Model N Announces First 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 pharmaceutical, medical device, semiconductor
and high tech manufacturing companies, today announced financial results
for the first quarter, which ended December 31, 2018.

“We exceeded both revenue and profitability guidance for the first
quarter of fiscal 2019,” said Jason Blessing, Chief Executive Officer of
Model N. “I’m pleased with how we’re executing as a team. Our focus on
life sciences and high tech as well as operational excellence yielded
strong results in Q1 and provides us with positive momentum to achieve
our 2019 goals. Our results on profitability, cash flow and subscription
gross margin demonstrate the progress we are making.”

Business Highlights:

  • New logo acquisition – During Q1 we added a healthy number of
    new logos, including Almirall, Heritage and Amag. Our new customers
    accounted for a material portion of our Q1 bookings and consisted of a
    diverse mix of company sizes across our core vertical markets.
  • Expanding Customer Relationships – We also saw continued
    momentum in our customer sales efforts. A representative transaction
    was a large expansion deal at one of our existing high tech
    manufacturing customers that is one of the top producers in the world
    of microprocessors and graphical processing units. This customer has
    been a long time Model N user and recently undertook a strategic
    initiative to further optimize revenue and margins in an effort to
    maintain their market-leading position. This is a great example of the
    strategic nature of our software and how it helps our customers
    flourish in the dynamic end markets they serve.
  • Trust and Customer Success – A number of leading life sciences
    companies went live this quarter which showcased our products’ ability
    to scale from emerging growth companies, such as ICU and Nevro, to one
    of the largest life sciences companies in the world.
  • Rainmaker – Our customer advisory panel, RainmakerX, met in
    November and will meet again at our annual Rainmaker conference in
    March. Key discussion topics include the impact that changing
    regulations and M&A are having and how cloud computing can help
    companies deal with this dynamic market.

First Quarter 2019 Financial Highlights:

  • Revenues: Subscription revenues were $25.2 million compared to
    $23.8 million for the first quarter of fiscal 2018. Total revenues
    were $35.1 million compared to $39.1 million for the first quarter of
    fiscal 2018.
  • Gross Profit: Gross profit was $18.5 million compared to $22.3
    million for the first quarter of fiscal 2018. Gross margins were 53%
    compared to 57% for the first quarter of fiscal 2018. Non-GAAP gross
    profit was $19.9 million compared to $23.9 million for the first
    quarter of fiscal 2018. Non-GAAP gross margins were 57% compared to
    60% for the first quarter of fiscal 2018.
  • (Loss) income from operations: GAAP loss from operations was
    $(3.1) million compared to a GAAP loss from operations of $(4.0)
    million for the first quarter of fiscal 2018. Non-GAAP income from
    operations was $2.5 million compared to a non-GAAP income from
    operations of $2.0 million for the first quarter of fiscal 2018.
  • Net loss: GAAP net loss was $(4.7) million compared to a net
    loss of $(5.3) million for the first quarter of fiscal 2018. GAAP
    basic and diluted net loss per share attributable to common
    stockholders was $(0.15) based upon weighted average shares
    outstanding of 31.5 million, as compared to net loss per share of
    $(0.18) for the first quarter of fiscal 2018 based upon weighted
    average shares outstanding of 29.4 million.
  • Non-GAAP net income (loss): Non-GAAP net income was $0.8
    million as compared to a non-GAAP net loss of $0.8 million for the
    first quarter of fiscal 2018. Non-GAAP net income per share was $0.03
    based upon weighted average shares outstanding of 31.5 million, as
    compared to non-GAAP net loss per share of $0.03 for the first quarter
    of fiscal 2018 based upon weighted average shares outstanding of 29.4
    million.
  • Adjusted EBITDA: Adjusted EBITDA was $2.9 million compared to
    $2.9 million for the first quarter of fiscal 2018.

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

Guidance:

As of February 5, 2019, we are providing guidance for the second quarter
of fiscal 2019 and the full fiscal year ending September 30, 2019.

New Accounting Standard:

The Company adopted the new standard related to revenue recognition (ASC
606) effective October 1, 2018, using the modified retrospective method.
As of the first quarter of fiscal 2019, the Company is reporting results
under ASC 606. Financial results for reporting periods prior to fiscal
year 2019 are presented in conformity with ASC 605.

The adoption of this accounting standard will be a headwind to our
fiscal year 2019 financial results. The cumulative effect adjustment on
total revenues is expected to be approximately $7.2 million with $3.1
million related to our Subscription revenues and $4.1 million related to
our Professional Services revenues. The adoption will also impact our
accounting for sales commissions.

