Total Revenue Grew 18% Year-over-Year

SaaS ARR Grew 40% Year-over-Year

Model N, Inc. (NYSE:MODN), the leader in cloud revenue management solutions, today announced financial results for the second quarter of fiscal year 2023 ended March 31, 2023.

"Our second quarter results beat expectations across the board – we exceeded guidance for total revenue, subscription revenue, and professional services revenue. Q2 also underscores our commitment to driving profitable growth, with adjusted EBITDA growth of 39% year-over-year," said Jason Blessing, president and chief executive officer of Model N. "Overperformance in Q2 was driven by a healthy contribution from all areas of the business. We signed new deals, closed a meaningful new SaaS transition, saw numerous customer base expansions, and we also enjoyed solid renewals. I'm pleased with our continued execution in this environment. We remain focused on driving profitability looking ahead."

Recent Company Highlights

Announced a strategic partnership with Impartner to help high-tech manufacturers enhance partner engagement, revenue and profitability.
Released a new commissioned study by Forrester Consulting that shows how improved channel data management (CDM) leads to better trust, collaboration, and bottom-line results. To access the full survey study, visit www.modeln.com/forrester-opportunity-snapshot-2023.
Priced an offering of $220.0 million of 1.875% convertible senior notes due 2028. Subsequently, the underwriters' exercised in full their option to purchase an additional $33.0 million principal amount of notes.

Second Quarter 2023 Financial Highlights

Revenues: Total revenues were $62.6 million, an increase of 18% from the second quarter of fiscal year 2022. Subscription revenues were $44.9 million, an increase of 17% from the second quarter of fiscal year 2022.
Gross Profit: Gross profit was $35.0 million, an increase of 20% from the second quarter of fiscal year 2022. Gross margin was 56% for the second quarter of fiscal year 2023 compared to 55% for the second quarter of 2022. Non-GAAP gross profit was $37.8 million, an increase of 19% from the second quarter of fiscal year 2022. Non-GAAP gross margin was 60% for the second quarter of fiscal year 2023 and 2022. Subscription gross margin was 64% compared to 62% for the second quarter of fiscal year 2022. Non-GAAP subscription gross margin was 68% compared to 67% for the second quarter of fiscal year 2022.
GAAP Loss and Non-GAAP Income from Operations: GAAP loss from operations was $3.1 million compared to loss from operations of $3.9 million for the second quarter of fiscal year 2022. Non-GAAP income from operations was $9.0 million, an increase of 40% from the second quarter of fiscal year 2022.
GAAP Net Loss: GAAP net loss was $33.3 million compared to a net loss of $8.0 million for the second quarter of fiscal year 2022. GAAP basic and diluted net loss per share attributable to common stockholders was $0.88 based upon weighted average shares outstanding of 37.9 million compared to net loss per share of $0.22 for the second quarter of fiscal year 2022 based upon weighted average shares outstanding of 36.6 million.
Non-GAAP Net Income: Non-GAAP net income, was $8.6 million, an increase of 71% from the second quarter of fiscal year 2022. Non-GAAP net income per diluted share was $0.22 based upon diluted weighted average shares outstanding of 38.9 million compared to non-GAAP net income per diluted share of $0.14 for the second quarter of fiscal year 2022 based upon diluted weighted average shares outstanding of 36.8 million.
Adjusted EBITDA: Adjusted EBITDA was $9.2 million, an increase of 39% from the second quarter of fiscal year 2022. Adjusted EBITDA margin was 15% compared to 12% for the second quarter of fiscal year 2022.
SaaS ARR and SaaS Net Dollar Retention: SaaS ARR hit $125.8 million, as growth accelerated to 40% year-over-year. Trailing 12-month SaaS net dollar retention increased to 138% from 116% year-over-year.

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 9, 2023, we are providing guidance for the third quarter fiscal year 2023 ending June 30, 2023 and the full fiscal year ending September 30, 2023.

