Model N Announces Third Quarter Fiscal Year 2023 Financial Results

Model N, Inc., the leader in cloud revenue management solutions, announced financial results for the third quarter of fiscal year 2023 ended June 30, 2023.

Total Revenue Grew 13% Year-over-Year

SaaS ARR Grew 28% Year-over-Year

SAN MATEO, Calif.--(BUSINESS WIRE)-- Model N, Inc. (NYSE: MODN), the leader in cloud revenue management solutions, today announced financial results for the third quarter of fiscal year 2023 ended June 30, 2023.

“Our third quarter results beat expectations across the board – we exceeded guidance for total revenue, subscription revenue, and professional services revenue. Overall, Q3 was another strong quarter and underscores our commitment to driving profitable growth,” said Jason Blessing, president and chief executive officer of Model N. “A key highlight during the quarter was our 19th annual customer conference, Rainmaker. Our customers, team members, and partners alike came out of Rainmaker very energized and excited for the future. We’re seeing strong product pipeline, compelling customer engagement, and healthy customer satisfaction. I came away feeling good about how both our value proposition and customer-centric approach are resonating well across our customer base.”

Recent Company Highlights

  • Model N hosted Rainmaker23, the Company’s annual customer conference in Nashville.
  • In June, Fortune Media and Great Place to Work® honored Model N as one of this year’s Best Workplaces in the Bay Area.
  • In July, Fortune and Great Place to Work® honored Model N as one of this year’s Best Workplaces for Millennials.
  • Model N released its Spring 2023 product release for life sciences and high-tech customers. This latest semi-annual release delivers new products and platform enhancements to help pharmaceutical, medical technology, and high-tech manufacturers further optimize revenue operations and strengthen compliance across the enterprise.

Third Quarter 2023 Financial Highlights

  • Revenues: Total revenues were $63.7 million, an increase of 13% from the third quarter of fiscal year 2022. Subscription revenues were $45.8 million, an increase of 13% from the third quarter of fiscal year 2022.
  • Gross Profit: Gross profit was $36.5 million, an increase of 16% from the third quarter of fiscal year 2022. Gross margin was 57% for the third quarter of fiscal year 2023 compared to 56% for the third quarter of 2022. Non-GAAP gross profit was $39.2 million, an increase of 13% from the third quarter of fiscal year 2022. Non-GAAP gross margin was 61% for the third quarter of fiscal year 2023 compared to 62% for the third quarter of fiscal year 2022. Subscription gross margin was 65% compared to 63% for the third quarter of fiscal year 2022. Non-GAAP subscription gross margin was 69% compared to 68% for the third quarter of fiscal year 2022.
  • GAAP Income and Non-GAAP Income from Operations: GAAP income from operations was $2.9 million compared to loss from operations of $2.1 million for the third quarter of fiscal year 2022. Non-GAAP income from operations was $13.3 million, an increase of 35% from the third quarter of fiscal year 2022.
  • GAAP Net Income: GAAP net income was $2.8 million compared to a net loss of $6.2 million for the third quarter of fiscal year 2022. GAAP diluted net income per share attributable to common stockholders was $0.07 based upon diluted weighted average shares outstanding of 38.6 million compared to net loss per share of $0.17 for the third quarter of fiscal year 2022 based upon weighted average shares outstanding of 36.9 million.
  • Non-GAAP Net Income: Non-GAAP net income, was $13.6 million, an increase of 60% from the third quarter of fiscal year 2022. Non-GAAP net income per diluted share was $0.35 based upon diluted weighted average shares outstanding of 38.6 million compared to non-GAAP net income per diluted share of $0.23 for the third quarter of fiscal year 2022 based upon diluted weighted average shares outstanding of 37.1 million.
  • Adjusted EBITDA: Adjusted EBITDA was $13.5 million, an increase of 35% from the third quarter of fiscal year 2022. Adjusted EBITDA margin was 21% compared to 18% for the third quarter of fiscal year 2022.
  • SaaS ARR and SaaS Net Dollar Retention: SaaS ARR hit $129.2 million, representing growth of 28% year-over-year. Trailing 12-month SaaS net dollar retention increased to 126% from 123% 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 August 8, 2023, we are providing guidance for the fourth quarter and the full fiscal year ending September 30, 2023.

