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Model N Announces Second Quarter Fiscal 2014 Financial Results
[May 01, 2014]

Model N Announces Second Quarter Fiscal 2014 Financial Results


REDWOOD CITY, Calif. --(Business Wire)--

Model N, Inc., (NYSE: MODN), the leading revenue management solutions provider to the life science and technology industries, today announced financial results for the second quarter of fiscal 2014, which ended March 31, 2014.

"Our results this quarter showed continued progress towards our goal of returning to growth in Fiscal 2015," said Zack Rinat, Founder, Chairman, and Chief Executive Officer at Model N. "We had the largest bookings quarter in the history of the company and significantly enhanced our market opportunity through the launch of the REVVY Sales Application Suite. I am pleased to have both reported results above our projections and increased our guidance for the balance of the fiscal year."

Second Quarter Fiscal 2014 Financial Highlights:

  • Total Revenues: Total revenues were $20.7 million, compared to $24.6 million for the second quarter of fiscal 2013.
  • Gross Profit: Gross profit was $10.8 million, compared to $13.0 million for the second quarter of fiscal 2013. Non-GAAP gross profit was $11.5 million, compared to $13.3 million for the second quarter of fiscal 2013.
  • Loss from operations: GAAP loss from operations was $(4.9) million, compared to $(1.0) million for the second quarter of fiscal 2013. Non-GAAP loss from operations was $(1.9) million, compared to roughly breakeven for the second quarter of fiscal 2013.
  • Net loss: GAAP net loss was $(5.0) million, compared to $(1.9) million for the second quarter of fiscal 2013. GAAP diluted net loss per share attributed to common stockholders was $(0.21) based upon weighted average shares outstanding of 24.4 million, as compared to $(0.19) for the second quarter of fiscal 2013 based upon weighted average shares outstanding of 10.1 million.
  • Non-GAAP net loss: Non-GAAP net loss was $(2.0) million, as compared to $(0.2) million for the second quarter of fiscal 2013. Non-GAAP diluted net loss per share was $(0.08) based upon weighted average shares outstanding of 24.4 million, as compared to $(0.01) for the second quarter of fiscal 2013 based upon weighted average shares outstanding of 16.4 million.
  • Adjusted EBITDA: Adjusted EBITDA was $(1.1) million, compared to $0.5 million for the second quarter of fiscal 2013.

Use of Non-GAAP Financial Measures

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

Guidance:

As of May 1, 2014, we are providing guidance for the third quarter of fiscal 2014 as well as the full fiscal year ending September 30, 2014.

Third Quarter Fiscal 2014 Guidance:

  • Total revenues are expected to be in the range from $19.0 million to $19.5 million,
  • Non-GAAP loss from operations is expected to be in the range of ($4.0) to ($3.5) million,
  • Non-GAAP net loss per diluted share is expected to be in the range of ($0.16) to ($0.14) based upon weighted average shares outstanding of 24.8 million shares.

Fiscal Year 2014 Guidance:

  • Total revenues are expected to be in the range from $80.0 million to $82.0 million,
  • Non-GAAP loss from operations is expected to be in the range of ($11.0) to ($9.0) million,
  • Non-GAAP net loss per diluted share is expected to be in the range of ($0.45) to ($0.37) based upon weighted average shares outstanding of 24.5 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 2014, which ended March 31, 2014. To access the call, please dial (877) 705-6003 in the U.S. or (201) 493-6725 internationally. Passcode is 13579773. 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 through 11:59 p.m. ET on May 8, 2014, a recording will be available for replay at: http://investor.modeln.com and a telephone replay will be available by dialing (877) 870-5176 in the U.S. or (858) 384-5517 internationally with recording access code 13579773.

About Model N

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

Forward-Looking Statements

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

Non-GAAP Financial Measures

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

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

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



 

 

Model N Inc.

Condensed Consolidated Balance Sheets

(dollars in thousands)

(unaudited)

     
      March 31, September 30,
2014 2013
Assets
Current assets:
Cash and cash equivalents $ 101,724 $ 103,350
Accounts receivable, net 20,394 16,140
Deferred cost of implementation services, current portion 395 491
Prepaid expenses 2,733 3,225
Other current assets   322     342  
Total current assets 125,568 123,548
Property and equipment, net 6,638 7,871
Goodwill 1,509 1,509
Intangible assets, net 753 918
Other assets   944     626  
Total assets $ 135,412   $ 134,472  

Liabilities and Stockholders' Equity

Current liabilities:
Accounts payable $ 287 $ 468
Accrued employee compensation 11,074 13,941
Accrued liabilities 2,398 2,848
Deferred revenue, current portion 22,727 19,131
Capital lease obligations, current portion   97     318  
Total current liabilities 36,583 36,706
Long-term liabilities:
Deferred revenue, net of current portion 2,995 3,507
Other long-term liabilities   671     641  
Total long-term liabilities   3,666     4,148  
Total liabilities   40,249     40,854  
 
Stockholders' equity:
Common stock 4 3
Preferred stock - -
Additional paid-in capital 165,657 156,032
Accumulated other comprehensive loss (228 ) (302 )
Accumulated deficit   (70,270 )   (62,115 )
Total stockholders' equity   95,163     93,618  
Total liabilities and stockholders' equity $ 135,412   $ 134,472  
 

 

 

Model N Inc.

