Business Wire | Aug 9, 2021 04:17PM EDT

Model N Announces Third Quarter Fiscal Year 2021 Financial Results

Aug. 09, 2021

SAN MATEO, Calif.--(BUSINESS WIRE)--Aug. 09, 2021--Model N, Inc. (NYSE: MODN), the leader in cloud revenue management solutions, today announced financial results for the third quarter of fiscal year 2021 ended June 30, 2021.

"Our results for the third quarter outperformed across the board, with total revenue, subscription revenue, professional services revenue, and adjusted EBITDA all exceeding expectations. These results clearly demonstrate the success of our strategic focus on the Life Sciences and High Tech verticals and our customers' need for our mission-critical products. The strategic decisions that we have made over the last three years resulted in achieving the milestone of surpassing $50 million in quarterly total revenue," said Jason Blessing, president and chief executive officer of Model N. "Our focus on our go-to-market programs and customer success, including SaaS transitions, new logos, and professional services, all meaningfully contributed to our third quarter financial results. As a result of our solid execution, we are raising our full year outlook on both the top and bottom line."

Recent Highlights

* Strong performance in Life Sciences Vertical Powered by the Addition of New Customers and SaaS Transition Commitments - Model N continued to bolster its stronghold in the Life Sciences vertical, adding both new customers and securing additional commitments for SaaS transitions. During the quarter, the Company signed agreements with new customers Viatris, Mayne Pharma and MorphoSys. Also in the quarter, three long-time Model N customers committed to SaaS transitions, including Grifols, a global healthcare company and industry leader in producing plasma-derived medicines and transfusion medicine, as well as Akorn, a leading specialty pharmaceutical company, deepening their relationships with the Company and continuing Model N's success in moving its customers to its cloud platform.

* High Tech Vertical Adds New Customers and Transitions Long-Time Customer to Model N Revenue Cloud - In the third quarter, the Company demonstrated growing momentum in the High Tech vertical. California Eastern Labs, a twenty-year Model N customer, agreed to transition to Model N Revenue Cloud for High Tech to take advantage of enhanced Deal Management and Channel Management capabilities. Also during the quarter, Model N added two new High Tech customers, including Creston, a $2 billion workplace technologies manufacturer.

* Model N Professional Services Delivers on the Model N Value Proposition for a Record Number of Customers - The Model N Professional Services team continued its track record of successful implementations, going live with a record number of projects this quarter. As customer demand for quicker time to value increases, the Professional Services team continues to consistently deliver projects on-time and on-budget. While working remotely, recent project go-lives have successfully been completed across the globe.

* New Deal Management for Life Sciences Product Solves Customers' Real-World Challenges - During the quarter, Model N released a new solution that supports customers' sales processes by addressing critically important pricing pressures and streamlining their order-to-cash processes. Utilizing quoting and pre-deal analysis, the product solves real-world problems that slow contracting processes and allow for pricing discrepancies. By streamlining the sales process, customers benefit from increased efficiency between field sales and operations, leading to improved customer relationships and increased sales velocity.

Third Quarter 2021 Financial Highlights

* Revenues: Total revenues were $51.0 million, an increase of 24% from the third quarter of fiscal year 2020. Subscription revenues were $36.9 million, an increase of 26% from the third quarter of fiscal year 2020. Business Services, which we acquired from Deloitte, contributed $6.0 million in total revenues for the third quarter of fiscal year 2021.

* Gross Profit: Gross profit was $27.6 million, an increase of 10% from the third quarter of fiscal year 2020. Gross margin was 54% compared to 61% for the third quarter of fiscal year 2020. Non-GAAP gross profit was $30.7 million, an increase of 16% from the third quarter of fiscal year 2020. Non-GAAP gross margin was 60% compared to 64% for the third quarter of fiscal year 2020. Subscription gross margin was 63% compared to 71% for the third quarter of fiscal year 2020. Non-GAAP subscription gross margin was 68% compared to 74% for the third quarter of fiscal year 2020. Both GAAP and Non-GAAP gross margins for the third quarter of fiscal year 2021 were impacted by the revenue mix coming from the acquisition of Business Services.

