modn-20231231

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

FORM 10-Q

(Mark One)


☒			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended December 31, 2023


☐			TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission File Number: 001-35840

Model N, Inc.

(Exact Name of Registrant as Specified in Its Charter)


Delaware		77-0528806
(State or Other Jurisdiction of Incorporation or Organization)		(I.R.S. Employer Identification No.)

777 Mariners Island Boulevard,	Suite 300	94404
San Mateo,	California
(Address of Principal Executive Offices)		(Zip Code)

Registrant’s telephone number, including area code: (650) 610-4600

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading Symbol

Name of each exchange on which registered

Common Stock, par value $0.00015 per share

MODN

New York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ý No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ý No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer

Accelerated filer

☐

Non-accelerated filer

☐

Smaller reporting company

☐

Emerging growth company

☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ý

As of January 26, 2024, the registrant had 39,032,256 shares of common stock outstanding.

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TABLE OF CONTENTS


		Page

PART I. FINANCIAL INFORMATION

Item 1.	Financial Statements (Unaudited)	2

	Condensed Consolidated Balance Sheets as of December 3 1 , 2023 and September 30, 202 3	2

	Condensed Consolidated Statements of Operations for the Three Months Ended December 31 , 2023 and 2022	3

	Condensed Consolidated Statements of Comprehensive Loss for the Three Months Ended December 3 1 , 2023 and 2022	4

	Condensed Consolidated Statements of Cash Flows for the Three Months Ended December 31 , 2023 and 2022	5

	Notes to Condensed Consolidated Financial Statements	6

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	20

Item 3.	Quantitative and Qualitative Disclosures about Market Risk	29

Item 4.	Controls and Procedures	29

PART II. OTHER INFORMATION

Item 1.	Legal Proceedings	30

Item 1A.	Risk Factors	30

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	53

Item 3.	Defaults Upon Senior Securities	53

Item 4.	Mine Safety Disclosures	53

Item 5.	Other Information	53

Item 6.	Exhibits	55

	Signatures	56

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PART I. FINANCIAL INFORMATION


Item 1.			Financial Statements (Unaudited)

MODEL N, INC.

Condensed Consolidated Balance Sheets

(in thousands, except per share data)

(Unaudited)


	As of December 31, 2023		As of September 30, 2023
Assets
Current assets
Cash and cash equivalents	$	303,375	$	301,355
Funds held for customers	84		91
Accounts receivable, net of allowance for credit losses of $510 as of December 31, 2023 and $496 as of September 30, 2023	83,077		61,761
Prepaid expenses	5,115		5,922
Other current assets	9,893		14,777
Total current assets	401,544		383,906
Property and equipment, net	1,049		1,242
Operating lease right-of-use assets	8,779		9,885
Goodwill	65,665		65,665
Intangible assets, net	28,450		30,176
Other assets	9,687		9,221
Total assets	$	515,174	$	500,095
Liabilities and Stockholders’ Equity
Current liabilities
Accounts payable	$	3,423	$	3,888
Customer funds payable	84		91
Accrued employee compensation	12,064		14,645
Accrued liabilities	6,060		8,700
Operating lease liabilities, current portion	4,254		4,408
Deferred revenue, current portion	74,393		61,745

Total current liabilities	100,278		93,477
Long term debt	280,779		280,358
Operating lease liabilities, less current portion	5,740		6,755
Other long-term liabilities	4,034		4,042
Total liabilities	390,831		384,632
Commitments and contingencies
Stockholders’ equity
Common Stock, $0.00015 par value; 200,000 shares authorized; 39,032 and 38,764 shares issued and outstanding at December 31, 2023 and September 30, 2023, respectively	6		6
Preferred Stock, $0.00015 par value; 5,000 shares authorized; no shares issued and outstanding	—		—
Additional paid-in capital	425,127		414,562
Accumulated other comprehensive loss	(2,132)		(2,245)
Accumulated deficit	(298,658)		(296,860)
Total stockholders’ equity	124,343		115,463
Total liabilities and stockholders’ equity	$	515,174	$	500,095

The accompanying notes are an integral part of these condensed consolidated financial statements.

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MODEL N, INC.

