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,
semiconductors and high- tech manufacturing 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 third quarter and full year
fiscal year 2019 revenue and expense, and other financial results as
well as outlook for fiscal year 2019 and future prospects, including
customer expansions, the ability to execute on business strategy and the
success of product offerings. 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. 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, 2018, 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 gross margins, non-GAAP income
(loss) from operations, non-GAAP net income (loss), non-GAAP net income
(loss) per share, and adjusted EBITDA. Non-GAAP gross profit excludes
stock-based compensation expenses, deferred revenue adjustments and
amortization of intangible assets. Non-GAAP income (loss) from
operations and non-GAAP net income (loss) exclude stock-based
compensation expense, amortization of intangible assets, and the
deferred revenue adjustment resulting from the Revitas acquisition as
they are often excluded by other companies to help investors understand
the operational performance of their business. We have not provided a
reconciliation of forecasted Non-GAAP results with GAAP results due to
the difficulties of estimating certain items such as charges related to
stock-based compensation expense. In addition, stock-based compensation
expense varies from period to period and from 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 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.

We have not reconciled guidance for non-GAAP financial measures to their
most directly comparable GAAP measures because certain items that impact
these measures are uncertain, out of our control and/or cannot be
reasonably predicted. Accordingly, a reconciliation of the non-GAAP
financial measure guidance to the corresponding GAAP measures is not
available without unreasonable effort.

 

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

(unaudited)

       

As of
March 31, 2019

As of
September 30, 2018

Assets
Current assets
Cash and cash equivalents $ 54,090 $ 56,704
Accounts receivable, net 19,450 28,273
Prepaid expenses 1,632 3,631
Other current assets 2,431   455  
Total current assets 77,603 89,063
Property and equipment, net 1,413 2,146
Goodwill 39,283 39,283
Intangible assets, net 31,861 34,597
Other assets 3,777   1,064  
Total assets $ 153,937   $ 166,153  
Liabilities and Stockholders’ Equity
Current liabilities
Accounts payable $ 2,414 $ 1,664
Accrued employee compensation 9,759 14,211
Accrued liabilities 4,704 3,182
Deferred revenue, current portion 35,989 52,176
Long term debt, current portion 4,747   1,375  
Total current liabilities 57,613 72,608
Long-term liabilities:
Long term debt 44,247 52,329
Other long-term liabilities 885   1,182  
Total long-term liabilities 45,132   53,511  
Total liabilities 102,745   126,119  
Stockholders’ equity
Common Stock 5 5
Preferred Stock
Additional paid-in capital 255,931 244,814
Accumulated other comprehensive loss (994 ) (1,285 )
Accumulated deficit (203,750 ) (203,500 )
Total stockholders’ equity 51,192   40,034  
Total liabilities and stockholders’ equity $ 153,937   $ 166,153  
 

Model N, Inc.
Condensed Consolidated Statements of
Operations

(in thousands, except per share amounts)
(unaudited)

       
Three Months Ended March 31, Six Months Ended March 31,
2019     2018 2019     2018
Revenues
Subscription $ 25,940 $ 24,004 $ 51,142 $ 47,851
Professional services 8,903   15,230   18,778   30,450  
Total revenues 34,843 39,234 69,920 78,301
Cost of revenues
Subscription 8,852 9,440 17,590 19,055
Professional services 7,894   7,813   15,723   15,007  
Total cost of revenues 16,746   17,253   33,313   34,062  
Gross profit 18,097 21,981 36,607 44,239
Operating expenses
Research and development 7,415 8,047 14,827 17,115
Sales and marketing 8,598 9,015 16,650 17,507
General and administrative 6,833   7,324   12,989   16,055  
Total operating expenses 22,846   24,386   44,466   50,677  
Loss from operations (4,749 ) (2,405 ) (7,859 ) (6,438 )
Interest expense, net 891 1,449 1,624 2,872
Other expenses, net 127   (87 ) 412   38  
Loss before income taxes (5,767 ) (3,767 ) (9,895 ) (9,348 )
Provision (benefit) for income taxes 141   129   739   (195 )
Net loss $ (5,908 ) $ (3,896 ) $ (10,634 ) $ (9,153 )
Net loss per share:
Basic and diluted $ (0.18 ) $ (0.13 ) $ (0.34 ) $ (0.31 )
Weighted average number of shares used in computing net loss per
share:
Basic and diluted 31,999   29,983   31,741   29,689  
 

Model N, Inc.
Condensed Consolidated Statements of
Cash Flows

(in thousands)
(unaudited)

   
Six Months Ended March 31,
2019     2018
Cash Flows from Operating Activities
Net loss $ (10,634 ) $ (9,153 )
Adjustments to reconcile net loss to net cash used in operating
activities
Depreciation and amortization 3,533 4,427
Stock-based compensation 9,099 7,282
Amortization of debt discount and issuance cost 290 478
Deferred income taxes 6 (572 )
Amortization of capitalized contract acquisition costs 780
Other non-cash charges (108 ) (22 )
Changes in assets and liabilities
Accounts receivable 8,353 (6,622 )
Prepaid expenses and other assets 595 (608 )
Deferred cost of implementation services 338
Accounts payable 862 (685 )
Accrued employee compensation (4,438 ) (5,497 )
Other accrued and long-term liabilities 708 (1,525 )
Deferred revenue (8,581 ) 7,133  
Net cash provided by (used in) operating activities 465   (5,026 )
Cash Flows from Investing Activities
Purchases of property and equipment (167 ) (91 )
Net cash used in investing activities (167 ) (91 )
Cash Flows from Financing Activities
Proceeds from exercise of stock options and issuance of employee
stock purchase plan
2,018 2,773
Principal payments on term loan (5,000 )  
Net cash (used in) provided by financing activities (2,982 ) 2,773
Effect of exchange rate changes on cash and cash equivalents 70 15
Net decrease in cash and cash equivalents (2,614 ) (2,329 )
Cash and cash equivalents
Beginning of period 56,704   57,558  
End of period $ 54,090   $ 55,229  
 
