MODEL N, INC. [MODN] Filings

10-Q 1 modn-20230331.htm 10-Q modn-20230331

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

FORM 10-Q

(Mark One)


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

For the quarterly period ended March 31, 2023


☐			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.)

777 Mariners Island Boulevard,	Suite 300	94404
San Mateo,	California
(Address of Principal Executive Offices)		(Zip Code)

Registrant’s telephone number, including area code: (650) 610-4600

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading Symbol

Name of each exchange on which registered

Common Stock, par value $0.00015 per share

MODN

New York Stock Exchange

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 ý No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ý No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer

Accelerated filer

☐

Non-accelerated filer

☐

Smaller reporting company

☐

Emerging growth company

☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

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

As of April 28, 2023, the registrant had 38,106,970 shares of common stock outstanding.

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TABLE OF CONTENTS


		Page

PART I. FINANCIAL INFORMATION

Item 1.	Financial Statements (Unaudited)	2

	Condensed Consolidated Balance Sheets as of March 31, 202 3 and September 30, 2022	2

	Condensed Consolidated Statements of Operations for the Three and Six Months Ended March 31, 202 3 and 20 2 2	3

	Condensed Consolidated Statements of Comprehensive Loss for the Three and Six Months Ended March 31, 202 3 and 202 2	4

	Condensed Consolidated Statements of Cash Flows for the Six Months Ended March 31, 202 3 and 202 2	5

	Notes to Condensed Consolidated Financial Statements	6

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	21

Item 3.	Quantitative and Qualitative Disclosures about Market Risk	32

Item 4.	Controls and Procedures	32

PART II. OTHER INFORMATION

Item 1.	Legal Proceedings	33

Item 1A.	Risk Factors	33

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	61

Item 3.	Defaults Upon Senior Securities	61

Item 4.	Mine Safety Disclosures	61

Item 5.	Other Information	61

Item 6.	Exhibits	62

	Signatures	63

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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 March 31, 2023		As of September 30, 2022
Assets
Current assets
Cash and cash equivalents	$	270,643	$	193,524
Funds held for customers	229		603
Accounts receivable, net of allowance for credit losses of $418 as of March 31, 2023 and $102 as of September 30, 2022	76,021		49,121
Prepaid expenses	3,648		5,772
Other current assets	7,709		12,516
Total current assets	358,250		261,536
Property and equipment, net	1,422		1,838
Operating lease right-of-use assets	12,117		15,392
Goodwill	65,665		65,665
Intangible assets, net	33,628		37,362
Other assets	9,710		10,454
Total assets	$	480,792	$	392,247
Liabilities and Stockholders’ Equity
Current liabilities
Accounts payable	$	4,610	$	5,820
Customer funds payable	241		603
Accrued employee compensation	11,758		26,712
Accrued liabilities	4,849		6,860
Operating lease liabilities, current portion	4,606		4,651
Deferred revenue, current portion	70,792		62,282

Total current liabilities	96,856		106,928
Long term debt	279,477		135,417
Operating lease liabilities, less current portion	8,895		12,142
Other long-term liabilities	3,403		3,139
Total liabilities	388,631		257,626
Commitments and contingencies
Stockholders’ equity
Common Stock, $0.00015 par value; 200,000 shares authorized; 38,106 and 37,358 shares issued and outstanding at March 31, 2023 and September 30, 2022, respectively	6		6
Preferred Stock, $0.00015 par value; 5,000 shares authorized; no shares issued and outstanding	—		—
Additional paid-in capital	394,622		421,473
Accumulated other comprehensive loss	(2,160)		(2,413)
Accumulated deficit	(300,307)		(284,445)
Total stockholders’ equity	92,161		134,621
Total liabilities and stockholders’ equity	$	480,792	$	392,247

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

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MODEL N, INC.

