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 December 31, 2015
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 |
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77-0528806 |
(State or Other Jurisdiction of Incorporation or Organization) |
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(I.R.S. Employer Identification No.) |
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1600 Seaport Boulevard, Suite 400 Pacific Shores Center-Building 6 South Redwood City, California |
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94063 |
(Address of Principal Executive Offices) |
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(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 |
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Accelerated filer |
x |
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Non-accelerated filer |
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(Do not check if a smaller reporting company) |
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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 January 29, 2016 the registrant had 27,046,009 shares of common stock issued and outstanding.
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Item 1. |
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3 |
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Condensed Consolidated Balance Sheets as of December 31, 2015 and September 30, 2015 |
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3 |
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4 |
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5 |
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6 |
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7 |
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Item 2. |
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Management’s Discussion and Analysis of Financial Condition and Results of Operations |
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14 |
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Item 3. |
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22 |
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Item 4. |
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23 |
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Item 1. |
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24 |
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Item 1A. |
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24 |
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Item 2. |
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46 |
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Item 3. |
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46 |
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Item 4. |
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46 |
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Item 5. |
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46 |
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Item 6. |
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46 |
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47 |
2
MODEL N, INC.
Condensed Consolidated Balance Sheets
(in thousands, except per share data)
(Unaudited)
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As of |
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As of |
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December 31, |
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September 30, |
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2015 |
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2015 |
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Assets |
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Current assets: |
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Cash and cash equivalents |
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$ |
70,353 |
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$ |
91,019 |
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Accounts receivable, net of allowance for doubtful accounts of $0 as of December 31, 2015 and September 30, 2015 |
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22,202 |
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16,106 |
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Deferred cost of implementation services, current portion |
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633 |
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498 |
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Prepaid expenses |
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3,336 |
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3,229 |
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Other current assets |
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151 |
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109 |
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Total current assets |
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96,675 |
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110,961 |
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Property and equipment, net |
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7,452 |
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7,553 |
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Goodwill |
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6,939 |
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1,509 |
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Intangible assets, net |
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6,832 |
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317 |
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Other assets |
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1,567 |
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1,630 |
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Total assets |
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$ |
119,465 |
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$ |
121,970 |
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Liabilities And Stockholders' Equity |
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Current liabilities: |
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Accounts payable |
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$ |
1,547 |
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$ |
1,597 |
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Accrued employee compensation |
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7,616 |
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9,047 |
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Accrued liabilities |
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3,986 |
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3,464 |
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Deferred revenue, current portion |
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25,370 |
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22,039 |
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Total current liabilities |
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38,519 |
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36,147 |
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Deferred revenue, net of current portion |
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2,321 |
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1,942 |
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Other long-term liabilities |
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702 |
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819 |
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Total liabilities |
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41,542 |
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38,908 |
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Commitments and contingencies |
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Stockholders' equity: |
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Common Stock, $0.00015 par value; 200,000 shares authorized; 27,029 and 26,666 shares issued and outstanding at December 31, 2015 and September 30, 2015, respectively |
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4 |
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4 |
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Preferred Stock, $0.00015 par value; 5,000 shares authorized; no shares issued and outstanding |
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— |
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— |
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Additional paid-in capital |
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188,844 |
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186,159 |
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Accumulated other comprehensive loss |
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(491 |
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(466 |
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Accumulated deficit |
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(110,434 |
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(102,635 |
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Total stockholders' equity |
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77,923 |
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83,062 |
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Total liabilities and stockholders' equity |
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$ |
119,465 |
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$ |
121,970 |
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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)
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Three Months Ended December 31, |
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2015 |
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2014 |
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Revenues: |
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License and implementation |
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$ |
4,562 |
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$ |
9,681 |
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SaaS and maintenance |
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19,925 |
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12,420 |
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Total revenues |
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24,487 |
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22,101 |
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Cost of revenues: |
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License and implementation |
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3,417 |
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4,015 |
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SaaS and maintenance |
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9,012 |
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5,511 |
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Total cost of revenues |
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12,429 |
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9,526 |
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Gross profit |