Condensed Consolidated Statements of Operations

(in thousands, except per share data)

(Unaudited)


	Three Months Ended December 31,
		2023		2022
Revenues
Subscription		$	47,655	$	44,214
Professional services		15,836		14,940
Total revenues		63,491		59,154
Cost of revenues
Subscription		16,711		15,606
Professional services		11,158		10,665
Total cost of revenues		27,869		26,271
Gross profit		35,622		32,883
Operating expenses
Research and development		12,680		12,764
Sales and marketing		13,960		12,977
General and administrative		11,649		10,691
Total operating expenses		38,289		36,432
Loss from operations		(2,667)		(3,549)
Interest expense		1,834		1,434
Interest income		(3,540)		(1,300)

Other expenses (income), net		117		(65)
Loss before income taxes		(1,078)		(3,618)
Provision for income taxes		720		432
Net loss		$	(1,798)	$	(4,050)
Net loss per share attributable to common stockholders:
Basic and diluted		$	(0.05)	$	(0.11)

Weighted average number of shares used in computing net loss per share attributable to common stockholders:
Basic and diluted		38,901		37,527

The accompanying notes are an integral part of these condensed consolidated financial statements.

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MODEL N, INC.

Condensed Consolidated Statements of Comprehensive Loss

(in thousands)

(Unaudited)


	Three Months Ended December 31,
		2023		2022
Net loss		$	(1,798)	$	(4,050)
Other comprehensive gain (loss), net of tax
Change in unrealized gain on cash flow hedges		—		239
Change in unrealized gain on investments		—		26
Change in foreign currency translation gain (loss)		113		(66)
Total comprehensive loss		$	(1,685)	$	(3,851)

The accompanying notes are an integral part of these condensed consolidated financial statements.

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MODEL N, INC.

Condensed Consolidated Statements of Cash Flows

(in thousands)

(Unaudited)


	Three Months Ended December 31,
	2023		2022
Cash flows from operating activities:
Net loss	$	(1,798)	$	(4,050)
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation and amortization	1,960		2,273
Stock-based compensation	10,565		10,404
Amortization of debt issuance costs	421		302

Deferred income taxes	72		157
Amortization of capitalized contract acquisition costs	1,278		1,196
Other non-cash charges	143		56
Changes in assets and liabilities, net of acquisition
Accounts receivable	(21,330)		(17,080)
Prepaid expenses and other assets	5,136		43
Accounts payable	(437)		(775)
Accrued employee compensation	(2,608)		(10,630)
Other current and long-term liabilities	(3,604)		(4,961)
Deferred revenue	12,307		4,773
Net cash provided by (used in) operating activities	2,105		(18,292)
Cash flows from investing activities:
Purchases of property and equipment	(99)		(26)


Net cash used in investing activities	(99)		(26)
Cash flows from financing activities:
Proceeds from exercise of stock options and issuance of common stock under employee stock purchase plan	—		27



Net changes in customer funds payable	(7)		(469)
Net cash used in financing activities	(7)		(442)
Effect of exchange rate changes on cash and cash equivalents	14		(39)
Net increase (decrease) in cash and cash equivalents	2,013		(18,799)
Cash and cash equivalents
Beginning of period	301,446		194,127
End of period	$	303,459	$	175,328

The accompanying notes are an integral part of these condensed consolidated financial statements.

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MODEL N, INC.

Notes to Condensed Consolidated Financial Statements

(Unaudited)

1.The Company and Significant Accounting Policies and Estimates

Model N, Inc. (“Model N,” “we,” “us,” “our,” and “the Company”) was incorporated in Delaware on December 14, 1999. The Company is a provider of cloud revenue management solutions for the life sciences and high tech industries. The Company’s software and business services enable its customers to maximize revenues and reduce revenue compliance risk by transforming their revenue life cycle from a series of tactical, disjointed operations into a strategic end-to-end process, which enables them to manage the strategy and execution of pricing, contracting, incentives and rebates. The Company’s corporate headquarters are located in San Mateo, California, with additional offices in the United States, India and Switzerland.

Fiscal Year

The Company’s fiscal year ends on September 30. References to fiscal year 2024, for example, refer to the fiscal year ending September 30, 2024.

Basis for Presentation

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States (“U.S. GAAP”) and applicable rules and regulations of the Securities and Exchange Commission (“SEC”) regarding interim financial reporting. Certain information and note disclosures normally included in the financial statements prepared in accordance with U.S. GAAP have been condensed or omitted pursuant to such rules and regulations. The unaudited condensed consolidated balance sheet as of September 30, 2023 has been derived from the audited financial statements which are included in our Annual Report on Form 10-K for the fiscal year ended September 30, 2023 (the “Annual Report”) on file with the SEC. The unaudited condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes included in the Annual Report.

