10-Q 1 modn-10q_20160630.htm 10-Q modn-10q_20160630.htm

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

 

FORM 10-Q

 

(Mark One)

x

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2016

OR

¨

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from              to             

Commission File Number: 001-35840

 

Model N, Inc.

(Exact Name of Registrant as Specified in Its Charter)

 

 

Delaware

 

77-0528806

(State or Other Jurisdiction of

Incorporation or Organization)

 

(I.R.S. Employer

Identification No.)

 

 

 

1600 Seaport Boulevard, Suite 400

Pacific Shores Center-Building 6 South

Redwood City, California

 

94063

(Address of Principal Executive Offices)

 

(Zip Code)

(650) 610-4600

(Registrant’s Telephone Number, Including Area Code)

 

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  x    No  ¨

Indicate by checkmark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter time period that the registrant was required to submit and post such files).    Yes  x    No  ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definition of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

 

Large accelerated filer

o

 

 

Accelerated filer

x

 

 

 

 

 

 

Non-accelerated filer

o

  (Do not check if a smaller reporting company)

 

Smaller reporting company

o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ¨  No  x

As of July 29, 2016, the registrant had 27,667,351 shares of common stock issued and outstanding.

 

 

 


 

TABLE OF CONTENTS

 

 

 

 

 

Page

 

 

 

PART I. FINANCIAL INFORMATION

 

 

 

 

 

 

Item 1.

 

Financial Statements (Unaudited)

 

3

 

 

 

 

 

 

Condensed Consolidated Balance Sheets as of June 30, 2016 and September 30, 2015

 

3

 

 

 

 

 

 

 

Condensed Consolidated Statements of Operations for the Three and Nine Months Ended June 30, 2016 and 2015

 

4

 

 

 

 

 

 

 

Condensed Consolidated Statements of Comprehensive Loss for the Three and Nine Months Ended June 30, 2016 and 2015

 

5

 

 

 

 

 

 

 

Condensed Consolidated Statements of Cash Flows for the Nine Months Ended June 30, 2016 and 2015

 

6

 

 

 

 

 

 

 

Notes to Condensed Consolidated Financial Statements

 

7

 

 

 

 

Item 2.

 

Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

15

 

 

 

 

Item 3.

 

Quantitative and Qualitative Disclosures about Market Risk

 

26

 

 

 

 

Item 4.

 

Controls and Procedures

 

27

 

 

 

PART II. OTHER INFORMATION

 

 

 

 

 

 

Item 1.

 

Legal Proceedings

 

28

 

 

 

 

Item 1A.

 

Risk Factors

 

28

 

 

 

 

Item 2.

 

Unregistered Sales of Equity Securities and Use of Proceeds

 

49

 

 

 

 

Item 3.

 

Defaults Upon Senior Securities

 

49

 

 

 

 

Item 4.

 

Mine Safety Disclosures

 

49

 

 

 

 

Item 5.

 

Other Information

 

49

 

 

 

 

Item 6.

 

Exhibits

 

49

 

 

 

 

 

 

Signatures

 

50

 

2


 

PART I. FINANCIAL INFORMATION

Item 1.

Financial Statements (Unaudited)

MODEL N, INC.

Condensed Consolidated Balance Sheets

(in thousands, except per share data)

(Unaudited)

 

  

 

As of

 

 

As of

 

 

 

June 30,

 

 

September 30,

 

 

 

2016

 

 

2015

 

Assets

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

70,125

 

 

$

91,019

 

Accounts receivable, net of allowance for doubtful accounts of $0 as of June 30, 2016 and September 30, 2015

 

 

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

 

Deferred revenue, net of current portion

 

 

1,444

 

 

 

1,942

 

Other long-term liabilities

 

 

644

 

 

 

819

 

Total liabilities

 

 

48,694

 

 

 

38,908

 

Commitments and contingencies

 

 

 

 

 

 

 

 

Stockholders' equity:

 

 

 

 

 

 

 

 

Common Stock, $0.00015 par value; 200,000 shares authorized; 27,662

   and 26,666 shares issued and outstanding at June 30, 2016 and

   September 30, 2015, respectively

 

 

4

 

 

 

4

 

Preferred Stock, $0.00015 par value; 5,000 shares authorized; no shares issued and outstanding

 

 

 

 

 

 

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

 

 

 

 

 

 

 

 

 

 

 

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

 

 

3


 

MODEL N, INC.

Condensed Consolidated Statements of Operations

(in thousands, except per share data)

(Unaudited)

 

 

 

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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

 

 

4


 

MODEL N, INC.

