Model N Announces Fourth Quarter and Fiscal Year 2021 Financial Results

• Total Q4 Revenue Grew 24% Year-over-Year
• Q4 Subscription Revenue Grew 29% Year-over-Year

Model N, Inc. (NYSE: MODN), the leader in cloud revenue management solutions, today announced financial results for the fourth quarter and fiscal year 2021 ended September 30, 2021.

“We finished fiscal 2021 with a healthy contribution from all of our growth levers. During the fourth quarter, we signed multiple new logos and SaaS transitions, numerous customer base expansions, and we also enjoyed strong renewals across the board. Our results clearly illustrate the success of our strategic focus on the Life Sciences and High Tech verticals and the value our customers place on our mission-critical products,” said Jason Blessing, president and chief executive officer of Model N. “I'm proud of our execution this past year, and I’m optimistic about the opportunity ahead for Model N. We are entering fiscal 2022 with positive momentum.”

Recent Highlights

• Strong performance in Life Sciences Vertical Powered by the Addition of New Customers, Expansions with Existing Customers and SaaS Transition Commitments – Model N continued to bolster its stronghold in the Life Sciences vertical, adding new and expanding with existing customers as well as securing additional commitments for SaaS transitions. During the quarter, the Company signed new agreements with Cerecor and Jazz Pharmaceuticals, among others. Model N also expanded our relationship with AstraZeneca, Fresenius and Viatris. Also in the quarter, two long-time Model N customers committed to SaaS transitions, such as EMD Serono, the biopharmaceutical business of Merck in the U.S. and Canada, as well as Alkermes, a fully integrated, global biopharmaceutical company developing innovative medicines in the fields of neuroscience and oncology. EMD Serono and Alkermes are 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 – In the fourth quarter, the Company demonstrated growing momentum in the High Tech vertical with the addition of Cricut, a $1 billion manufacturer of computer-controlled cutting machines and scanners used for designing in the consumer market, and Ergotron, a global manufacturer of innovative, ergonomic mounting and mobility products for computer monitors, notebooks and flat panels.
• Positioned as a Leader in the IDC MarketScape: Worldwide B2B Price Optimization and Management Applications 2021 Vendor Assessment – During the fourth quarter, Model N was recognized as a leader in a new IDC Marketscape report. The report cited multiple strengths of Model N’s cloud revenue management platform for High Tech, including pricing and Deal Guidance, Readiness for the Future and Value Delivered. IDC noted that, “Because of Model N’s focus on this industry, the suite has highly configurable features and workflows that are tailored for selling in this industry, such as pricing models that support the fast turnover due to technology evolution, deal management, price protection, claims processing, high-tech revenue intelligence and margin optimization, rebates, payouts, and Ship and Debit.” The report further states that organizations in the high-tech hardware and/or semiconductor industries should consider Model N when they “need an end-to-end revenue management solution for managing pricing and channel incentives.”