(in $ millions, except per share)

Fourth Quarter Fiscal 2023

Full Year Fiscal 2023

Total revenues

61.6 - 62.6

247.1 - 248.1

Subscription revenues

45.6 - 46.1

180.5 - 181.0

Non-GAAP income from operations

10.8 - 11.8

41.8 - 42.8

Non-GAAP net income per share

0.28 - 0.31

1.08 - 1.10

Adjusted EBITDA

11.0 - 12.0

42.9 - 43.9

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 third quarter fiscal year 2023 ended June 30, 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 August 22, 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 13735136.

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 fourth 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 income (loss), adjusted for depreciation and amortization, stock-based compensation expense, interest income (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 June 30, 2023

 

As of September 30, 2022

Assets

     

Current assets

     

Cash and cash equivalents

$

299,581

   

$

193,524

 

Funds held for customers

 

117

     

603

 

Accounts receivable, net

 

51,866

     

49,121

 

Prepaid expenses

 

4,181

     

5,772

 

Other current assets

 

8,574

     

12,516

 

Total current assets

 

364,319

     

261,536

 

Property and equipment, net

 

1,260

     

1,838

 

Operating lease right-of-use assets

 

11,030

     

15,392

 

Goodwill

 

65,665

     

65,665

 

Intangible assets, net

 

31,902

     

37,362

 

Other assets

 

9,134

     

10,454

 

Total assets

$

483,310

   

$

392,247

 

Liabilities and Stockholders’ Equity

     

Current liabilities

     

Accounts payable

$

4,615

   

$

5,820

 

Customer funds payable

 

117

     

603

 

Accrued employee compensation

 

13,205

     

26,712

 

Accrued liabilities

 

5,966

     

6,860

 

Operating lease liabilities, current portion

 

4,577

     

4,651

 

Deferred revenue, current portion

 

59,825

     

62,282

 

Total current liabilities

 

88,305

     

106,928

 

Long-term liabilities

     

Long term debt

 

279,895

     

135,417

 

Operating lease liabilities, less current portion

 

7,786

     

12,142

 

Other long-term liabilities

 

3,693

     

3,139

 

Total long-term liabilities

 

291,374

     

150,698

 

Total liabilities

 

379,679

     

257,626

 

Stockholders’ equity

     

Common stock

 

6

     

6

 

Additional paid-in capital

 

403,218

     

421,473

 

Accumulated other comprehensive loss

 

(2,104

)

   

(2,413

)

Accumulated deficit

 

(297,489

)

   

(284,445

)

Total stockholders’ equity

 

103,631

     

134,621

 

Total liabilities and stockholders’ equity

$

483,310

   

$

392,247

 
       

Model N, Inc.

Condensed Consolidated Statements of Operations

(in thousands, except per share amounts)

       
 

Three Months Ended June 30,

 

Nine Months Ended June 30,

   

2023

     

2022

     

2023

     

2022

 

Revenues

             

Subscription

$

45,789

   

$

40,554

   

$

134,928

   

$

116,885

 

Professional services

 

17,947

     

15,618

     

50,566

     

44,109

 

Total revenues

 

63,736

     

56,172

     

185,494

     

160,994

 

Cost of revenues

             

Subscription

 

15,841

     

14,869

     

47,568

     

43,249

 

Professional services

 

11,424

     

9,938

     

33,588

     

28,260

 

Total cost of revenues

 

27,265

     

24,807

     

81,156

     

71,509

 

Gross profit

 

36,471

     

31,365

     

104,338

     

89,485

 

Operating expenses

             

Research and development

 

11,361

     

11,797

     

36,528

     

35,035

 

Sales and marketing

 

13,332

     

11,795

     

40,531

     

34,873

 

General and administrative

 

8,849

     

9,857

     

31,021

     