Condensed Consolidated Statements of Comprehensive Loss

(in thousands)

(Unaudited)

 

 

 

Three Months Ended June 30,

 

 

Nine Months Ended June 30,

 

 

 

2016

 

 

2015

 

 

2016

 

 

2015

 

Net loss

 

$

(8,646

)

 

$

(5,786

)

 

$

(25,355

)

 

$

(14,684

)

Other comprehensive (loss) income, net

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Change in foreign currency translation adjustment, net of taxes

 

 

(96

)

 

 

(6

)

 

 

(121

)

 

 

(74

)

Total comprehensive loss

 

$

(8,742

)

 

$

(5,792

)

 

$

(25,476

)

 

$

(14,758

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

 

 

5


 

MODEL N, INC.

Condensed Consolidated Statements of Cash Flows

(in thousands)

(Unaudited)

 

 

 

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

 

 

 

 

 

 

 

 

 

 

Supplemental Disclosure of Cash Flow Data:

 

 

 

 

 

 

 

 

Non-cash Investing and Financing Activities:

 

 

 

 

 

 

 

 

      Capitalized stock options in software development costs

 

 

 

 

 

109

 

 

 

 

 

 

 

 

 

 

 

 

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

 

 

 

6


MODEL N, INC.

Notes to Condensed Consolidated Financial Statements

(Unaudited)

 

 

1.

The Company and Significant Accounting Policies and Estimates

Model N, Inc. (Company) was incorporated in Delaware on December 14, 1999. The Company is a provider of revenue management solutions for the life science and technology industries. The Company’s solutions enable its customers to maximize revenues and reduce revenue compliance risk by transforming their revenue life cycle from a series of tactical, disjointed operations into a strategic end-to-end process, which enables them to manage the strategy and execution of pricing, contracting, incentives and rebates. The Company’s corporate headquarters are located in Redwood City, California, with additional offices in the United States, India, the United Kingdom and Switzerland.

Fiscal Year

The Company’s fiscal year ends on September 30. References to fiscal year 2016, for example, refer to the fiscal year ending September 30, 2016.

Basis for Presentation

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States (U.S. GAAP) and applicable rules and regulations of the Securities and Exchange Commission (SEC) regarding interim financial reporting. Certain information and note disclosures normally included in the financial statements prepared in accordance with U.S. GAAP have been condensed or omitted pursuant to such rules and regulations. The unaudited condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes included in the Annual Report on Form 10-K for the fiscal year ended September 30, 2015. There have been no changes in the significant accounting policies from those that were disclosed in the audited consolidated financial statements for the fiscal year ended September 30, 2015 included in the Annual Report on Form 10-K.

In the opinion of management, the unaudited interim consolidated financial statements include all the normal recurring adjustments necessary to present fairly the condensed consolidated financial statements. The results of operations for the three and nine months ended June 30, 2016 were not necessarily indicative of the operating results for the full fiscal year 2016 or any future periods.

The Company’s condensed consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. All significant intercompany transactions and balances have been eliminated upon consolidation.

Use of Estimates

The preparation of condensed consolidated financial statements in conformity with U.S. GAAP requires management to make certain estimates and assumptions that affect the amounts of assets and liabilities reported, disclosures about contingent assets and liabilities, and reported amounts of revenues and expenses during the reporting periods. Significant items subject to such estimates include revenue recognition, legal contingencies, income taxes, stock-based compensation, software development costs and valuation of intangibles. These estimates and assumptions are based on management’s best estimates and judgment. Management regularly evaluates its estimates and assumptions using historical experience and other factors. However, actual results could differ significantly from these estimates.

New Accounting Pronouncements

In May 2014, the Financial Accounting Standard Board (FASB) issued Accounting Standards Update (ASU) No. 2014-09, Revenue from Contracts with Customers, which amends the existing accounting standards for revenue recognition. ASU 2014-09 is based on principles that govern the recognition of revenue at an amount to which an entity expects to be entitled when products and services are transferred to customers. ASU 2014-09 was originally to be effective for the Company on October 1, 2017. In July 2015, the FASB affirmed a one-year deferral of the effective date of the new revenue standard. The standard will be effective for the Company’s fiscal year beginning October 1, 2018, at which time we may adopt the new standard under either the full retrospective method or the modified retrospective method. Early adoption is permitted. The Company is currently evaluating the impact of the adoption of this standard on our consolidated financial statements and has not determined whether the effect will be material.

7


MODEL N, INC.

