Search the web
Welcome, Guest
[Sign Out, My Account]
EDGAR_Online

Quotes & Info
Enter Symbol(s):
e.g. YHOO, ^DJI
Symbol Lookup | Financial Search
MODN > SEC Filings for MODN > Form 10-Q on 9-Aug-2013All Recent SEC Filings

Show all filings for MODEL N, INC.

Form 10-Q for MODEL N, INC.


9-Aug-2013

Quarterly Report


Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

Forward-Looking Statements

This report contains forward-looking statements regarding future events and our future results that are subject to the safe harbors created under the Securities Act of 1933 (Securities Act) and the Securities Exchange Act of 1934 (Exchange Act). All statements other than statements of historical facts are statements that could be deemed forward-looking statements. These statements are based on current expectations, estimates, forecasts, and projections about the industries in which we operate and the beliefs and assumptions of our management. Words such as "anticipates," "goals," "plans," "believes," "seeks," "estimates," "continues," "may," "will," variations of such words and similar expressions are intended to identify such forward-looking statements. In addition, any statements that refer to projections of our future financial performance, our anticipated growth and trends in our businesses, and other characterizations of future events or circumstances are forward-looking statements. You should not rely upon forward-looking statements as predictions of future events. The events and circumstances reflected in the forward-looking statements may not be achieved or occur. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance, or achievements. Forward-looking statements are based only on our current expectations and projections and are subject to risks, uncertainties, and assumptions that are difficult to predict, including those identified below under "Part II, Item 1A. Risk Factors," and elsewhere in this report. Therefore, actual results may differ materially and adversely from those expressed in any forward-looking statements. We undertake no obligation to revise or update any forward-looking statements for any reason.

As used in this report, the terms "we," "us," "our," and "the Company" mean Model N, Inc. and its subsidiaries unless the context indicates otherwise.

Overview

We are a provider of revenue management solutions for the life science and technology industries. Our solutions enable our customers to maximize revenues and reduce revenue compliance risk by transforming their revenue lifecycle from a series of tactical, disjointed operations into a strategic end-to-end process. We believe our solutions serve as the system of record for our customers' revenue management processes and can provide a competitive advantage for them.

Our solutions are comprised of two complementary suites of software applications: Revenue Management Enterprise and Revenue Management Intelligence. Sales of our solutions range from individual applications to complete suites, and deployments may vary from specific divisions or territories to enterprise-wide implementations.

We derive revenues primarily from the sale of our on-premise and cloud-based solutions and related implementation services, as well as maintenance and support and application support. We price our solutions based on a number of factors, including revenues under management and number of users. Our license and implementation revenues are comprised of sales of perpetual license and related implementation services, which revenues are recognized over the implementation period, which commences when implementation work begins and typically ranges from a few months to three years. Maintenance and support revenues are recognized ratably over the support period, which is typically one year. SaaS revenues for cloud-based solutions are derived from subscription fees from customers accessing our cloud-based solutions, as well as from associated implementation services. The actual timing of revenue recognition may vary based on our customers' implementation requirements and availability of our services personnel.

We market and sell our solutions to customers in the life science and technology industries. While we have historically generated the substantial majority of our revenues from companies in the life science industry, we have also grown our base of technology customers and intend to continue to focus on increasing the revenues from customers in the technology industry. Our most significant customers in any given period generally vary from period to period due to the timing of implementation and related revenue recognition over those periods of larger projects.

For the three months ended June 30, 2013 and 2012, our revenues were $27.2 million and $22.8 million, respectively, representing year-over-year growth of approximately 20%. We recently experienced challenges in sales execution and our ability to maintain this growth rate throughout our 2014 fiscal year will depend on how quickly we can strengthen this area. For the three months ended June 30, 2013, approximately 14% of our revenues were derived from customers located outside the United States.


Table of Contents

Key Business Metrics

In addition to the measures of financial performance presented in our consolidated financial statements, we use certain key metrics to evaluate and manage our business, including four-quarter revenues from current customers and Adjusted EBITDA. We use these key metrics internally to manage the business, and we believe they are useful for investors to compare key financial data from various periods.

Four-Quarter Revenues From Existing Customers

We derive a large majority of revenues from existing customers, which we define as customers from which we have generated revenues in each of the preceding four quarters, which would exclude historical customers of LeapFrogRx. We measure four-quarter revenues from our existing license and subscription customers by calculating the sum of revenues recognized during the last four quarters from any customer that has contributed revenue in each of the preceding four quarters. We believe four-quarter revenues from existing customers provides us and investors with a metric to measure the historical revenue visibility in our business. We also use this metric internally to understand the proportion of revenues being generated in any period from existing customers as compared to entirely new customers or customers with whom we have not been recently engaged. This measure helps us guide our sales activities and establish budgets and operational goals for our sales function.

