Model N Announces Second Quarter of Fiscal Year 2019 Financial Results

Model N, Inc., (NYSE: MODN), the leading provider of cloud revenue
management solutions for Life Sciences and High-Tech companies, today
announced financial results for the second quarter, which ended March
31, 2019.

“Our results represent another well-executed quarter for the Company
with revenue and profitability above our guidance and it builds on the
momentum we’ve demonstrated over the last several quarters,” said Jason
Blessing, Chief Executive Officer at Model N. “Our hard work on
operations and customer success is allowing us to get improving leverage
in the business: leverage in sales due to our more focused go-to-market
plan; leverage in our operations, as evidenced by our improving
subscription gross margin and cash flow; and, perhaps most importantly,
leverage in our solutions as evidenced by the successful SaaS transition
at Gilead Sciences.”

Business Highlights:

• New Customer Acquisition – The success we had in Q1 continued
  into Q2. Through the first half of fiscal year 2019, we’ve added as
  many new customers as we did in all of fiscal year 2018. During Q2,
  the new customer mix was diverse, ranging from emerging companies to
  larger, established enterprises, as well as international customers.
  We believe new customer acquisition will continue to be a growth lever
  for us.
• SaaS Transition Go-Live – We are pleased to announce Gilead
  Sciences is now live on our cloud platform. While we have been selling
  cloud subscriptions for several years and more than 60% of our
  customers are using at least one product in the cloud, Gilead Sciences
  is the first top 15 global pharma company to retire their on-premise
  system and transition 100% to SaaS. This project is a key milestone
  for Model N and it provides other customers with a great template on
  how to transition from a legacy on-premise solution to SaaS.
• Rainmaker – Our 15th annual user conference welcomed over 500
  customers, prospects and partners. The program included executive,
  product, technical and usability tracks as well as industry experts
  who led discussions on critical revenue management topics such as the
  new HHS Safe Harbor proposal for Life Sciences and the substantial
  increase of channels for High Tech.
• IDC and Market Research Reveals Cloud is Top C-Suite Priority – IDC’s
  research concluded cloud is the top digital transformation investment
  priority for pharma and biotech companies and more than 90% plan to
  deploy revenue management in the cloud in 2020. Our own survey of Life
  Sciences and High-Tech C-suite executives showed that companies who
  adopt best-in-class, cloud-based revenue management solutions
  significantly outperform their peers against their core metrics
  including increased cross-sell, lower revenue leakage, profit margin
  expansion and stock price growth.

Second Quarter 2019 Financial Highlights:

• Revenues: Subscription revenues were $25.9 million compared to
  $24.0 million for the second quarter of fiscal year 2018. Total
  revenues were $34.8 million compared to $39.2 million for the second
  quarter of fiscal year 2018 which reflects the adoption of ASC 606,
  the increased focus on selling cloud-based software to customers in
  Life Sciences and High-Tech and the expected reduction in professional
  services for legacy on-premise implementations.
• Gross profit: Gross profit was $18.1 million compared to $22.0
  million for the second quarter of fiscal year 2018. Gross margins were
  52% compared to 56% for the first quarter of fiscal year 2018.
  Non-GAAP gross profit was $19.6 million compared to $23.2 million for
  the second quarter of fiscal year 2018. Non-GAAP gross margins were
  56% compared to 59% for the second quarter of fiscal year 2018.
  Non-GAAP subscription gross margin for the quarter was 70% compared to
  64% for the second quarter of fiscal year 2018 as we drive scale.
• Income (loss) from operations: GAAP loss from operations was
  $(4.7) million compared to a GAAP loss from operations of $(2.4)
  million for the second quarter of fiscal year 2018. Non-GAAP income
  from operations was $1.5 million compared to non-GAAP income from
  operations of $2.2 million for the second quarter of fiscal year 2018.
• Net loss: GAAP net loss was $(5.9) million compared to a net
  loss of $(3.9) million for the second quarter of fiscal year 2018.
  GAAP basic and diluted net loss per share attributable to common
  stockholders was $(0.18) based upon weighted average shares
  outstanding of 32.0 million, as compared to net loss per share of
  $(0.13) for the second quarter of fiscal year 2018 based upon weighted
  average shares outstanding of 30.0 million.
• Non-GAAP net income: Non-GAAP net income was $0.4 million as
  compared to $0.7 million for the second quarter of fiscal year 2018.
  Non-GAAP diluted net income per share was $0.01 based upon weighted
  average diluted shares outstanding of 33.0 million, as compared to
  $0.02 for the second quarter of fiscal year 2018 based upon weighted
  average diluted shares outstanding of 31.3 million.
• Adjusted EBITDA: Adjusted EBITDA was $1.8 million compared to
  $3.0 million for the same period of last fiscal year.
• Cash and cash flow: Cash and cash equivalents as of March 31,
  2019 totaled $54.1 million. During the quarter, we paid down $4.8
  million in debt and we are now in a positive net cash position. Net
  cash provided by operating activities was $0.5 million for the first
  six months of fiscal year 2019, compared with net cash used in
  operating activities of $(5.0) million in the prior fiscal year
  period. Free cash flow was $0.3 million for the first six months of
  fiscal year 2019, compared with free cash flow used of $(5.1) million
  in the prior fiscal year period.

