Announces Debt Refinancing with Wells Fargo Bank N.A.
San Mateo, California – May 8, 2018 – Model N, Inc. (NYSE: MODN), the leading provider of revenue management cloud solutions for the pharmaceutical, medical device, high tech, manufacturing and semiconductor industries, today announced financial results for the second quarter, which ended March 31, 2018.
“Model N exceeded its revenue and profitability guidance for the second quarter of fiscal 2018 and posted our third straight quarter of positive Adjusted EBITDA, with positive free cash flow of $4.7 million. In addition, I am excited to announce that we have refinanced our debt which will significantly reduce our interest payments and improve our cash flow,” said Zack Rinat, Founder, Chairman, and Chief Executive Officer of Model N. “Model N is in an exciting position to partner with our customers as they reinvent their business for the Digital Era.”
Second Quarter 2018 Financial Highlights
- Revenues: SaaS and maintenance revenues were $33.0 million compared to $27.3 million for the second quarter of fiscal 2017. Total revenues were $39.2 million, compared to $33.3 million for the second quarter of fiscal 2017.
- Gross Profit: Gross profit was $22.0 million compared to $17.2 million for the second quarter of fiscal 2017. Gross margins were 56% compared to 52% for the second quarter of fiscal 2017. Non-GAAP gross profit was $23.2 million, compared to $20.4 million for the second quarter of fiscal 2017. Non-GAAP gross margins were 59% compared to 58% for the second quarter of fiscal 2017.
- (Loss) income from operations: GAAP loss from operations was $(2.4) million compared to a GAAP loss from operations of $(15.0) million for the second quarter of fiscal 2017. Non-GAAP income from operations was $2.2 million compared to a Non-GAAP loss from operations of $(5.3) million for the second quarter of fiscal 2017.
- Net loss: GAAP net loss was $(3.9) million compared to net loss of $(12.5) million for the second quarter of fiscal 2017. GAAP basic and diluted net loss per share attributable to common stockholders was $(0.13) based upon weighted average shares outstanding of 30.0 million, as compared to net loss per share of $(0.44) for the second quarter of fiscal 2017 based upon weighted average shares outstanding of 28.5 million.
- Non-GAAP net income (loss): Non-GAAP net income was $0.7 million as compared to Non-GAAP net loss of $(7.0) million for the second quarter of fiscal 2017. Non-GAAP net income per share was $0.02 based upon weighted average shares outstanding of 30.0 million, as compared to Non-GAAP net loss per share of $(0.25) for the second quarter of fiscal 2017 based upon weighted average shares outstanding of 28.5 million.
- Adjusted EBITDA: Adjusted EBITDA was $3.0 million compared to $(4.4) million for the second quarter of fiscal 2017.
Use of Non-GAAP Financial Measures
A reconciliation of GAAP to non-GAAP financial measures has been provided in the financial tables included in this press release.
Announces Debt Refinancing with Wells Fargo Bank N.A, Lowering Interest Rate
Model N announced that it has completed the refinancing of its existing term loan under a new Credit Agreement with Wells Fargo Bank, N.A. The Wells Fargo Bank facility is comprised of a term loan of $50.0 million and a revolver of $5.0 million. The proceeds from the new loan were used in part to pay off the amounts outstanding under the existing term loan agreement, which bore an interest rate of LIBOR plus 8.25% during the second quarter of fiscal 2018. Borrowing under the new Credit Agreement will bear interest, at the Company’s selection, of either (i) Base Rate plus a margin of 3.5% to 2.0% or (ii) a LIBOR plus a margin of 4.5% to 3.0%, with margin steps down based upon on the Company’s leverage ratio. With this refinancing, Model N will have a 45% to 64% reduction in LIBOR margin.
Financial Impact of Debt Refinancing and Interest Rate
- Excluding any prepayment penalty, Model N anticipates the new loan to reduce its cash interest payment by approximately $0.8 million for the remainder of fiscal 2018.
- In the third quarter of fiscal 2018, we expect to incur a one-time charge of approximately $3.2 million in connection with the refinancing, of which approximately $1.7 million is non-cash unamortized discounts and deferred financing costs write-off and $1.5 million in prepayment penalty. These amounts will be recorded as interest expense.
- AstraZeneca subscribed to Revenue Cloud for Pharma for their U.S. business. Upon go-live, AstraZeneca will complete their On-Premise Transition (OPT) and become the first major pharmaceutical company to run their global business on Revenue Cloud for Pharma.
- Gedeon Richter, a specialty global pharmaceutical company headquartered in Budapest Hungary with operations in over 100 countries, subscribed to Model N’s Global Price Management.
- Sandoz, Swedish Orphan Biovitrum (Sobi), Novartis, and Takeda, among others, recently completed implementation projects and went live.
- Model N conducted a successful Rainmaker, our annual customer conference, focused on Digital Reinvention with approximately 500 participants.
As of May 8, 2018, we are providing guidance for the third quarter of fiscal 2018 and the full fiscal year ending September 30, 2018, which is inclusive of the debt refinancing.
|(in $ millions, except per share outlook)||Third Quarter Fiscal 2018||Full Year Fiscal 2018|
|Total GAAP Revenues||39.0 – 39.5||152.0 – 154.0|
|Non-GAAP income from operations||1.2 – 1.7||5.8 – 6.8|
|Non-GAAP net loss per share||(0.11) – (0.09)||(0.07) – (0.05)|
|Adjusted EBITDA||2.0 – 2.5||9.0 – 10.0|
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, which ended March 31, 2018. 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 15, 2018, a telephone replay will be available by dialing (844) 512-2921 from the United States or (412) 317-6671 internationally with recording access code 13678567.
This press release contains forward-looking statements including, among other things, statements regarding Model N’s third quarter and full year fiscal year 2018 revenue, the financial impact of Model N’s debt refinancing, and other financial results as well as outlook for fiscal year 2018 and future prospects. 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, and (xiii) acquisition-related risks from our acquisition of Revitas. 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, 2017, 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 income (loss) from operations, non-GAAP net loss, non-GAAP net (loss) income per share, and adjusted EBITDA. Non-GAAP gross profit excludes stock-based compensation expense, acquisition & integration related expenses, deferred revenue adjustment and amortization of intangible assets. Non-GAAP loss from operations and non-GAAP net loss exclude stock-based compensation expense, amortization of intangible assets, and acquisition & integration related expenses, deferred revenue adjustment and valuation allowance resulting from Revitas acquisition as they are often excluded by other companies to help investors understand the operational performance of their business and, in the case of stock-based compensation, can be difficult to predict and therefore we have not provided a reconciliation of forecasted Non-GAAP results with GAAP. In addition, stock-based compensation expense varies from period to period and company to company due to such things as differing valuation methodologies and changes in stock price. Adjusted EBITDA is defined as net loss, adjusted 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.
About Model N
Model N is a leading provider of cloud revenue management solutions for life sciences and high tech companies. Driving mission-critical business processes such as pricing, quoting, contracting, regulatory compliance, rebates and incentives, our software helps companies know and grow their true top line and maximize every revenue moment at speed and scale. With deep industry expertise, Model N supports the complex business needs of the world’s leading brands in pharmaceutical, medical technology, semiconductor, and high-tech manufacturing across more than 100 countries, including Johnson & Johnson, AstraZeneca, Novartis, Microchip Technology and ON Semiconductor. For more information, visit www.modeln.com.
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