Model N Announces Second Quarter Fiscal Year 2021 Financial Results

Rhea-AI Summary

Model N, Inc. (MODN) announced its second quarter fiscal 2021 results, reporting revenues of $48.2 million, a 21% increase year-over-year. Subscription revenues rose 24% to $35.9 million. The acquisition of Business Services from Deloitte contributed $6.5 million in revenues. Gross profit was $24.8 million with a gross margin of 51%. GAAP net loss was $(10.7 million), translating to a loss of $(0.30) per share. The company provided guidance of total revenues between $48.5 million and $49.0 million for Q3 2021 and $189.0 million to $190.0 million for the full year.

Positive

• 21% increase in total revenues to $48.2 million year-over-year.
• 24% rise in subscription revenues to $35.9 million.
• Acquisition of Business Services contributed $6.5 million in revenue.
• Implementation success in SaaS transitions exceeding internal goals.
• Guidance for Q3 2021 total revenues of $48.5 - $49.0 million.

Negative

• GAAP net loss increased to $(10.7 million) compared to $(4.6 million) in the prior year.
• Gross margin decreased to 51% from 59% year-over-year.
• Subscription gross margin dropped to 62% from 70% in the prior year.

Model N, Inc. (NYSE: MODN), the leader in cloud revenue management solutions, today announced financial results for the second quarter fiscal year 2021 ended March 31, 2021.

“In the second quarter, we executed well, most notably with large SaaS transitions and expansions within our customer base. Business Services, which we acquired from Deloitte in the first quarter, made significant contributions to our results, and we are already achieving operating synergies and expect to achieve continued growth throughout 2021,” said Jason Blessing, president and chief executive officer of Model N. “I believe that our strategic roadmap, our focus on customer success, and our ability to serve our customers with a powerful combination of software and business services will position us for continued success.”

Recent Highlights

• Life Sciences Leaders Continue Transition to Model N Revenue Cloud - During the quarter, two global Life Sciences customers, including Novartis, one of the top five largest pharmaceutical companies in the world, and a top 5 global med tech company moved forward with their plans to transition to Model N Revenue Cloud for Life Sciences. Throughout the past year, many companies prioritized their cloud-first strategies and included Model N Revenue Cloud in their digital transformations. Responding to industry changes, including value-based pricing and requirements for government rebates, Model N customers may benefit from new product innovation and the ability to proactively respond to regulatory changes in their marketplaces.

• Model N Professional Services Sets Industry Standards by Driving Go-Lives at New and Existing Customers - Model N Professional Services teams continued to implement Model N solutions for Life Sciences and High Tech customers exceeding internal on-time and on-budget objectives. During the quarter, the team completed SaaS transitions for existing customers and implementation projects with new customers, adding innovative solutions that provide visibility and scalability, integrate with CRMs and ERPs, and maximize customers’ profits.

• Adoption of Model N’s Global Products in EMEA Continues – During the quarter, Model N signed a contract with a global biotechnology company that will utilize Model N’s Global Price Management and International Reference Pricing solutions to better compete in multiple European countries. Model N currently works with several companies in Europe, including nine of the top 15 European pharmaceutical companies, six leading medical device companies and many European divisions of the world’s leading high tech companies to bring them revenue management solutions that help them to win in their marketplaces. Following the recently announced partnership with Global Pricing Innovations, a leader in analytics and innovative solutions for biopharma pricing and market access, Model N will be able to better serve its customers with global pricing strategies.

• Model N Adds High Tech Innovator to Its Customer Base – In the second quarter, Targus, a multinational maker of innovative mobile computing accessories, signed an agreement with the company as a first-time user of Model N Revenue Cloud for High Tech. By using these solutions, we believe that customers can improve their win probability, better manage incentive and rebate programs, and reap the benefits of accurate, actionable channel data.

Second Quarter 2021 Financial Highlights

• Revenues: Total revenues were $48.2 million, an increase of 21% from the second quarter of fiscal year 2020. Subscription revenues were $35.9 million, an increase of 24% from the second quarter of fiscal year 2020. Business Services, which we acquired from Deloitte, contributed $6.5 million in total revenues for the second quarter of fiscal year 2021.

