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 8-Aug-2014All Recent SEC Filings

Show all filings for MODEL N, INC.

Form 10-Q for MODEL N, INC.


8-Aug-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 June 30, 2014 and 2013, our revenues were $19.3 million and $27.2 million, respectively, representing a year-over-year decline of approximately 29%, 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. We have made progress in improving our sales execution over recent fiscal quarters and we believe that revenue for the three months ended June 30, 2014 marks the low point of our estimated revenue for our fiscal year 2014 and that we will continue to improve into fiscal year 2015.

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
                                     March 31,      June 30,       September 30,       December 31,       March 31,      June 30,
                                       2013           2013             2013                2013             2014           2014
                                                                             (unaudited)
                                                                            (in thousands)
Four-quarter revenues               $    82,956     $  85,856     $        91,961     $       91,974     $    89,097     $  84,657


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.


Table of Contents

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

                                         Three Months Ended            Nine Months Ended
                                              June 30,                     June 30,
                                          2014          2013          2014           2013
                                                          (in thousands)
  Reconciliation of Adjusted EBITDA:
  Net (loss) income                    $   (6,800 )    $ 1,535      $ (14,955 )    $ (1,674 )
  Adjustments:
  Stock-based compensation                  2,662        1,807          7,450         3,306
  Depreciation and amortization               912          559          2,791         1,661
  LeapFrogRx Compensation charges              80          200            381           614
  Restructuring                               (43 )         -              26            -
  Interest (income) expense, net               (3 )         85            (10 )         326
  Other expenses, net                          24          (48 )          111           664
  Provision for income taxes                   96           81            261           230

  Adjusted EBITDA                      $   (3,072 )    $ 4,219      $  (3,945 )    $  5,127

Adjusted EBITDA was $(3.1) million, $4.2 million, $(3.9) million and $5.1 million for the three months ended June 30, 2014 and 2013 and nine months ended June 30, 2014 and 2013, respectively. As compared to the corresponding periods of fiscal year 2013, our Adjusted EBITDA for the three and nine months ended June 30, 2014 decreased primarily due to decreases in total revenues as a result of the sales execution challenges discussed previously.

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.


Table of Contents

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 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 June 30, 2014, we have expensed an aggregate of $6.1 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 June 30,            Nine Months Ended June 30,
                                              2014                  2014                2014               2013
                                                                       (in thousands)
Revenues:
License and implementation                $       8,073         $      16,419      $       27,449        $  43,362
SaaS and maintenance                             11,196                10,828              34,029           30,785

Total revenues                                   19,269                27,247              61,478           74,147

Cost of Revenues:
License and implementation(1)                     3,812                 7,527              12,955           19,887
SaaS and maintenance(1)                           5,302                 4,865              15,917           14,169

Total cost of revenues                            9,114                12,392              28,872           34,056

Gross profit                                     10,155                14,855              32,606           40,091
Operating Expenses:
Research and development(1)                       4,814                 4,063              14,362           12,665
Sales and marketing(1)                            6,664                 5,256              18,293           16,362
General and administrative(1)                     5,403                 3,883              14,518           11,518
Restructuring                                       (43 )                  -                   26               -

Total operating expenses                         16,838                13,202              47,199           40,545

(Loss) income from operations                    (6,683 )               1,653             (14,593 )           (454 )
Interest (income) expense, net                       (3 )                  85                 (10 )            326
Other expenses, net                                  24                   (48 )               111              664

(Loss) income before income taxes                (6,704 )               1,616             (14,694 )         (1,444 )
Provision for income taxes                           96                    81                 261              230

Net (loss) income                         $      (6,800 )       $       1,535      $      (14,955 )      $  (1,674 )

(1) Includes stock-based compensation as follows:

                                              Three Months Ended June 30,            Nine Months Ended June 30,
                                               2014                2013               2014                2013
                                                                        (in thousands)
Cost of services:
License and implementation                 $         206       $         240      $         752       $         370
SaaS and maintenance                                 167                 215                576                 403
Research and development                             310                 305                972                 457
Sales and marketing                                  721                 686              1,931               1,399
General and administrative                         1,258                 361              3,219                 677

Total stock-based compensation expenses    $       2,662       $       1,807      $       7,450       $       3,306