(in $ millions, except per share)	Third Quarter Fiscal 2023	Full Year Fiscal 2023
Total revenues	61.5 - 62.5	244.0 - 246.0
Subscription revenues	45.0 - 45.5	180.0 - 181.0
Non-GAAP income from operations	9.2 - 10.2	37.9 - 39.0
Non-GAAP net income per share	0.23 - 0.25	0.94 - 0.99
Adjusted EBITDA	9.5 - 10.5	39.0 - 41.0

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 2023 ended March 31, 2023. The conference call can be accessed by dialing 877-407-4018 from the United States or +1-201-689-8471 internationally. 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 23, 2023, 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 13735135.

About Model N

Model N is the leader in revenue optimization and compliance for pharmaceutical, medtech, and high-tech innovators. Our intelligent platform powers your digital transformation with integrated technology, data, analytics, and expert services that deliver deep insight and control.

Our 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 second quarter and full year fiscal 2023 financial results, Model N's profitability, future planned enhancements to our products and benefits from our products. 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; and (xiii) adverse impacts on our business and financial condition due to macroeconomic and geopolitical factors, such as inflation, rising interests, pandemics, banking system instability and geopolitical conflicts. 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, 2022, 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 from operations, non-GAAP net income, non-GAAP net income per share, adjusted EBITDA and free cash flow. Non-GAAP gross profit and subscription gross profit excludes stock-based compensation expenses and amortization of intangible assets as they are often excluded by other companies to help investors understand the operational performance of their business. Non-GAAP income from operations excludes stock-based compensation expense and amortization of intangible assets. Non-GAAP net income excludes stock-based compensation expense, amortization of intangible assets, amortization of debt discount and issuance costs, and loss on extinguishment of debt. 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, interest expense, net, other (income) expenses, net, provision for income taxes, and loss on extinguishment of debt. Reconciliation tables are provided in this press release.

SaaS ARR is defined as the annualized value of our SaaS revenue, which is derived by dividing the SaaS portion of our recurring subscription revenue for the quarter by the number of days in the quarter, and multiplying it by 365 to get an annualized number. SaaS Net Dollar Retention uses the same SaaS ARR calculations to measure the percentage change in SaaS ARR from customers that are in both the current period and the year-ago period. SaaS ARR that has been added from new customers that were not in the year-ago calculation is excluded from the SaaS Net Dollar Retention calculation. SaaS ARR and SaaS Net Dollar Retention should be viewed independently of revenue, deferred revenue, and remaining performance obligations, and are not intended to be a substitute for, or combined with, any of these items.

Free cash flow is defined as net cash provided by operating activities less cash used for purchase of property plant and equipment.

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, 2023			As of September 30, 2022
Assets
Current assets
Cash and cash equivalents	$	270,643		$	193,524
Funds held for customers		229			603
Accounts receivable, net		76,021			49,121
Prepaid expenses		3,648			5,772
Other current assets		7,709			12,516
Total current assets		358,250			261,536
Property and equipment, net		1,422			1,838
Operating lease right-of-use assets		12,117			15,392
Goodwill		65,665			65,665
Intangible assets, net		33,628			37,362
Other assets		9,710			10,454
Total assets	$	480,792		$	392,247
Liabilities and Stockholders' Equity
Current liabilities
Accounts payable	$	4,610		$	5,820
Customer funds payable		241			603
Accrued employee compensation		11,758			26,712
Accrued liabilities		4,849			6,860
Operating lease liabilities, current portion		4,606			4,651
Deferred revenue, current portion		70,792			62,282
Total current liabilities		96,856			106,928
Long-term liabilities
Long term debt		279,477			135,417
Operating lease liabilities, less current portion		8,895			12,142
Other long-term liabilities		3,403			3,139
Total long-term liabilities		291,775			150,698
Total liabilities		388,631			257,626
Stockholders' equity
Common stock		6			6
Additional paid-in capital		394,622			421,473
Accumulated other comprehensive loss		(2,160	)		(2,413	)
Accumulated deficit		(300,307	)		(284,445	)
Total stockholders' equity		92,161			134,621
Total liabilities and stockholders' equity	$	480,792		$	392,247

Model N, Inc. Condensed Consolidated Statements of Operations (in thousands, except per share amounts)