* GAAP Loss and Non-GAAP Income from Operations: GAAP loss from operations was $(3.9) million compared to $(0.4) million for the third quarter of fiscal year 2020. Non-GAAP income from operations was $7.2 million, an increase of 16% from the third quarter of fiscal year 2020.

* GAAP Net Loss: GAAP net loss was $(7.8) million compared to a net loss of $(2.4) million for the third quarter of fiscal year 2020. GAAP basic and diluted net loss per share attributable to common stockholders was $(0.22) based upon weighted average shares outstanding of 35.7 million compared to net loss per share of $(0.07) for the third quarter of fiscal year 2020 based upon weighted average shares outstanding of 34.4 million.

* Non-GAAP Net Income: Non-GAAP net income was $5.7 million, an increase of 11% from the third quarter of fiscal year 2020. Non-GAAP net income per diluted share was $0.16 based upon diluted weighted average shares outstanding of 36.8 million compared to non-GAAP net income per diluted share of $0.15 for the third quarter of fiscal year 2020 based upon diluted weighted average shares outstanding of 35.3 million.

* Adjusted EBITDA: Adjusted EBITDA was $7.4 million, an increase of 16% from the third quarter of fiscal year 2020.

* Cash and Cash Flows: Cash and cash equivalents as of June 30, 2021 totaled $153.8 million, an increase of $5.4 million over the prior quarter. Net cash provided by operating activities was $9.7 million for the first nine months of fiscal year 2021, compared with $7.2 million the prior fiscal year period. Free cash flow was $8.8 million for the first nine months of fiscal year 2021, compared with $7.0 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 August 9, 2021, we are providing guidance for the fourth quarter fiscal year 2021 and raising guidance for the full fiscal year ending September 30, 2021.

(in $ millions, except per Fourth Quarter Fiscal Full Year Fiscalshare) 2021 2021

Total revenues 50.5 - 51.0 192.5 - 193.0

Subscription revenues 37.0 - 37.5 141.3 - 141.8

Non-GAAP income from operations 4.8 - 5.3 22.3 - 22.8

Non-GAAP net income per share 0.09 - 0.11 0.45 - 0.47

Adjusted EBITDA 5.0 - 5.5 23.1 - 23.6

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 of fiscal year 2021 ended June 30, 2021. The conference call can be accessed by dialing 877-407-4018 from the United States or +1-201-689-8471 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 August 23, 2021, 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 13721248.

About Model N

Model N enables life sciences and high tech companies to drive growth and market share, minimizing revenue leakage throughout the revenue lifecycle. With deep industry expertise and solutions purpose-built for these industries, Model N delivers comprehensive visibility, insight and control over the complexities of commercial operations and compliance. Its 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 2021 financial results, the impact COVID-19 will have on our business, Model N's profitability, future planned enhancements to our products and benefits from our products, and expected benefits from our acquisition. 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; (xiii) adverse impacts on our business and financial condition due to COVID-19; and (xiv) the possibility that the expected benefits related to our acquisition may not materialize as expected and the ability to successfully integrate Deloitte's life sciences pricing and contracting solutions business and underlying technology. 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, 2020, 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 (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, amortization of intangible assets, and deferred revenue adjustments as they are often excluded by other companies to help investors understand the operational performance of their business. Non-GAAP income (loss) from operations excludes stock-based compensation expense, amortization of intangible assets, acquisition-related expense, and deferred revenue adjustments. Non-GAAP net income (loss) excludes stock-based compensation expense, amortization of intangible assets, acquisition-related expense, amortization of debt discount and issuance costs, and deferred revenue adjustments. 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, acquisition-related expense, deferred revenue adjustment, interest (income) expense, net, other (income) expenses, net, and provision for (benefit from) 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 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 As of June 30, 2021 September 30, 2020