• Gross Profit: Gross profit was $24.8 million, an increase of 6% from the second quarter of fiscal year 2020. Gross margin was 51% compared to 59% for the second quarter of fiscal year 2020. Non-GAAP gross profit was $27.4 million, an increase of 10% from the second quarter of fiscal year 2020. Non-GAAP gross margin was 57% compared to 62% for the second quarter of fiscal year 2020. Subscription gross margin was 62% compared to 70% for the second quarter of fiscal year 2020. Non-GAAP subscription gross margin was 66% compared to 72% for the second quarter of fiscal year 2020. Both GAAP and Non-GAAP gross margins for the second quarter of fiscal year 2021 were impacted by the revenue mix coming from the acquisition of Business Services.

• GAAP Loss and Non-GAAP Income from Operations: GAAP loss from operations was $(6.8) million compared to $(4.1) million for the second quarter of fiscal year 2020. Non-GAAP income from operations was $3.0 million, the same as the second quarter of fiscal year 2020.

• GAAP Net Loss: GAAP net loss was $(10.7) million compared to a net loss of $(4.6) million for the second quarter of fiscal year 2020. GAAP basic and diluted net loss per share attributable to common stockholders was $(0.30) based upon weighted average shares outstanding of 35.3 million compared to net loss per share of $(0.14) for the second quarter of fiscal year 2020 based upon weighted average shares outstanding of 33.8 million.

• Non-GAAP Net Income: Non-GAAP net income was $1.6 million compared to $2.6 million for the second quarter of fiscal year 2020. Non-GAAP net income per diluted share was $0.04 based upon diluted weighted average shares outstanding of 36.9 million compared to non-GAAP net income per diluted share of $0.07 for the second quarter of fiscal year 2020 based upon diluted weighted average shares outstanding of 35.1 million.

• Adjusted EBITDA: Adjusted EBITDA was $3.2 million, the same as the second quarter of fiscal year 2020.

• Cash and Cash Flows: Cash and cash equivalents as of March 31, 2021 totaled $148.3 million. During the first six months of fiscal year 2021, the company paid $56.8 million for the acquisition of Business Services. Net cash provided by operating activities was $3.1 million for the first six months of fiscal year 2021, compared with $3.4 million in the prior fiscal year period. Free cash flow was $2.4 million for the first six months of fiscal year 2021, compared with $3.3 million in the prior fiscal year period.

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 10, 2021, we are providing guidance for the third quarter fiscal year 2021 and the full fiscal year ending September 30, 2021.

(in $ millions, except per share)		Third Quarter Fiscal 2021		Full Year Fiscal 2021
Total revenues		48.5 – 49.0		189.0 – 190.0
Subscription revenues		35.5 – 36.0		139.0 – 140.0
Non-GAAP income from operations		1.8 – 2.3		13.7 – 14.7
Non-GAAP net income per share		0.01 – 0.02		0.21 – 0.24
Adjusted EBITDA		2.0 – 2.5		14.5 – 15.5

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 fiscal year 2021 ended March 31, 2021. The conference call can be accessed by dialing 877-407-4018 from the United States or +1-201-689-8471 internationally with reference to the company name and conference title, and a live webcast and replay of the conference call can be accessed from the investor relations page of Model N’s website at investor.modeln.com. Following the completion of the call through 11:59 p.m. ET on May 24, 2021, a telephone replay will be available by dialing 844-512-2921 from the United States or +1-412-317-6671, internationally, with recording access code 13718659.

About Model N

Model N enables life sciences and high tech companies to drive growth and market share, minimizing revenue leakage throughout the revenue lifecycle. With deep industry expertise and solutions purpose-built for these industries, Model N delivers comprehensive visibility, insight and control over the complexities of commercial operations and compliance. Its integrated cloud solution is proven to automate pricing, incentive and contract decisions to scale business profitably and grow revenue. Model N is trusted across more than 120 countries by the world’s leading pharmaceutical, medical technology, semiconductor, and high tech companies, including Johnson & Johnson, AstraZeneca, Stryker, Seagate Technology, Broadcom and Microchip Technology. For more information, visit www.modeln.com.