Notes to Condensed Consolidated Financial Statements

(Unaudited)

 

In September 2015, the FASB issued ASU 2015-16, Business Combinations (Topic 805): Simplifying the Accounting for Measurement-Period Adjustments. The new standard eliminates the requirement for an acquirer to retrospectively adjust provisional amounts recorded in a business combination to reflect new information about the facts and circumstances that existed as of the acquisition date and that, if known, would have affected measurement or recognition of amounts initially recognized. As an alternative, the standard requires that an acquirer recognize adjustments to provisional amounts that are identified during the measurement period in the reporting period in which the adjustment amounts are determined. It requires that the acquirer record, in the financial statements of the period in which adjustments to provisional amounts are determined, the effect on earnings of changes in depreciation, amortization or other income effects, if any, as a result of the change to the provisional amounts, calculated as if the accounting had been completed at the acquisition date. The new standard is effective prospectively for fiscal years beginning after December 15, 2015, including interim periods within those fiscal years, with early adoption permitted. The Company is currently evaluating the impact of this ASU on the consolidated financial statements.

 

In February 2016, the FASB issued guidance on the recognition and measurement of leases. Under the new guidance, lessees are required to recognize a lease liability, which represents the discounted obligation to make future minimum lease payments, and a corresponding right-of-use asset on the balance sheet for most leases. The guidance retains the current accounting for lessors and does not make significant changes to the recognition, measurement, and presentation of expenses and cash flows by a lessee. Enhanced disclosures will also be required to give financial statement users the ability to assess the amount, timing and uncertainty of cash flows arising from leases. The guidance will require modified retrospective application at the beginning of the Company’s first quarter of fiscal 2020, with optional practical expedients, but permits adoption in an earlier period. The Company is currently evaluating the impact this guidance will have on its consolidated financial statements.

 

In March 2016, the Financial Accounting Standards Board (“FASB”) issued guidance related to stock-based compensation, which changes the accounting for and classification of excess tax benefits and minimum tax withholdings on share-based awards. The guidance becomes effective for the Company at the beginning of its first quarter of fiscal 2018 but permits adoption in an earlier period. The Company is currently evaluating the impact this guidance will have on its consolidated financial statements.

 

2.

Business Combinations

On October 30, 2015, the Company acquired certain assets and liabilities of Channelinsight Inc. (CI), a privately held cloud-based channel data management solution provider. The Company paid a total purchase price of $12.6 million in cash. Pro forma results have not been presented as the Company does not consider the acquisition to be significant.

The purchase consideration was allocated to tangible, identifiable intangible assets acquired and liabilities assumed based on their respective fair values as of the acquisition date. This allocation resulted in provisional fair value allocated to intangible assets of $6.8 million and goodwill of $5.4 million. The goodwill is deductible for tax purposes. Intangible assets acquired included developed technology, backlog, patents, trade names and customer relationships, and are being amortized on a straight-line basis over their estimated useful lives of 1 to 10 years. The key factors attributable to the creation of goodwill by the transaction are synergies in skill-sets, operations, customer base and organizational cultures. The results of operations and the provisional fair values of the assets acquired and liabilities assumed have been included in the accompanying unaudited condensed financial statements since the acquisition date.

8


MODEL N, INC.

Notes to Condensed Consolidated Financial Statements

(Unaudited)

 

 

3.

Consolidated Balance Sheet Components

Components of property and equipment, and intangible assets consisted of the following:

 

Property and Equipment

 

 

 

As of

 

 

As of

 

 

 

June 30,

 

 

September 30,

 

 

 

2016

 

 

2015

 

 

 

(in thousands)

 

Computer software and equipment

 

$

9,195

 

 

$

8,383

 

Furniture and fixtures

 

 

962

 

 

 

673

 

Leasehold improvements

 

 

1,200

 

 

 

875

 

Software development costs

 

 

8,254

 

 

 

6,915

 

Total property and equipment

 

 

19,611

 

 

 

16,846

 

Less: Accumulated depreciation and amortization

 

 

(13,575

)

 

 

(10,353

)

Property and equipment, net

 

 

6,036

 

 

 

6,493

 

Add: Construction in progress

 

 

602

 

 

 

1,060

 

Total property and equipment, net

 

$

6,638

 

 

$

7,553

 

 

 

 

 

 

 

 

 

 

 

Computer equipment acquired under the capital leases is included in property and equipment and consisted of the following:

 

 

 

As of

 

 

As of

 

 

 

June 30,

 

 

September 30,

 

 

 

2016

 

 

2015

 

 

 

(in thousands)

 

Computer software and equipment

 

$

777

 

 

$

793

 

Less: Accumulated depreciation and amortization

 

 

(777

)

 

 

(791

)

Total computer software and equipment, net

 

$

 

 

$

2

 

 

 

 

 

 

 

 

 

 

 

Depreciation expense including depreciation of assets under capital leases totaled $1.2 million and $1.1 million for the three months ended June 30, 2016 and 2015, respectively, and $3.4 million and $2.8 million for the nine months ended June 30, 2016 and 2015, respectively.