Condensed Consolidated Statements of Operations

(in thousands, except per share data)

(Unaudited)


	Three Months Ended March 31,				Six Months Ended March 31,
	2023		2022		2023		2022
Revenues
Subscription	$	44,925	$	38,243	$	89,139	$	76,331
Professional services	17,679		15,037		32,619		28,491
Total revenues	62,604		53,280		121,758		104,822
Cost of revenues
Subscription	16,121		14,464		31,727		28,380
Professional services	11,499		9,587		22,164		18,322
Total cost of revenues	27,620		24,051		53,891		46,702
Gross profit	34,984		29,229		67,867		58,120
Operating expenses
Research and development	12,403		11,811		25,167		23,238
Sales and marketing	14,222		12,039		27,199		23,078
General and administrative	11,481		9,322		22,172		17,761
Total operating expenses	38,106		33,172		74,538		64,077
Loss from operations	(3,122)		(3,943)		(6,671)		(5,957)
Interest expense (income), net	(281)		3,848		(147)		7,626
Loss on extinguishment of debt	29,493		—		29,493		—
Other expenses (income), net	83		(112)		18		(12)
Loss before income taxes	(32,417)		(7,679)		(36,035)		(13,571)
Provision for income taxes	902		360		1,334		734
Net loss	$	(33,319)	$	(8,039)	$	(37,369)	$	(14,305)
Net loss per share attributable to common stockholders:
Basic and diluted	$	(0.88)	$	(0.22)	$	(0.99)	$	(0.39)
Weighted average number of shares used in computing net loss per share attributable to common stockholders:
Basic and diluted	37,917		36,619		37,719		36,419

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

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MODEL N, INC.

Condensed Consolidated Statements of Comprehensive Loss

(in thousands)

(Unaudited)


	Three Months Ended March 31,				Six Months Ended March 31,
	2023		2022		2023		2022
Net loss	$	(33,319)	$	(8,039)	$	(37,369)	$	(14,305)
Other comprehensive gain (loss), net of tax
Unrealized gain (loss) on cash flow hedges	—		(104)		239		(135)
Change in unrealized gain (loss) on investments	(18)		—		8		—
Change in foreign currency translation gain (loss)	72		(180)		6		(162)
Total comprehensive loss	$	(33,265)	$	(8,323)	$	(37,116)	$	(14,602)

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

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MODEL N, INC.

Condensed Consolidated Statements of Cash Flows

(in thousands)

(Unaudited)


	Six Months Ended March 31,
	2023		2022
Cash flows from operating activities
Net loss	$	(37,369)	$	(14,305)
Adjustments to reconcile net loss to net cash provided by operating activities
Depreciation and amortization	4,262		4,479
Stock-based compensation	20,767		15,308
Amortization of debt discount and issuance costs	629		5,391
Loss on extinguishment of debt	29,493		—
Deferred income taxes	(156)		280
Amortization of capitalized contract acquisition costs	2,416		2,027
Other non-cash charges	1,077		32
Changes in assets and liabilities, net of acquisition
Accounts receivable	(27,963)		(4,682)
Prepaid expenses and other assets	8,471		2,614
Accounts payable	(1,300)		(729)
Accrued employee compensation	(9,890)		(5,517)
Other current and long-term liabilities	(5,150)		(1,707)
Deferred revenue	8,563		(263)
Net cash provided by (used in) operating activities	(6,150)		2,928
Cash flows from investing activities
Purchases of property and equipment	(106)		(349)


Net cash used in investing activities	(106)		(349)
Cash flows from financing activities
Proceeds from exercise of stock options and issuance of common stock under employee stock purchase plan	2,555		2,401
Proceeds from issuance of 2028 Notes	253,000		—
Payment of debt issuance cost for Notes 2028	(6,958)		—
Repayments of 2025 Notes	(165,210)		—
Net changes in customer funds payable	(374)		(233)
Net cash provided by financing activities	83,013		2,168
Effect of exchange rate changes on cash and cash equivalents	(12)		10
Net decrease in cash and cash equivalents	76,745		4,757
Cash and cash equivalents
Beginning of period	194,127		165,783
End of period	$	270,872	$	170,540

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

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MODEL N, INC.