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12,058 |
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12,575 |
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Operating expenses: |
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Research and development |
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5,284 |
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4,454 |
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Sales and marketing |
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7,707 |
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6,740 |
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General and administrative |
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6,720 |
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5,588 |
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Total operating expenses |
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19,711 |
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16,782 |
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Loss from operations |
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(7,653 |
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(4,207 |
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Interest income, net |
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(1 |
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(4 |
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Other (income) expenses, net |
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57 |
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(39 |
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Loss before income taxes |
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(7,709 |
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(4,164 |
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Provision for income taxes |
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90 |
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135 |
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Net loss |
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$ |
(7,799 |
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$ |
(4,299 |
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Net loss per share attributable to common stockholders: |
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Basic and diluted |
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$ |
(0.29 |
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$ |
(0.17 |
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Weighted average number of shares used in computing net loss per share attributable to common stockholders: |
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Basic and diluted |
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26,827 |
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25,319 |
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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)
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Three Months Ended December 31, |
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2015 |
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2014 |
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Net loss |
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$ |
(7,799 |
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$ |
(4,299 |
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Other comprehensive (loss) income, net |
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Change in foreign currency translation adjustment, net of tax |
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(25 |
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(81 |
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Total comprehensive loss |
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$ |
(7,824 |
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$ |
(4,380 |
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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)
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Three Months Ended December 31, |
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2015 |
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2014 |
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Cash flows from operating activities: |
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Net loss |
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$ |
(7,799 |
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$ |
(4,299 |
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Adjustments to reconcile net loss to net cash used in operating activities |
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Depreciation and amortization |
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1,319 |
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933 |
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Stock-based compensation |
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2,550 |
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2,394 |
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Other non-cash charges |
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46 |
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57 |
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Changes in assets and liabilities: |
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Accounts receivable |
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(4,984 |
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(1,516 |
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Prepaid expenses and other assets |
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84 |
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(392 |
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Deferred cost of implementation services |
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(85 |
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(86 |
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Accounts payable |
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(222 |
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494 |
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Accrued employee compensation |
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(1,425 |
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(797 |
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Other accrued and long-term liabilities |
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496 |
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(30 |
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Deferred revenue |
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2,730 |
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(211 |
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Net cash used in operating activities |
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(7,290 |
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(3,453 |
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Cash flows from investing activities: |
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Purchases of property and equipment |
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(357 |
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(710 |
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Acquisition of business |
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(12,615 |
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— |
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Capitalization of software development costs |
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(532 |
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(563 |
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Net cash used in investing activities |
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(13,504 |
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(1,273 |
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Cash flows from financing activities: |
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Proceeds from exercise of stock options |
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135 |
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158 |
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Net cash provided by financing activities |
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135 |
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158 |
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Effect of exchange rate changes on cash and cash equivalents |
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(7 |
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(24 |
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Net decrease in cash and cash equivalents |
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(20,666 |
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(4,592 |
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Cash and cash equivalents |
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Beginning of period |
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91,019 |
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101,006 |
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End of period |
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$ |
70,353 |
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$ |
96,414 |
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Supplemental Disclosure of Cash Flow Data: |
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Non-cash Investing and Financing Activities: |
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Capitalized stock options in software development costs |
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— |
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51 |
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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 includes all the normal recurring adjustments necessary to present fairly the condensed consolidated financial statements. The results of operations for the three months ended December 31, 2015 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 new standard will become effective for the Company on October 1, 2018 and can be adopted either retrospectively to each prior reporting period presented or as a cumulative effect adjustment as of the date of adoption. Early application is permitted but not before the original effective date of annual periods beginning after December 15, 2016. The Company is currently evaluating the impact the adoption of ASU 2014-09 will have on the Company's consolidated financial statements.
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.
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 $5.4 million. The goodwill is deductible for tax purposes. Intangible assets acquired included developed technology, backlog, patents, trade names and customer relationships, and are being amortized on a straight-line basis over their estimated useful lives of 1 to 10 years. The key factors attributable to the creation of goodwill by the transaction are synergies in skill-sets, operations, customer base and organizational cultures. The results of operations and the provisional fair values of the assets acquired and liabilities assumed have been included in the accompanying unaudited condensed financial statements since the acquisition date.
