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TMCNet:  Model N Announces First Quarter Fiscal 2014 Financial Results

[February 10, 2014]

Model N Announces First Quarter Fiscal 2014 Financial Results

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

Model N, Inc., (NYSE: MODN), a leading revenue management solutions provider to the life science and technology industries, today announced financial results for the first quarter of fiscal 2014, which ended December 31, 2013.

"We made further progress towards addressing our recent sales execution challenges during the past quarter and delivered against the key strategic initiatives outlined at the beginning of our fiscal year," said Zack Rinat, Founder, Chairman, and Chief Executive Officer at Model N. "I'm encouraged by our results and believe that the company is headed in the right direction. However, we still have work to do in order to put our recent challenges behind us."

First Quarter Fiscal 2014 Financial Highlights:

  • Total Revenues: Total revenues were $21.6 million, compared to $22.3 million for the first quarter of fiscal 2013.
  • Gross Profit: Gross profit was $11.6 million, compared to $12.3 million for the first quarter of fiscal 2013. Non-GAAP gross profit was $12.2 million, compared to $12.7 million for the first quarter of fiscal 2013.
  • Loss from operations: GAAP loss from operations was $(3.0) million, compared to $(1.1) million for the first quarter of fiscal 2013. Non-GAAP loss from operations was $(0.7) million, compared to $(0.0) million for the first quarter of fiscal 2013.
  • Net loss: GAAP net loss was $(3.1) million, compared to $(1.3) million for the first quarter of fiscal 2013. GAAP diluted net loss per share attributed to common stockholders was $(0.13) based upon weighted average shares outstanding of 23.5 million, as compared to $(0.16) for the first quarter of fiscal 2013 based upon weighted average shares outstanding of 8.0 million.
  • Non-GAAP net loss: Non-GAAP net loss was $(0.8) million, as compared to $(0.3) million for the first quarter of fiscal 2013. Non-GAAP diluted net loss per share was $(0.03) based upon weighted average shares outstanding of 23.5 million, as compared to $(0.02) for the first quarter of fiscal 2013 based upon weighted average shares outstanding of 15.3 million.
  • Adjusted EBITDA: Adjusted EBITDA was $0.2 million, compared to $0.4 million for the first 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 February 10, 2014, we are providing guidance for the second quarter of fiscal 2014 as well as the full fiscal year ending September 30, 2014.

Second Quarter Fiscal 2014 Guidance:

  • Total revenues are expected to be in the range from $20.0 million to $20.5 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 ($0.17) to ($0.14) based upon weighted average shares outstanding of 24.2 million shares.

Fiscal Year 2014 Guidance:

  • Total revenues are expected to be in the range from $76.0 million to $80.0 million,
  • Non-GAAP loss from operations is expected to be in the range of ($20.0) to ($17.0) million,
  • Non-GAAP net loss per diluted share is expected to be in the range of ($0.82) to ($0.69) 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 first quarter 2014, which ended December 31, 2013. To access the call, please dial (877) 705-6003 in the U.S. or (201) 493-6725 internationally. Passcode is 13574389. 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 February 17, 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 13574389.

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 second 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 income (loss) from operations, non-GAAP net income (loss), weighted-average shares outstanding, non-GAAP net income (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 operating income (loss) and non-GAAP net income (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 income (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)
December 31, September 30,
2013 2013
Assets
Current assets:
Cash and cash equivalents $ 92,789 $ 103,350
Short-term investments 9,998 -
Accounts receivable, net 16,692 16,140
Deferred cost of implementation services, current portion 494 491
Prepaid expenses 2,207 3,225
Other current assets 446 342
Total current assets 122,626 123,548
Property and equipment, net 7,089 7,871
Goodwill 1,509 1,509
Intangible assets, net 835 918
Other assets 582 626
Total assets $ 132,641 $ 134,472
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable $ 153 $ 468
Accrued employee compensation 13,384 13,941
Accrued liabilities 2,546 2,848
Deferred revenue, current portion 18,549 19,131
Capital lease obligations, current portion 191 318
Total current liabilities 34,823 36,706
Long-term liabilities:
Deferred revenue, net of current portion 3,216 3,507
Other long-term liabilities 661 641
Total long-term liabilities 3,877 4,148
Total liabilities 38,700 40,854
Stockholders' equity:
Common stock 4 3
Preferred stock - -
Additional paid-in capital 159,453 156,032
Accumulated other comprehensive loss (278 ) (302 )
Accumulated deficit (65,238 ) (62,115 )
Total stockholders' equity 93,941 93,618
Total liabilities and stockholders' equity $ 132,641 $ 134,472
Model N Inc. Condensed Consolidated Statements of Operations