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 2021 financial results, the impact COVID-19 will have on our business, Model N’s profitability, future planned enhancements to our products and benefits from our products, and expected benefits from our acquisition. 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; (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; (xi) changes in health care regulation and policy and tax in the United States and worldwide; (xii) our ability to retain customers; (xiii) adverse impacts on our business and financial condition due to COVID-19; and (xiv) the possibility that the expected benefits related to our acquisition may not materialize as expected and the ability to successfully integrate Deloitte’s life sciences pricing and contracting solutions business and underlying technology. 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, 2020, 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 gross margin, non-GAAP subscription gross profit, non-GAAP subscription gross margin, non-GAAP income (loss) from operations, non-GAAP net income (loss), non-GAAP net income (loss) per share, and adjusted EBITDA. Non-GAAP gross profit excludes stock-based compensation expenses, amortization of intangible assets, and deferred revenue adjustments as they are often excluded by other companies to help investors understand the operational performance of their business. Non-GAAP income (loss) from operations excludes stock-based compensation expense, amortization of intangible assets, acquisition-related expense, and deferred revenue adjustments. Non-GAAP net income (loss) excludes stock-based compensation expense, amortization of intangible assets, acquisition-related expense, amortization of debt discount and issuance costs, and deferred revenue adjustments. Additionally, stock-based compensation expense varies from period to period and from company to company due to such things as valuation methodologies and changes in stock price. Adjusted EBITDA is defined as net loss, adjusted for depreciation and amortization, stock-based compensation expense, acquisition-related expense, deferred revenue adjustment, interest (income) expense, net, other (income) expenses, net, and provision for (benefit from) income taxes. Reconciliation tables are provided in this press release.

We have not reconciled guidance for non-GAAP financial measures to their most directly comparable GAAP measures because certain items that impact these measures are uncertain, out of our control and/or cannot be reasonably predicted or estimated, such as the difficulties of estimating certain items such as charges to stock-based compensation expense. Accordingly, a reconciliation of the non-GAAP financial measure guidance to the corresponding GAAP measures is not available without unreasonable effort.

Model N, Inc. Condensed Consolidated Balance Sheets (in thousands)
	As of March 31, 2021					As of September 30, 2020
Assets
Current assets
Cash and cash equivalents	$	148,345				$	200,491
Accounts receivable, net	40,754					35,796
Prepaid expenses	2,206					2,797
Other current assets	8,517					7,314
Total current assets	199,822					246,398
Property and equipment, net	1,857					1,034
Operating lease right-of-use assets	14,908					3,332
Goodwill	65,665					39,283
Intangible assets, net	49,410					24,380
Other assets	7,335					5,863
Total assets	$	338,997				$	320,290
Liabilities and Stockholders’ Equity
Current liabilities
Accounts payable	$	4,619				$	3,009
Accrued employee compensation	14,379					17,056
Accrued liabilities	5,444					5,237
Operating lease liabilities, current portion	2,396					1,460
Deferred revenue, current portion	55,306					50,904
Total current liabilities	82,144					77,666
Long-term liabilities
Long term debt	119,223					114,438
Operating lease liabilities, less current portion	12,716					2,067
Other long-term liabilities	2,073					1,448
Total long-term liabilities	134,012					117,953
Total liabilities	216,156					195,619
Stockholders’ equity
Common stock	5					5
Preferred stock	—					—
Additional paid-in capital	365,876					351,952
Accumulated other comprehensive loss	(1,128		)			(1,213		)
Accumulated deficit	(241,912		)			(226,073		)
Total stockholders’ equity	122,841					124,671
Total liabilities and stockholders’ equity	$	338,997				$	320,290

Model N, Inc. Condensed Consolidated Statements of Operations (in thousands, except per share amounts)
	Three Months Ended March 31,										Six Months Ended March 31,
	2021					2020					2021					2020
Revenues
Subscription	$	35,941				$	28,991				$	67,376				$	57,173
Professional services	12,251					10,961					23,550					21,167
Total revenues	48,192					39,952					90,926					78,340
Cost of revenues
Subscription	13,734					8,798					22,726					17,508
Professional services	9,643					7,685					17,767					15,327
Total cost of revenues	23,377					16,483					40,493					32,835
Gross profit	24,815					23,469					50,433					45,505
Operating expenses
Research and development	12,495					9,102					21,192					17,618
Sales and marketing	11,509					10,953					20,965					19,966
General and administrative	7,612					7,545					16,399					14,510
Total operating expenses	31,616					27,600					58,556					52,094
Loss from operations	(6,801		)			(4,131		)			(8,123		)			(6,589		)
Interest expense, net	3,552					402					7,014					965
Other expenses (income), net	84					(243		)			214					(255		)
Loss before income taxes	(10,437		)			(4,290		)			(15,351		)			(7,299		)
Provision for income taxes	249					339					488					328
Net loss	$	(10,686	)			$	(4,629	)			$	(15,839	)			$	(7,627	)
Net loss per share:
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