Notes to Condensed Consolidated Financial Statements

(Unaudited)

1.The Company and Significant Accounting Policies and Estimates

Model N, Inc. (“Model N,” “we,” “us,” “our,” and “the Company”) was incorporated in Delaware on December 14, 1999. The Company is a provider of cloud revenue management solutions for the life sciences and high tech industries. The Company’s software and business services 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 San Mateo, California, with additional offices in the United States, India and Switzerland.

Fiscal Year

The Company’s fiscal year ends on September 30. References to fiscal year 2023, for example, refer to the fiscal year ending September 30, 2023.

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 balance sheet as of September 30, 2022 has been derived from the audited financial statements which are included in our Annual Report on Form 10-K for the fiscal year ended September 30, 2022 (the ‘Annual Report”) on file with the SEC. The unaudited condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes included in the Annual Report.

In the opinion of management, the unaudited interim consolidated financial statements include all the normal recurring adjustments necessary to present fairly our condensed consolidated financial statements. The results of operations for the six months ended March 31, 2023 are not necessarily indicative of the operating results for the full fiscal year 2023 or any future periods.

The condensed consolidated financial statements include the accounts of Model N and its wholly owned subsidiaries. All 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, liability and equity allocation of convertible senior notes, legal contingencies, income taxes, stock-based compensation and valuation of goodwill and 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

Recently Adopted Accounting Guidance

In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740), Simplifying the Accounting for Income Taxes, which removes certain exceptions to the general principles in Topic 740 and amends existing guidance to improve consistent application. ASU 2019-12 is effective for fiscal years, and interim periods within those years, beginning after

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December 15, 2020, with early adoption permitted. The Company adopted this guidance in the first quarter of fiscal year 2022 and it did not have a material impact on the condensed consolidated financial statements.

In August 2020, the FASB issued ASU 2020-06, Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40), Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity, which eliminates the beneficial conversion and cash conversion accounting models for convertible instruments. It also amends the accounting for certain contracts in an entity’s own equity that are currently accounted for as derivatives because of specific settlement provisions. In addition, the new guidance modifies how particular convertible instruments and certain contracts that may be settled in cash or shares impacted the diluted EPS computation. The Company adopted this ASU on October 1, 2022 on a modified retrospective basis. As a result, the Company no longer separately presents in equity an embedded conversion feature for such debt. Similarly, the discount is no longer amortized into income as interest expense over the life of the instrument. The cumulative effect of the ASU adoption was as follows (in thousands):


	Balance at September 30, 2022		Adjustments from Adoption of ASU 2020-06		Balance at October 1, 2022
Liabilities
Long term debt	$	135,417	$	33,720	$	169,137
Stockholders’ Equity
Additional paid-in capital	421,473		(55,227)		366,246
Accumulated deficit	(284,445)		21,507		(262,938)

Recently Issued Accounting Pronouncements Not Yet Adopted

In October 2021, the FASB issued Accounting Standards Update No. 2021-08, “Business Combinations (Topic 805), Accounting for Contract Assets and Contract Liabilities from Contracts with Customers” (“ASU 2021-08”), which requires contract assets and contract liabilities acquired in a business combination to be recognized and measured in accordance with ASC 606, Revenue from Contracts with Customers. ASU 2021-08 is effective for interim and annual periods beginning after December 15, 2022 on a prospective basis, with early adoption permitted. The Company does not anticipate the impact of the adoption of this standard to be material to its consolidated financial statements.

Significant Accounting Policies

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, 2022 included in the Annual Report on Form 10-K.

2. Revenues from Contracts with Customers

Revenue Recognition

The Company derives revenues primarily from subscription revenues and professional services revenues. Revenues are recorded at a net basis which exclude sales taxes that are collected from customers.

Disaggregation of Revenues

See Note 14, Geographic Information, for information on revenue by geography.