	Three Months Ended March 31,						Six Months Ended March 31,
	2023			2022			2023			2022
Revenues
Subscription	$	44,925		$	38,243		$	89,139		$	76,331
Professional services		17,679			15,037			32,619			28,491
Total revenues		62,604			53,280			121,758			104,822
Cost of revenues
Subscription		16,121			14,464			31,727			28,380
Professional services		11,499			9,587			22,164			18,322
Total cost of revenues		27,620			24,051			53,891			46,702
Gross profit		34,984			29,229			67,867			58,120
Operating expenses
Research and development		12,403			11,811			25,167			23,238
Sales and marketing		14,222			12,039			27,199			23,078
General and administrative		11,481			9,322			22,172			17,761
Total operating expenses		38,106			33,172			74,538			64,077
Loss from operations		(3,122	)		(3,943	)		(6,671	)		(5,957	)
Interest expense, net		(281	)		3,848			(147	)		7,626
Loss on extinguishment of debt		29,493			—			29,493			—
Other expenses (income), net		83			(112	)		18			(12	)
Loss before income taxes		(32,417	)		(7,679	)		(36,035	)		(13,571	)
Provision for income taxes		902			360			1,334			734
Net loss	$	(33,319	)	$	(8,039	)	$	(37,369	)	$	(14,305	)
Net loss per share:
Basic and diluted	$	(0.88	)	$	(0.22	)	$	(0.99	)	$	(0.39	)
Weighted average number of shares used in computing net loss per share:
Basic and diluted		37,917			36,619			37,719			36,419

Model N, Inc. Condensed Consolidated Statements of Cash Flows (in thousands)

	Six Months Ended March 31,
	2023			2022
Cash Flows from Operating Activities
Net loss	$	(37,369	)	$	(14,305	)
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation and amortization		4,262			4,479
Stock-based compensation		20,767			15,308
Amortization of debt discount and issuance costs		629			5,391
Loss on extinguishment of debt		29,493			—
Deferred income taxes		(156	)		280
Amortization of capitalized contract acquisition costs		2,416			2,027
Other non-cash charges		1,077			32
Changes in assets and liabilities, net of acquisition
Accounts receivable		(27,963	)		(4,682	)
Prepaid expenses and other assets		8,471			2,614
Accounts payable		(1,300	)		(729	)
Accrued employee compensation		(9,890	)		(5,517	)
Other current and long-term liabilities		(5,150	)		(1,707	)
Deferred revenue		8,563			(263	)
Net cash provided by operating activities		(6,150	)		2,928
Cash Flows from Investing Activities
Purchases of property and equipment		(106	)		(349	)
Net cash used in investing activities		(106	)		(349	)
Cash Flows from Financing Activities
Proceeds from exercise of stock options and issuance of common stock under employee stock purchase plan		2,555			2,401
Proceeds from issuance of 2028 Notes		253,000			—
Payment of debt issuance cost for 2028 Notes		(6,958	)		—
Repayments of 2025 Notes		(165,210	)		—
Net changes in customer funds payable		(374	)		(233	)
Net cash provided by financing activities		83,013			2,168
Effect of exchange rate changes on cash and cash equivalents		(12	)		10
Net decrease in cash and cash equivalents		76,745			4,757
Cash and cash equivalents
Beginning of period		194,127			165,783
End of period	$	270,872		$	170,540

Model N, Inc.
Reconciliation of GAAP to Non-GAAP Operating Results
(in thousands, except per share amounts)

	Three Months Ended March 31,						Six Months Ended March 31,
	2023			2022			2023			2022
Reconciliation from GAAP net loss to adjusted EBITDA
GAAP net loss	$	(33,319	)	$	(8,039	)	$	(37,369	)	$	(14,305	)
Reversal of non-GAAP items
Stock-based compensation expense		10,362			8,322			20,767			15,308
Depreciation and amortization		1,989			2,239			4,262			4,479
Interest expense, net		(281	)		3,848			(147	)		7,626
Loss on extinguishment of debt		29,493			—			29,493			—
Other expenses (income), net		83			(112	)		18			(12	)
Provision for income taxes		902			360			1,334			734
Adjusted EBITDA	$	9,229		$	6,618		$	18,358		$	13,830