Our four-quarter revenues from existing customers for the periods presented were as follows:

                                                                         Four Quarters Ended
                                     March 31,      June 30,       September 30,       December 31,       March 31,      June 30,
                                       2012           2012             2012                2012             2013           2013
                                                                             (unaudited)
                                                                            (in thousands)
Four-quarter revenues               $    66,785     $  73,157     $        76,892     $       77,633     $    82,956     $  85,856


Non-GAAP Financial Measure

Adjusted EBITDA

Adjusted EBITDA is a financial measure that is not calculated in accordance with generally accepted accounting principles in the United States (U.S. GAAP). We define Adjusted EBITDA as net loss before LeapFrogRx compensation charges, as discussed below, stock-based compensation, depreciation and amortization, interest expense, net, other income (expenses), net, and provision for income taxes. We believe Adjusted EBITDA provides investors with consistency and comparability with our past financial performance and facilitates period-to-period comparisons of our operating results and our competitors' operating results. We also use this measure internally to establish budgets and operational goals to manage our business and evaluate our performance.

We understand that, although Adjusted EBITDA is frequently used by investors and securities analysts in their evaluations of companies, Adjusted EBITDA has limitations as an analytical tool, and it should not be considered in isolation or as a substitute for analysis of our results of operations as reported under U.S. GAAP. These limitations include:

Adjusted EBITDA does not include the effect of the LeapFrogRx compensation charges, which are a cash expense;

Adjusted EBITDA does not reflect stock-based compensation expense;

Depreciation and amortization are non-cash charges, and the assets being depreciated or amortized will often have to be replaced in the future; Adjusted EBITDA does not reflect any cash requirements for these replacements;

Adjusted EBITDA does not reflect cash requirements for income taxes and the cash impact of other income or expense; and

Other companies in our industry may calculate Adjusted EBITDA differently than we do, limiting its usefulness as a comparative measure.


Table of Contents

The following tables provide a reconciliation of Adjusted EBITDA to net income (loss):

                                         Three Months Ended           Nine Months Ended
                                              June 30,                     June 30,
                                         2013           2012          2013          2012
                                                         (in thousands)
  Reconciliation of Adjusted EBITDA:
  Net income (loss)                    $   1,535      $ (1,236 )    $ (1,674 )    $ (6,066 )
  Adjustments:
  LeapFrogRx compensation charges            200         2,144           614         3,933
  Stock-based compensation                 1,807           411         3,306         2,005
  Depreciation and amortization              559           462         1,661         1,234
  Interest expense, net                       85           160           326           514
  Other (income) expenses, net               (48 )         (36 )         664           549
  Provision for income taxes                  81            92           230           231
  Adjusted EBITDA                      $   4,219      $  1,997      $  5,127      $  2,400

Adjusted EBITDA was $4.2 million, $2.0 million, $5.1 million and $2.4 million for the three months ended June 30, 2013 and 2012 and nine months ended June 30, 2013 and 2012, respectively. Our Adjusted EBITDA for the three and nine months ended June 30, 2013 increased primarily due to increases in total revenues, which were partially offset by increased expenses. The increase in expenses was primarily due to increases in personnel costs arising principally from headcount increases and increased use of third-party contractors.

Key Components of Results of Operations

Revenues

Revenues are comprised of license and implementation revenues and SaaS and maintenance revenues.

License and Implementation

License and implementation revenues are generated from the sale of software licenses for our on-premise solutions and related implementation services.

SaaS and Maintenance

SaaS and maintenance revenues primarily include subscription and related implementation fees from customers accessing our cloud-based solutions and revenues associated with maintenance contracts from license customers. Also included in SaaS and maintenance revenues are other revenues, including revenues related to application support, training and customer-reimbursed expenses. Prior to 2012, revenues from subscriptions for our cloud-based solutions were not material; however, following our acquisition of LeapFrogRx in January 2012, they have increased but remain less than 15% of our total revenues. Over time, we expect that SaaS revenues will increase as a percentage of total revenues.

Cost of Revenues

Our total cost of revenues is comprised of the following:

License and Implementation

Cost of license and implementation revenues includes costs related to the implementation of our on-premise solutions. Cost of license and implementation revenues primarily consists of personnel-related costs including salary, bonus, stock-based compensation and overhead allocation as well as third-party contractors, royalty fees paid to third parties for rights to their intellectual property and travel-related expenses. Cost of license and implementation revenues may vary from period to period depending on a number of factors, including the amount of implementation services required to deploy our solutions and the level of involvement of third-party contractors providing implementation services.