Condensed Consolidated Statements of Operations

(dollars and shares in thousands, except per share amounts)

(unaudited)

     
     

Three months ended March 31,

   

Six months ended March 31,

  2014         2013     2014         2013  
Revenues:
License and implementation $ 9,846 $ 14,481 $ 19,376 $ 26,943
SaaS and maintenance   10,804     10,078     22,833     19,957  
Total revenues 20,650 24,559 42,209 46,900
Cost of revenues:
License and implementation 4,544 6,800 9,143 12,360
SaaS and maintenance   5,269     4,781     10,615     9,304  
Total cost of revenues   9,813     11,581     19,758     21,664  
Gross profit   10,837     12,978     22,451     25,236  
Operating expenses:
Research and development 4,681 4,483 9,548 8,602
Sales and marketing 6,336 5,770 11,629 11,106
General and administrative 4,717 3,758 9,115 7,635
Restructuring   -     -     69     -  
Total operating expenses   15,734     14,011     30,361     27,343  
Loss from operations (4,897 ) (1,033 ) (7,910 ) (2,107 )
Interest (income) expense, net (3 ) 115 (7 ) 241
Other expenses, net   56     660     87     712  
Loss before income taxes (4,950 ) (1,808 ) (7,990 ) (3,060 )
Provision for income taxes   82     88     165     149  
Net loss   (5,032 )   (1,896 )   (8,155 )   (3,209 )
Net loss attributable to common stockholders   (5,032 )   (1,896 )   (8,155 )   (3,209 )
Net loss per share attributable to common stockholders:
Basic and diluted $ (0.21 ) $ (0.19 ) $ (0.34 ) $ (0.35 )

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

 
Basic and diluted   24,406     10,137     23,924     9,071  

 

       

Model N Inc.

Condensed Consolidated Statements of Cash Flows

(dollars in thousands)
(unaudited)
 
       

Three months ended March 31,

Six months ended March 31,
  2014     2013     2014       2013  
Cash flows from operating activities:
Net loss $ (5,032 ) $ (1,896 ) $ (8,155 ) $ (3,209 )
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation 839 495 1,714 937
Amortization of intangible assets 82 84 165 165
Stock-based compensation 2,816 942 4,788 1,499
Amortization of debt discount - 10 - 20
Changes in fair value of preferred stock warrant liability - 685 - 671
Provision for doubtful accounts - 1 - 9
Deferred income taxes 10 34 20 59
Changes in operating assets and liabilities, net of acquired assets and liabilities:
 
Accounts receivable (3,702 ) 748 (4,254 ) (2,732 )
Prepaid expenses and other assets (809 ) (151 ) 287 (1,491 )
Deferred cost of implementation services 78 273 89 290
Accounts payable 175 (862 ) (174 ) 307
Accrued employee compensation (2,112 ) 449 (2,777 ) 424
Other accrued and long-term liabilities (247 ) (457 ) (532 ) 1,579
Deferred revenue   3,957     (1,756 )   3,084     (1,045 )
Net cash used in operating activities   (3,945 )   (1,401 )   (5,745 )   (2,517 )
Cash flows from investing activities:
Purchases of property and equipment (437 ) (308 ) (518 ) (472 )
Capitalization of software development costs - (831 ) - (1,722 )
Sale (purchase) of short-term investments   9,998     -     -     (63 )
Net cash provided by (used in) investing activities   9,561     (1,139 )   (518 )   (2,257 )
Cash flows from financing activities:
Proceeds from initial public offering, net of offering costs of $7.6 million - 101,064 - 101,064
Proceeds from exercise of stock options and employee stock purchase plan 3,388 423 4,838 513
Payments for deferred offering costs - (1,761 ) - (1,976 )
Principal payments on capital lease obligations (94 ) (158 ) (221 ) (298 )
Principal payments on loan   -     (625 )   -     (1,250 )
Net cash provided by financing activities   3,294     98,943     4,617     98,053  
Effect of exchange rate changes on cash and cash equivalents   25     (12 )   20     (23 )
Net change in cash and cash equivalents 8,935 96,391 (1,626 ) 93,256
Cash and cash equivalents at beginning of period   92,789     12,633     103,350     15,768  
Cash and cash equivalents at end of period $ 101,724   $ 109,024   $ 101,724   $ 109,024  