Assets

Current assets

Cash and cash equivalents $ 153,766 $ 200,491

Funds held for customers 6,908 -

Accounts receivable, net 42,029 35,796

Prepaid expenses 3,740 2,797

Other current assets 7,443 7,314

Total current assets 213,886 246,398

Property and equipment, net 1,793 1,034

Operating lease right-of-use assets 20,437 3,332

Goodwill 65,665 39,283

Intangible assets, net 47,402 24,380

Other assets 7,601 5,863

Total assets $ 356,784 $ 320,290

Liabilities and Stockholders' Equity

Current liabilities

Accounts payable $ 4,831 $ 3,009

Customer funds payable 6,908 -

Accrued employee compensation 21,617 17,056

Accrued liabilities 3,841 5,237

Operating lease liabilities, current portion 4,035 1,460

Deferred revenue, current portion 53,595 50,904

Total current liabilities 94,827 77,666

Long-term liabilities

Long term debt 121,724 114,438

Operating lease liabilities, less current 17,012 2,067 portion

Other long-term liabilities 1,925 1,448

Total long-term liabilities 140,661 117,953

Total liabilities 235,488 195,619

Stockholders' equity

Common stock 5 5

Preferred stock - -

Additional paid-in capital 372,263 351,952

Accumulated other comprehensive loss (1,231 ) (1,213 )

Accumulated deficit (249,741 ) (226,073 )

Total stockholders' equity 121,296 124,671

Total liabilities and stockholders' equity $ 356,784 $ 320,290



Model N, Inc.

Condensed Consolidated Statements of Operations

(in thousands, except per share amounts)

Three Months Ended June 30,

Nine Months Ended June 30,

2021

2020

2021

2020

Revenues

Subscription

$

36,908

$

29,339

$

104,284

$

86,512

Professional services

14,130

11,917

37,680

33,084

Total revenues

51,038

41,256

141,964

119,596

Cost of revenues

Subscription

13,799

8,374

36,525

25,882

Professional services

9,651

7,699

27,418

23,026

Total cost of revenues

23,450

16,073

63,943

48,908

Gross profit

27,588

25,183

78,021

70,688

Operating expenses

Research and development

11,674

8,288

32,866

25,906

Sales and marketing

11,146

9,716

32,111

29,682

General and administrative

8,653

7,559

25,052

22,069

Total operating expenses

31,473

25,563

90,029

77,657

Loss from operations

(3,885

)

(380

)

(12,008

)

(6,969

)

Interest expense, net

3,631

1,986

10,645

2,951

Other expenses (income), net

(39

)

(168

)

175

(423

)

Loss before income taxes

(7,477

)

(2,198

)

(22,828

)

(9,497

)

Provision for income taxes

352

182

840

510

Net loss

$

(7,829

)

$

(2,380

)

$

(23,668

)

$

(10,007

)

Net loss per share:

Basic and diluted

$

(0.22

)

$

(0.07

)

$

(0.67

)

$

(0.30

)

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

Basic and diluted

35,679

34,411

35,305

33,781

Model N, Inc.

Condensed Consolidated Statements of Operations

(in thousands, except per share amounts)



Three Months Ended June 30, Nine Months Ended June 30,

2021 2020 2021 2020

Revenues

Subscription $ 36,908 $ 29,339 $ 104,284 $ 86,512

Professional 14,130 11,917 37,680 33,084 services

Total revenues 51,038 41,256 141,964 119,596

Cost of revenues

Subscription 13,799 8,374 36,525 25,882

Professional 9,651 7,699 27,418 23,026 services

Total cost of 23,450 16,073 63,943 48,908 revenues

Gross profit 27,588 25,183 78,021 70,688

Operating expenses

Research and 11,674 8,288 32,866 25,906 development

Sales and marketing 11,146 9,716 32,111 29,682

General and 8,653 7,559 25,052 22,069 administrative

Total operating 31,473 25,563 90,029 77,657 expenses

Loss from (3,885 ) (380 ) (12,008 ) (6,969 ) operations

Interest expense, 3,631 1,986 10,645 2,951 net

Other expenses (39 ) (168 ) 175 (423 ) (income), net

Loss before income (7,477 ) (2,198 ) (22,828 ) (9,497 ) taxes

Provision for 352 182 840 510 income taxes

Net loss $ (7,829 ) $ (2,380 ) $ (23,668 ) $ (10,007 )

Net loss per share:

Basic and diluted $ (0.22 ) $ (0.07 ) $ (0.67 ) $ (0.30 )

Weighted averagenumber of shares used in computingnet loss per share:

Basic and diluted 35,679 34,411 35,305 33,781



Model N, Inc.