Table of Contents

SaaS and Maintenance

Cost of SaaS and maintenance revenues includes those costs related to the implementation of our cloud-based solutions, maintenance and support and application support for our on-premise solutions and training. Cost of SaaS and maintenance revenues primarily consists of personnel-related costs including salary, bonus, stock-based compensation, LeapFrogRx compensation charges and overhead allocation as well as reimbursable expenses, third-party contractors and data center-related expenses. We believe that cost of SaaS and maintenance revenues will continue to increase in absolute dollars as we continue to focus on building infrastructure for our cloud-based solutions.

Operating Expenses

Our operating expenses consist of research and development, sales and marketing and general and administrative expenses.

Research and Development

Our research and development expenses consist primarily of personnel-related costs including salary, bonus, stock-based compensation and overhead allocation as well as third-party contractors and travel-related expenses. Our software development costs for new software solutions and enhancements to existing software solutions are generally expensed as incurred. However, we capitalize development costs incurred in connection with the development of certain additional service offerings that will only be offered through the cloud. We expect to cease capitalization of development costs when we have completed all final testing of this product, at which time amortization charges related to such capitalized costs will be included in cost of revenues. As of June 30, 2013, we had $4.0 million of capitalized software development costs. We have not begun to amortize any of these capitalized software development costs as the development of the product is not completed. We expect our research and development expenses to increase in absolute dollars as we continue to develop new applications and enhance our existing software solutions.

Sales and Marketing

Our sales and marketing expenses consist primarily of personnel-related costs including salary, bonus, commissions, stock-based compensation, and overhead allocation as well as third-party contractors, travel-related expenses and marketing programs. We recognize sales commission expense upon contract signing, while we recognize revenue over the period the services are provided. We expect our sales and marketing expenses to increase in absolute dollars as we increase the number of our sales and marketing employees to support the growth in our business.

General and Administrative

Our general and administrative expenses consist primarily of personnel-related costs including salary, bonus, stock-based compensation, and overhead allocation, audit and legal fees as well as third-party contractors and travel-related expenses. We expect to incur significant additional accounting and legal costs related to being a public company, as well as additional insurance, investor relations and other costs. In addition, we expect to incur additional costs related to the implementation of a new enterprise resource planning (ERP) system.

LeapFrogRx Compensation Charges

In January 2012, we acquired LeapFrogRx for initial cash consideration of $3.0 million as well as potential additional payments to former LeapFrogRx stockholders 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. As of June 30, 2013, we had expensed an aggregate of $5.5 million of LeapFrogRx compensation charges.


Table of Contents

Results of Operations

The following tables set forth our consolidated results of operations for the
periods presented and as a percentage of our total revenues for those periods.
The period-to-period comparison of financial results is not necessarily
indicative of financial results to be achieved in future periods.



                                         Three Months Ended           Nine Months Ended
                                              June 30,                     June 30,
                                         2013           2012          2013          2012
                                                         (in thousands)
   Revenues:
   License and implementation          $  16,419      $ 13,191      $ 43,362      $ 36,215
   SaaS and maintenance                   10,828         9,582        30,785        24,855
   Total revenues                         27,247        22,773        74,147        61,070
   Cost of Revenues:
   License and implementation(1)           7,527         5,712        19,887        16,255
   SaaS and maintenance(1)                 4,865         5,616        14,169        13,280
   Total cost of revenues                 12,392        11,328        34,056        29,535
   Gross profit                           14,855        11,445        40,091        31,535

   Operating Expenses:
   Research and development(1)             4,063         4,491        12,665        13,481
   Sales and marketing(1)                  5,256         5,356        16,362        15,042
   General and administrative(1)           3,883         2,618        11,518         7,784
   Total operating expenses               13,202        12,465        40,545        36,307
   Income (loss) from operations           1,653        (1,020 )        (454 )      (4,772 )
   Interest expense, net                      85           160           326           514
   Other (income) expenses, net              (48 )         (36 )         664           549
   Income (loss) before income taxes       1,616        (1,144 )      (1,444 )      (5,835 )
   Provision for income taxes                 81            92           230           231
   Net income (loss)                   $   1,535      $ (1,236 )    $ (1,674 )    $ (6,066 )

(1) Includes stock-based compensation as follows:

                                                       Three Months Ended                Nine Months Ended
                                                            June  30,                        June 30,
                                                      2013              2012           2013             2012
Cost of services:
License and implementation                        $         240       $      61     $       370       $     207
SaaS and maintenance                                        215              77             403             469
Research and development                                    305              56             457             226
Sales and marketing                                         686             167           1,399             941
General and administrative                                  361              50             677             162
Total stock-based compensation                    $       1,807       $     411     $     3,306       $   2,005




                                                       Three Months Ended               Nine Months Ended
                                                            June 30,                         June 30,
                                                     2013              2012            2013             2012
                                                                     (as of % of revenues)
Revenues:
License and implementation                                60 %              58 %           58 %            59 %
SaaS and maintenance                                      40                42             42              41
Total revenues                                           100               100            100             100
Cost of Revenues:
License and implementation                                27                25             27              26
SaaS and maintenance                                      18                25             19              22
Total cost of revenues                                    45                50             46              48
Gross profit                                              55                50             54              52

