Model N Announces Third Quarter Fiscal 2014 Financial Results



Model N Inc.
Condensed Consolidated Balance Sheets
(dollars in thousands)
(unaudited)
	June 30,			September 30,
	2014			2013
Assets
Current assets:
Cash and cash equivalents	$	103,170		$	103,350
Accounts receivable, net		17,946			16,140
Deferred cost of implementation services, current portion		249			491
Prepaid expenses		2,463			3,225
Other current assets		413			342
Total current assets		124,241			123,548
Property and equipment, net		6,801			7,871
Goodwill		1,509			1,509
Intangible assets, net		670			918
Other assets		1,256			626
Total assets	$	134,477		$	134,472
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable	$	255		$	468
Accrued employee compensation		11,532			13,941
Accrued liabilities		2,002			2,848
Deferred revenue, current portion		26,264			19,131
Capital lease obligations, current portion		26			318
Total current liabilities		40,079			36,706
Long-term liabilities:
Deferred revenue, net of current portion		2,480			3,507
Other long-term liabilities		678			641
Total long-term liabilities		3,158			4,148
Total liabilities		43,237			40,854

Stockholders' equity:
Common stock		4			3
Preferred stock		-			-
Additional paid-in capital		168,530			156,032
Accumulated other comprehensive loss		(224	)		(302	)
Accumulated deficit		(77,070	)		(62,115	)
Total stockholders' equity		91,240			93,618
Total liabilities and stockholders' equity	$	134,477		$	134,472


Model N Inc.
Condensed Consolidated Statements of Operations
(dollars and shares in thousands, except per share amounts)
(unaudited)
	Three months ended June 30,						Nine months ended June 30,
	2014			2013			2014			2013
Revenues:
License and implementation	$	8,073		$	16,419		$	27,449		$	43,362
SaaS and maintenance		11,196			10,828			34,029			30,785
Total revenues		19,269			27,247			61,478			74,147
Cost of revenues:
License and implementation		3,812			7,527			12,955			19,887
SaaS and maintenance		5,302			4,865			15,917			14,169
Total cost of revenues		9,114			12,392			28,872			34,056
Gross profit		10,155			14,855			32,606			40,091
Operating expenses:
Research and development		4,814			4,063			14,362			12,665
Sales and marketing		6,664			5,256			18,293			16,362
General and administrative		5,403			3,883			14,518			11,518
Restructuring		(43	)		—			26			—
Total operating expenses		16,838			13,202			47,199			40,545
(Loss) income from operations		(6,683	)		1,653			(14,593	)		(454	)
Interest (income) expense, net		(3	)		85			(10	)		326
Other expenses, net		24			(48	)		111			664
(Loss) income before income taxes		(6,704	)		1,616			(14,694	)		(1,444	)
Provision for income taxes		96			81			261			230
Net (loss) income		(6,800	)		1,535			(14,955	)		(1,674	)
Net (loss) income attributable to common stockholders		(6,800	)		1,535			(14,955	)		(1,674	)
Net (loss) income per share attributable to common stockholders:
Basic	$	(0.27	)	$	0.07		$	(0.62	)	$	(0.12	)
Diluted	$	(0.27	)	$	0.06		$	(0.62	)	$	(0.12	)
Weighted average number of shares used in computing net (loss) income per share attributable to common stockholders
Basic		24,794			22,798			24,214			13,647
Diluted		24,794			26,072			24,214			13,647