	Three Months Ended March 31,						Six Months Ended March 31,
	2023			2022			2023			2022
Reconciliation from GAAP gross profit to non-GAAP gross profit
GAAP gross profit	$	34,984		$	29,229		$	67,867		$	58,120
Reversal of non-GAAP expenses
Stock-based compensation (a)		2,370			1,936			4,847			3,415
Amortization of intangible assets (b)		427			709			1,136			1,418
Non-GAAP gross profit	$	37,781		$	31,874		$	73,850		$	62,953
Percentage of revenue		60.3	%		59.8	%		60.7	%		60.1	%

	Three Months Ended March 31,						Six Months Ended March 31,
	2023			2022			2023			2022
Reconciliation from GAAP subscription gross profit to non-GAAP subscription gross profit
GAAP subscription gross profit	$	28,804		$	23,779		$	57,412		$	47,951
Reversal of non-GAAP expenses
Stock-based compensation (a)		1,307			1,065			2,644			1,923
Amortization of intangible assets (b)		427			709			1,136			1,418
Non-GAAP subscription gross profit	$	30,538		$	25,553		$	61,192		$	51,292
Percentage of subscription revenue		68.0	%		66.8	%		68.6	%		67.2	%

	Three Months Ended March 31,						Six Months Ended March 31,
	2023			2022			2023			2022
Reconciliation from GAAP professional services gross profit to non-GAAP professional services gross profit
GAAP professional services gross profit	$	6,180		$	5,450		$	10,455		$	10,169
Reversal of non-GAAP expenses
Stock-based compensation (a)		1,063			871		$	2,203		$	1,492
Non-GAAP professional services gross profit	$	7,243		$	6,321		$	12,658		$	11,661
Percentage of professional services revenue		41.0	%		42.0	%		38.8	%		40.9	%

	Three Months Ended March 31,						Six Months Ended March 31,
	2023			2022			2023			2022
Reconciliation from GAAP operating loss to non-GAAP operating income
GAAP operating loss	$	(3,122	)	$	(3,943	)	$	(6,671	)	$	(5,957	)
Reversal of non-GAAP expenses
Stock-based compensation (a)		10,362			8,322			20,767			15,308
Amortization of intangible assets (b)		1,726			2,008			3,734			4,016
Non-GAAP operating income	$	8,966		$	6,387		$	17,830		$	13,367

Numerator
Reconciliation between GAAP net loss and non-GAAP net income
GAAP net loss	$	(33,319	)	$	(8,039	)	$	(37,369	)	$	(14,305	)
Reversal of non-GAAP expenses
Stock-based compensation (a)		10,362			8,322			20,767			15,308
Amortization of intangible assets (b)		1,726			2,008			3,734			4,016
Loss on extinguishment of debt (c)		29,493			—			29,493			—
Amortization of debt discount and issuance costs (d)		327			2,736			629			5,391
Non-GAAP net income	$	8,589		$	5,027		$	17,254		$	10,410

Denominator
Reconciliation between GAAP net loss and non-GAAP net income per share
Shares used in computing GAAP net loss per share:
Basic		37,917			36,619			37,719			36,419
Diluted		37,917			36,619			37,719			36,419
Shares used in computing non-GAAP net income per share
Basic		37,917			36,619			37,719			36,419
Add: effect of shares for stock plan activity		555			192			589			274
Add: effect of shares related to convertible senior notes		378						486
Diluted		38,850			36,811			38,794			36,693
GAAP net loss per share
Basic and diluted	$	(0.88	)	$	(0.22	)	$	(0.99	)	$	(0.39	)
Non-GAAP net income per share
Basic	$	0.23		$	0.14		$	0.46		$	0.29
Diluted	$	0.22		$	0.14		$	0.44		$	0.28

	Three Months Ended March 31,				Six Months Ended March 31,
	2023		2022		2023		2022
Amortization of intangibles assets recorded in the statements of operations
Cost of revenues
Subscription	$	427	$	709	$	1,136	$	1,418
Total amortization of intangibles assets in cost of revenue (b)		427		709		1,136		1,418
Operating expenses
Sales and marketing		1,299		1,299		2,598		2,598
Total amortization of intangibles assets in operating expense (b)		1,299		1,299		2,598		2,598
Total amortization of intangibles assets (b)	$	1,726	$	2,008	$	3,734	$	4,016