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 7, 2019, we are providing guidance for the third quarter of
fiscal year 2019 and the full fiscal year ending September 30, 2019.

The adoption of ASC 606 continues to be a headwind to our fiscal year
2019 financial results. Of the $7.2 million cumulative effect adjustment
on total revenues resulting from the adoption of ASC 606, the majority
has been recorded in our year to date fiscal 2019 results.

⁽¹⁾ The cumulative effect adjustment of the adoption of ASC
606 on subscription revenues for the remainder of fiscal year 2019 is
expected to be approximately $0.1 million.

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 of fiscal year 2019, which ended March 31, 2019. The
conference call can be accessed by dialing (877) 407-4018 from the
United States or (201) 689-8471 internationally with reference to the
company name and conference title and 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 14,
2019, a telephone replay will be available by dialing (844) 512-2921
from the United States or (412) 317-6671 internationally with recording
access code 13689325.

About Model N

Model N is the leader in revenue management solutions. Driving mission
critical business processes such as configure, price and quote (CPQ),
contract and rebate management, business intelligence, and regulatory
compliance, Model N solutions transform the revenue lifecycle from a
series of disjointed operations into a strategic end-to-end process.
With deep industry expertise, Model N supports the complex business
needs of the world’s leading brands in pharmaceutical, medical device,
semiconductors and high- tech manufacturing across more than 120
countries, including Pfizer, AstraZeneca, Sanofi, Gilead, Abbott,
Stryker, AMD, Micron, Seagate, STMicroelectronics, NXP, Sesotec, and
Southern States. For more information, visit www.modeln.com.

Model N® is the registered trademark of Model N, Inc. Any other company
names mentioned are the property of their respective owners and are
mentioned for identification purposes only.

Forward-Looking Statements

This press release contains forward-looking statements including, among
other things, statements regarding Model N’s third quarter and full year
fiscal year 2019 revenue and expense, and other financial results as
well as outlook for fiscal year 2019 and future prospects, including
customer expansions, the ability to execute on business strategy and the
success of product offerings. 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; and (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; and
(xii) our ability to retain customers. 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, 2018, 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 margins, non-GAAP income
(loss) from operations, non-GAAP net income (loss), non-GAAP net income
(loss) per share, and adjusted EBITDA. Non-GAAP gross profit excludes
stock-based compensation expenses, deferred revenue adjustments and
amortization of intangible assets. Non-GAAP income (loss) from
operations and non-GAAP net income (loss) exclude stock-based
compensation expense, amortization of intangible assets, and the
deferred revenue adjustment resulting from the Revitas acquisition as
they are often excluded by other companies to help investors understand
the operational performance of their business. We have not provided a
reconciliation of forecasted Non-GAAP results with GAAP results due to
the difficulties of estimating certain items such as charges related to
stock-based compensation expense. In addition, stock-based compensation
expense varies from period to period and from company to company due to
such things as differing valuation methodologies and changes in stock
price. Adjusted EBITDA is defined as net loss, adjusted for depreciation
and amortization, stock-based compensation expense, acquisition &
integration related expenses, deferred revenue adjustment, interest
(income) expense, net, and other (income) expenses, net, and provision
(benefit) for income taxes. Reconciliation tables are provided in this
press release.

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. Accordingly, a reconciliation of the non-GAAP
financial measure guidance to the corresponding GAAP measures is not
available without unreasonable effort.

Use of Non-GAAP Financial Measures

To supplement our condensed consolidated financial statements presented
on a GAAP basis, Model N uses non-GAAP measures of adjusted EBITDA,
gross profit, gross margin, loss from operations, net loss, weighted
average shares outstanding and net loss per share, which are adjusted to
exclude Channel Insight and Revitas acquisition related costs, deferred
revenue adjustment and valuation allowance resulting from Revitas
acquisition, stock-based compensation expense, amortization of
intangible assets and includes 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 Model N’s 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. Stock-based compensation is a
non-cash item. 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) Represents deferred revenue adjustment resulting from purchase price
accounting that is related to the Revitas acquisition and is a non-cash
item. As such, we believe this adjustment 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/20190507006064/en/