27,618

 

Total operating expenses

 

33,542

     

33,449

     

108,080

     

97,526

 

Income (loss) from operations

 

2,929

     

(2,084

)

   

(3,742

)

   

(8,041

)

Interest expense (income), net

 

(731

)

   

3,794

     

(878

)

   

11,420

 

Loss on extinguishment of debt

 

     

     

29,493

     

 

Other expenses (income), net

 

102

     

(271

)

   

120

     

(283

)

Income (loss) before income taxes

 

3,558

     

(5,607

)

   

(32,477

)

   

(19,178

)

Provision for income taxes

 

740

     

611

     

2,074

     

1,345

 

Net income (loss)

$

2,818

   

$

(6,218

)

 

$

(34,551

)

 

$

(20,523

)

Net income (loss) per share:

             

Basic

$

0.07

   

$

(0.17

)

 

$

(0.91

)

 

$

(0.56

)

Diluted

$

0.07

   

$

(0.17

)

 

$

(0.91

)

 

$

(0.56

)

Weighted average number of shares used in computing net income (loss) per share:

             

Basic

 

38,278

     

36,935

     

37,906

     

36,591

 

Diluted

 

38,610

     

36,935

     

37,906

     

36,591

 
               

Model N, Inc.

Condensed Consolidated Statements of Cash Flows

(in thousands)

   
 

Nine Months Ended June 30,

   

2023

     

2022

 

Cash Flows from Operating Activities:

     

Net loss

$

(34,551

)

 

$

(20,523

)

Adjustments to reconcile net loss to net cash provided by operating activities:

     

Depreciation and amortization

 

6,254

     

6,725

 

Stock-based compensation

 

29,362

     

25,186

 

Amortization of debt discount and issuance costs

 

1,047

     

8,211

 

Loss on extinguishment of debt

 

29,493

     

 

Deferred income taxes

 

20

     

414

 

Amortization of capitalized contract acquisition costs

 

3,663

     

3,152

 

Other non-cash charges

 

1,251

     

(515

)

Changes in assets and liabilities, net of acquisition:

     

Accounts receivable

 

(3,960

)

   

4,908

 

Prepaid expenses and other assets

 

7,500

     

(1,611

)

Accounts payable

 

(1,211

)

   

(1,516

)

Accrued employee compensation

 

(8,461

)

   

(794

)

Other current and long-term liabilities

 

(4,192

)

   

(3,020

)

Deferred revenue

 

(2,751

)

   

(3,284

)

Net cash provided by operating activities

 

23,464

     

17,333

 

Cash Flows from Investing Activities:

     

Purchases of property and equipment

 

(237

)

   

(486

)

Net cash used in investing activities

 

(237

)

   

(486

)

Cash Flows from Financing Activities:

     

Proceeds from exercise of stock options and issuance of common stock under employee stock purchase plan

 

2,555

     

2,507

 

Proceeds from issuance of 2028 Notes

 

253,000

     

 

Payment of debt issuance cost for 2028 Notes

 

(7,525

)

   

 

Repayments of 2025 Notes

 

(165,210

)

   

 

Net changes in customer funds payable

 

(486

)

   

(142

)

Net cash provided by financing activities

 

82,334

     

2,365

 

Effect of exchange rate changes on cash and cash equivalents

 

10

     

(335

)

Net increase in cash and cash equivalents

 

105,571

     

18,877

 

Cash and cash equivalents

     

Beginning of period

 

194,127

     

165,783

 

End of period

$

299,698

   

$

184,660

 
       

Model N, Inc.