Condensed Consolidated Statements of Cash Flows

(in thousands)

Nine Months Ended June 30,

2021

2020

Cash Flows from Operating Activities

Net loss

$

(23,668

)

$

(10,007

)

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

Depreciation and amortization

5,740

4,163

Stock-based compensation

21,850

17,232

Amortization of debt discount and issuance costs

7,286

1,118

Deferred income taxes

84

25

Amortization of capitalized contract acquisition costs

2,223

1,858

Loss on early extinguishment of debt

-

319

Changes in assets and liabilities, net of acquisition

Accounts receivable

(2,382

)

(2,292

)

Prepaid expenses and other assets

(2,470

)

(3,621

)

Accounts payable

1,849

781

Accrued employee compensation

745

(1,165

)

Other current and long-term liabilities

(3,095

)

(2,322

)

Deferred revenue

1,528

1,133

Net cash provided by operating activities

9,690

7,222

Cash Flows from Investing Activities

Purchases of property and equipment

(842

)

(190

)

Acquisition of business

(57,849

)

-

Net cash used in investing activities

(58,691

)

(190

)

Cash Flows from Financing Activities

Proceeds from exercise of stock options and issuance of employee stock purchase

plan

2,306

2,442

Proceeds from issuance of convertible senior notes, net of issuance costs

-

166,894

Principal payments on debt

-

(44,750

)

Net changes in customer funds payable

6,908

-

Net cash provided by financing activities

9,214

124,586

Effect of exchange rate changes on cash and cash equivalents

(30

)

(26

)

Net increase (decrease) in cash and cash equivalents

(39,817

)

131,592

Cash and cash equivalents

Beginning of period

200,491

60,780

End of period

$

160,674

$

192,372

Model N, Inc.

Condensed Consolidated Statements of Cash Flows

(in thousands)



Nine Months Ended June 30,

2021 2020

Cash Flows from Operating Activities

Net loss $ (23,668 ) $ (10,007 )

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

Depreciation and amortization 5,740 4,163

Stock-based compensation 21,850 17,232

Amortization of debt discount and issuance costs 7,286 1,118

Deferred income taxes 84 25

Amortization of capitalized contract acquisition 2,223 1,858 costs

Loss on early extinguishment of debt - 319

Changes in assets and liabilities, net of acquisition

Accounts receivable (2,382 ) (2,292 )

Prepaid expenses and other assets (2,470 ) (3,621 )

Accounts payable 1,849 781

Accrued employee compensation 745 (1,165 )

Other current and long-term liabilities (3,095 ) (2,322 )

Deferred revenue 1,528 1,133

Net cash provided by operating activities 9,690 7,222

Cash Flows from Investing Activities

Purchases of property and equipment (842 ) (190 )

Acquisition of business (57,849 ) -

Net cash used in investing activities (58,691 ) (190 )

Cash Flows from Financing Activities

Proceeds from exercise of stock options and issuanceof employee stock purchase 2,306 2,442

plan

Proceeds from issuance of convertible senior notes, - 166,894 net of issuance costs

Principal payments on debt - (44,750 )

Net changes in customer funds payable 6,908 -

Net cash provided by financing activities 9,214 124,586

Effect of exchange rate changes on cash and cash (30 ) (26 ) equivalents

Net increase (decrease) in cash and cash equivalents (39,817 ) 131,592

Cash and cash equivalents

Beginning of period 200,491 60,780

End of period $ 160,674 $ 192,372



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,

2021

2020

2021

2020

Reconciliation from GAAP net loss to adjusted EBITDA

GAAP net loss

$

(7,829

)

$

(2,380

)

$

(23,668

)

$

(10,007

)

