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Model N Announces Second Quarter of Fiscal Year 2016 Financial Results

05/09/2016

REDWOOD CITY, Calif.--(BUSINESS WIRE)-- Model N, Inc., (NYSE: MODN), the leading provider of cloud-based Revenue Management solutions to life science, technology and manufacturing companies, today announced financial results for the second quarter of fiscal year 2016, which ended March 31, 2016.

“During the second quarter of our fiscal year, the pace of the ongoing transformation of the Model N business to a predominantly recurring SaaS business model again exceeded our expectations. SaaS and Maintenance revenue grew 64% year over year and represented 81% of our total revenue in the quarter, up from 57% only a year ago,” said Edward Sander, Chief Executive Officer of Model N. “The power of our platform is increasingly apparent as we have delivered our seventh consecutive quarter of revenue and earnings results above our guidance. Both new and existing customers are leveraging our end-to-end, cloud-based suite solutions to transform disjointed revenue management tasks into a streamlined, strategic, end-to-end business process.”

“Over my first eleven weeks with the company, I have had the opportunity to listen to learn from many of our customers, partners and employees, particularly at our recent Rainmaker customer conference, and it’s very clear to me that Model N is a key strategic vendor delivering tangible value to its customers.”

Second Quarter 2016 Financial Highlights:

  • Total Revenues: Total revenues were $26.1 million, compared to $22.7 million for the second quarter of fiscal 2015.
  • Gross Profit: Gross profit was $12.2 million, compared to $13.1 million for the second quarter of fiscal 2015. Gross margins were 47%, compared to 58% for the second quarter of fiscal 2015. Non-GAAP gross profit was $13.1 million, compared to $13.5 million for the second quarter of fiscal 2015. Non-GAAP gross margins were 50%, compared to 60% for the second quarter of fiscal 2015.
  • Loss from operations: GAAP loss from operations was $(8.9) million, compared to a loss from operations of $(4.3) million for the second quarter of fiscal 2015. Non-GAAP loss from operations was $(5.7) million, compared to a Non-GAAP loss from operations of $(1.7) million for the second quarter of fiscal 2015.
  • Net loss: GAAP net loss was $(8.9) million, compared to net loss of $(4.6) million for the second quarter of fiscal 2015. GAAP diluted net loss per share attributed to common stockholders was $(0.33) based upon weighted average shares outstanding of 27.2 million, as compared to net loss per share of $(0.18) for the second quarter of fiscal 2015 based upon weighted average shares outstanding of 25.9 million.
  • Non-GAAP net loss: Non-GAAP net loss was $(5.7) million, as compared to Non-GAAP net loss of $(2.0) million for the second quarter of fiscal 2015. Non-GAAP net loss per share was $(0.21) based upon weighted average shares outstanding of 27.2 million, as compared to Non-GAAP net loss per share of $(0.08) for the second quarter of fiscal 2015 based upon weighted average shares outstanding of 25.9 million.
  • Adjusted EBITDA: Adjusted EBITDA was $(4.5) million, compared to $(0.8) million for the second quarter of fiscal 2015.

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.

Guidance:

As of May 9, 2016, we are providing guidance for the third quarter of fiscal 2016 and the full fiscal year ending September 30, 2016.

Third Quarter Fiscal 2016 Guidance:

• Total revenues are expected to be in the range from $27.2 million to $27.5 million,

• Non-GAAP loss from operations is expected to be in the range of ($5.6) million to ($5.4) million,

• Non-GAAP net loss per share is expected to be in the range of ($0.21) to ($0.20) based upon weighted average shares outstanding of 27.6 million shares.

Fiscal Year 2016 Guidance:

• Total revenues are expected to be in the range from $106.5 million to $107.5 million,

• Non-GAAP loss from operations is expected to be in the range of ($17.5) million to ($17.2) million,

• Non-GAAP net loss per share is expected to be in the range of ($0.65) to ($0.63) based upon weighted average shares outstanding of 27.3 million shares.

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 2016, which ended March 31, 2016. To access the call, please dial (877) 705-6003 in the U.S. or (201) 493-6725 internationally. Passcode is 13634550. 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 May 16, 2016 by dialing (877) 870-5176 in the U.S. or (858) 384-5517 internationally with recording access code 13634550.