Reconciliation of GAAP to Non-GAAP Operating Results

(in thousands, except per share amounts)

 
   

Three Months Ended June 30,

 

Nine Months Ended June 30,

     

2023

     

2022

     

2023

     

2022

 

Reconciliation from GAAP net income (loss) to adjusted EBITDA

               

GAAP net income (loss)

 

$

2,818

   

$

(6,218

)

 

$

(34,551

)

 

$

(20,523

)

Reversal of non-GAAP items

               

Stock-based compensation expense

   

8,596

     

9,878

     

29,362

     

25,186

 

Depreciation and amortization

   

1,992

     

2,246

     

6,254

     

6,725

 

Interest (income) expense, net

   

(731

)

   

3,794

     

(878

)

   

11,420

 

Loss on extinguishment of debt

   

     

     

29,493

     

 

Other (income) expense, net

   

102

     

(271

)

   

120

     

(283

)

Provision for income taxes

   

740

     

611

     

2,074

     

1,345

 

Adjusted EBITDA

 

$

13,517

   

$

10,040

   

$

31,874

   

$

23,870

 
                 
   

Three Months Ended June 30,

 

Nine Months Ended June 30,

     

2023

     

2022

     

2023

     

2022

 

Reconciliation from GAAP gross profit to non-GAAP gross profit

               

GAAP gross profit

 

$

36,471

   

$

31,365

   

$

104,338

   

$

89,485

 

Reversal of non-GAAP expenses

               

Stock-based compensation (a)

   

2,285

     

2,574

     

7,132

     

5,989

 

Amortization of intangible assets (b)

   

427

     

709

     

1,563

     

2,127

 

Non-GAAP gross profit

 

$

39,183

   

$

34,648

   

$

113,033

   

$

97,601

 

Percentage of revenue

   

61.5

%

   

61.7

%

   

60.9

%

   

60.6

%

                 
   

Three Months Ended June 30,

 

Nine Months Ended June 30,

     

2023

     

2022

     

2023

     

2022

 

Reconciliation from GAAP subscription gross profit to non-GAAP subscription gross profit

               

GAAP subscription gross profit

 

$

29,948

   

$

25,685

   

$

87,360

   

$

73,636

 

Reversal of non-GAAP expenses

               

Stock-based compensation (a)

   

1,265

     

1,380

     

3,909

     

3,303

 

Amortization of intangible assets (b)

   

427

     

709

     

1,563

     

2,127

 

Non-GAAP subscription gross profit

 

$

31,640

   

$

27,774

   

$

92,832

   

$

79,066

 

Percentage of subscription revenue

   

69.1

%

   

68.5

%

   

68.8

%

   

67.6

%

   

Three Months Ended June 30,

 

Nine Months Ended June 30,

     

2023

     

2022

     

2023

     

2022

 

Reconciliation from GAAP professional services gross profit to non-GAAP professional services gross profit

               

GAAP professional services gross profit

 

$

6,523

   

$

5,680

   

$

16,978

   

$

15,849

 

Reversal of non-GAAP expenses

               

Stock-based compensation (a)

   

1,020

     

1,194

   

$

3,223

   

$

2,686

 

Non-GAAP professional services gross profit

 

$

7,543

   

$

6,874

   

$

20,201

   

$

18,535

 

Percentage of professional services revenue

   

42.0

%

   

44.0

%

   

39.9

%

   

42.0

%

   

Three Months Ended June 30,

 

Nine Months Ended June 30,

     

2023

     

2022

     

2023

     

2022

 

Reconciliation from GAAP operating income (loss) to non-GAAP operating income

                 

GAAP operating income (loss)

 

$

2,929

   

$

(2,084

)

 

$

(3,742

)

 

$

(8,041

)

Reversal of non-GAAP expenses

                 

Stock-based compensation (a)

   

8,596

     

9,878

     

29,362

     

25,186

 

Amortization of intangible assets (b)

   

1,726

     

2,008

     

5,460

     

6,024

 

Non-GAAP operating income

 

$

13,251

   

$

9,802

   

$

31,080

   

$

23,169

 
                   

Numerator

                 

Reconciliation between GAAP net income (loss) and non-GAAP net income

                 

GAAP net income (loss)

 

$

2,818

   

$

(6,218

)

 

$

(34,551

)

 

$

(20,523

)

Reversal of non-GAAP expenses

                 

Stock-based compensation (a)

   

8,596

     

9,878

     

29,362

     

25,186

 

Amortization of intangible assets (b)

   

1,726

     