       
(in $ millions, except per share outlook)     Second Quarter Fiscal 2019     Full Year Fiscal 2019
Total GAAP Revenues (1),(2) 34.3 – 34.7 138.0 – 142.0
Subscription(1) 25.4 – 25.8 100.0 – 105.0
Non-GAAP income from operations (0.1) – 0.3 7.0 – 11.0
Non-GAAP net income (loss) per share (0.05) – (0.03) 0.05 – 0.17
Adjusted EBITDA 0.3 – 0.7 8.5 – 12.5

(1) The subscription cumulative effect adjustment for the
second quarter of fiscal 2019 is expected to be approximately $1.9
million, and the adjustment for the full year fiscal 2019 is expected to
be approximately $3.1 million.
(2) The professional
services cumulative effect adjustment for the second quarter of fiscal
2019 is expected to be approximately $3.9 million, and the adjustment
for the full year fiscal 2019 is expected to be approximately $4.1
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 first
quarter of fiscal year 2019, which ended December 31, 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 February
12, 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 13686403.

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 second 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 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 (loss)
income per share, and adjusted EBITDA. Non-GAAP gross profit excludes
stock-based compensation expenses, deferred revenue adjustment 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 deferred
revenue adjustment 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.

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
December 31,
2018

 

As of
September 30,
2018

Assets
Current assets:
Cash and cash equivalents $ 52,178 $ 56,704
Accounts receivable, net 27,556 28,273
Prepaid expenses 2,494 3,631
Other current assets 2,257   455  
Total current assets 84,485 89,063
Property and equipment, net 1,709 2,146
Goodwill 39,283 39,283
Intangible assets, net 33,226 34,597
Other assets 3,582   1,064  
Total assets $ 162,285   $ 166,153  
Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable $ 3,387 $ 1,664
Accrued employee compensation 8,608 14,211
Accrued liabilities 3,452 3,182
Deferred revenue, current portion 42,335 52,176

Long term debt, current portion

1,750   1,375  
Total current liabilities 59,532 72,608
Long-term liabilities:
Long term debt 51,815 52,329
Other long-term liabilities 821   1,182  
Total long-term liabilities 52,636   53,511  
Total liabilities 112,168   126,119  
Stockholders’ equity:
Common Stock 5 5
Preferred Stock
Additional paid-in capital 249,053 244,814
Accumulated other comprehensive loss (1,099 ) (1,285 )
Accumulated deficit (197,842 ) (203,500 )
Total stockholders’ equity 50,117   40,034  
Total liabilities and stockholders’ equity $ 162,285   $ 166,153  
 
 

Model N Inc.

Condensed Consolidated Statements of Operations

(in thousands, except per share amounts)

(unaudited)

 
 

Three Months Ended December 31,

2018   2017
Revenues:
Subscription $ 25,202 $ 23,847
Professional Services 9,875   15,220  
Total revenues 35,077 39,067
Cost of Revenues:
Subscription 8,738 9,615
Professional Services 7,829   7,194  
Total cost of revenues 16,567   16,809  
Gross profit 18,510 22,258
Operating Expenses:
Research and development 7,412 9,068
Sales and marketing 8,052 8,492
General and administrative 6,156   8,731  
Total operating expenses 21,620   26,291  
Loss from operations (3,110 ) (4,033 )
Interest expense, net 733 1,423
Other expenses, net 285   125  
Loss before income taxes (4,128 ) (5,581 )
Provision (benefit) for income taxes 598   (324 )
Net loss $ (4,726 ) $ (5,257 )
Net loss per share attributable to common stockholders:
Basic and diluted $ (0.15 ) $ (0.18 )
Weighted average number of shares used in computing net loss per
share attributable to common stockholders:
Basic and diluted 31,488   29,401  
 
 

Model N Inc.

Condensed Consolidated Statements of Cash Flows

(in thousands)

(unaudited)