 

               
Model N Inc.
Reconciliation of GAAP to Non-GAAP Operating Results
(dollars and shares in thousands, except per share amounts)
(unaudited)
 
Three months ended March 31,   Six months ended March 31,
  2014     2013     2014     2013  
Reconciliation from GAAP net loss to adjusted EBITDTA
GAAP net loss: $ (5,032 ) $ (1,896 ) $ (8,155 ) $ (3,209 )
Reversal of non-GAAP expenses:
Stock-based compensation 2,816 942 4,788 1,499
Depreciation and amortization 921 578 1,879 1,102
LeapFrogRx compensation charges 101 25 301 414
Restructuring - - 69 -
Interest (income) expense, net (3 ) 115 (7 ) 241
Other expenses, net 56 660 87 712
Provision for income taxes   82     88     165     149  
Adjusted EBITDA $ (1,059 ) $ 512   $ (873 ) $ 908  
 
Three months ended March 31,   Six months ended March 31,
  2014     2013     2014     2013  
Reconciliation from GAAP gross profit to non-GAAP gross profit:
GAAP gross profit: $ 10,837 $ 12,978 $ 22,451 $ 25,236
Reversal of non-GAAP expenses:
Stock-based compensation (a) 514 204 955 318
Amortization of intangible assets (b) 60 61 121 121
LeapFrogRx compensation charges (c)   63     16     188     257  
Non-GAAP gross profit $ 11,474   $ 13,259   $ 23,715   $ 25,932  
Percentage of revenue 55.6 % 54.0 % 56.2 % 55.3 %
 
Three months ended March 31,   Six months ended March 31,
  2014     2013     2014     2013  
Reconciliation from GAAP gross profit to non-GAAP gross profit:
for license and implementation:
GAAP gross profit - license and implementation: $ 5,302 $ 7,681 $ 10,233 $ 14,583
Reversal of non-GAAP expenses:
Stock-based compensation (a)   330     90     546     130  
Non-GAAP gross profit - license and implementation $ 5,632   $ 7,771   $ 10,779   $ 14,713  
Percentage of revenue 57.2 % 53.7 % 55.6 % 54.6 %
 
Three months ended March 31,   Six months ended March 31,
  2014     2013     2014     2013  
Reconciliation from GAAP gross profit to non-GAAP gross profit:
for SaaS and maintenance:
GAAP gross profit - SaaS and maintenance: $ 5,535 $ 5,297 $ 12,218 $ 10,653
Reversal of non-GAAP expenses:
Stock-based compensation (a) 184 114 409 188
Amortization of intangible assets (b) 60 61 121 121
LeapFrogRx compensation charges (c)   63     16     188     257  
Non-GAAP gross profit - SaaS and maintenance $ 5,842   $ 5,488   $ 12,936   $ 11,219  
Percentage of revenue 54.1 % 54.5 % 56.7 % 56.2 %
 
Three months ended March 31,   Six months ended March 31,
  2014     2013     2014     2013  
Reconciliation from GAAP research and development to non-GAAP research and development:
GAAP research and development: $ 4,681 $ 4,483 $ 9,548 $ 8,602
Reversal of non-GAAP expenses:
Stock-based compensation (a) (400 ) (98 ) (662 ) (152 )
LeapFrogRx compensation charges (c)   (2 )   (4 )   (9 )   (31 )
Non-GAAP research and development $ 4,279   $ 4,381   $ 8,877   $ 8,419  
 
Three months ended March 31,   Six months ended March 31,
  2014     2013     2014     2013  
Reconciliation from GAAP sales and marketing to non-GAAP sales and marketing:
GAAP sales and marketing: $ 6,336 $ 5,770 $ 11,629 $ 11,106
Reversal of non-GAAP expenses:
Stock-based compensation (a) (668 ) (454 ) (1,210 ) (713 )
Amortization of intangible assets (b) (22 ) (22 ) (44 ) (43 )
LeapFrogRx compensation charges (c)   (14 )   (4 )   (54 )   (88 )
Non-GAAP sales and marketing $ 5,632   $ 5,290   $ 10,321   $ 10,262  
 
Three months ended March 31,   Six months ended March 31,
  2014     2013     2014     2013  
 
Reconciliation from GAAP general and administrative to non-GAAP general and administrative:
GAAP general and administrative: $ 4,717 $ 3,758 $ 9,115 $ 7,635
Reversal of non-GAAP expenses:
Stock-based compensation (a) (1,234 ) (186 ) (1,961 ) (316 )
LeapFrogRx compensation charges (c)   (22 )   (1 )   (50 )   (38 )
Non-GAAP general and administrative $ 3,461   $ 3,571   $ 7,104   $ 7,281  
 