 

9


MODEL N, INC.

Notes to Condensed Consolidated Financial Statements

(Unaudited)

 

Intangible Assets

 

 

 

Estimated

 

As of

 

 

As of

 

 

 

Useful Life

 

June 30,

 

 

September 30,

 

 

 

(in Years)

 

2016

 

 

2015

 

 

 

 

 

(in thousands)

 

Intangible Assets:

 

 

 

 

 

 

 

 

 

 

Developed technology

 

4 - 5 years

 

$

5,313

 

 

$

2,213

 

Backlog

 

3- 5 years

 

 

280

 

 

 

100

 

Non-competition agreement

 

3 years

 

 

100

 

 

 

100

 

Customer relationships

 

3 -10 years

 

 

4,419

 

 

 

1,019

 

Trade name

 

1 years

 

 

110

 

 

 

 

Total intangible assets

 

 

 

 

10,222

 

 

 

3,432

 

Less: Accumulated amortization

 

 

 

 

(4,155

)

 

 

(3,115

)

Total intangible assets, net

 

 

 

$

6,067

 

 

$

317

 

 

 

 

 

 

 

 

 

 

 

 

 

 

The Company recorded amortization expense related to the acquired intangible assets of $0.4 million and $0.1 million for the three months ended June 30, 2016 and 2015, respectively, and $1.0 million and $0.2 million for the nine months ended June 30, 2016 and 2015, respectively.

Estimated future amortization expense for the intangible assets as of June 30, 2016 is as follows:

 

     2016 (remaining 3 months)

 

$

382

 

2017

 

 

1,257

 

2018

 

 

1,175

 

2019

 

 

1,120

 

2020 and thereafter

 

 

2,133

 

Total future amortization

 

$

6,067

 

 

 

 

 

 

 

 

4.

Goodwill

The goodwill balance as of June 30, 2016, was primarily the result of the business combination disclosed in Note 2 of these unaudited condensed consolidated financial statements. The activity for the nine months ended June 30, 2016 consisted of the following:

 

Balance as at September 30, 2015

 

$

1,509

 

Add: Goodwill from acquisition of business

 

 

5,430

 

Balance as at June 30, 2016

 

$

6,939

 

 

 

 

 

 

 

 

5.

Fair Value of Financial Instruments

The financial instruments of the Company consist primarily of cash and cash equivalents, accounts receivable, accounts payable and certain accrued liabilities. The Company regularly reviews its financial instruments portfolio to identify and evaluate such instruments that have indications of possible impairment. When there is no readily available market data, fair value estimates are made by the Company, which involves some level of management estimation and judgment and may not necessarily represent the amounts that could be realized in a current or future sale of these assets.

10


MODEL N, INC.

Notes to Condensed Consolidated Financial Statements

(Unaudited)

 

Fair value is defined as the exchange price that would be received for an asset or an exit price paid to transfer a liability in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Valuation techniques used to measure fair value must maximize the use of observable inputs and minimize the use of unobservable inputs. The current accounting guidance for fair value instruments defines a three-level valuation hierarchy for disclosures as follows:

Level 1—Unadjusted quoted prices in active markets for identical assets or liabilities;

Level 2—Input other than quoted prices included in Level 1 that are observable, unadjusted quoted prices in markets that are not active, or other inputs for similar assets and liabilities that are observable or can be corroborated by observable market data; and

Level 3—Unobservable inputs that are supported by little or no market activity, which requires the Company to develop its own models and involves some level of management estimation and judgment.

The Company’s Level 1 assets consist of U.S. treasury bills and money market funds. These instruments are classified within Level 1 of the fair value hierarchy because they are valued based on quoted market prices in active markets.

The table below sets forth the Company’s cash equivalents as of June 30, 2016 and September 30, 2015, which are measured at fair value on a recurring basis by level within the fair value hierarchy. The assets are classified based on the lowest level of input that is significant to the fair value measurement.