Model N Inc.
Condensed Consolidated Statements of Cash Flows
(dollars in thousands)
(unaudited)
	Three months ended June 30,						Nine months ended June 30,
	2014			2013			2014			2013
Cash flows from operating activities:
Net (loss) income	$	(6,800	)	$	1,535		$	(14,955	)	$	(1,674	)
Adjustments to reconcile net(loss) income to net cash used in operating activities:
Depreciation		829			477			2,543			1,414
Amortization of intangible assets		83			82			248			247
Stock-based compensation		2,662			1,807			7,450			3,306
Loss on disposal of property and equipment		—			2			—			2
Amortization of debt discount		—			61			—			81
Changes in fair value of preferred stock warrant liability		—			-			—			671
Provision for doubtful accounts		—			-			—			9
Deferred income taxes		9			31			29			90
Changes in operating assets and liabilities, net of acquired assets and liabilities:
Accounts receivable		2,448			(5,035	)		(1,806	)		(7,767	)
Prepaid expenses and other assets		(159	)		(370	)		128			(1,861	)
Deferred cost of implementation services		176			15			265			305
Accounts payable		(38	)		1,592			(212	)		1,899
Accrued employee compensation		435			2,275			(2,342	)		2,699
Other accrued and long-term liabilities		(374	)		(308	)		(906	)		1,271
Deferred revenue		3,022			(331	)		6,106			(1,376	)
Net cash provided by (used in) operating activities		2,293			1,833			(3,452	)		(684	)
Cash flows from investing activities:
Purchases of property and equipment		(985	)		(339	)		(1,503	)		(811	)
Capitalization of software development costs		—			(976	)		—			(2,698	)
Purchase of short-term investments		—			-			—			(63	)
Net cash used in investing activities		(985	)		(1,315	)		(1,503	)		(3,572	)
Cash flows from financing activities:
Proceeds from initial public offering, net of offering costs of $7.6 million		—			—			—			101,064
Proceeds from exercise of stock options and employee stock purchase plan		211			255			5,049			768
Payments for deferred offering costs		(6	)		(586	)		(6	)		(2,562	)
Principal payments on capital lease obligations		(71	)		(144	)		(292	)		(442	)
Principal payments on loan		—			(3,958	)		—			(5,208	)
Net cash provided by (used in) financing activities		134			(4,433	)		4,751			93,620
Effect of exchange rate changes on cash and cash equivalents		4			(31	)		24			(54	)
Net change in cash and cash equivalents		1,446			(3,946	)		(180	)		89,310
Cash and cash equivalents at beginning of period		101,724			109,024			103,350			15,768
Cash and cash equivalents at end of period	$	103,170		$	105,078		$	103,170		$	105,078


Model N Inc.
Reconciliation of GAAP to Non-GAAP Operating Results
(dollars and shares in thousands, except per share amounts)
(unaudited)
	Three months ended June 30,						Nine months ended June 30,
	2014			2013			2014			2013
Reconciliation from GAAP net income (loss) to adjusted EBITDA
GAAP net (loss) income :	$	(6,800	)	$	1,535		$	(14,955	)	$	(1,674	)
Reversal of non-GAAP expenses:
Stock-based compensation		2,662			1,807			7,450			3,306
Depreciation and amortization		912			559			2,791			1,661
LeapFrogRx compensation charges		80			200			381			614
Restructuring		(43	)		—			26			—
Interest (income) expense, net		(3	)		85			(10	)		326
Other expenses (income), net		24			(48	)		111			664
Provision for income taxes		96			81			261			230
Adjusted EBITDA	$	(3,072	)	$	4,219		$	(3,945	)	$	5,127

	Three months ended June 30,						Nine months ended June 30,
	2014			2013			2014			2013
Reconciliation from GAAP gross profit to non-GAAP gross profit:
GAAP gross profit:	$	10,155		$	14,855		$	32,606		$	40,091
Reversal of non-GAAP expenses:
Stock-based compensation (a)		373			455			1,328			773
Amortization of intangible assets (b)		61			60			182			181
LeapFrogRx compensation charges (c)		50			126			238			383
Non-GAAP gross profit	$	10,639		$	15,496		$	34,354		$	41,428
Percentage of revenue		55.2	%		56.9	%		55.9	%		55.9	%

	Three months ended June 30,						Nine months ended June 30,
	2014			2013			2014			2013
Reconciliation from GAAP gross profit to non-GAAP gross profit:
for license and implementation:
GAAP gross profit - license and implementation:	$	4,261		$	8,892		$	14,494		$	23,475
Reversal of non-GAAP expenses:
Stock-based compensation (a)		206			240			752			370
Non-GAAP gross profit - license and implementation	$	4,467		$	9,132		$	15,246		$	23,845
Percentage of revenue		55.3	%		55.6	%		55.5	%		55.0	%

	Three months ended June 30,						Nine months ended June 30,
	2014			2013			2014			2013
Reconciliation from GAAP gross profit to non-GAAP gross profit:
for SaaS and maintenance:
GAAP gross profit - SaaS and maintenance:	$	5,894		$	5,963		$	18,112		$	16,616
Reversal of non-GAAP expenses:
Stock-based compensation (a)		167			215			576			403
Amortization of intangible assets (b)		61			60			182			181
LeapFrogRx compensation charges (c)		50			126			238			383
Non-GAAP gross profit - SaaS and maintenance	$	6,172		$	6,364		$	19,108		$	17,583
Percentage of revenue		55.1	%		58.8	%		56.2	%		57.1	%