Model N, Inc.
Reconciliation of GAAP to Non-GAAP Operating Results
(in thousands, except per share amounts)
(unaudited)
 
    Three months ended March 31,     Six months ended March 31,
2019     2018 2019     2018
Reconciliation from GAAP net loss to adjusted EBITDA
GAAP net loss $ (5,908 ) $ (3,896 ) $ (10,634 ) $ (9,153 )
Reversal of non-GAAP items
Stock-based compensation expense 4,896 3,246 9,099 7,282
Depreciation and amortization 1,691 2,162 3,533 4,427
Deferred revenue adjustment 627
Interest expense, net 891 1,449 1,624 2,872
Other expenses (income), net 127 (87 ) 412 38
Provision (benefit) for income taxes 141   129   739   (195 )
Adjusted EBITDA $ 1,838   $ 3,003   $ 4,773   $ 5,898  
 
Three months ended March 31, Six months ended March 31,
2019 2018 2019 2018
Reconciliation from GAAP revenue to revenue before deferred revenue
adjustment
GAAP revenue $ 34,843 $ 39,234 $ 69,920 $ 78,301
Deferred revenue adjustment (c)       627  
Revenue before deferred revenue adjustment $ 34,843   $ 39,234   $ 69,920   $ 78,928  
 
Three months ended March 31, Six months ended March 31,
2019 2018 2019 2018
Reconciliation from GAAP gross profit to non-GAAP gross profit
GAAP gross profit $ 18,097 $ 21,981 $ 36,607 $ 44,239
Reversal of non-GAAP expenses
Stock-based compensation (a) 1,030 703 1,969 1,273
Amortization of intangible assets (b) 476 476 952 952
Deferred revenue adjustment (c)       627  
Non-GAAP gross profit $ 19,603   $ 23,160   $ 39,528   $ 47,091  
Percentage of revenue before deferred revenue adjustment 56.3 % 59.0 % 56.5 % 59.7 %
       
Three months ended March 31, Six months ended March 31,
2019     2018 2019     2018
Reconciliation from GAAP operating loss to non-GAAP operating income
GAAP operating loss $ (4,749 ) $ (2,405 ) $ (7,859 ) $ (6,438 )
Reversal of non-GAAP expenses
Stock-based compensation (a) 4,896 3,246 9,099 7,282
Amortization of intangible assets (b) 1,365 1,382 2,736 2,800
Deferred revenue adjustment (c)       627  
Non-GAAP operating income $ 1,512   $ 2,223   $ 3,976   $ 4,271  
 
Numerator
Reconciliation between GAAP net loss and non-GAAP net income
GAAP net loss $ (5,908 ) $ (3,896 ) $ (10,634 ) $ (9,153 )
Reversal of non-GAAP expenses
Stock-based compensation (a) 4,896 3,246 9,099 7,282
Amortization of intangible assets (b) 1,365 1,382 2,736 2,800
Deferred revenue adjustment (c)       627  
Non-GAAP net income $ 353   $ 732   $ 1,201   $ 1,556  
 
Denominator
Reconciliation between GAAP and non-GAAP net income (loss) per share
Shares used in computing GAAP net loss per share:
Basic 31,999   29,983   31,741   29,689  
Diluted 31,999   29,983   31,741   29,689  
Shares used in computing non-GAAP net income per share
Basic 31,999   29,983   31,741   29,689  
Diluted 32,997   31,265   32,707   31,079  
GAAP net loss per share
Basic and diluted $ (0.18 ) $ (0.13 ) $ (0.34 ) $ (0.31 )
Non-GAAP net income per share
Basic and diluted $ 0.01   $ 0.02   $ 0.04   $ 0.05  
 
       
Three months ended March 31, Six months ended March 31,
2019     2018 2019     2018
Amortization of intangibles assets recorded in the statement of
operations
Cost of revenues
Subscription $ 476 $ 476 $ 952 $ 952
Professional services      
Total amortization of intangibles assets in cost of revenue (b) 476   476   952   952
Operating expenses
Research and development
Sales and marketing 889 906 1,784 1,848
General and administrative      
Total amortization of intangibles assets in operating expense (b) 889   906   1,784   1,848
Total amortization of intangibles assets (b) $ 1,365   $ 1,382   $ 2,736   $ 2,800
       
Three months ended March 31, Six months ended March 31,
2019     2018 2019     2018
Stock-based compensation recorded in the statement of operations
Cost of revenues
Subscription $ 469 $ 346 $ 929 $ 597
Professional services 561   357   1,040   676
Total stock-based compensation in cost of revenue (a) 1,030   703   1,969   1,273
Operating expenses
Research and development 861 743 1,625 1,400
Sales and marketing 1,239 660 2,384 1,531
General and administrative 1,766   1,140   3,121   3,078
Total stock-based compensation in operating expense (a) 3,866   2,543   7,130   6,009
Total stock-based compensation (a) $ 4,896   $ 3,246   $ 9,099   $ 7,282

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, gross margin, loss from operations, net loss, weighted
average shares outstanding and net loss per share, which are adjusted to
exclude 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.

Contacts

Investor Relations Contact:
ICR for Model N
Staci
Mortenson, 650-610-4998
[email protected]

Media Contact:
[email protected]

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