Fourth Quarter 2021 Financial Highlights

• Revenues: Total revenues were $51.5 million, an increase of 24% from the fourth quarter of fiscal year 2020. Subscription revenues were $38.2 million, an increase of 29% from the fourth quarter of fiscal year 2020. Business Services, acquired from Deloitte, contributed $6.0 million in total revenues for the fourth quarter of fiscal year 2021.
• Gross Profit: Gross profit was $28.8 million, an increase of 16% from the fourth quarter of fiscal year 2020. Gross margin was 56% compared to 60% for the fourth quarter of fiscal year 2020. Non-GAAP gross profit was $31.7 million, an increase of 21% from the fourth quarter of fiscal year 2020. Non-GAAP gross margin was 62% compared to 63% for the fourth quarter of fiscal year 2020. Subscription gross margin was 65% compared to 71% for the fourth quarter of fiscal year 2020. Non-GAAP subscription gross margin was 70% compared to 74% for the fourth quarter of fiscal year 2020. Both GAAP and Non-GAAP gross margins for the fourth quarter of fiscal year 2021 were impacted by the revenue mix coming from the acquisition of Business Services.
• GAAP Income (Loss) and Non-GAAP Income from Operations: GAAP loss from operations was $(2.4) million compared to income from operations of $0.4 million for the fourth quarter of fiscal year 2020. Non-GAAP income from operations was $7.7 million, an increase of 13% from the fourth quarter of fiscal year 2020.
• GAAP Net Loss: GAAP net loss was $(6.1) million compared to a net loss of $(3.7) million for the fourth quarter of fiscal year 2020. GAAP basic and diluted net loss per share attributable to common stockholders was $(0.17) based upon weighted average shares outstanding of 35.9 million compared to net loss per share of $(0.11) for the fourth quarter of fiscal year 2020 based upon weighted average shares outstanding of 34.7 million.
• Non-GAAP Net Income: Non-GAAP net income was $6.6 million, an increase of 31% from the fourth quarter of fiscal year 2020. Non-GAAP net income per diluted share was $0.18 based upon diluted weighted average shares outstanding of 36.5 million compared to non-GAAP net income per diluted share of $0.14 for the fourth quarter of fiscal year 2020 based upon diluted weighted average shares outstanding of 36.4 million.
• Adjusted EBITDA: Adjusted EBITDA was $7.9 million, an increase of 14% from the fourth quarter of fiscal year 2020.

Fiscal Year 2021 Financial Highlights

• Revenues: Total revenues were $193.4 million, an increase of 20% from fiscal year 2020. Subscription revenues were $142.4 million, an increase of 23% from fiscal year 2020. Business Services, which we acquired from Deloitte, contributed $18.5 million in total revenues for fiscal year 2021.
• Gross Profit: Gross profit was $106.8 million, an increase of 12% from fiscal year 2020. Gross margin was 55% compared to 59% for fiscal year 2020. Non-GAAP gross profit was $116.9 million, an increase of 16% from fiscal year 2020. Non-GAAP gross margins were 60% compared to 63% for fiscal year 2020. Subscription gross margin was 65% compared to 70% for fiscal year 2020. Non-GAAP subscription gross margin was 69% compared to 73% for fiscal year 2020. Both GAAP and Non-GAAP gross margins for 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 $(14.4) million compared to $(6.6) million for fiscal year 2020. Non-GAAP income from operations was $25.3 million, an increase of 22% from fiscal year 2020.
• GAAP Net Loss: GAAP net loss was $(29.7) million compared to $(13.7) million for fiscal year 2020. GAAP basic and diluted net loss per share attributed to common stockholders was $(0.84) based upon weighted average shares outstanding of 35.5 million compared to net loss per share of $(0.40) for fiscal year 2020 based upon weighted average shares outstanding of 34.0 million.
• Non-GAAP Net Income: Non-GAAP net income was $19.8 million, an increase of 16% from fiscal year 2020. Non-GAAP net income per diluted share was $0.54 based upon diluted weighted average shares outstanding of 36.5 million compared to non-GAAP net income per diluted share of $0.48 for fiscal year 2020 based upon diluted weighted average shares outstanding of 35.4 million.
• Adjusted EBITDA: Adjusted EBITDA was $26.0 million, an increase of 22% from fiscal year 2020.
• Cash and Cash Flows: Cash and cash equivalents as of September 30, 2021 totaled $165.5 million. Net cash provided by operating activities was $19.6 million for fiscal year 2021 compared with $14.4 million in fiscal year 2020. Free cash flow was $18.5 million for fiscal year 2021 compared with $13.8 million in fiscal year 2020.

A reconciliation of GAAP to non-GAAP financial measures has been provided in the financial tables included in this press release.

Guidance

As of November 9, 2021, we are providing guidance for the first quarter fiscal year 2022 and issuing guidance for the full fiscal year ending September 30, 2022.

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 fourth quarter and fiscal year 2021 ended September 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 November 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 13723796.

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 solutionspurpose-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 first quarter and full year fiscal 2022 financial results, 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 our 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.

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:

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