	Three months ended June 30,						Nine months ended June 30,
	2014			2013			2014			2013
Reconciliation from GAAP research and development to non-GAAP research and development:
GAAP research and development:	$	4,814		$	4,063		$	14,362		$	12,665
Reversal of non-GAAP expenses:
Stock-based compensation (a)		(310	)		(305	)		(972	)		(457	)
LeapFrogRx compensation charges (c)		(1	)		(1	)		(10	)		(32	)
Non-GAAP research and development	$	4,503		$	3,757		$	13,380		$	12,176

	Three months ended June 30,						Nine months ended June 30,
	2014			2013			2014			2013
Reconciliation from GAAP sales and marketing to non-GAAP sales and marketing:
GAAP sales and marketing:	$	6,664		$	5,256		$	18,293		$	16,362
Reversal of non-GAAP expenses:
Stock-based compensation (a)		(721	)		(686	)		(1,931	)		(1,399	)
Amortization of intangible assets (b)		(22	)		(22	)		(66	)		(65	)
LeapFrogRx compensation charges (c)		(11	)		(56	)		(65	)		(144	)
Non-GAAP sales and marketing	$	5,910		$	4,492		$	16,231		$	14,754

	Three months ended June 30,						Nine months ended June 30,
	2014			2013			2014			2013

Reconciliation from GAAP general and administrative to non-GAAP general and administrative:
GAAP general and administrative:	$	5,403		$	3,883		$	14,518		$	11,518
Reversal of non-GAAP expenses:
Stock-based compensation (a)		(1,258	)		(361	)		(3,219	)		(677	)
LeapFrogRx compensation charges (c)		(18	)		(17	)		(68	)		(55	)
Non-GAAP general and administrative	$	4,127		$	3,505		$	11,231		$	10,786

	Three months ended June 30,						Nine months ended June 30,
	2014			2013			2014			2013
Reconciliation from GAAP (loss) income from operations to non-GAAP (loss) income from operations:
GAAP net (loss) income from operations:	$	(6,683	)	$	1,653		$	(14,593	)	$	(454	)
Reversal of non-GAAP expenses:
Stock-based compensation (a)		2,662			1,807			7,450			3,306
Amortization of intangible assets (b)		83			82			248			246
LeapFrogRx compensation charges (c)		80			200			381			614
Restructuring (e)		(43	)		—			26			—
Non-GAAP (loss) income from operations	$	(3,901	)	$	3,742		$	(6,488	)	$	3,712

	Three months ended June 30,						Nine months ended June 30,
	2014			2013			2014			2013
Numerator:
Reconciliation between GAAP and non-GAAP net (loss) income:
GAAP net (loss) income:	$	(6,800	)	$	1,535		$	(14,955	)	$	(1,674	)
Reversal of non-GAAP expenses:
Stock-based compensation (a)		2,662			1,807			7,450			3,306
Amortization of intangible assets (b)		83			82			248			246
LeapFrogRx compensation charges (c)		80			200			381			614
Changes in fair value of preferred stock warrant liability (d)		—			—			—			670
Restructuring (e)		(43	)		—			26			—
Non-GAAP net income (loss) attributable to Model N Inc. common stockholders	$	(4,018	)	$	3,624		$	(6,850	)	$	3,162
Denominator:
Reconciliation between GAAP and non-GAAP weighted average shares used in computing diluted net (loss) income per share attributable to Model N Inc. common stockholders:
Weighted average number of shares used in computing GAAP diluted net (loss) income per share		24,794			26,072			24,214			13,647
Assuming the conversion of preferred stock at the beginning of each period		—			—			—			4,515
Effect of dilutive securities (stock options, restricted stock unis, warrants and ESPP)		—			—			—			2,846
Weighted average shares used in computing non-GAAP diluted net income (loss) per common share		24,794			26,072			24,214			21,008
GAAP diluted net (loss) income per share attributable to Model N Inc. common stockholders	$	(0.27	)	$	0.06		$	(0.62	)	$	(0.12	)
Non-GAAP diluted net (loss) income per share attributable to Model N Inc. common stockholders	$	(0.16	)	$	0.14		$	(0.28	)	$	0.15

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