Reversal of non-GAAP items

Stock-based compensation expense

8,940

5,400

21,850

17,232

Depreciation and amortization

2,217

1,350

5,740

4,163

Acquisition-related expense

100

-

2,509

-

Interest expense, net

3,631

1,986

10,645

2,951

Other expenses (income), net

(39

)

(168

)

175

(423

)

Provision for income taxes

352

182

840

510

Adjusted EBITDA

$

7,372

$

6,370

$

18,091

$

14,426

Three Months Ended June 30,

Nine Months Ended June 30,

2021

2020

2021

2020

Reconciliation from GAAP gross profit to non-GAAP gross profit

GAAP gross profit

$

27,588

$

25,183

$

78,021

$

70,688

Reversal of non-GAAP expenses

Stock-based compensation (a)

2,435

940

5,460

3,114

Amortization of intangible assets (b)

709

282

1,700

911

Non-GAAP gross profit

$

30,732

$

26,405

$

85,181

$

74,713

Percentage of revenue

60.2

%

64.0

%

60.0

%

62.5

%

Three Months Ended June 30,

Nine Months Ended June 30,

2021

2020

2021

2020

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

GAAP subscription gross profit

$

23,109

$

20,965

$

67,759

$

60,630

Reversal of non-GAAP expenses

Stock-based compensation (a)

1,175

412

2,544

1,429

Amortization of intangible assets (b)

709

282

1,700

911

Non-GAAP subscription gross profit

$

24,993

$

21,659

$

72,003

$

62,970

Percentage of subscription revenue

67.7

%

73.8

%

69.0

%

72.8

%

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,

2021 2020 2021 2020

Reconciliation fromGAAP net loss to adjusted EBITDA

GAAP net loss $ (7,829 ) $ (2,380 ) $ (23,668 ) $ (10,007 )

Reversal of non-GAAP items

Stock-basedcompensation 8,940 5,400 21,850 17,232 expense

Depreciation and 2,217 1,350 5,740 4,163 amortization

Acquisition-related 100 - 2,509 - expense

Interest expense, 3,631 1,986 10,645 2,951 net

Other expenses (39 ) (168 ) 175 (423 ) (income), net

Provision for 352 182 840 510 income taxes

Adjusted EBITDA $ 7,372 $ 6,370 $ 18,091 $ 14,426



Three Months Ended June 30, Nine Months Ended June 30,

2021 2020 2021 2020

Reconciliation fromGAAP gross profit to non-GAAP grossprofit

GAAP gross profit $ 27,588 $ 25,183 $ 78,021 $ 70,688

Reversal of non-GAAP expenses

Stock-based 2,435 940 5,460 3,114 compensation (a)

Amortization ofintangible assets 709 282 1,700 911 (b)

Non-GAAP gross $ 30,732 $ 26,405 $ 85,181 $ 74,713 profit

Percentage of 60.2 % 64.0 % 60.0 % 62.5 %revenue



Three Months Ended June 30, Nine Months Ended June 30,

2021 2020 2021 2020

Reconciliation fromGAAP subscriptiongross profit to non-GAAPsubscription grossprofit

GAAP subscription $ 23,109 $ 20,965 $ 67,759 $ 60,630 gross profit

Reversal of non-GAAP expenses

Stock-based 1,175 412 2,544 1,429 compensation (a)

Amortization ofintangible assets 709 282 1,700 911 (b)

Non-GAAPsubscription gross $ 24,993 $ 21,659 $ 72,003 $ 62,970 profit

Percentage ofsubscription 67.7 % 73.8 % 69.0 % 72.8 %revenue

Three Months Ended June 30,

Nine Months Ended June 30,

2021

2020

2021

2020

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

GAAP professional services gross profit

4,479

4,218

$

10,262

$

10,058

Reversal of non-GAAP expenses

Stock-based compensation (a)

1,260

528

$

2,916

$

1,685

Non-GAAP professional services gross profit

$

5,739

$

4,746

$

13,178

$

11,743

Percentage of professional services revenue

40.6

%

39.8

%

35.0

%

35.5

%

Three Months Ended Nine Months Ended June June 30, 30,

2021 2020 2021 2020

Reconciliation from GAAPprofessional services grossprofit to non-GAAP professional services grossprofit