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

(unaudited)

� � � Three months ended December 31, 2013 � � 2012 Revenues: License and implementation $ 9,530 $ 12,462 SaaS and maintenance � 12,029 � � 9,879 � Total revenues 21,559 22,341 Cost of revenues: License and implementation 4,599 5,560 SaaS and maintenance � 5,346 � � 4,523 � Total cost of revenues � 9,945 � � 10,083 � Gross profit � 11,614 � � 12,258 � Operating expenses: Research and development 4,867 4,119 Sales and marketing 5,293 5,336 General and administrative 4,398 3,877 Restructuring � 69 � � - � Total operating expenses � 14,627 � � 13,332 � Loss from operations (3,013 ) (1,074 ) Interest (income) expense, net (4 ) 126 Other expenses, net � 31 � � 52 � Loss before income taxes (3,040 ) (1,252 ) Provision for income taxes � 83 � � 61 � Net loss � (3,123 ) � (1,313 ) Net loss attributable to common stockholders � (3,123 ) � (1,313 ) Net loss per share attributable to common stockholders: Basic and diluted $ (0.13 ) $ (0.16 )

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

Basic and diluted � 23,453 � � 8,028 � � �
Model N Inc. Condensed Consolidated Statements of Cash Flows

(dollars in thousands)

(unaudited) � � � Three months ended December 31, 2013 � � � 2012 Cash flows from operating activities:

Net loss

$ (3,123 ) $ (1,313 ) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation 875 442 Amortization of intangible assets 83 81 Stock-based compensation 1,972 557 Amortization of debt discount - 10 Changes in fair value of preferred stock warrant liability - (14 ) Provision for doubtful accounts - 8 Deferred income taxes 10 25

Changes in operating assets and liabilities, net of acquired assets and liabilities:

Accounts receivable (552 ) (3,480 ) Prepaid expenses and other assets 1,096 (1,340 ) Deferred cost of implementation services 11 17 Accounts payable (349 ) 1,169 Accrued employee compensation (665 ) (25 ) Other accrued and long-term liabilities (285 ) 2,036 Deferred revenue � (873 ) � 711 � Net cash used in operating activities � (1,800 ) � (1,116 ) Cash flows from investing activities: Purchases of property and equipment (81 ) (164 ) Capitalization of software development costs - (891 ) Purchase of short-term investments � (9,998 ) � (63 ) Net cash used in investing activities � (10,079 ) � (1,118 ) Cash flows from financing activities: Proceeds from issuance of common stock upon exercise of stock options 1,450 90 Payments for deferred offering costs - (215 ) Principal payments on capital lease obligations (127 ) (140 ) Principal payments on loan � - � � (625 ) Net cash (used in) provided by financing activities � 1,323 � � (890 ) Effect of exchange rate changes on cash and cash equivalents � (5 ) � (11 ) Net change in cash and cash equivalents (10,561 ) (3,135 ) Cash and cash equivalents at beginning of period � 103,350 � � 15,768 � Cash and cash equivalents at end of period $ 92,789 � $ 12,633 � � �
Model N Inc. Reconciliation of GAAP to Non-GAAP Operating Results

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

(unaudited)

� � � Three months ended December 31, 2013 � � 2012 Reconciliation from GAAP net loss to adjusted EBITDTA GAAP net loss: $ (3,123 ) $ (1,313 ) Reversal of non-GAAP expenses: Stock-based compensation 1,972 557 Depreciation and amortization 958 523 LeapFrogRx compensation charges 200 389 Restructuring 69 - Interest (income) expense, net (4 ) 126 Other expenses, net 31 52 Provision for income taxes � 83 � � 61 � Adjusted EBITDA $ 186 � $ 395 � � Three months ended December 31, 2013 2012 Reconciliation from GAAP gross profit to non-GAAP gross profit: GAAP gross profit: $ 11,614 $ 12,258 Reversal of non-GAAP expenses: Stock-based compensation (a) 441 114 Amortization of intangible assets (b) 61 60 LeapFrogRx compensation charges (c) � 125 � � 241 � Non-GAAP gross profit $ 12,241 � $ 12,673 � Percentage of revenue 56.8 % 56.7 % � Three months ended December 31, 2013 2012