 
  Fiscal year ended December 31,
2018   2017
Cash Flows From Operating Activities:
Net loss $ (4,726 ) $ (5,257 )
Adjustments to reconcile net loss to net cash used in operating
activities
Depreciation and amortization 1,842 2,265
Stock-based compensation 4,203 4,036
Amortization of debt discount and issuance cost 111 236
Amortization of capitalized contract acquisition costs 373
Other non-cash charges (22 ) (491 )
Changes in assets and liabilities, net of acquisition:
Accounts receivable 162 (13,846 )
Prepaid expenses and other assets 383 363
Deferred cost of implementation services 191
Accounts payable 1,836 1,216
Accrued employee compensation (5,579 ) (5,896 )
Other accrued and long-term liabilities (471 ) (703 )
Deferred revenue (2,373 ) 8,145  
Net cash provided by (used in) operating activities (4,261 ) (9,741 )
Cash Flows From Investing Activities:
Purchases of property and equipment (141 ) (60 )
Net cash used in investing activities (141 ) (60 )
Cash Flows From Financing Activities:
Proceeds from exercise of stock options and issuance of employee
stock purchase plan
36 552
Principal payments on loan (250 )  
Net cash (used in) provided by financing activities (214 ) 552  
Effect of exchange rate changes on cash and cash equivalents 90 15
Net decrease in cash and cash equivalents (4,526 ) (9,234 )
Cash and cash equivalents
Beginning of period 56,704   57,558  
End of period $ 52,178   $ 48,324  
 
 
Model N Inc.
Reconciliation of GAAP to Non-GAAP Operating Results
(in thousands, except per share amounts)
(unaudited)
  Three month ended December 31,
2018   2017
Reconciliation from GAAP net loss to adjusted EBITDA:
GAAP net loss: $ (4,726 ) $ (5,257 )
Reversal of non-GAAP items:
Stock-based compensation expense 4,203 4,036
Depreciation and amortization 1,842 2,265
Deferred revenue adjustment 627
Interest expense (income), net 733 1,423
Other expenses (income), net 285 125
(Benefit) provision for income taxes 598   (324 )
Adjusted EBITDA $ 2,935   $ 2,895  
 
Three month ended December 31,
2018 2017
Reconciliation from GAAP revenue to revenue before deferred revenue
adjustment:
GAAP revenue: $ 35,077 $ 39,067
Deferred revenue adjustment (c)   627  
Revenue before deferred revenue adjustment $ 35,077   $ 39,694  
 
Three month ended December 31,
2018 2017
Reconciliation from GAAP gross profit to non-GAAP gross profit:
GAAP gross profit: $ 18,510 $ 22,258
Reversal of non-GAAP expenses:
Stock-based compensation (a) 939 570
Amortization of intangible assets (b) 476 476
Deferred revenue adjustment (c)   627  
Non-GAAP gross profit $ 19,925   $ 23,931  
Percentage of revenue before deferred revenue adjustment 56.8 % 60.3 %
 
Three month ended December 31,
2018 2017
Reconciliation from GAAP loss from operations to non-GAAP income
(loss) from operations:
GAAP net loss from operations: $ (3,110 ) $ (4,033 )
Reversal of non-GAAP expenses:
Stock-based compensation (a) 4,203 4,036
Amortization of intangible assets (b) 1,371 1,418
Deferred revenue adjustment (c)   627  
Non-GAAP income (loss) from operations $ 2,464   $ 2,048  
 
Three month ended December 31,
2018 2017
Numerator:
Reconciliation between GAAP and non-GAAP net income (loss):
GAAP net loss: $ (4,726 ) $ (5,257 )
Reversal of non-GAAP expenses:
Stock-based compensation (a) 4,203 4,036
Amortization of intangible assets (b) 1,371 1,418
Deferred revenue adjustment (c)   627  

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

$ 848   $ 824  
 
Denominator:

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

Weighted average number of shares used in computing GAAP dilutive
net loss per share
31,488   29,401  

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

$ (0.15 ) $ (0.18 )

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

$ 0.03   $ 0.03  
 
Three month ended December 31,
2018 2017
Amortization of intangibles assets recorded in the statement of
operations:
Cost of revenues:
Subscription $ 476 $ 476
Professional services    
Total amortization of intangibles assets in cost of revenue (b) 476   476  
Operating expenses:
Research and development
Sales and marketing 895 942
General and administrative    
Total amortization of intangibles assets in operating expense (b) 895   942  
Total amortization of intangibles assets (b) $ 1,371   $ 1,418  
 
Three month ended December 31,
2018 2017
Stock-based compensation recorded in the statement of operations:
Cost of revenues:
Subscription $ 460 $ 251
Professional services 479   319  
Total stock-based compensation in cost of revenue (a) 939   570  
Operating expenses:
Research and development 764 657
Sales and marketing 1,145 871
General and administrative 1,355   1,938  
Total stock-based compensation in operating expense (a) 3,264   3,466  
Total stock-based compensation (a) $ 4,203   $ 4,036  

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 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.

(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) 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.

Contacts

Investor Relations Contact:
ICR for Model N
Staci
Mortenson, 650-610-4998
investorrelations@modeln.com

Media Contact:
pr@modeln.com

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