GAAP professional services 4,479 4,218 $ 10,262 $ 10,058 gross profit

Reversal of non-GAAP expenses

Stock-based compensation (a) 1,260 528 $ 2,916 $ 1,685

Non-GAAP professional $ 5,739 $ 4,746 $ 13,178 $ 11,743 services gross profit

Percentage of professional 40.6 % 39.8 % 35.0 % 35.5 %services revenue

Three Months Ended June 30,

Nine Months Ended June 30,

2021

2020

2021

2020

Reconciliation from GAAP operating loss to non-GAAP operating income

GAAP operating loss

$

(3,885

)

$

(380

)

$

(12,008

)

$

(6,969

)

Reversal of non-GAAP expenses

Stock-based compensation (a)

8,940

5,400

21,850

17,232

Amortization of intangible assets (b)

2,008

1,172

5,188

3,580

Acquisition-related expense (c)

100

-

2,509

-

Non-GAAP operating income

$

7,163

$

6,192

$

17,539

$

13,843

Numerator

Reconciliation between GAAP net loss and non-GAAP net income

GAAP net loss

$

(7,829

)

$

(2,380

)

$

(23,668

)

$

(10,007

)

Reversal of non-GAAP expenses

Stock-based compensation (a)

8,940

5,400

21,850

17,232

Amortization of intangible assets (b)

2,008

1,172

5,188

3,580

Acquisition-related expense (c)

100

-

2,509

-

Amortization of debt discount and issuance costs (d)

2,502

978

7,286

1,118

Non-GAAP net income

$

5,721

$

5,170

$

13,165

$

11,923

Denominator

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

Shares used in computing GAAP net loss per share:

Basic

35,679

34,411

35,305

33,781

Diluted

35,679

34,411

35,305

33,781

Shares used in computing non-GAAP net income per share

Basic

35,679

34,411

35,305

33,781

Diluted

36,800

35,345

36,562

35,016

GAAP net loss per share

Basic and diluted

$

(0.22

)

$

(0.07

)

$

(0.67

)

$

(0.30

)

Non-GAAP net income per share

Basic

$

0.16

$

0.15

$

0.37

$

0.35

Diluted

$

0.16

$

0.15

$

0.36

$

0.34

Three Months Ended June 30, Nine Months Ended June 30,

2021 2020 2021 2020

Reconciliation fromGAAP operating loss to non-GAAPoperating income

GAAP operating loss $ (3,885 ) $ (380 ) $ (12,008 ) $ (6,969 )

Reversal of non-GAAP expenses

Stock-based 8,940 5,400 21,850 17,232 compensation (a)

Amortization ofintangible assets 2,008 1,172 5,188 3,580 (b)

Acquisition-related 100 - 2,509 - expense (c)

Non-GAAP operating $ 7,163 $ 6,192 $ 17,539 $ 13,843 income



Numerator

Reconciliationbetween GAAP net loss and non-GAAPnet income

GAAP net loss $ (7,829 ) $ (2,380 ) $ (23,668 ) $ (10,007 )

Reversal of non-GAAP expenses

Stock-based 8,940 5,400 21,850 17,232 compensation (a)

Amortization ofintangible assets 2,008 1,172 5,188 3,580 (b)

Acquisition-related 100 - 2,509 - expense (c)

Amortization ofdebt discount and 2,502 978 7,286 1,118 issuance costs (d)

Non-GAAP net income $ 5,721 $ 5,170 $ 13,165 $ 11,923



Denominator

Reconciliationbetween GAAP and non-GAAP net income(loss) per share

Shares used incomputing GAAP net loss per share:

Basic 35,679 34,411 35,305 33,781

Diluted 35,679 34,411 35,305 33,781

Shares used incomputing non-GAAP net income pershare

Basic 35,679 34,411 35,305 33,781

Diluted 36,800 35,345 36,562 35,016

GAAP net loss per share

Basic and diluted $ (0.22 ) $ (0.07 ) $ (0.67 ) $ (0.30 )

