•

Total Revenues: Total revenues were $27.9 million, compared to $23.6 million for the third quarter of fiscal 2015.

•

Gross Profit: Gross profit was $14.1 million, compared to $12.7 million for the third quarter of fiscal 2015.  Gross margins were 50%, compared to 54% for the third quarter of fiscal 2015.  Non-GAAP gross profit was $14.9 million, compared to $13.1 million for the third quarter of fiscal 2015.  Non-GAAP gross margins were 53%, compared to 56% for the third quarter of fiscal 2015.

•

Loss from operations: GAAP loss from operations was $(8.5) million, compared to a loss from operations of $(5.7) million for the third quarter of fiscal 2015.  Non-GAAP loss from operations was $(4.3) million, compared to a Non-GAAP loss from operations of $(2.1) million for the third quarter of fiscal 2015.

•

Net loss: GAAP net loss was $(8.6) million, compared to net loss of $(5.8) million for the third quarter of fiscal 2015. GAAP diluted net loss per share attributed to common stockholders was $(0.31) based upon weighted average shares outstanding of 27.6 million, as compared to net loss per share of $(0.22) for the third quarter of fiscal 2015 based upon weighted average shares outstanding of 26.3 million.

•

Non-GAAP net loss: Non-GAAP net loss was $(4.4) million, as compared to Non-GAAP net loss of $(2.1) million for the third quarter of fiscal 2015. Non-GAAP net loss per share was $(0.16) based upon weighted average shares outstanding of 27.6 million, as compared to Non-GAAP net loss per share of $(0.08) for the third quarter of fiscal 2015 based upon weighted average shares outstanding of 26.3 million.

•

Adjusted EBITDA: Adjusted EBITDA was $(3.2) million, compared to $(1.0) million for the third quarter of fiscal 2015.  

•

Non-GAAP net loss per share is expected to be in the range of ($0.13) to ($0.11) based upon weighted average shares outstanding of 27.8 million shares.

•

Total revenues are expected to be in the range from $106.0 million to $106.5 million,

•

Non-GAAP loss from operations is expected to be in the range of ($18.0) million to ($17.5) million,

•

Non-GAAP net loss per share is expected to be in the range of ($0.66) to ($0.64) based upon weighted average shares outstanding of 27.4 million shares.

•

We expect our ending cash balance at September 30, 2016 to be between $65.0 million and $66.0 million. This includes cash utilized in the acquisition of Channelinsight.

As of

As of

June 30,

September 30,

2016

2015

Assets

Current assets:

Cash and cash equivalents

$

70,125

$

91,019

Accounts receivable, net

19,782

16,106

Deferred cost of implementation services, current portion

1,465

498

Prepaid expenses

4,345

3,229

Other current assets

331

109

Total current assets

96,048

110,961

Property and equipment, net

6,638

7,553

Goodwill

6,939

1,509

Intangible assets, net

6,067

317

Other assets

1,409

1,630

Total assets

$

117,101

$

121,970

Liabilities and Stockholders' Equity

Current liabilities:

Accounts payable

$

2,333

$

1,597

Accrued employee compensation

8,372

9,047

Accrued liabilities

5,309

3,464

Deferred revenue, current portion

30,592

22,039

Total current liabilities

46,606

36,147

Long-term liabilities:

Deferred revenue, net of current portion

1,444

1,942

Other long-term liabilities

644

819

Total long-term liabilities

2,088

2,761

Total liabilities

48,694

38,908

Stockholders' equity:

Common Stock

4

4

Preferred Stock

—

—

Additional paid-in capital

196,980

186,159

Accumulated other comprehensive loss

(587

)

(466

)

Accumulated deficit

(127,990

)

(102,635

)

Total stockholders' equity

68,407

83,062

Total liabilities and stockholders' equity

$

117,101

$

121,970

Three months ended June 30,

Nine months ended June 30,

2016

2015

2016

2015

Revenues:

