Model N Announces First Quarter of Fiscal Year 2016 Financial Results

REDWOOD CITY, Calif.--()--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 first quarter of fiscal year 2016, which ended December 31, 2015.

“Model N posted a strong start to fiscal year 2016 exceeding our guidance for the top and bottom line. We continue to make excellent progress on executing our strategy to concurrently grow our revenues AND to transform our business to SaaS and Recurring Revenue. In particular, I am very excited by the fact that Model N reported 81% of total revenues as SaaS and Maintenance revenue as this is a 25 percentage point increase from the year ago level,” said Zack Rinat, Founder, Chairman, and Chief Executive Officer of Model N. “Additionally, I am very pleased that effective February 21, 2016, Edward Sander will join Model N as Chief Executive Officer. I will assume a new role as Executive Chairman, focusing on board development, strategy, and supporting Ed as the new CEO of Model N. Ed brings a wealth of executive leadership experience to the company to accelerate our very positive trajectory. I am confident that under his leadership, Model N will reach exciting new heights in the years ahead.”

First Quarter 2016 Financial Highlights:

  • Total Revenues: Total revenues were $24.5 million, compared to $22.1 million for the first quarter of fiscal 2015.
  • Gross Profit: Gross profit was $12.1 million, compared to $12.6 million for the first quarter of fiscal 2015. Gross margins were 49%, compared to 57% for the first quarter of fiscal 2015. Non-GAAP gross profit was $12.7 million, compared to $13.0 million for the first quarter of fiscal 2015. Non-GAAP gross margins were 52%, compared to 59% for the first quarter of fiscal 2015.
  • Loss from operations: GAAP loss from operations was $(7.7) million, compared to a loss from operations of $(4.2) million for the first quarter of fiscal 2015. Non-GAAP loss from operations was $(4.4) million, compared to a Non-GAAP loss from operations of $(1.7) million for the first quarter of fiscal 2015.
  • Net loss: GAAP net loss was $(7.8) million, compared to net loss of $(4.3) million for the first quarter of fiscal 2015. GAAP diluted net loss per share attributed to common stockholders was $(0.29) based upon weighted average shares outstanding of 26.8 million, as compared to net loss per share of $(0.17) for the first quarter of fiscal 2015 based upon weighted average shares outstanding of 25.3 million.
  • Non-GAAP net loss: Non-GAAP net loss was $(4.4) million, as compared to Non-GAAP net loss of $(1.7) million for the first quarter of fiscal 2015. Non-GAAP net loss per share was $(0.16) based upon weighted average shares outstanding of 26.8 million, as compared to Non-GAAP net loss per share of $(0.07) for the first quarter of fiscal 2015 based upon weighted average shares outstanding of 25.3 million.
  • Adjusted EBITDA: Adjusted EBITDA was $(3.2) million, compared to $(0.8) million for the first 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 February 8, 2016, we are providing guidance for the second quarter of fiscal 2016 and the full fiscal year ending September 30, 2016.

Second Quarter Fiscal 2016 Guidance:

• Total revenues are expected to be in the range from $25.4 million to $25.6 million,

• Non-GAAP loss from operations is expected to be in the range of ($7.0) million to ($6.8) million,

• Non-GAAP net loss per share is expected to be in the range of ($0.26) to ($0.25) based upon weighted average shares outstanding of 27.0 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 27.2 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 first quarter of fiscal year 2016, which ended December 31, 2015. To access the call, please dial (877) 705-6003 in the U.S. or (201) 493-6725 internationally. Passcode is 13628027. 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 February 15, 2016 by dialing (877) 870-5176 in the U.S. or (858) 384-5517 internationally with recording access code 13628027.