Comparison of the Three Months Ended June 30, 2014 and 2013

Revenues



                                                     Three Months Ended June 30,
                                                 2014                           2013                       Change
                                                     % of Total                     % of Total
                                        Amount        Revenues         Amount        Revenues          ($)          (%)
                                                              (in thousands, except percentages)
Revenues:
License and implementation             $  8,073               42 %    $ 16,419               60 %    $ (8,346 )      (51 )%
SaaS and maintenance                     11,196               58        10,828               40           368          3

Total revenues                         $ 19,269              100 %    $ 27,247              100 %    $ (7,978 )      (29 )%

License and Implementation

License and implementation revenues decreased by $8.3 million, or 51%, to $8.1 million for the three months ended June 30, 2014 from $16.4 million for the three months ended June 30, 2013. Our revenues from existing customers were $6.6 million for the three months ended June 30, 2014 and $13.2 million for the three


Table of Contents

months ended June 30, 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 $0.4 million, or 3%, to $11.2 million for the three months ended June 30, 2014 from $10.8 million for the three months ended June 30, 2013. The increase in SaaS and maintenance revenues was primarily driven by an increase in maintenance and support and application support revenues of $0.6 million due to an increase in the number of service contracts, partially offset by a net decrease of $0.2 million in other SaaS and related implementation revenues.

Cost of Revenues



                                                Three Months Ended June 30,
                                             2014                         2013                      Change
                                                    % of                         % of
                                     Amount       Revenues        Amount       Revenues         ($)          (%)
                                                         (in thousands, except percentages)
Cost of Revenues:
License and implementation          $  3,812             47 %    $  7,527             46 %    $ (3,715 )      (49 )%
SaaS and maintenance                   5,302             47         4,865             45           437          9

Total cost of revenues              $  9,114             47 %    $ 12,392             45 %    $ (3,278 )      (26 )%

Gross profit
License and implementation             4,261             53         8,892             54        (4,631 )      (52 )
SaaS and maintenance                   5,894             53         5,963             55           (69 )       (1 )

Total gross profit                  $ 10,155             53 %    $ 14,855             55 %    $ (4,700 )      (32 )%

License and Implementation

Cost of license and implementation revenues decreased by approximately 3.7 million, or 49%, to $3.8 million during the three months ended June 30, 2014 from $7.5 million for the three months ended June 30, 2013. This decrease was mainly due to the corresponding decrease in license and implementation revenue. As a percentage of license and implementation revenue, cost of license and implementation revenues increased slightly from 46% to 47% during the three months ended June 30, 2014. Cost of license and implementation revenues decreased for the three months ended June 30, 2014, as compared with the corresponding period in fiscal 2013, primarily due to a $2.5 million reduction in headcount-related expenses resulting largely from efficiencies related to our workforce reduction plan announced in September 2013 and a $1.2 million decline in third-party consulting contractor costs.

SaaS and Maintenance

Cost of SaaS and maintenance revenues increased $0.4 million, or 9%, to $5.3 million during the three months ended June 30, 2014 from $4.9 million for the three months ended June 30, 2013. As a percentage of SaaS and maintenance revenue, cost of SaaS and maintenance revenues increased from 45% in the three months ended June 30, 2013 to 47% in the third quarter of fiscal year 2014 primarily due to $0.4 million of amortization recorded on internally developed software that became generally available to our customers as of the beginning of fiscal year 2014.

Operating Expenses



                                                      Three Months Ended June 30,
                                                  2014                           2013                      Change
                                                      % of Total                     % of Total
                                        Amount         Revenues         Amount        Revenues          ($)        (%)
                                                              (in thousands, except percentages)
Operating Expenses:
Research and development               $  4,814                25 %    $  4,063               15 %    $   751        18 %
Sales and marketing                       6,664                35         5,256               19        1,408        27
General and administrative                5,403                28         3,883               14        1,520        39
Restructuring                               (43 )              -             -                -           (43 )      -

Total operating expenses               $ 16,838                87 %    $ 13,202               48 %    $ 3,636        28 %

Research and Development

Research and development expenses increased by $0.8 million, or 18%, to $4.8 million during the three months ended June 30, 2014 as compared to $4.1 million for the three months ended June 30, 2013 primarily due to an increase in employee-related costs as in fiscal year 2013, we were capitalizing costs incurred in connection with the development of internally-developed software. We believe that continued investment in our technology is important to our future growth, and as a result, we expect research and development expenses to increase in absolute dollars in the remainder of fiscal year 2014.


. . .
  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.