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Customer Contract Balances

The following table reflects contract balances related to contracts with customers (in thousands):


	As of March 31, 2023		As of September 30, 2022
Accounts receivable, net	$	66,626	$	35,095
Unbilled accounts receivable, net	9,395		14,026
Total accounts receivable, net	$	76,021	$	49,121
Contract asset	$	2,773	$	7,671
Deferred revenue	$	71,212	$	62,649
Capitalized contract acquisition costs	$	12,308	$	13,041

Accounts Receivable

Accounts receivable represents the Company’s right to consideration that is unconditional, net of allowances for credit losses. The allowance for credit losses is based on management’s assessment of the collectability of accounts receivable amounts.

Unbilled Accounts Receivable

Unbilled accounts receivable consists of a receivable primarily for the revenue recognized for services performed but not yet billed.

Contract Asset

Contract asset represents revenue that has been recognized for satisfied performance obligations for which the Company does not have an unconditional right to consideration.

Deferred Revenue

Deferred revenue, which is a contract liability, consists of amounts that have been invoiced and for which the Company has the right to bill, but that have not been recognized as revenue because the related goods or services have not been transferred.

The non-current portion of deferred revenue is included in other long-term liabilities in the condensed consolidated balance sheets. During the three and six months ended March 31, 2023, the Company recognized revenue of $28.4 million and $45.8 million, respectively, that was included in the deferred revenue balances at the beginning of the periods. During the three and six months ended March 31, 2022, the Company recognized revenue of $26.9 million and $40.9 million, respectively, that was included in the deferred revenue balances at the beginning of the periods.

Capitalized Contract Acquisition Costs

The Company capitalizes incremental costs incurred to acquire contracts with customers, primarily sales commissions, for which the associated revenue is expected to be recognized in future periods. The Company incurs these costs in connection with both initial contracts and renewals. Such costs for renewals are not considered commensurate with those for initial contracts given the substantive difference in commission rates in proportion to their respective contract values. The costs in connection with initial contracts and renewals are deferred and amortized over an expected customer life of five years and over the renewal term, respectively, which corresponds to the period of benefit to the customer. The Company determined the period of benefit by considering the Company’s history of customer relationships, length of customer contracts, technological development and obsolescence, and other factors. The current and non-current portion of capitalized contract acquisition costs are included in other current assets and other assets on the condensed consolidated balance sheets. Amortization expense is included in sales and marketing expenses on the condensed consolidated statements of operations.

As of March 31, 2023, the current and non-current portions of capitalized contract acquisition costs were $4.4 million and $7.9 million, respectively. As of September 30, 2022, the current and non-current portions of capitalized contract acquisition costs were $4.4 million and $8.6 million, respectively. The Company amortized $1.2 million and $2.4 million of contract acquisition costs during the three and six months ended March 31, 2023, respectively. The Company amortized $1.0 million and $2.0 million of contract acquisition costs during the three and six months ended March 31, 2022, respectively.

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For the three and six months ended March 31, 2023 and 2022, there was no impairment related to capitalized contract acquisition costs.

Customer Deposits

Customer deposits primarily relate to payments received from customers which could be refundable pursuant to the terms of the related arrangement. These amounts are included in accrued liabilities on the condensed consolidated balance sheets. Customer deposits were immaterial as of March 31, 2023 and September 30, 2022.

Standard payment terms to customers generally range from thirty to ninety days; however, payment terms and conditions in our customer contracts may vary. In some cases, customers prepay for subscription and services in advance of the delivery; in other cases, payment is due as services are performed or in arrears following the delivery.

Remaining Performance Obligations

Remaining performance obligations represent non-cancelable contracted revenue that has not yet been recognized, which includes deferred revenue and amounts that will be invoiced and recognized as revenue in future periods. As of March 31, 2023, the aggregate amount of the transaction price allocated to performance obligations either unsatisfied or partially unsatisfied was $338.4 million, 43% of which we expect to recognize as revenue over the next 12 months and the remainder thereafter.

3. Leases

The Company leases facilities under noncancellable operating leases with lease terms between three years and eleven years. Certain leases include options to extend or terminate the lease. The Company factored into the determination of lease payments the options that it is reasonably certain to exercise.