3. |
Consolidated Balance Sheet Components |
Components of property and equipment, and intangible assets consisted of the following:
Property and Equipment
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As of |
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As of |
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December 31, |
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September 30, |
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2015 |
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2015 |
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(in thousands) |
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Computer software and equipment |
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$ |
8,571 |
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$ |
8,383 |
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Furniture and fixtures |
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680 |
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673 |
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Leasehold improvements |
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875 |
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875 |
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Software development costs |
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8,254 |
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6,915 |
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Total property and equipment |
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18,380 |
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16,846 |
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Less: Accumulated depreciation and amortization |
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(11,396 |
) |
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(10,353 |
) |
Property and equipment, net |
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6,984 |
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6,493 |
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Add: Construction in progress |
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468 |
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1,060 |
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Total property and equipment, net |
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$ |
7,452 |
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$ |
7,553 |
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8
MODEL N, INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Computer equipment acquired under the capital leases is included in property and equipment and consisted of the following:
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As of December 31, |
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2015 |
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2014 |
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(in thousands) |
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Computer software and equipment |
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$ |
793 |
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$ |
823 |
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Less: Accumulated depreciation and amortization |
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(791 |
) |
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(820 |
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Total computer software and equipment, net |
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$ |
2 |
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$ |
3 |
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Depreciation expense including depreciation of assets under capital leases totaled $1.0 million and $0.8 million for the three months ended December 31, 2015 and 2014, respectively.
Intangible Assets
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Estimated |
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As of |
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As of |
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Useful Life |
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December 31, |
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September 30, |
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(in Years) |
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2015 |
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2015 |
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(in thousands) |
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Intangible Assets: |
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Developed technology |
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4 - 5 years |
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$ |
5,313 |
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$ |
2,213 |
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Backlog |
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3- 5 years |
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280 |
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|
100 |
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Non-competition agreement |
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3 years |
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100 |
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100 |
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Customer relationships |
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3 -10 years |
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4,419 |
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1,019 |
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Trade name |
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1 years |
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110 |
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|
|
— |
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Total intangible assets |
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|
|
|
10,222 |
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|
3,432 |
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Less: Accumulated amortization |
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(3,390 |
) |
|
|
(3,115 |
) |
Total intangible assets, net |
|
|
|
$ |
6,832 |
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|
$ |
317 |
|
The Company recorded amortization expense related to the acquired intangible assets of $0.3 million and $0.1 million for the three months ended December 31, 2015 and 2014, respectively.
Estimated future amortization expense for the intangible assets as of December 31, 2015 is as follows:
2016 (remaining 9 months) |
|
|
|
$ |
1,147 |
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2017 |
|
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|
|
1,257 |
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2018 |
|
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|
|
1,175 |
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2019 |
|
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1,120 |
|
2020 and thereafter |
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2,133 |
|
Total future amortization |
|
|
|
$ |
6,832 |
|
4. |
Goodwill |
The goodwill balance as of December 31, 2015, was the result of the business combination disclosed in Note 2 of these unaudited condensed consolidated financial statements. The activity for the three months ended December 31, 2015 consisted of the following:
Balance as at September 30, 2015 |
|
$ |
1,509 |
|
Add: Goodwill from acquisition of business |
|
|
5,430 |
|
Balance as at December 31, 2015 |
|
$ |
6,939 |
|
9
MODEL N, INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
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.
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 December 31, 2015 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 December 31, 2015: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash equivalents: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Money market fund deposits |
|
$ |
45,516 |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
45,516 |
|
U.S. treasury bills |
|
|
18,999 |
|
|
|
— |
|
|
|
— |
|
|
|
18,999 |
|
Total |
|
$ |
64,515 |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
64,515 |
|
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 December 31, 2015 and September 30, 2015 consisted of money market funds 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 December 31, 2015 and September 30, 2015. As of December 31, 2015 and September 30, 2015, amounts of $5.8 million and $10.5 million, respectively, were held in bank deposits.
10
MODEL N, INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
6. |
Stock-based Compensation |
As of December 31, 2015, 5.1 million shares were available for future stock awards under the plans. There were no stock options granted during three months ended December 31, 2015 and 2014, respectively.