Three months ended March 31,   Six months ended March 31,
  2014     2013     2014     2013  
Reconciliation from GAAP loss from operations to non-GAAP income (loss) from operations:
GAAP loss from operations: $ (4,897 ) $ (1,033 ) $ (7,910 ) $ (2,107 )
Reversal of non-GAAP expenses:
Stock-based compensation (a) 2,816 942 4,788 1,499
Amortization of intangible assets (b) 82 83 165 164
LeapFrogRx compensation charges (c) 101 25 301 414
Restructuring (e)   -     -     69     -  
Non-GAAP income (loss from) operations $ (1,898 ) $ 17   $ (2,587 ) $ (30 )
 
Three months ended March 31,   Six months ended March 31,
  2014     2013     2014     2013  

Numerator:

Reconciliation between GAAP and non-GAAP net loss:
GAAP net loss: $ (5,032 ) $ (1,896 ) $ (8,155 ) $ (3,209 )
Reversal of non-GAAP expenses:
Stock-based compensation (a) 2,816 942 4,788 1,499
Amortization of intangible assets (b) 82 83 165 164
LeapFrogRx compensation charges (c) 101 25 301 414
Changes in fair value of preferred stock warrant liability (d) - 684 - 670
Restructuring (e)   -     -     69     -  
Non-GAAP net loss attributable to Model N Inc. common stockholders $ (2,033 ) $ (162 ) $ (2,832 ) $ (462 )

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 diluted net loss per share 24,406 10,137 23,924 9,071
Assuming the conversion of preferred stock at the beginning of each period   -     6,284     -     6,772  
Weighted average shares used in computing non-GAAP diluted net loss per common share   24,406     16,421     23,924     15,843  
GAAP diluted net loss per share attributable to Model N Inc. common stockholders $ (0.21 ) $ (0.19 ) $ (0.34 ) $ (0.35 )
Non-GAAP diluted net loss per share attributable to Model N Inc. common stockholders $ (0.08 ) $ (0.01 ) $ (0.12 ) $ (0.03 )
 
Use of Non-GAAP Financial Measures
To supplement our condensed consolidated financial statements presented on a GAAP basis, Model N uses non-GAAP measures of adjusted EBITDA, net loss, weighted average shares outstanding and net loss per share, which are adjusted to exclude LeapFrogRx compensation charges, stock-based compensation expense, restructuring charge, amortization of intangible assets and changes in fair value of preferred stock warrant liability and includes dilutive shares where applicable. We believe these adjustments are appropriate to enhance an overall understanding of our past financial performance and also our prospects for the future. These adjustments to our current period GAAP results are made with the intent of providing both management and investors a more complete understanding of Model N's underlying operating results and trends and our marketplace performance. The non-GAAP results are an indication of our baseline performance that are considered by management for the purpose of making operational decisions. In addition, these non-GAAP results are the primary indicators management uses as a basis for our planning and forecasting of future periods. The presentation of this additional information is not meant to be considered in isolation or as a substitute for operating loss, 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 income because stock-based compensation amounts are difficult to forecast due in part to the volume and timing of stock option and restricted stock grants and the volatility of our common stock. We believe that the exclusion of stock-based compensation expense provides for a better comparison of our operation results to prior periods and to our peer companies.
 
(b) Amortization of intangible assets resulted principally from acquisitions. Intangible asset amortization is a non-cash item. As such, we believe exclusion of these expenses provides for a better comparison of our operation results to prior periods and to our peer companies.
 
(c) In January 2012, we acquired LeapFrog Rx for initial cash consideration of $3.0 million as well as potential additional payments to former LeapFrogRx shareholders totalling upto $8.3 million which are expected to be incurred through January 2015. These additional payments are, among other things, subject to future continued employment and are therefore considered compensatory in nature and are being recognized as compensation expense (LeapFrogRx compensation charges) over the term of each component. We believe that the exclusion of these expenses provides for a better comparison of our operation results to prior periods and to our peer companies.
 
(d) Preferred stock warrant was classified as liability and was marked to market in each period until the preferred stock warrant was converted to common stock warrant upon the closing date of IPO. The change in fair value of preferred stock warrant liability was a non-cash item. We believe that the exclusion of this expense provides for a better comparison of our operation results to prior periods and to our peer companies.
 
(e) On September 30, 2013, the Company recorded a workforce reduction restructuring charge of $1.2 million primarily related to employee separation packages, which included severance pay, benefits continuation and outplacement costs. We believe that the exclusion of this expense provides for a better comparison of our operation results to prior periods and to our peer companies.


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