Operating lease costs were $1.2 million and $2.5 million for the three and six months ended March 31, 2023, respectively, and $1.4 million and $2.9 million for the three and six months ended March 31, 2022, respectively. Short-term lease costs, variable lease costs, and sublease income were immaterial for the three and six months ended March 31, 2023 and 2022.

Cash flow information related to operating leases is as follows (in thousands):


	Six Months Ended March 31, 2023		Six Months Ended March 31, 2022
Cash paid for amounts included in the measurement of operating lease liabilities	$	2,393	$	2,540
Operating lease ROU assets obtained in exchange for new operating lease liabilities	—		—

The weighted-average remaining lease term is 3 years and the weighted-average discount rate is 2.7% as of March 31, 2023.

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Maturities of operating lease liabilities as of March 31, 2023 are as follows (in thousands):


Fiscal Year
Remaining fiscal 2023	$	2,463
2024	4,661
2025	4,296
2026	2,357
2027	276
2028 and thereafter	—
Total operating lease payments	14,053
Less imputed interest	552
Total operating lease liabilities	$	13,501

4. Fair Value of Financial Instruments

The Company’s financial instruments consist primarily of cash and cash equivalents, funds held for customers, accounts receivable, accounts payable, customer funds payable, debt and certain accrued liabilities. The Company regularly reviews its financial instruments portfolio to identify and evaluate such instruments that have indications of possible impairment. The Company estimates the fair value of its financial instruments when there is no readily available market data, 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.

The table below sets forth the Company’s marketable securities which are measured at fair value on a recurring basis by level within the fair value hierarchy (in thousands):


									Reported as:
	Amortized Cost		Unrealized Gains		Unrealized Losses		Fair Value		Cash and Cash Equivalents
As of March 31, 2023
Level 1:
Money market funds	$	103,328	$	—	$	—	$	103,328	$	103,328
US Treasury securities	34,979		8		—		34,987		34,987
Total	$	138,307	$	8	$	—	$	138,315	$	138,315

As of September 30, 2022
Level 1:
Money market funds	$	61,956	$	—	$	—	$	61,956	$	61,956
US Treasury securities	89,679		11		(6)		89,684		89,684
Total	$	151,635	$	11	$	(6)	$	151,640	$	151,640

The Company’s financial instruments not measured at fair value on a recurring basis include cash, funds held for customers, accounts receivable, accounts payable, customer funds payable, convertible senior notes and certain accrued liabilities. These financial instruments are reflected in the financial statements at cost and approximate their fair value due to their short-term nature.

See Note 7 for the fair value measurement of the Company’s derivative contracts and Note 8 for the fair value measurement of the Company’s convertible senior notes.

5. Goodwill, and Intangible Assets

Goodwill

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The following table summarizes the changes in the carrying amount of goodwill (in thousands):


Balance at September 30, 2022	$	65,665
Additions	—
Balance at March 31, 2023	$	65,665

Intangible Assets

Intangible assets consisted of the following (in thousands):


	Estimated	As of March 31, 2023
	Useful Life (in Years)	Gross Carrying Amount		Accumulated Amortization		Net Carrying Amount
Intangible Assets:
Customer relationships	3-15	$	52,109	$	(25,980)	$	26,129
Developed technology	5-6	22,333		(15,927)		6,406
Non-compete agreements	5	1,600		(720)		880
Trade name	3	850		(637)		213
Total		$	76,892	$	(43,264)	$	33,628


	Estimated	As of September 30, 2022
	Useful Life (in Years)	Gross Carrying Amount		Accumulated Amortization		Net Carrying Amount
Intangible Assets:
Customer relationships	3-15	$	52,109	$	(23,684)	$	28,425
Developed technology	5-6	22,333		(14,790)		7,543
Non-compete agreements	5	1,600		(560)		1,040
Trade name	3	850		(496)		354
Total		$	76,892	$	(39,530)	$	37,362

The Company recorded amortization expense related to acquired intangible assets of $1.7 million and $3.7 million for the three and six months ended March 31, 2023, respectively, and $2 million and $4 million for the three and six months ended March 31, 2022, respectively.