In the opinion of management, the unaudited interim consolidated financial statements include all the normal recurring adjustments necessary to present fairly our condensed consolidated financial statements. The results of operations for the three months ended December 31, 2023 are not necessarily indicative of the operating results for the full fiscal year 2024 or any future periods.

The condensed consolidated financial statements include the accounts of Model N and its wholly owned subsidiaries. All intercompany transactions and balances have been eliminated upon consolidation.

Use of Estimates

The preparation of condensed consolidated financial statements in conformity with U.S. GAAP requires management to make certain estimates and assumptions that affect the amounts of assets and liabilities reported, disclosures about contingent assets and liabilities and reported amounts of revenues and expenses during the reporting periods. Significant items subject to such estimates include revenue recognition, legal contingencies, income taxes, stock-based compensation and valuation of goodwill and intangibles. These estimates and assumptions are based on management’s best estimates and judgment. Management regularly evaluates its estimates and assumptions using historical experience and other factors. However, actual results could differ significantly from these estimates.

New Accounting Pronouncements

Recently Adopted Accounting Guidance

In August 2020, the FASB issued ASU 2020-06, Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40), Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity, which eliminates the beneficial conversion and cash conversion accounting models for convertible instruments. It also amends the accounting for certain contracts in an entity’s own equity that are currently accounted for as derivatives because of specific settlement provisions. In addition, the new guidance modifies how particular convertible instruments and certain contracts that may be settled in cash or shares impacted the diluted EPS computation. The Company adopted this ASU on October 1, 2022 on a modified retrospective basis. As a result, the Company no longer separately presents in equity an embedded conversion feature for such debt. Similarly, the discount is no longer amortized into

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income as interest expense over the life of the instrument. The cumulative effect of the ASU adoption was as follows (in thousands):


	Balance at September 30, 2022		Adjustments from Adoption of ASU 2020-06		Balance at October 1, 2022
Liabilities
Long term debt	$	135,417	$	33,720	$	169,137
Stockholders’ Equity
Additional paid-in capital	421,473		(55,227)		366,246
Accumulated deficit	(284,445)		21,507		(262,938)

In October 2021, the FASB issued Accounting Standards Update No. 2021-08, “Business Combinations (Topic 805), Accounting for Contract Assets and Contract Liabilities from Contracts with Customers” (“ASU 2021-08”), which requires contract assets and contract liabilities acquired in a business combination to be recognized and measured in accordance with ASC 606, Revenue from Contracts with Customers. ASU 2021-08 is effective for interim and annual periods beginning after December 15, 2022 on a prospective basis. The Company adopted this guidance on October 1, 2023, which did not have a material effect on its consolidated financial statements.

Significant Accounting Policies

There have been no changes in the significant accounting policies from those that were disclosed in the audited consolidated financial statements for the fiscal year ended September 30, 2023 included in the Annual Report.

2. Revenues from Contracts with Customers

Revenue Recognition

The Company derives revenues primarily from subscription revenues and professional services revenues. Revenues are recorded at a net basis which exclude sales taxes that are collected from customers.

Disaggregation of Revenues

See Note 14, Geographic Information, for information on revenue by geography.

Customer Contract Balances

The following table reflects contract balances related to contracts with customers (in thousands):


	As of December 31, 2023		As of September 30, 2023
Accounts receivable, net	$	69,526	$	46,314
Unbilled accounts receivable, net	13,551		15,447
Total accounts receivable, net	$	83,077	$	61,761
Contract asset	$	4,129	$	9,294
Deferred revenue	$	74,505	$	62,198
Capitalized contract acquisition costs	$	12,369	$	11,803

Accounts Receivable

Accounts receivable represents the Company’s right to consideration that is unconditional, net of allowances for credit losses. The allowance for credit losses is based on management’s assessment of the collectability of accounts receivable amounts.

Unbilled Accounts Receivable

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Unbilled accounts receivable consists of a receivable primarily for the revenue recognized for services performed but not yet billed.

Contract Asset

Contract asset represents revenue that has been recognized for satisfied performance obligations for which the Company does not have an unconditional right to consideration.

Deferred Revenue

Deferred revenue, which is a contract liability, consists of amounts that have been invoiced and for which the Company has the right to bill, but that have not been recognized as revenue because the related goods or services have not been transferred.

The non-current portion of deferred revenue is included in other long-term liabilities in the condensed consolidated balance sheets. During the three months ended December 31, 2023 and 2022, the Company recognized revenue of $29.4 million and $28.5 million, respectively, that was included in the deferred revenue balances at the beginning of the periods.