The following table summarized the stock option activity and related information under all stock option plans:
|
|
|
|
|
|
|
|
|
|
Weighted |
|
|
|
|
|
|
|
|
|
|
|
|
Weighted |
|
|
Average |
|
|
|
|
|
||
|
|
Number of |
|
|
Average |
|
|
Remaining |
|
|
Aggregate |
|
||||
|
|
Shares |
|
|
Exercised |
|
|
Contract |
|
|
Intrinsic |
|
||||
|
|
(thousands) |
|
|
Price |
|
|
Term (in Years) |
|
|
Value |
|
||||
Balance at September 30, 2015 |
|
|
1,119 |
|
|
$ |
6.29 |
|
|
|
4.68 |
|
|
$ |
4,904 |
|
Granted |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
Exercised |
|
|
(34 |
) |
|
|
3.99 |
|
|
|
— |
|
|
|
|
|
Forfeited |
|
|
(4 |
) |
|
|
11.88 |
|
|
|
— |
|
|
|
|
|
Expired |
|
|
(4 |
) |
|
|
9.64 |
|
|
|
— |
|
|
|
|
|
Balance at December 31, 2015 |
|
|
1,077 |
|
|
$ |
6.33 |
|
|
|
4.25 |
|
|
$ |
5,580 |
|
Options exercisable as of December 31, 2015 |
|
|
1,074 |
|
|
$ |
6.30 |
|
|
|
4.24 |
|
|
$ |
5,580 |
|
Options vested and expected to vest as of December 31, 2015 |
|
|
1,034 |
|
|
$ |
6.05 |
|
|
|
4.14 |
|
|
$ |
5,579 |
|
The following table summarizes the Company’s restricted stock and restricted stock unit activity under all equity award plans:
|
|
|
|
|
|
Weighted |
|
|
|
|
|
|
|
|
Average |
|
|
|
|
Restricted Stock |
|
|
Grant Date |
|
||
|
|
Units Outstanding |
|
|
Fair Value |
|
||
|
|
(in thousands) |
|
|
|
|
|
|
Balance at September 30, 2015 |
|
|
2,302 |
|
|
$ |
12.32 |
|
Granted |
|
|
175 |
|
|
|
10.54 |
|
Released |
|
|
(330 |
) |
|
|
10.90 |
|
Forfeited |
|
|
(201 |
) |
|
|
11.11 |
|
Balance at December 31, 2015 |
|
|
1,946 |
|
|
$ |
12.52 |
|
Stock-based Compensation
Stock-based compensation is as follows:
|
|
Three Months Ended December 31, |
|
|||||
|
|
2015 |
|
|
2014 |
|
||
|
|
(in thousands) |
|
|||||
Cost of revenues: |
|
|
|
|
|
|
|
|
License and implementation |
|
$ |
200 |
|
|
$ |
138 |
|
SaaS and maintenance |
|
|
226 |
|
|
|
196 |
|
Total stock-based compensation in cost of revenue |
|
|
426 |
|
|
|
334 |
|
Operating expenses: |
|
|
|
|
|
|
|
|
Research and development |
|
|
401 |
|
|
|
328 |
|
Sales and marketing |
|
|
593 |
|
|
|
647 |
|
General and administrative |
|
|
1,130 |
|
|
|
1,085 |
|
Total stock-based compensation in operating expense |
|
|
2,124 |
|
|
|
2,060 |
|
Stock-based compensation in operating loss |
|
|
2,550 |
|
|
|
2,394 |
|
Stock-based compensation capitalized as software development cost |
|
|
— |
|
|
|
51 |
|
Total stock-based compensation |
|
$ |
2,550 |
|
|
$ |
2,445 |
|
11
MODEL N, INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
7. |
Income Taxes |
The Company recorded an income tax expense of $90,000 and $135,000, representing effective income tax rates of (1)% and (3)%, for the three months ended December 31, 2015 and 2014, respectively. The Company’s effective income-tax rates during these periods differ from the Company’s federal statutory rate of 34% primarily due to permanent differences for stock-based compensation and the impact of state income taxes and foreign tax rate differences, and the Company realized no benefit for current period losses due to maintaining a full valuation allowance against the U.S. and foreign net deferred tax assets.