Estimated future amortization expense for the intangible assets as of March 31, 2023 is as follows (in thousands):


Fiscal Year
Remaining fiscal 2023	$	3,452
2024	6,691
2025	6,620
2026	6,069
2027	2,266
2028 and thereafter	8,530
Total future amortization	$	33,628

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6. Cash, Cash Equivalents, and Funds Held for Customers

The Company has contractual obligations to remit funds to various third parties on behalf of customers to which the Company provides payment processing services. Funds received from these customers represent cash and cash equivalents and are reflected in the “Funds held for customers” line item on the condensed consolidated balance sheets.

The table below reconciles the cash and cash equivalents and funds held for customers as reported on the condensed consolidated balance sheets to the cash and cash equivalents on the condensed consolidated statements of cash flows (in thousands):


	As of March 31, 2023		As of September 30, 2022
Cash and cash equivalents	$	270,643	$	193,524
Funds held for customers	229		603
Total cash and cash equivalents	$	270,872	$	194,127

7. Derivative Instruments and Hedging

The Company uses foreign currency forward contracts to hedge a portion of the forecasted foreign currency-denominated expenses incurred in the normal course of business. These contracts are designated as cash flows hedges. These hedging contracts reduce, but do not entirely eliminate, the impact of adverse foreign exchange rate movements. The Company does not use any of the derivative instruments for trading or speculative purposes. These contracts have maturities of 12 months or less. The Company records changes in the fair value of cash flow hedges in accumulated other comprehensive loss in the condensed

consolidated balance sheets, until the forecasted transaction occurs, at which point, the related gain or loss on the cash flow hedge is reclassified to the financial statement line item to which the derivative relates. The amounts reclassified to expenses related to the hedged transactions were immaterial for the periods presented. The fair value of the outstanding non-deliverable foreign currency forward contracts was measured using Level 2 fair value inputs and was immaterial as of September 30, 2022. The Company had no outstanding non-deliverable foreign currency forward contracts as of March 31, 2023.

Notional Amounts of Derivative Contracts

Derivative transactions are measured in terms of the notional amount but this amount is not recorded on the balance sheet and is not, when viewed in isolation, a meaningful measure of the risk profile of the instruments. The notional amount is generally not exchanged but is used only as the basis on which the value of foreign exchange payments under these contracts are determined. The notional amounts of the outstanding foreign currency forward contracts designated as cash flow hedges were $4.3 million September 30, 2022. The Company had no outstanding non-deliverable foreign currency forward contracts as of March 31, 2023.

8. Convertible Senior Notes

In May 2020, the Company issued $172.5 million aggregate principal amount of 2.625% convertible senior notes due in 2025 (the “2025 Notes”). In March 2023, the Company issued $253.0 million aggregate principal amount of 1.875% convertible senior notes due in 2028 (the “2028 Notes”, and together with the 2025 Notes the “Convertible Senior Notes”). Each series of the Convertible Senior Notes is governed by an indenture between the Company, as the issuer, and U.S. Bank National Association, as Trustee (individually, each an “Indenture,” and together, the “Indentures”). The applicable Indenture governing each series of the convertible senior notes does not contain any financial covenants or any restrictions on the payment of dividends, the occurrence of senior debt or other indebtedness, or the issuance or repurchase of the Company's other securities by the Company.

In May 2020, the Company issued $172.5 million aggregate principal amount of 2025 Notes in a private placement, including $22.5 million which represents the exercise in full of the initial purchasers’ option to purchase additional notes. The net proceeds from the issuance of the 2025 Notes was $166.4 million, net of initial purchasers’ discounts and debt issuance costs of $6.1 million. The Company used $40.0 million of the net proceeds to repay in full the debt outstanding under, and terminated the Credit Agreement dated May 4, 2018, as amended, by and among the Company, Wells Fargo, as administrative agent, and the lenders party thereto.

The 2025 Notes are senior, unsecured obligations of the Company and bear an interest rate of 2.625% per year payable semi-annually in arrears on June 1 and December 1 of each year, beginning on December 1, 2020. The 2025 Notes mature on June 1, 2025 unless repurchased, redeemed or converted in accordance with their terms prior to such date.