Operating Expenses:
Research and development                                  15                20             17              22
Sales and marketing                                       20                24             22              25
General and administrative                                14                11             16              13
Total operating expenses                                  49                55             55              60
Income (loss) from operations                              6                (5 )           (1 )            (8 )
Interest expense, net                                     -                 -              -                1
Other (income) expenses, net                              -                 -               1               1
Income (loss) before income taxes                          6                (5 )           (2 )           (10 )
Provision for income taxes                                -                 -              -               -
Net income (loss)                                          6 %              (5 )%          (2 )%          (10 )%


Table of Contents

Comparison of the Three Months Ended June 30, 2013 and 2012

Revenues



                                                          Three Months Ended
                                                               June 30,
                                                   2013                        2012                    Change
                                                         % of                        % of
                                                         Total                       Total
                                           Amount      Revenues        Amount      Revenues         ($)       (%)
                                                             (in thousands, except percentages)
Revenues:
License and implementation                $ 16,419            60 %    $ 13,191            58 %    $ 3,228       24 %
SaaS and maintenance                        10,828            40         9,582            42        1,246       13
Total revenues                            $ 27,247           100 %    $ 22,773           100 %    $ 4,474       20

License and Implementation

License and implementation revenues increased by $3.2 million, or 24%, to $16.4 million for the three months ended June 30, 2013 from $13.2 million for the three months ended June 30, 2012. Our revenues from existing customers were $13.2 million for the three months ended June 30, 2013 and $9.6 million for the three months ended June 30, 2012. The increase was primarily due to an increase in sales volume.

SaaS and Maintenance

SaaS and maintenance revenues increased by $1.2 million, or 13%, to $10.8 million for the three months ended June 30, 2013 from $9.6 million for the three months ended June 30, 2012. The increase in SaaS and maintenance revenues was primarily due to an increase in maintenance and support, and application support revenues of $0.9 million due to an increase in the number of service contracts and an increase in SaaS and related implementation revenues of $0.2 million.

Cost of Revenues



                                                          Three Months Ended
                                                               June 30,
                                                  2013                         2012                      Change
                                                         % of                         % of
                                          Amount       Revenues        Amount       Revenues         ($)         (%)
                                                              (in thousands, except percentages)
Cost of revenues:
License and implementation               $  7,527             27 %    $  5,712             25 %    $ 1,815         32 %
SaaS and maintenance                        4,865             18         5,616             25         (751 )      (13 )
Total cost of revenues                   $ 12,392             45      $ 11,328             50      $ 1,064          9
Gross profit:
License and implementation               $  8,892             33 %    $  7,479             33 %    $ 1,413         19 %
SaaS and maintenance                        5,963             22         3,966             17        1,997         50
Total gross profit                       $ 14,855             55      $ 11,445             50      $ 3,410         30

License and Implementation

Cost of license and implementation revenues increased by $1.8 million, or 32%, to $7.5 million during the three months ended June 30, 2013 from $5.7 million for the three months ended June 30, 2012. The increase in the cost of license and implementation revenues was primarily due to additional in-house personnel as well as third-party contractors deployed in the professional services group.

SaaS and Maintenance

Cost of SaaS and maintenance revenues decreased by $0.8 million, or 13%, to $4.9 million during the three months ended June 30, 2013 from $5.6 million for the three months ended June 30, 2012. The decrease in the cost of SaaS and maintenance revenues was primarily the result of a decrease in LeapFrogRx compensation charge of $1.1 million, partially offset by an increase in personnel costs and third-party contractors' charges of $0.3 million.


Table of Contents

Operating Expenses



                                        Three Months Ended
                                             June 30,
                                        2013           2012             Change
                                       Amount         Amount        ($)         (%)
                                           (in thousands, except percentages)
        Operating expenses:
        Research and development     $     4,063     $  4,491     $  (428 )      (10 )%
. . .
  Add MODN to Portfolio     Set Alert         Email to a Friend  
Get SEC Filings for Another Symbol: Symbol Lookup
Quotes & Info for MODN - All Recent SEC Filings
Copyright © 2014 Yahoo! Inc. All rights reserved. Privacy Policy - Terms of Service
SEC Filing data and information provided by EDGAR Online, Inc. (1-800-416-6651). All information provided "as is" for informational purposes only, not intended for trading purposes or advice. Neither Yahoo! nor any of independent providers is liable for any informational errors, incompleteness, or delays, or for any actions taken in reliance on information contained herein. By accessing the Yahoo! site, you agree not to redistribute the information found therein.