About Model N

Model N is the leader in Revenue Management Cloud solutions for life science, technology and manufacturing companies. Driving mission critical business processes such as configure, price and quote (CPQ), contract management, rebates and regulatory compliance, Model N Cloud 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 unique business needs of the world’s leading brands in life science, technology and manufacturing companies across more than 100 countries.

Model N is a trusted partner to some of the world’s largest brands, including Johnson & Johnson, AstraZeneca, Boston Scientific, Novartis, Ortho Clinical Diagnostics, Atmel, Fairchild and Marvell. Model N trades on the New York Stock Exchange under the symbol MODN.

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 2016 revenue and other financial results. 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; and (xi) 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, 2015, 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, non-GAAP net (loss) income per share, and adjusted EBITDA. Non-GAAP gross profit excludes stock-based compensation expense, LeapFrogRx compensation charges, acquisition & integration related expenses 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, certain legal expenses and acquisition & integration related expenses 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, certain legal expenses, acquisition & integration related expenses, interest income and other expenses, net, and provision for income taxes. Reconciliation tables are provided in this press release.

 

Model N Inc.

Condensed Consolidated Balance Sheets

(in thousands)

(unaudited)

 
      As of     As of
March 31,September 30,
20162015
Assets
Current assets:
Cash and cash equivalents $ 69,995 $ 91,019
Accounts receivable, net 22,454 16,106
Deferred cost of implementation services, current portion 1,067 498
Prepaid expenses 3,417 3,229
Other current assets   114   109
Total current assets 97,047 110,961
Property and equipment, net 7,042 7,553
Goodwill 6,939 1,509
Intangible assets, net 6,449 317
Other assets   1,420   1,630
Total assets $ 118,897 $ 121,970
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable $ 1,507 $ 1,597
Accrued employee compensation 7,603 9,047
Accrued liabilities 3,764 3,464
Deferred revenue, current portion   30,333   22,039
Total current liabilities 43,207 36,147
Long-term liabilities:
Deferred revenue, net of current portion 2,030 1,942
Other long-term liabilities   629   819
Total long-term liabilities   2,659   2,761
Total liabilities   45,866   38,908
Stockholders' equity:
Common Stock 4 4
Preferred Stock
Additional paid-in capital 192,862 186,159
Accumulated other comprehensive loss (491 ) (466 )
Accumulated deficit   (119,344 )   (102,635 )
Total stockholders' equity   73,031   83,062
Total liabilities and stockholders' equity $ 118,897 $ 121,970
 
         

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,
2016     20152016     2015
Revenues:
License and implementation $ 4,823 $ 9,741 $ 9,385 $ 19,422
SaaS and maintenance   21,236   12,935   41,161   25,355
Total revenues 26,059 22,676 50,546 44,777
Cost of Revenues:
License and implementation 3,601 3,771 7,018 7,786
SaaS and maintenance   10,238   5,789   19,250   11,300
Total cost of revenues   13,839   9,560   26,268   19,086
Gross profit 12,220 13,116 24,278 25,691
Operating Expenses:
Research and development 6,175 4,286 11,459 8,740
Sales and marketing 8,307 7,857 16,014 14,597
General and administrative   6,644   5,290   13,364   10,878
Total operating expenses   21,126   17,433   40,837   34,215
Loss from operations (8,906 ) (4,317 ) (16,559 ) (8,524 )
Interest income, net (13 ) (2 ) (14 ) (6 )
Other (income) expenses, net   (12 )   92   45   53
Loss before income taxes (8,881 ) (4,407 ) (16,590 ) (8,571 )
Provision for income taxes   29   192   119   327
Net loss $ (8,910 ) $ (4,599 ) $ (16,709 ) $ (8,898 )
Net loss per share attributable to common stockholders:
Basic and diluted $ (0.33 ) $ (0.18 )   (0.62 ) $ (0.35 )

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

Basic and diluted   27,238   25,880   27,031   25,597
 

 

     

Model N Inc.