2,008

     

5,460

     

6,024

 

Loss on extinguishment of debt (c)

   

     

     

29,493

     

 

Amortization of debt discount and issuance costs (d)

   

418

     

2,819

     

1,047

     

8,211

 

Non-GAAP net income

 

$

13,558

   

$

8,487

   

$

30,811

   

$

18,898

 
                   

Denominator

                 

Reconciliation between GAAP net income (loss) and non-GAAP net income per share

                 

Shares used in computing GAAP net income (loss) per share:

                 

Basic

   

38,278

     

36,935

     

37,906

     

36,591

 

Diluted

   

38,610

     

36,935

     

37,906

     

36,591

 

Shares used in computing non-GAAP net income per share

                 

Basic

   

38,278

     

36,935

     

37,906

     

36,591

 

Add: effect of shares for stock plan activity

   

332

     

172

     

503

     

240

 

Add: effect of shares related to convertible senior notes

   

     

     

324

     

 

Diluted

   

38,610

     

37,107

     

38,733

     

36,831

 

GAAP net income (loss) per share

                 

Basic and diluted

 

$

0.07

   

$

(0.17

)

 

$

(0.91

)

 

$

(0.56

)

Non-GAAP net income per share

                 

Basic

 

$

0.35

   

$

0.23

   

$

0.81

   

$

0.52

 

Diluted

 

$

0.35

   

$

0.23

   

$

0.80

   

$

0.51

 
   

Three Months Ended June 30,

   

Nine Months Ended June 30,

     

2023

     

2022

     

2023

     

2022

 

Amortization of intangibles assets recorded in the statements of operations

                       

Cost of revenues

                       

Subscription

 

$

427

   

$

709

   

$

1,563

   

$

2,127

 

Total amortization of intangibles assets in cost of revenue (b)

   

427

     

709

     

1,563

     

2,127

 

Operating expenses

                       

Sales and marketing

   

1,299

     

1,299

     

3,897

     

3,897

 

Total amortization of intangibles assets in operating expense (b)

   

1,299

     

1,299

     

3,897

     

3,897

 

Total amortization of intangibles assets (b)

 

$

1,726

   

$

2,008

   

$

5,460

   

$

6,024

 
   

Three Months Ended June 30,

   

Nine Months Ended June 30,

     

2023

     

2022

     

2023

     

2022

 

Stock-based compensation recorded in the statements of operations

                       

Cost of revenues

                       

Subscription

 

$

1,265

   

$

1,380

   

$

3,909

   

$

3,303

 

Professional services

   

1,020

     

1,194

     

3,223

     

2,686

 

Total stock-based compensation in cost of revenue (a)

   

2,285

     

2,574

     

7,132

     

5,989

 

Operating expenses

                       

Research and development

   

1,659

     

1,826

     

5,311

     

4,616

 

Sales and marketing

   

2,172

     

2,223

     

7,121

     

5,669

 

General and administrative

   

2,480

     

3,255

     

9,798

     

8,912

 

Total stock-based compensation in operating expense (a)

   

6,311

     

7,304

     

22,230

     

19,197

 

Total stock-based compensation (a)

 

$

8,596

   

$

9,878

   

$

29,362

   

$

25,186

 
                         
   

Three Months Ended June 30,

 

Nine Months Ended June 30,

     

2023

     

2022

     

2023

     

2022

 

Free cash flow

               

Net cash provided by operating activities

 

$

29,614

   

$

14,405

   

$

23,464

   

$

17,333

 

Purchases of property and equipment

   

(131

)

   

(137

)

   

(237

)

   

(486

)

Free cash flow

 

$

29,483

   

$

14,268

   

$

23,227

   

$

16,847

 

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 and the nine months ended June 30, 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.

View source version on businesswire.com: https://www.businesswire.com/news/home/20230808908843/en/

Contacts

Investor Relations Contact:
Carolyn Bass
Market Street Partners
investorrelations@modeln.com

Media Contact:
BLASTmedia
Press@modeln.com

Source: Model N, Inc.

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