8. |
Net Loss per Share |
The following table sets forth the computation of the Company’s basic and diluted net loss per share attributable to common stockholders during the periods presented:
|
|
Three Months Ended December 31, |
|
|||||
|
|
2015 |
|
|
2014 |
|
||
|
|
(in thousands, except per share data) |
|
|||||
Numerator: |
|
|
|
|
|
|
|
|
Basic and diluted: |
|
|
|
|
|
|
|
|
Net loss attributable to common stockholders |
|
$ |
(7,799 |
) |
|
$ |
(4,299 |
) |
Denominator: |
|
|
|
|
|
|
|
|
Basic and diluted: |
|
|
|
|
|
|
|
|
Weighted Average Shares Used in Computing Net Loss per Share Attributable to Common Stockholders |
|
|
26,827 |
|
|
|
25,319 |
|
Net Loss per Share Attributable to Common Stockholders: |
|
|
|
|
|
|
|
|
Basic and diluted |
|
$ |
(0.29 |
) |
|
$ |
(0.17 |
) |
The following shares of common stock equivalents were excluded from the computation of diluted net loss per share attributable to common stockholders as effect would have been anti-dilutive:
|
|
Three Months Ended December 31, |
|
|||||
|
|
2015 |
|
|
2014 |
|
||
|
|
|
|
|
|
|
|
|
Stock options |
|
|
829,693 |
|
|
|
1,467,122 |
|
Restricted stock awards, performance-based restricted stock units and restricted stock units |
|
|
598,993 |
|
|
|
728,917 |
|
|
|
|
|
|
|
|
|
|
9. |
Litigation and Contingencies |
Legal Proceedings
On September 5, 2014 and January 22, 2015, purported securities class action lawsuits were filed in the Superior Court of the State of California, County of San Mateo, against the Company, certain of the Company’s current and former directors and executive officers and underwriters of the initial public offering (IPO). The lawsuits were brought by purported stockholders of the Company seeking to represent a class consisting of all those who purchased the Company’s stock pursuant and/or traceable to the Registration Statement and Prospectus issued in connection with the IPO. The lawsuits assert claims under Sections 11, 12(a)(2) and 15 of the Securities Act of 1933 and seek unspecified damages and other relief. On March 2, 2015, the Court entered an order consolidating the two class action lawsuits.
On November 4, 2015, all parties reached a mutually acceptable resolution by way of a mediated settlement. The Company does not believe that its portion of the settlement amount will be material to its results of operations.
12
MODEL N, INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
10. |
Geographic Information |
The Company has one operating segment with one business activity - developing and monetizing revenue management solutions.
Revenues from External Customers
Revenues from customers outside of the United States were 8% and 7% of total revenues for the three months ended December 31, 2015 and 2014, respectively.
Long-Lived Assets
The following table sets forth the Company’s property and equipment, net by geographic region:
|
|
As of |
|
|
As of |
|
||
|
|
December 31, |
|
|
September 30, |
|
||
|
|
2015 |
|
|
2015 |
|
||
|
|
(in thousands) |
|
|||||
United States |
|
$ |
6,022 |
|
|
$ |
6,080 |
|
India |
|
|
1,430 |
|
|
|
1,473 |
|
Total property and equipment, net |
|
$ |
7,452 |
|
|
$ |
7,553 |
|
13
Item 2.Management’s Discussion and Analysis of Financial Condition and Results of Operations
Forward-Looking Statements
This report contains forward-looking statements regarding future events and our future results that are subject to the safe harbors created under the Securities Act of 1933 (Securities Act) and the Securities Exchange Act of 1934 (Exchange Act). All statements other than statements of historical facts are statements that could be deemed forward-looking statements. These statements are based on current expectations, estimates, forecasts and projections about the industries in which we operate and the beliefs and assumptions of our management. Words such as “anticipates,” “goals,” “plans,” “believes,” “seeks,” “estimates,” “continues,” “may,” “will,” variations of such words and similar expressions are intended to identify such forward-looking statements. In addition, any statements that refer to projections of our future financial performance, our anticipated growth and trends in our businesses, and other characterizations of future events or circumstances are forward-looking statements. You should not rely upon forward-looking statements as predictions of future events. The events and circumstances reflected in the forward-looking statements may not be achieved or occur. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance or achievements. Forward-looking statements are based only on our current expectations and projections and are subject to risks, uncertainties, and assumptions that are difficult to predict, including those identified below under “Part II, Item 1A. Risk Factors,” and elsewhere in this report. Therefore, actual results may differ materially and adversely from those expressed in any forward-looking statements. We undertake no obligation to revise or update any forward-looking statements for any reason.