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 second 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 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, restructuring charges, 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
December 31, September 30,
2015 2015
Assets
Current assets:
Cash and cash equivalents $ 70,353 $ 91,019
Accounts receivable, net 22,202 16,106
Deferred cost of implementation services, current portion 633 498
Prepaid expenses 3,336 3,229
Other current assets   151   109
Total current assets 96,675 110,961
Property and equipment, net 7,452 7,553
Goodwill 6,939 1,509
Intangible assets, net 6,832 317
Other assets   1,567   1,630
Total assets $ 119,465 $ 121,970
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable $ 1,547 $ 1,597
Accrued employee compensation 7,616 9,047
Accrued liabilities 3,986 3,464
Deferred revenue, current portion   25,370   22,039
Total current liabilities 38,519 36,147
Long-term liabilities:
Deferred revenue, net of current portion 2,321 1,942
Other long-term liabilities   702   819
Total long-term liabilities   3,023   2,761
Total liabilities   41,542   38,908
Stockholders' equity:
Common Stock 4 4
Preferred Stock
Additional paid-in capital 188,844 186,159
Accumulated other comprehensive loss (491 ) (466 )
Accumulated deficit   (110,434 )   (102,635 )
Total stockholders' equity   77,923   83,062
Total liabilities and stockholders' equity $ 119,465 $ 121,970
 
 

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

 
Three months ended December 31,
2015   2014
Revenues:
License and implementation $ 4,562 $ 9,681
SaaS and maintenance   19,925   12,420
Total revenues 24,487 22,101
Cost of Revenues:
License and implementation 3,417 4,015
SaaS and maintenance   9,012   5,511
Total cost of revenues   12,429   9,526
Gross profit 12,058 12,575
Operating Expenses:
Research and development 5,284 4,454
Sales and marketing 7,707 6,740
General and administrative   6,720   5,588
Total operating expenses   19,711   16,782
Loss from operations (7,653 ) (4,207 )
Interest income, net (1 ) (4 )
Other (income) expenses, net   57   (39 )
Loss before income taxes (7,709 ) (4,164 )
Provision for income taxes   90   135
Net loss $ (7,799 ) $ (4,299 )
Net loss per share attributable to common stockholders:
Basic and diluted $ (0.29 ) $ (0.17 )
Weighted average number of shares used in computing net loss per share attributable to

common stockholders:

Basic and diluted   26,827   25,319
 
 

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

 
Three months ended December 31,
2015   2014
Cash Flows From Operating Activities:
Net loss $ (7,799 ) $ (4,299 )
Adjustments to reconcile net loss to net cash used in operating activities
Depreciation and amortization 1,319 933
Stock-based compensation 2,550 2,394
Other non cash charges, net 46 57
Changes in assets and liabilities:
Accounts receivable (4,984 ) (1,516 )
Prepaid expenses and other assets 84 (392 )
Deferred cost of implementation services (85 ) (86 )
Accounts payable (222 ) 494
Accrued employee compensation (1,425 ) (797 )
Other accrued and long-term liabilities 496 (30 )
Deferred revenue   2,730   (211 )
Net cash used in operating activities   (7,290 )   (3,453 )
Cash Flows From Investing Activities:
Purchases of property and equipment, net (357 ) (710 )
Acquisition of business (12,615 ) -
Capitalization of software development costs   (532 )   (563 )
Net cash used in investing activities   (13,504 )   (1,273 )
Cash Flows From Financing Activities:
Proceeds from exercise of stock options   135   158
Net cash provided by financing activities   135   158
Effect of exchange rate changes on cash and cash equivalents (7 ) (24 )
Net decrease in cash and cash equivalents (20,666 ) (4,592 )
Cash and cash equivalents
Beginning of period   91,019   101,006
End of period $ 70,353 $ 96,414
 
 

Model N Inc.
Reconciliation of GAAP to Non-GAAP Operating Results
(in thousands, except per share amounts)
(unaudited)

 
Three months ended December 31,
2015   2014
Reconciliation from GAAP net loss to adjusted EBITDA:
GAAP net loss: $ (7,799 ) $ (4,299 )
Reversal of non-GAAP items:
Stock-based compensation expense 2,550 2,394
Depreciation and amortization 1,319 933
LeapFrogRx compensation charges 80
Acquisition and integration related costs 279
Legal expenses 305
Interest income, net (1 ) (4 )
Other (income) expenses, net 57 (39 )
Provision for income taxes   90   135
Adjusted EBITDA $ (3,200 ) $ (800 )
 
