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 15-May-2014All Recent SEC Filings

Show all filings for MODEL N, INC.

Form 10-Q for MODEL N, INC.


15-May-2014

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. The implementation period 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 March 31, 2013 and 2014, our revenues were $24.6 million and $20.7 million, respectively, representing a year-over-year decline of approximately 16%, primarily due to sales execution challenges, our lengthy sales cycles and our continued dependence on a relatively small number of customers for a significant portion of our total revenues.

Key Business Metrics

In addition to the measures of financial performance presented in our Condensed 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.


Table of Contents

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. 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 provide 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
                                      December 31,       March 31,      June 30,       September 30,       December 31,       March 31,
                                          2012             2013           2013             2013                2013             2014
                                                                                 (unaudited)
                                                                               (in thousands)
Four-quarter revenues                $       77,633     $    82,956     $  85,856     $        91,961     $       91,974     $    89,097


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, restructuring charges, interest (income) expense, net, other 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 the 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 restructuring expense;

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.

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

                                           Three Months Ended March 31,            Six Months Ended March 31,
                                            2014                  2013               2014                2013
                                                                     (in thousands)
Reconciliation of Adjusted EBITDA:
Net loss                                $      (5,032 )       $      (1,896 )    $      (8,155 )       $  (3,209 )
Adjustments:
Stock-based compensation                        2,816                   942              4,788             1,499
Depreciation and amortization                     921                   578              1,879             1,102
LeapFrogRx compensation charges                   101                    25                301               414
Restructuring                                      -                     -                  69                -
Interest (income) expense, net                     (3 )                 115                 (7 )             241
Other expenses, net                                56                   660                 87               712
Provision for income taxes                         82                    88                165               149

Adjusted EBITDA                         $      (1,059 )       $         512      $        (873 )       $     908

Adjusted EBITDA was $(1.1) million, $0.5 million, $(0.9) million and $0.9 million for the three months ended March 31, 2014 and 2013 and six months ended March 31, 2014 and 2013, respectively. As compared to the corresponding periods of fiscal year 2013, our Adjusted EBITDA for the three and six months ended March 31, 2014 decreased primarily due to decreases in total revenues.


Table of Contents

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 and support contracts from customers using on-premise solutions. Also included in SaaS and maintenance revenues are other revenues, including revenues related to application support, training and customer-reimbursed expenses. Revenues from subscriptions to our cloud-based solutions are less than 15% of our 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.

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 and partly due to the amortization of $5.1 million of capitalized software development costs over the estimated economic useful life of three years.

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. Through September 30, 2013, we capitalized development costs of $5.1 million incurred in connection with the development of certain additional service offerings that are offered through the cloud. On September 30, 2013, this software became available for general release to our customers, and the future costs are expensed as incurred. For the remainder of fiscal year 2014, 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. For the remainder of fiscal year 2014, we recognize sales commission expense upon booking the contract, while we recognize revenue over the period the services are provided. For the remainder of fiscal year 2014, we expect our sales and marketing expenses to increase in absolute dollars as we increase the number of our sales and marketing employees to grow 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 continue to incur significant accounting and legal costs related to being a public company, as well as insurance, investor relations and other costs. In addition, we expect to continue to incur additional costs related to the implementation of a new enterprise resource planning (ERP) system.

LeapFrogRx Compensation Charges

In January 2012, we acquired certain assets and liabilities of 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 March 31, 2014, we have expensed an aggregate of $6.0 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 March 31,            Six Months Ended March 31,
                                            2014                  2013               2014                2013
                                                                     (in thousands)
Revenues:
License and implementation              $       9,846         $      14,481      $      19,376         $  26,943
SaaS and maintenance                           10,804                10,078             22,833            19,957

Total revenues                                 20,650                24,559             42,209            46,900

Cost of Revenues:
License and implementation(1)                   4,544                 6,800              9,143            12,360
SaaS and maintenance(1)                         5,269                 4,781             10,615             9,304

Total cost of revenues                          9,813                11,581             19,758            21,664

Gross profit                                   10,837                12,978             22,451            25,236
Operating Expenses:
Research and development(1)                     4,681                 4,483              9,548             8,602
Sales and marketing(1)                          6,336                 5,770             11,629            11,106
General and administrative(1)                   4,717                 3,758              9,115             7,635
Restructuring                                      -                     -                  69                -

Total operating expenses                       15,734                14,011             30,361            27,343

Loss from operations                           (4,897 )              (1,033 )           (7,910 )          (2,107 )
Interest expense (income), net                     (3 )                 115                 (7 )             241
Other expenses, net                                56                   660                 87               712

Loss before income taxes                       (4,950 )              (1,808 )           (7,990 )          (3,060 )
Provision for income taxes                         82                    88                165               149

Net loss                                $      (5,032 )       $      (1,896 )    $      (8,155 )       $  (3,209 )

(1) Includes stock-based compensation as follows:

                                                Three Months Ended March 31,               Six Months Ended March 31,
                                                  2014                  2013               2014                 2013
                                                                           (in thousands)
Cost of services:
License and implementation                  $            330         $        90       $         546        $         130
SaaS and maintenance                                     184                 114                 409                  188
Research and development                                 400                  98                 662                  152
Sales and marketing                                      668                 454               1,210                  713
General and administrative                             1,234                 186               1,961                  316

Total stock-based compensation expenses     $          2,816         $       942       $       4,788        $       1,499

                                         Three Months Ended March 31,                   Six Months Ended March 31,
                                        2014                      2013                  2014                    2013
                                                                   (as of % of revenues)
Revenues:
License and implementation                    48 %                      59 %                  46 %                  57 %
SaaS and maintenance                          52                        41                    54                    43

Total revenues                               100                       100                   100                   100

Cost of Revenues:
License and implementation                    22                        28                    22                    26
SaaS and maintenance                          26                        19                    25                    20

Total cost of revenues                        48                        47                    47                    46

Gross profit                                  52                        53                    53                    54
Operating Expenses:
Research and development                      22                        18                    23                    18
Sales and marketing                           31                        24                    27                    24
General and administrative                    23                        15                    22                    16
Restructuring                                 -                         -                     -                     -

Total operating expenses                      76                        57                    72                    58

Loss from operations                         (24 )                      (4 )                 (19 )                  (4 )
Interest expense (income), net                -                          1                    -                      1
Other expenses, net                           -                          3                    -                      2

Loss before income taxes                     (24 )                      (8 )                 (19 )                  (7 )
Provision for income taxes                    -                         -                     -                     -

Net loss                                     (24 )%                     (8 )%                (19 )%                 (7 )%


Table of Contents

Comparison of the Three Months Ended March 31, 2014 and 2013

Revenues



                                                    Three Months Ended March 31,
                                                  2014                        2013                     Change
                                                        % of                        % of
                                                        Total                       Total
                                          Amount      Revenues        Amount      Revenues         ($)          (%)
                                                             (in thousands, except percentages)
Revenues:
License and implementation               $  9,846            48 %    $ 14,481            59 %    $ (4,635 )      (32 )%
SaaS and maintenance                       10,804            52        10,078            41           726          7

Total revenues                           $ 20,650           100 %    $ 24,559           100 %    $ (3,909 )      (16 )%

License and Implementation

License and implementation revenues decreased by $4.6 million, or 32%, to $9.8 million for the three months ended March 31, 2014 from $14.5 million for the three months ended March 31, 2013. Our revenues from existing customers were $7.8 million for the three months ended March 31, 2014 and $11.7 million for the three months ended March 31, 2013. This decrease was primarily due to a reduction in sales volume, which was primarily due to sales execution challenges, our lengthy sales cycles and our continued dependence on a relatively small number of customers for a significant portion of our total revenues.

SaaS and Maintenance

SaaS and maintenance revenues increased by $0.7 million, or 7%, to $10.8 million for the three months ended March 31, 2014 from $10.1 million for the three months ended March 31, 2013. The increase in SaaS and maintenance revenues was primarily driven by an increase of $0.6 million in maintenance and application support revenues primarily due to an increase in the number of service contracts, and a $0.1 million net increase in SaaS and related implementation revenues.

Cost of Revenues



                                                    Three Months Ended March 31,
                                                  2014                         2013                      Change
                                                         % of                         % of
                                         Amount        Revenues        Amount       Revenues         ($)          (%)
                                                              (in thousands, except percentages)
Cost of revenues:
License and implementation              $   4,544             46 %    $  6,800             47 %    $ (2,256 )      (33 )%
SaaS and maintenance                        5,269             49         4,781             47           488         10

Total cost of revenues                  $   9,813             48 %    $ 11,581             47 %    $ (1,768 )      (15 )%

Gross profit:
License and implementation              $   5,302             54 %    $  7,681             53 %    $ (2,379 )      (31 )%
SaaS and maintenance                        5,535             51         5,297             53           238          4

Total gross profit                      $  10,837             52 %    $ 12,978             53 %    $ (2,141 )      (16 )%

License and Implementation

Cost of license and implementation revenues decreased by approximately $2.3 million, or 33%, to $4.5 million during the three months ended March 31, 2014 from $6.8 million for the three months ended March 31, 2013. This decrease was mainly due to the corresponding decrease in license and implementation revenue. As a percentage of revenue, cost of license and implementation revenues decreased slightly from 47% to 46% during the three months ended March 31, 2014. The decrease in the cost of license and implementation revenue was primarily the result of a reduction of $1.6 million in personnel costs due in large part to decreased headcount as a result of our restructuring and a $0.7 million decrease in consulting costs incurred on third-party contractors.

SaaS and Maintenance

Cost of SaaS and maintenance revenues increased $0.5 million, or 10%, to $5.3 million during the three months ended March 31, 2014 from $4.8 million for the three months ended March 31, 2013. As a percentage of revenue, cost of SaaS and maintenance revenues increased from 47% in the three months ended March 31, 2013 . . .

  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.