Reconciliation from GAAP gross profit to non-GAAP gross profit:

for license and implementation: GAAP gross profit - license and implementation: $ 4,931 $ 6,902 Reversal of non-GAAP expenses: Stock-based compensation (a) � 216 � � 40 � Non-GAAP gross profit - license and implementation $ 5,147 � $ 6,942 � Percentage of revenue 54.0 % 55.7 % � Three months ended December 31, 2013 2012 Reconciliation from GAAP gross profit to non-GAAP gross profit: for SaaS and maintenance: GAAP gross profit - SaaS and maintenance: $ 6,683 $ 5,356 Reversal of non-GAAP expenses: Stock-based compensation (a) 225 74 Amortization of intangible assets (b) 61 60 LeapFrogRx compensation charges (c) � 125 � � 241 � Non-GAAP gross profit - SaaS and maintenance $ 7,094 � $ 5,731 � Percentage of revenue 59.0 % 58.0 % � Three months ended December 31, 2013 2012 Reconciliation from GAAP research and development to non-GAAP research and development: GAAP research and development: $ 4,867 $ 4,119 Reversal of non-GAAP expenses: Stock-based compensation (a) (262 ) (54 ) LeapFrogRx compensation charges (c) � (7 ) � (27 ) Non-GAAP research and development $ 4,598 � $ 4,038 � � Three months ended December 31, 2013 2012 Reconciliation from GAAP sales and marketing to non-GAAP sales and marketing: GAAP sales and marketing: $ 5,293 $ 5,336 Reversal of non-GAAP expenses: Stock-based compensation (a) (542 ) (259 ) Amortization of intangible assets (b) (22 ) (21 ) LeapFrogRx compensation charges (c) � (40 ) � (84 ) Non-GAAP sales and marketing $ 4,689 � $ 4,972 � � Three months ended December 31, 2013 2012 � Reconciliation from GAAP general and administrative to non-GAAP general and administrative: GAAP general and administrative: $ 4,398 $ 3,877 Reversal of non-GAAP expenses: Stock-based compensation (a) (727 ) (130 ) LeapFrogRx compensation charges (c) � (28 ) � (37 ) Non-GAAP general and administrative $ 3,643 � $ 3,710 � � Three months ended December 31, 2013 2012 Reconciliation from GAAP loss from operations to non-GAAP loss from operations: GAAP loss from operations: $ (3,013 ) $ (1,074 ) Reversal of non-GAAP expenses: Stock-based compensation (a) 1,972 557 Amortization of intangible assets (b) 83 81 LeapFrogRx compensation charges (c) 200 389 Restructuring (e) � 69 � � - � Non-GAAP loss from operations $ (689 ) $ (47 ) � Three months ended December 31, 2013 2012 Numerator: Reconciliation between GAAP and non-GAAP net loss: GAAP net loss: $ (3,123 ) $ (1,313 ) Reversal of non-GAAP expenses: Stock-based compensation (a) 1,972 557 Amortization of intangible assets (b) 83 81 LeapFrogRx compensation charges (c) 200 389 Changes in fair value of preferred stock warrant liability (d) - (14 ) Restructuring (e) � 69 � � - � Non-GAAP net loss attributable to Model N Inc. common stockholders $ (799 ) $ (300 ) 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 23,453 8,028 Assuming the conversion of preferred stock at the beginning of each period � - � � 7,250 � Weighted average shares used in computing non-GAAP diluted net loss per common share � 23,453 � � 15,278 � GAAP diluted net loss per share attributable to Model N Inc. common stockholders $ (0.13 ) $ (0.16 ) Non-GAAP diluted net loss per share attributable to Model N Inc. common stockholders $ (0.03 ) $ (0.02 ) �

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 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 operating 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 operating 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 operating 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 operating results to prior periods and to our peer companies.


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