Three months ended December 31,
2015 2014
Reconciliation from GAAP gross profit to non-GAAP gross profit:
GAAP gross profit: $ 12,058 $ 12,575
Reversal of non-GAAP expenses:
Stock-based compensation (a) 427 334
Amortization of intangible assets (b) 190 61
LeapFrogRx compensation charges (c)     50
Non-GAAP gross profit $ 12,675 $ 13,020
Percentage of revenue 51.8 % 58.9 %
 
Three months ended December 31,
2015 2014
Reconciliation from GAAP gross profit to non-GAAP gross profit:
for license and implementation:
GAAP gross profit - license and implementation: $ 1,145 $ 5,666
Reversal of non-GAAP expenses:
Stock-based compensation (a)   200   138
Non-GAAP gross profit - license and implementation $ 1,345 $ 5,804
Percentage of revenue 29.5 % 60.0 %
 
Three months ended December 31,
2015 2014
Reconciliation from GAAP gross profit to non-GAAP gross profit:
for SaaS and maintenance:
GAAP gross profit - SaaS and maintenance: $ 10,913 $ 6,909
Reversal of non-GAAP expenses:
Stock-based compensation (a) 227 196
Amortization of intangible assets (b) 190 61
LeapFrogRx compensation charges (c)     50
Non-GAAP gross profit - SaaS and maintenance $ 11,330 $ 7,216
Percentage of revenue 56.9 % 58.1 %
 
Three months ended December 31,
2015 2014
Reconciliation from GAAP research and development to non-GAAP
research and development:
GAAP research and development $ 5,284 $ 4,454
Reversal of non-GAAP expenses:
Stock-based compensation (a) (401 ) (328 )
LeapFrogRx compensation charges (c)     (1 )
Non-GAAP research and development $ 4,883 $ 4,125
 
Three months ended December 31,
2015 2014
Reconciliation from GAAP sales and marketing to non-GAAP
sales and marketing:
GAAP sales and marketing $ 7,707 $ 6,740
Reversal of non-GAAP expenses:
Stock-based compensation (a) (593 ) (647 )
Amortization of intangible assets (b) (85 ) (22 )
LeapFrogRx compensation charges (c)     (11 )
Non-GAAP sales and marketing $ 7,029 $ 6,060
 
Three months ended December 31,
2015 2014
Reconciliation from GAAP general and administrative to non-GAAP
general and administrative:
GAAP general and administrative $ 6,720 $ 5,588
Reversal of non-GAAP expenses:
Stock-based compensation (a) (1,129 ) (1,085 )
LeapFrogRx compensation charges (c) (18 )
Legal expenses (d) (305 )
Acquisition and integration related expenses (e)   (103 )  
Non-GAAP general and administrative $ 5,183 $ 4,485
 
Three months ended December 31,
2015 2014
Reconciliation from GAAP loss from operations to non-GAAP
loss from operations:
GAAP net loss from operations: $ (7,653 ) $ (4,207 )
Reversal of non-GAAP expenses:
Stock-based compensation (a) 2,550 2,394
Amortization of intangible assets (b) 275 83
LeapFrogRx compensation charges (c) 80
Legal expenses (d) 305
Acquisition and integration related expenses (e)   103  
Non-GAAP loss from operations $ (4,420 ) $ (1,650 )
 
Three months ended December 31,
2015 2014
Numerator:
Reconciliation between GAAP and non-GAAP net loss:
GAAP net loss: $ (7,799 ) $ (4,299 )
Reversal of non-GAAP expenses:
Stock-based compensation (a) 2,550 2,394
Amortization of intangible assets (b) 275 83
LeapFrogRx compensation charges (c) 80
Legal expenses (d) 305
Acquisition and integration related expenses (e)   279  
Non-GAAP net loss attributable to Model N Inc.
common stockholders $ (4,390 ) $ (1,742 )
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   26,827   25,319
GAAP diluted net loss per share attributable to Model N Inc.

common stockholders

$ (0.29 ) $ (0.17 )
Non-GAAP diluted net loss per share attributable to Model N Inc.
common stockholders   (0.16 ) $ (0.07 )
 

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 LeapFrog Rx 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.
 

Contacts

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

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