As used in this report, the terms “we,” “us,” “our,” and “the Company” mean Model N, Inc. and its subsidiaries unless the context indicates otherwise.
Overview
We are a leader in Revenue Management cloud solutions for the life science and technology companies. Driving mission critical business processes such as configure, price and quote (CPQ), rebates and regulatory compliance, our cloud solutions transform the revenue lifecycle from a series of disjointed operations into a strategic end-to-end process. With deep industry expertise, we support the unique business needs of the world’s leading brands in life science and technology companies across more than 100 countries.
Our solutions are comprised of several complementary software applications: Revenue Enterprise Cloud, Revenue Intelligence Cloud and Revvy. Sales of our solutions range from individual applications to complete suites and deployments may vary from specific divisions or territories to enterprise-wide implementations. Our portfolio includes several complementary software applications:
|
· |
Revenue Enterprise Cloud - a broad set of transactional applications that serve as a system of record for, and automate the execution of, revenue management processes such as pricing, contracting, compliance, incentive and rebate management. |
|
· |
Revenue Intelligence Cloud—a broad set of intelligence applications that provide the analytical tools insights to define and optimize revenue management strategies. |
|
· |
Revvy – a broad set of multi-tenant cloud applications natively built on the Salesforce1 Platform from salesforce.com. |
We derive revenues primarily from the sale of our cloud-based and on premise solutions and related implementation services, as well as maintenance and support and application support. We price our solutions based on a number of factors, including revenues under management and number of users. Our license and implementation revenues are comprised of sales of perpetual license and related implementation services, which revenues are recognized over the implementation period, which commences when implementation work begins and typically ranges from a few months to three years. Maintenance and support revenues are recognized ratably over the support period, which is typically one year. SaaS revenues for cloud-based solutions are derived from subscription fees from customers accessing our cloud-based solutions, as well as from associated implementation services, revenue is recognized ratably over the term of the contract which is typically three years. The actual timing of revenue recognition may vary based on our customers’ implementation requirements and availability of our services personnel.
14
We market and sell our solutions to customers in the life science and technology industries. While we have historically generated the substantial majority of our revenues from companies in the life science industry, we have also grown our base of technology customers and intend to continue to focus on increasing the revenues from customers in the technology industry. Our most significant customers in any given period generally vary from period to period due to the timing of implementation and related revenue recognition over those periods for larger projects.
For the three months ended December 31, 2015 and 2014, our revenues were $24.5 million and $22.1 million, respectively, representing a year-over-year increase of approximately 11%, primarily due to improvement in sales execution, new products offerings and acquisition of Channelinsight, these changes resulted in the acquisition of new customers and an increase in our revenues.
Key Business Metric
In addition to the measures of financial performance presented in our Condensed Consolidated Financial Statements, we use certain key metrics to evaluate and manage our business, including revenues from current customers and Adjusted EBITDA. We use these key metrics internally to manage the business, and we believe they are useful for investors to compare key financial data from various periods. See “Non-GAAP Financial Measures” below.
Key Components of Results of Operations
Revenues
Revenues are comprised of license and implementation revenues and SaaS and maintenance revenues.
License and Implementation
License and implementation revenues are generated from the sale of software licenses for our on-premise solutions and related implementation services. We expect our license and implementation revenues for the fiscal year 2016 to be lower both in absolute dollars and as a percentage of total revenue from those recorded in the fiscal year ended on September 30, 2015, due to increased focus on subscription revenues, which are covered in our SaaS and maintenance line, which began to gain wider acceptance as a delivery model.
SaaS and Maintenance
SaaS and maintenance revenues primarily include subscription and related implementation fees from customers accessing our cloud-based solutions and revenues associated with maintenance contracts from license customers. Also included in SaaS and maintenance revenues are other revenues, including revenues related to application support, channel data management, training and customer-reimbursed expenses. In previous years, we took several steps and will continue our effort to transform our business model in order to increase the percentage of our business from SaaS and maintenance revenues. We believe we have an opportunity to accelerate the shift in our business model to recurring revenues, as we believe the SaaS model is beginning to gain wider acceptance as a delivery model, particularly in the technology sector and with mid-market life science companies. Accordingly, we expect that SaaS and maintenance revenues for the fiscal year 2016 will be higher both in absolute dollar and as a percentage of total revenues as we continue to acquire new SaaS customers.