License and implementation

$

5,119

$

8,359

$

14,504

$

27,781

SaaS and maintenance

22,798

15,251

63,959

40,606

Total revenues

27,917

23,610

78,463

68,387

Cost of Revenues:

License and implementation

3,521

4,020

10,539

11,806

SaaS and maintenance

10,330

6,928

29,580

18,228

Total cost of revenues

13,851

10,948

40,119

30,034

Gross profit

14,066

12,662

38,344

38,353

Operating Expenses:

Research and development

6,190

4,438

17,649

13,178

Sales and marketing

7,982

7,657

23,996

22,254

General and administrative

8,409

6,267

21,773

17,145

Total operating expenses

22,581

18,362

63,418

52,577

Loss from operations

(8,515

)

(5,700

)

(25,074

)

(14,224

)

Interest income, net

(14

)

—

(28

)

(6

)

Other (income) expenses, net

(22

)

6

23

59

Loss before income taxes

(8,479

)

(5,706

)

(25,069

)

(14,277

)

Provision for income taxes

167

80

286

407

Net loss

$

(8,646

)

$

(5,786

)

$

(25,355

)

$

(14,684

)

Net loss per share attributable to common stockholders:

Basic and diluted

$

(0.31

)

$

(0.22

)

(0.93

)

$

(0.57

)

Weighted average number of shares used in computing net loss per share attributable to common stockholders:

Basic and diluted

27,573

26,317

27,211

25,837

Nine Months Ended June 30,

2016

2015

Cash Flows From Operating Activities:

Net loss

$

(25,355

)

$

(14,684

)

Adjustments to reconcile net loss to net cash used in operating activities

Depreciation and amortization

4,402

2,996

Stock-based compensation

8,787

7,412

Other non-cash charges

65

187

Changes in assets and liabilities:

Accounts receivable

(2,587

)

(5,667

)

Prepaid expenses and other assets

(996

)

(753

)

Deferred cost of implementation services

(914

)

(436

)

Accounts payable

517

2,174

Accrued employee compensation

(638

)

(73

)

Other accrued and long-term liabilities

1,862

1,278

Deferred revenue

7,087

1,723

Net cash used in operating activities

(7,770

)

(5,843

)

Cash Flows From Investing Activities:

Purchases of property and equipment

(1,629

)

(1,748

)

Acquisition of business

(12,615

)

—

Capitalization of software development costs

(880

)

(1,883

)

Net cash used in investing activities

(15,124

)

(3,631

)

Cash Flows From Financing Activities:

Proceeds from exercise of stock options and employee stock purchase plan

2,035

2,300

Net cash provided by financing activities

2,035

2,300

Effect of exchange rate changes on cash and cash equivalents

(35

)

(21

)

Net decrease in cash and cash equivalents

(20,894

)

(7,195

)

Cash and cash equivalents

Beginning of period

91,019

101,006

End of period

$

70,125

$

93,811

Model N Inc.

Reconciliation of GAAP to Non-GAAP Operating Results

(in thousands, except per share amounts)

(unaudited)

Three months ended June 30,

Nine months ended June 30,

2016

2015

2016

2015

Reconciliation from GAAP net loss to adjusted EBITDA:

GAAP net loss:

$

(8,646

)

$

(5,786

)

$

(25,355

)

$

(14,684

)

Reversal of non-GAAP items:

Stock-based compensation expense

3,629

2,736

8,787

7,412

Depreciation and amortization

1,546

1,113

4,402

2,996

LeapFrogRx compensation charges

—

—

—

91

Acquisition and integration related costs

190

—

737

—

Legal expenses

—

853

305

1,095

Interest income, net

(14

)

—

(28

)

(6

)

Other (income) expenses, net

(22

)

6

23

59

Provision for income taxes

167

80

286

407

Adjusted EBITDA

$

(3,150

)

$

(998

)

$

(10,843

)

$

(2,630

)

Three months ended June 30,

Nine months ended June 30,

2016

2015

2016

2015

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

GAAP gross profit:

$

14,066

$

12,662

$

38,344

$

38,353

Reversal of non-GAAP expenses:

Stock-based compensation (a)

500

397

1,405

1,077

Amortization of intangible assets (b)

255

61

700

183

LeapFrogRx compensation charges (c)

—

—

—

57

Acquisition and integration related expenses (e)

68

—

182

—

Non-GAAP gross profit

$

14,889

$

13,120

$

40,631

$

39,670

Percentage of revenue

53

%

56

%

52

%

58

%

Three months ended June 30,

Nine months ended June 30,

2016

2015

2016

2015

Reconciliation from GAAP loss from operations to non-GAAP

   loss from operations:

GAAP net loss from operations:

$

(8,515

)

$

(5,700

)

$

(25,074

)

$

(14,224

)

Reversal of non-GAAP expenses:

Stock-based compensation (a)

3,629

2,736

8,787

7,412

Amortization of intangible assets (b)

382

61

1,040

209

LeapFrogRx compensation charges (c)

—

—

—

91

Legal expenses (d)

—

853

305

1,095

Acquisition and integration related expenses (e)

190

—

527

—

Non-GAAP loss from operations

$

(4,314

)

$

(2,050

)

$

(14,415

)

$

(5,417

)

Three months ended June 30,

Nine months ended June 30,

2016

2015

2016

2015

Numerator:

Reconciliation between GAAP and non-GAAP net loss:

GAAP net loss:

$

(8,646

)

$

(5,786

)

$

(25,355

)

$

(14,684

)

Reversal of non-GAAP expenses:

Stock-based compensation (a)

3,629

2,736

8,787

7,412

Amortization of intangible assets (b)

382

61

1,040

209

LeapFrogRx compensation charges (c)

—

—

—

91

Legal expenses (d)

—

853

305

1,095

Acquisition and integration related expenses (e)

190

—

737

—

Non-GAAP net loss attributable to common stockholders

$

(4,445

)

$

(2,136

)

$

(14,486

)

$

(5,877

)

Denominator:

Reconciliation between GAAP and non-GAAP weighted average shares used in computing diluted net loss per share attributable to

common stockholders:

Weighted average number of shares used in computing GAAP and non-GAAP diluted net loss per share

27,573

26,317

27,211

25,837

GAAP diluted net loss per share attributable to common stockholders

$

(0.31

)

$

(0.22

)

$

(0.93

)

$

(0.57

)

Non-GAAP diluted net loss per share attributable to common stockholders

(0.16

)

(0.08

)

(0.53

)

(0.23

)

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, loss from operations, net loss, weighted average shares outstanding and net loss per share, which are adjusted to exclude LeapFrogRx compensation charges, certain legal expenses, Channel Insight acquisition related costs, 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 expense 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 expenses are excluded from our non-GAAP results because stock-based compensation amounts are difficult to forecast due in part to the volume, timing and terms of restricted stock grants and the volatility of our common stock. We believe that the exclusion of stock-based compensation expense provides for a better comparison of our operation 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 operation results to prior periods and to our peer companies.

(c) In January 2012, we acquired LeapFrog Rx for initial cash consideration of $3.0 million as well as potential additional payments to former LeapFrogRx shareholders totaling up-to $8.3 million which are expected to be incurred through January 2015. These additional payments are, among other things, subject to future continued employment and are therefore considered compensatory in nature and are being recognized as compensation expense (LeapFrogRx compensation charges) over the term of each component. We believe that the exclusion of these expenses provides for a better comparison of our operation results to prior periods and to our peer companies.

(d) Legal expense is for the securities class action lawsuits filed in September 2014 and January 2015. We believe that the exclusion of these legal expenses provides for a better comparison of our operation results to prior periods and to our peer companies.

(e) In October 2015, we acquired Channel Insight for a cash consideration of $12.6 million, as part of the acquisition, we incurred certain non-recurring integration costs and purchase price adjustments. We believe that exclusion of these acquisition related adjustments and costs provides for a better comparison of our operation results to prior periods and to our peer companies.