Non-GAAP net income per share

Basic $ 0.16 $ 0.15 $ 0.37 $ 0.35

Diluted $ 0.16 $ 0.15 $ 0.36 $ 0.34

Three Months Ended June 30,

Nine Months Ended June 30,

2021

2020

2021

2020

Amortization of intangibles assets recorded in the statements of operations

Cost of revenues

Subscription

$

709

$

282

$

1,700

$

911

Professional services

-

-

-

-

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

709

282

1,700

911

Operating expenses

Research and development

-

-

-

-

Sales and marketing

1,299

890

3,488

2,669

General and administrative

-

-

-

-

Total amortization of intangibles assets in operating expense (b)

1,299

890

3,488

2,669

Total amortization of intangibles assets (b)

$

2,008

$

1,172

$

5,188

$

3,580

Three Months Ended Nine Months Ended June 30, June 30,

2021 2020 2021 2020

Amortization of intangiblesassets recorded in the statements of operations

Cost of revenues

Subscription $ 709 $ 282 $ 1,700 $ 911

Professional services - - - -

Total amortization ofintangibles assets in cost of 709 282 1,700 911 revenue (b)

Operating expenses

Research and development - - - -

Sales and marketing 1,299 890 3,488 2,669

General and administrative - - - -

Total amortization ofintangibles assets in operating 1,299 890 3,488 2,669 expense (b)

Total amortization of $ 2,008 $ 1,172 $ 5,188 $ 3,580 intangibles assets (b)



Three Months Ended June 30,

Nine Months Ended June 30,

2021

2020

2021

2020

Stock-based compensation recorded in the statements of operations

Cost of revenues

Subscription

$

1,175

$

412

$

2,544

$

1,429

Professional services

1,260

528

2,916

1,685

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

2,435

940

5,460

3,114

Operating expenses

Research and development

1,776

1,074

4,520

3,743

Sales and marketing

2,091

1,527

5,611

4,589

General and administrative

2,638

1,859

6,259

5,786

Total stock-based compensation in operating expense (a)

6,505

4,460

16,390

14,118

Total stock-based compensation (a)

$

8,940

$

5,400

$

21,850

$

17,232

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, acquisition-related expense, and amortization of debt discount and issuance costs 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 income (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:

Three Months Ended Nine Months Ended June June 30, 30,

2021 2020 2021 2020

Stock-based compensationrecorded in the statements of operations

Cost of revenues

Subscription $ 1,175 $ 412 $ 2,544 $ 1,429

Professional services 1,260 528 2,916 1,685

Total stock-basedcompensation in cost of 2,435 940 5,460 3,114 revenue (a)

Operating expenses

Research and development 1,776 1,074 4,520 3,743

Sales and marketing 2,091 1,527 5,611 4,589

General and administrative 2,638 1,859 6,259 5,786

Total stock-basedcompensation in operating 6,505 4,460 16,390 14,118 expense (a)

Total stock-based $ 8,940 $ 5,400 $ 21,850 $ 17,232 compensation (a)



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, acquisition-related expense, and amortization of debt discount and issuance costs 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 income (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:

Stock-based compensation is a non-cash expense accounted for in accordance(a) 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.



Amortization of intangible assets resulted principally from acquisitions.(b) 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.



Acquisition-related expense. Acquisition-related expense is incurred in connection with the acquisition and is non-recurring. As such, we believe(c) that exclusion of these acquisition-related expense provides for a better comparison of our operation results to prior periods and to our peer companies.



Amortization of debt discount and issuance costs. Amortization of debt discount and issuance costs is a non-cash item. As such, we believe(d) exclusion of these expenses provides for a better comparison of our operating results to prior periods and to our peer companies. Third quarter and the first nine months of fiscal year 2020 has been revised to exclude the amortization of debt discounts and issuance costs related to our term loan and promissory note to better provide consistency between the periods.

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CONTACT: Investor Relations Contact: Carolyn Bass Market Street Partners 415-378-6114 investorrelations@modeln.com

CONTACT: Media Contact: Judith Rich Model N, Inc. 516-884-6879 jrich@modeln.com