Cost of Revenues
License and Implementation
Cost of license and implementation revenues includes costs related to the implementation of our on-premise solutions. Cost of license and implementation revenues primarily consists of personnel-related costs including salary, bonus, stock-based compensation third-party contractors, royalty fees paid to third parties for rights to their intellectual property and other-related expenses. Cost of license and implementation revenues may vary from period to period depending on a number of factors, including the amount of implementation services required to deploy our solutions and the level of involvement of third-party contractors providing implementation services.
15
SaaS and Maintenance
Cost of SaaS and maintenance revenues includes those costs related to the implementation of our cloud-based solutions, maintenance and support and application support for our on-premise solutions and training. Cost of SaaS and maintenance revenues primarily consists of personnel-related costs including salary, bonus, stock-based compensation, facility expense, and depreciation related to server equipment and capitalized software, reimbursable expenses, third-party contractors and data center-related expenses. We believe that cost of SaaS and maintenance revenues will continue to increase in absolute dollars as we continue to focus on building infrastructure for our cloud-based solutions.
Operating Expenses
Our operating expenses consist of Research and Development, Sales and Marketing and General and Administrative expenses.
Research and Development
Our research and development expenses consist primarily of personnel-related costs including salary, bonus, stock-based compensation, third-party contractors and travel-related expenses. Our software development costs for new software solutions and enhancements to existing software solutions are generally expensed as incurred. However, we capitalize development costs incurred in connection with the development of certain additional service offerings that will only be offered through the cloud. We expect our research and development expenses to increase in absolute dollars as we continue to develop new applications and enhance our existing software solutions.
Sales and Marketing
Our sales and marketing expenses consist primarily of personnel-related costs including salary, bonus, commissions, stock-based compensation, third-party contractors, travel-related expenses and marketing programs. We expect our sales and marketing expenses to increase in absolute dollars as we continue to invest in our sales and marketing organization, increase the number of sales and marketing employees and increase market program spend to grow business.
General and Administrative
Our general and administrative expenses consist primarily of personnel-related costs including salary, bonus, stock-based compensation, audit and legal fees as well as third-party contractors, facilities and travel-related expenses. We expect to continue to incur significant accounting and legal costs related to being a public company, as well as insurance, investor relations and other costs.
16
Results of Operations
The following tables set forth our consolidated results of operations for the periods presented and as a percentage of our total revenues for those periods. The period-to-period comparison of financial results is not necessarily indicative of financial results to be achieved in future periods.
|
|
Three Months Ended December 31, |
|
|||||
|
|
2015 |
|
|
2014 |
|
||
|
|
(in thousands) |
|
|||||
Consolidated Statements of Operations Data: |
|
|
|
|
|
|
|
|
Revenues: |
|
|
|
|
|
|
|
|
License and implementation |
|
$ |
4,562 |
|
|
$ |
9,681 |
|
SaaS and maintenance |
|
|
19,925 |
|
|
|
12,420 |
|
Total revenues |
|
|
24,487 |
|
|
|
22,101 |
|
Cost of Revenues: |
|
|
|
|
|
|
|
|
License and implementation |
|
|
3,417 |
|
|
|
4,015 |
|
SaaS and maintenance |
|
|
9,012 |
|
|
|
5,511 |
|
Total cost of revenues |
|
|
12,429 |
|
|
|
9,526 |
|
Gross profit |
|
|
12,058 |
|
|
|
12,575 |
|
Operating Expenses: |
|
|
|
|
|
|
|
|
Research and development |
|
|
5,284 |
|
|
|
4,454 |
|
Sales and marketing |
|
|
7,707 |
|
|
|
6,740 |
|
General and administrative |
|
|
6,720 |
|
|
|
5,588 |
|
Total operating expenses |
|
|
19,711 |
|
|
|
16,782 |
|
Loss from operations |
|
|
(7,653 |
) |
|
|
(4,207 |
) |
Interest income, net |
|
|
(1 |
) |
|
|
(4 |
) |
Other (income) expenses, net |
|
|
57 |
|
|
|
(39 |
) |
Loss before income taxes |
|
|
(7,709 |
) |
|
|
(4,164 |
) |
Provision for income taxes |
|
|
90 |
|
|
|
135 |
|
Net loss |
|
$ |