Condensed Consolidated Statements of Cash Flows

(in thousands)

(unaudited)

 
Six Months Ended March 31,
2016       2015
Cash Flows From Operating Activities:
Net loss $ (16,709 ) $ (8,898 )
Adjustments to reconcile net loss to net cash used in operating activities
Depreciation and amortization 2,856 1,883
Stock-based compensation 5,158 4,676
Other non cash charges, net 8 135
Changes in assets and liabilities:
Accounts receivable (5,247 ) (2,747 )
Prepaid expenses and other assets 197 (75 )
Deferred cost of implementation services (459 ) (258 )
Accounts payable (311 ) 1,289
Accrued employee compensation (1,443 ) (1,291 )
Other accrued and long-term liabilities 324 639
Deferred revenue   7,404   (2,613 )
Net cash used in operating activities   (8,222 )   (7,260 )
Cash Flows From Investing Activities:
Purchases of property and equipment, net (1,103 ) (1,022 )
Acquisition of business (12,615 )
Capitalization of software development costs   (615 )   (1,250 )
Net cash used in investing activities   (14,333 )   (2,272 )
Cash Flows From Financing Activities:
Proceeds from exercise of stock options   1,545   1,702
Net cash provided by financing activities   1,545   1,702
Effect of exchange rate changes on cash and cash equivalents (14 ) (17 )
Net decrease in cash and cash equivalents (21,024 ) (7,847 )
Cash and cash equivalents
Beginning of period   91,019   101,006
End of period $ 69,995 $ 93,159
 
 

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,
2016     20152016     2015
Reconciliation from GAAP net loss to adjusted EBITDA:
GAAP net loss: $ (8,910 ) $ (4,599 ) $ (16,709 ) $ (8,898 )
Reversal of non-GAAP items:
Stock-based compensation expense 2,608 2,282 5,158 4,676
Depreciation and amortization 1,536 950 2,856 1,883
LeapFrogRx compensation charges 11 91
Acquisition and integration related costs 268 547
Legal expenses 242 305 242
Interest income, net (13 ) (2 ) (14 ) (6 )
Other (income) expenses, net (12 ) 92 45 53
Provision for income taxes   29   192   119   327
Adjusted EBITDA $ (4,494 ) $ (832 ) $ (7,693 ) $ (1,632 )
 
Three months ended March 31,Six months ended March 31,
2016201520162015
Reconciliation from GAAP gross profit to non-GAAP gross profit:
GAAP gross profit: $ 12,220 $ 13,116 $ 24,278 $ 25,691
Reversal of non-GAAP expenses:
Stock-based compensation (a) 478 346 905 680
Amortization of intangible assets (b) 255 61 445 122
LeapFrogRx compensation charges (c) 7 57
Acquisition and integration related expenses (e)   114     114  
Non-GAAP gross profit $ 13,067 $ 13,530 $ 25,742 $ 26,550
Percentage of revenue 50.1 % 59.7 % 50.9 % 59.3 %
 
Three months ended March 31,Six months ended March 31,
2016201520162015
Reconciliation from GAAP gross profit to non-GAAP gross profit:
for license and implementation:
GAAP gross profit - license and implementation: $ 1,222 $ 5,970 $ 2,367 $ 11,636
Reversal of non-GAAP expenses:
Stock-based compensation (a)   220   166   420   304
Non-GAAP gross profit - license and implementation $ 1,442 $ 6,136 $ 2,787 $ 11,940
Percentage of revenue 29.9 % 63.0 % 29.7 % 61.5 %
      Three months ended March 31,     Six months ended March 31,
2016     20152016     2015
Reconciliation from GAAP gross profit to non-GAAP gross profit:
for SaaS and maintenance:
GAAP gross profit - SaaS and maintenance: $ 10,998 $ 7,146 $ 21,911 $ 14,055
Reversal of non-GAAP expenses:
Stock-based compensation (a) 258 180 485 376
Amortization of intangible assets (b) 255 61 445 122
LeapFrogRx compensation charges (c) 7 57
Acquisition and integration related expenses (e)   114     114  
Non-GAAP gross profit - SaaS and maintenance $ 11,625 $ 7,394 $ 22,955 $ 14,610
Percentage of revenue 54.7 % 57.2 % 55.8 % 57.6 %
 
Three months ended March 31,Six months ended March 31,
2016201520162015
Reconciliation from GAAP research and development to non-GAAP

research and development:

GAAP research and development $ 6,175 $ 4,286 $ 11,459 $ 8,740
Reversal of non-GAAP expenses:
Stock-based compensation (a) (161 ) (266 ) (562 ) (594 )
LeapFrogRx compensation charges (c)         (1 )
Non-GAAP research and development $ 6,014 $ 4,020 $ 10,897 $ 8,145
 