	Three Months Ended March 31,				Six Months Ended March 31,
	2023		2022		2023		2022
Stock-based compensation recorded in the statements of operations
Cost of revenues
Subscription	$	1,307	$	1,065	$	2,644	$	1,923
Professional services		1,063		871		2,203		1,492
Total stock-based compensation in cost of revenue (a)		2,370		1,936		4,847		3,415
Operating expenses
Research and development		1,831		1,509		3,653		2,790
Sales and marketing		2,561		1,826		4,949		3,446
General and administrative		3,600		3,051		7,318		5,657
Total stock-based compensation in operating expense (a)		7,992		6,386		15,920		11,893
Total stock-based compensation (a)	$	10,362	$	8,322	$	20,767	$	15,308

	Three Months Ended March 31,						Six Months Ended March 31,
	2023			2022			2023			2022
Free cash flow
Net cash provided by operating activities	$	12,142		$	12,613		$	(6,150	)	$	2,928
Purchases of property and equipment		(80	)		(24	)		(106	)		(349	)
Free cash flow	$	12,062		$	12,589		$	(6,256	)	$	2,579

Use of Non-GAAP Financial Measures

To supplement our condensed consolidated financial statements presented on a GAAP basis, we use non-GAAP measures of adjusted EBITDA, gross profit, gross margin, income from operations, net income, weighted average shares outstanding and net income per share, which are adjusted to exclude stock-based compensation expense, amortization of intangible assets, depreciation of fixed assets, amortization of debt discount and issuance costs, loss on extinguishment of debt and include dilutive shares where applicable. We believe these adjustments are appropriate to enhance an overall understanding of our past financial performance and also our prospects for the future. These adjustments to our current period GAAP results are made with the intent of providing both management and investors a more complete understanding of our underlying operating results and trends and our marketplace performance. The non-GAAP results are an indication of our baseline performance that are considered by management for the purpose of making operational decisions. In addition, these non-GAAP results are the primary indicators management uses as a basis for our planning and forecasting of future periods. The presentation of this additional information is not meant to be considered in isolation or as a substitute for operating loss, net loss or basic and diluted net loss per share prepared in accordance with generally accepted accounting principles in the United States. Non-GAAP financial measures are not based on a comprehensive set of accounting rules or principles and are subject to limitations.

While a large component of our expenses incurred in certain periods, we believe investors may want to exclude the effects of these items in order to compare our financial performance with that of other companies and between time periods:

(a)		Stock-based compensation is a non-cash expense accounted for in accordance with FASB ASC Topic 718. We believe that the exclusion of stock-based compensation expense provides for a better comparison of our operating results to prior periods and to our peer companies.

(b)		Amortization of intangible assets resulted principally from acquisitions. Intangible asset amortization is a non-cash item. As such, we believe exclusion of these expenses provides for a better comparison of our operating results to prior periods and to our peer companies.

(c)		The repurchase of our 2.625% convertible senior notes due 2025 was accounted for as a debt extinguishment. The Company recorded a $29.5 million loss on extinguishment of debt on its consolidated statements of operations during the fiscal quarter ended March 31, 2023, which includes the write-off of related deferred issuance costs of $2.3 million. We believe exclusion of these expenses provides for a better comparison of our operating results to prior periods and to our peer companies.

(d)		Amortization of debt discount and issuance costs. Prior to the adoption of ASU 2020-06, Debt with Conversion and Other Options, on October 1, 2022 we were required to recognize non-cash interest expense related to amortization of debt discount and issuance costs. Subsequent to the adoption of ASU 2020-06, Debt with Conversion and Other Options, we only recognize non-cash interest expense related to amortization of issuance costs. We believe exclusion of these expenses provides for a better comparison of our operating results to prior periods and to our peer companies.

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Model N Announces Second Quarter Fiscal Year 2023 Financial Results