Capitalized Contract Acquisition Costs

The Company capitalizes incremental costs incurred to acquire contracts with customers, primarily sales commissions, for which the associated revenue is expected to be recognized in future periods. The Company incurs these costs in connection with both initial contracts and renewals. Such costs for renewals are not considered commensurate with those for initial contracts given the substantive difference in commission rates in proportion to their respective contract values. The costs in connection with initial contracts and renewals are deferred and amortized over an expected customer life of five years and over the renewal term, respectively, which corresponds to the period of benefit to the customer. The Company determined the period of benefit by considering the Company’s history of customer relationships, length of customer contracts, technological development and obsolescence, and other factors. The current and non-current portion of capitalized contract acquisition costs are included in other current assets and other assets on the condensed consolidated balance sheets. Amortization expense is included in sales and marketing expenses on the condensed consolidated statements of operations.

As of December 31, 2023, the current and non-current portions of capitalized contract acquisition costs were $4.6 million and $7.8 million, respectively. As of September 30, 2023, the current and non-current portions of capitalized contract acquisition costs were $4.5 million and $7.3 million, respectively. The Company amortized $1.3 million and $1.2 million of contract acquisition costs during the three months ended December 31, 2023 and 2022, respectively.

For the three months ended December 31, 2023 and 2022, there was no impairment related to capitalized contract acquisition costs.

Customer Deposits

Customer deposits primarily relate to payments received from customers which could be refundable pursuant to the terms of the related arrangement. These amounts are included in accrued liabilities on the condensed consolidated balance sheets. Customer deposits were immaterial as of December 31, 2023 and September 30, 2023.

Standard payment terms to customers generally range from thirty to ninety days; however, payment terms and conditions in our customer contracts may vary. In some cases, customers prepay for subscription and services in advance of the delivery; in other cases, payment is due as services are performed or in arrears following the delivery.

Remaining Performance Obligations

Remaining performance obligations represent non-cancelable contracted revenue that has not yet been recognized, which includes deferred revenue and amounts that will be invoiced and recognized as revenue in future periods. As of December 31, 2023, the aggregate amount of the transaction price allocated to performance obligations either unsatisfied or partially unsatisfied was $349.4 million, 46% of which we expect to recognize as revenue over the next 12 months and the remainder thereafter.

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3. Leases

The Company leases facilities under noncancellable operating leases with lease terms between three years and eleven years. Certain leases include options to extend or terminate the lease. The Company factored into the determination of lease payments the options that it is reasonably certain to exercise.

Operating lease costs were $1.2 million and $1.3 million for the three months ended December 31, 2023, and 2022, respectively. Short-term lease costs, variable lease costs, and sublease income were immaterial for the three months ended December 31, 2023, and 2022.

Cash flow information related to operating leases is as follows (in thousands):


	Three Months Ended December 31, 2023		Three Months Ended December 31, 2022
Cash paid for amounts included in the measurement of operating lease liabilities	$	1,236	$	1,182
Operating lease ROU assets obtained in exchange for new operating lease liabilities	—		—

The weighted-average remaining lease term is 2.3 years and the weighted-average discount rate is 2.7% as of December 31, 2023.

Maturities of operating lease liabilities as of December 31, 2023 are as follows (in thousands):


Fiscal Year
Remaining fiscal 2024	$	3,407
2025	4,278
2026	2,348
2027	276
2028 and thereafter	—

Total operating lease payments	10,309
Less imputed interest	315
Total operating lease liabilities	$	9,994

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4. Fair Value of Financial Instruments

The Company’s financial instruments consist primarily of cash and cash equivalents, funds held for customers, accounts receivable, accounts payable, customer funds payable, debt and certain accrued liabilities. The Company regularly reviews its financial instruments portfolio to identify and evaluate such instruments that have indications of possible impairment. The Company estimates the fair value of its financial instruments when there is no readily available market data, which involves some level of management estimation and judgment and may not necessarily represent the amounts that could be realized in a current or future sale of these assets.

The table below sets forth the Company’s marketable securities which are measured at fair value on a recurring basis by level within the fair value hierarchy (in thousands):


									Reported as:
	Amortized Cost		Unrealized Gains		Unrealized Losses		Fair Value		Cash and Cash Equivalents
As of December 31, 2023
Level 1:
Money market funds	$	245,711	$	—	$	—	$	245,711	$	245,711

Total	$	245,711	$

SEC Form 10-Q filed by Model N Inc.