Three months ended March 31,Six months ended March 31,
2016201520162015
Reconciliation from GAAP sales and marketing to non-GAAP

sales and marketing:

GAAP sales and marketing $ 8,307 $ 7,857 $ 16,014 $ 14,597
Reversal of non-GAAP expenses:
Stock-based compensation (a) (650 ) (727 ) (1,243 ) (1,374 )
Amortization of intangible assets (b) (128 ) (4 ) (213 ) (26 )
LeapFrogRx compensation charges (c)     (2 )     (13 )
Non-GAAP sales and marketing $ 7,529 $ 7,124 $ 14,558 $ 13,184
      Three months ended March 31,     Six months ended March 31,
2016     20152016     2015
Reconciliation from GAAP general and administrative to non-GAAP

general and administrative:

GAAP general and administrative $ 6,644 $ 5,290 $ 13,364 $ 10,878
Reversal of non-GAAP expenses:
Stock-based compensation (a) (1,319 ) (943 ) (2,448 ) (2,028 )
LeapFrogRx compensation charges (c) (2 ) (20 )
Legal expenses (d) (242 ) (305 ) (242 )
Acquisition and integration related expenses (e)   (120 )     (223 )  
Non-GAAP general and administrative $ 5,205 $ 4,103 $ 10,388 $ 8,588
 
Three months ended March 31,Six months ended March 31,
2016201520162015
Reconciliation from GAAP loss from operations to non-GAAP

loss from operations:

GAAP net loss from operations: $ (8,906 ) $ (4,317 ) $ (16,559 ) $ (8,524 )
Reversal of non-GAAP expenses:
Stock-based compensation (a) 2,608 2,282 5,158 4,676
Amortization of intangible assets (b) 382 65 657 148
LeapFrogRx compensation charges (c) 11 91
Legal expenses (d) 242 305 242
Acquisition and integration related expenses (e)   234     337  
Non-GAAP loss from operations $ (5,682 ) $ (1,717 ) $ (10,102 ) $ (3,367 )
 
Three months ended March 31,Six months ended March 31,
2016201520162015
Numerator:
Reconciliation between GAAP and non-GAAP net loss:
GAAP net loss: $ (8,910 ) $ (4,599 ) $ (16,709 ) $ (8,898 )
Reversal of non-GAAP expenses:
Stock-based compensation (a) 2,608 2,282 5,158 4,676
Amortization of intangible assets (b) 382 65 657 148
LeapFrogRx compensation charges (c) 11 91
Legal expenses (d) 242 305 242
Acquisition and integration related expenses (e)   268     547  
Non-GAAP net loss attributable to Model N Inc.

common stockholders

$ (5,652 ) $ (1,999 ) $ (10,042 ) $ (3,741 )
Denominator:
Reconciliation between GAAP and non-GAAP weighted average shares used in

computing diluted net loss per share attributable to Model N Inc.

common stockholders:

Weighted average number of shares used in computing GAAP and

non-GAAP diluted net loss per share

  27,238   25,880   27,031   25,597
GAAP diluted net loss per share attributable to Model N Inc.

common stockholders

$ (0.33 ) $ (0.18 ) $ (0.62 ) $ (0.35 )
Non-GAAP diluted net loss per share attributable to Model N Inc.

common stockholders

  (0.21 )   (0.08 )   (0.37 )   (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, gross profit, loss from operations, net loss, weighted average shares outstanding and net loss per share, which are adjusted to exclude LeapFrogRx compensation charges, Channel Insight acquisition related costs, stock-based compensation expense and 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 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 results because stock-based compensation amounts are difficult to forecast due in part to the volume, timing and terms of 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 LeapFrogRx for initial cash consideration of $3.0 million as well as potential additional payments to former LeapFrogRx shareholders totaling 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) Legal expense is for the securities class action lawsuits filed in September 2014 and January 2015. We believe that the exclusion of these legal expenses provides for a better comparison of our operation results to prior periods and to our peer companies.

(e) In October 2015, we acquired Channel Insight for a cash consideration of $12.6 million, as part of the acquisition, we incurred certain non-recurring integration costs and purchase price adjustments. 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.

Investor Relations Contact:
ICR for Model N
Sheila Ennis, 650-610-4998
investorrelations@modeln.com
or
Media Contact:
The Hoffman Agency
Jacqueline Velasco, 408-975-3012
jvelasco@hoffman.com

Source: Model N, Inc.

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