 

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

Total

 

 

 

(in thousands)

 

As of June 30, 2016:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash equivalents:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Money market fund deposits

 

$

59,947

 

 

$

 

 

$

 

 

$

59,947

 

Total

 

$

59,947

 

 

$

 

 

$

 

 

$

59,947

 

As of September 30, 2015:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash equivalents:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Money market fund deposits

 

$

45,516

 

 

$

 

 

$

 

 

$

45,516

 

U.S. treasury bills

 

 

35,000

 

 

 

 

 

 

 

 

 

35,000

 

Total

 

$

80,516

 

 

$

 

 

$

 

 

$

80,516

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

  

The Company’s cash equivalents as of June 30, 2016 and September 30, 2015 consisted of money market funds and treasury bills with original maturity dates of less than three months from the date of their respective purchase. Cash equivalents are classified as Level 1. The fair value of the Company’s money market funds approximated amortized cost and, as such, there were no unrealized gains or losses on money market funds as of June 30, 2016 and September 30, 2015. As of June 30, 2016 and September 30, 2015, amounts of $10.2 million and $10.5 million, respectively, were held in bank deposits.

 

 

6.

Stock-based Compensation

 As of June 30, 2016, 3.7 million shares were available for future stock awards under the Company’s equity plans.  There were no stock options granted during three months and nine months ended June 30, 2016 and 2015, respectively.  

11


MODEL N, INC.

Notes to Condensed Consolidated Financial Statements

(Unaudited)

 

The following table summarizes the stock option activity and related information under all equity plans:

 

 

 

 

 

 

 

 

 

 

 

Weighted

 

 

 

 

 

 

 

 

 

 

 

Weighted

 

 

Average

 

 

Aggregate

 

 

 

Number of

 

 

Average

 

 

Remaining

 

 

Intrinsic

 

 

 

Shares

 

 

Exercised

 

 

Contract

 

 

Value

 

 

 

(thousands)

 

 

Price

 

 

Term (in Years)

 

 

(thousands)

 

Balance at September 30, 2015

 

 

1,119

 

 

$

6.29

 

 

 

4.68

 

 

$

4,904

 

Granted

 

 

 

 

 

 

 

 

 

 

 

 

 

Exercised

 

 

(207

)

 

 

4.08

 

 

 

 

 

 

 

 

Forfeited

 

 

(12

)

 

 

13.70

 

 

 

 

 

 

 

 

Expired

 

 

(65

)

 

 

12.70

 

 

 

 

 

 

 

 

Balance at June 30, 2016

 

 

835

 

 

$

6.25

 

 

 

3.71

 

 

$

5,935

 

Options exercisable as of June 30, 2016

 

 

823

 

 

$

6.15

 

 

 

3.67

 

 

$

5,931

 

Options vested and expected to vest as of June 30, 2016

 

 

835

 

 

$

6.25

 

 

 

3.71

 

 

$

5,935

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

The following table summarizes the Company’s restricted stock units activity under all equity plans:

 

 

  

 

 

 

 

 

Weighted

 

 

 

 

 

 

 

Average

 

 

 

Restricted Stock

 

 

Grant Date

 

 

 

Units Outstanding

 

 

Fair Value

 

 

 

(in thousands)

 

 

 

 

 

Balance at September 30, 2015

 

 

2,302

 

 

$

12.32

 

Granted

 

 

1,872

 

 

 

10.64

 

Vested

 

 

(656

)

 

 

10.45

 

Forfeited

 

 

(485

)

 

 

11.27

 

Balance at June 30, 2016

 

 

3,033

 

 

$

11.85

 

 

 

 

 

 

 

 

 

 

Stock-based Compensation

Stock-based compensation is as follows:

 

 

 

Three Months Ended June 30,

 

 

Nine Months Ended June 30,

 

 

 

2016

 

 

2015

 

 

2016

 

 

2015

 

 

 

(in thousands)

 

 

(in thousands)

 

Cost of revenues:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

License and implementation

 

$

239

 

 

$

189

 

 

$

659

 

 

$

493

 

SaaS and maintenance

 

 

261

 

 

 

208

 

 

 

745

 

 

 

584

 

Total stock-based compensation in cost of revenue

 

 

500

 

 

 

397

 

 

 

1,404

 

 

 

1,077

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Research and development

 

 

401

 

 

 

353

 

 

 

963

 

 

 

947

 

Sales and marketing

 

 

881

 

 

 

899

 

 

 

2,124

 

 

 

2,273

 

General and administrative

 

 

1,847

 

 

 

1,087

 

 

 

4,296

 

 

 

3,115

 

Total stock-based compensation in operating expense

 

 

3,129

 

 

 

2,339

 

 

 

7,383

 

 

 

6,335

 

Stock-based compensation in operating loss

 

 

3,629

 

 

 

2,736

 

 

 

8,787

 

 

 

7,412

 

Stock-based compensation capitalized as software development cost

 

 

 

 

 

 

 

 

 

 

 

109

 

Total stock-based compensation

 

$

3,629

 

 

$

2,736

 

 

$

8,787

 

 

$

7,521

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

12