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Pursuant to the term of the Indenture, the 2025 Notes are convertible into cash, shares of the Company’s common stock or a combination thereof, at the Company’s election, at an initial conversion rate of 30.0044 shares of common stock per $1,000 principal amount of the 2025 Notes, which is equal to an initial conversion price of approximately $33.33 per share of common stock subject to adjustment for standard anti-dilution provision and the make-whole feature described below.

During the second quarter of fiscal 2023, the Company made an irrevocable election to settle the principal amount of the 2025 Notes using Combination Settlement (as defined in the applicable Indenture). Generally, under this settlement method, the conversion value will be settled in cash in an amount up to the principal amount being converted, and any excess of the conversion value over the principal amount will be settled, at the Company’s election, in cash or shares of the Company’s common stock.

Prior to the close of business on the scheduled trading day immediately preceding March 1, 2025, holders of the 2025 Notes may convert all or a portion of their 2025 Notes in multiples of $1,000 principal amount, only under the following circumstances:

•during any calendar quarter commencing after the calendar quarter ending on September 30, 2020 (and only during such calendar quarter), if the last reported sale price of the Company’s common stock for at least 20 trading days (whether or not consecutive) during a period of 30 consecutive trading days ending on, and including, the last trading day of the immediately preceding calendar quarter is greater than or equal to 130% of the conversion price on each applicable trading day;

•during the five business day period after any five consecutive trading day period (the “measurement period”) in which the trading price per $1,000 principal amount of 2025 Notes for each trading day of the measurement period was less than 98% of the product of the last reported sale price of the Company’s common stock and the conversion rate on each such trading day;

•if the Company calls any or all of the 2025 Notes for redemption, at any time prior to the close of business on the scheduled trading day immediately preceding the redemption date; or

•upon the occurrence of specified corporate events.

On or after March 1, 2025 and prior to the close of business on the second scheduled trading day immediately preceding the maturity date, holders of the 2025 Notes may convert all or a portion of their 2025 Notes in multiples of $1,000 principal amount regardless of the foregoing conditions.

Holders of the 2025 Notes who convert their 2025 Notes in connection with a make-whole fundamental change (as defined in the applicable Indenture) or in connection with any optional redemption are, under certain circumstances, entitled to an increase in the conversion rate with a maximum conversion rate of 38.2555 share of common stock per $1,000 principal amount of the 2025 Notes. Additionally, in the event of a fundamental change (as defined in the applicable Indenture), holders of the 2025 Notes may require the Company to repurchase all or a portion of their 2025 Notes at a price equal to 100% of the principal amount of 2025 Notes, plus any accrued and unpaid interest to, but excluding, the repurchase date.

The Company may not redeem the 2025 Notes prior to June 6, 2023. The Company may redeem for cash all or part of the 2025 Notes, at its option, on or after June 6, 2023 and on or before the 41st scheduled trading day immediately before the maturity date, at a redemption price equal to 100% of the principal amount thereof, plus accrued and unpaid interest if the last reported sale price of the Company’s common stock has been at least 130% of the conversion price then in effect for at least 20 trading days (whether or not consecutive), including the trading day immediately preceding the date on which the Company provides notice of redemption, during any 30 consecutive trading day period ending on, and including, the trading day immediately preceding the date on which the Company provides notice of redemption. No sinking fund is provided for the 2025 Notes.

In initial accounting for the issuance of the 2025 Notes prior to the adoption of ASU 2020-06 on October 1, 2022, the Company separated the 2025 Notes into liability and equity components. The carrying amount of the liability component of $115.3 million was calculated by measuring the fair value of a similar debt instrument that does not have an associated convertible feature. The carrying amount of the equity component representing the conversion option was $57.2 million and was determined by deducting the fair value of the liability component from the principal amount of the 2025 Notes. The excess of the principal amount of the 2025 Notes over the carrying amount of the liability component represent a debt discount that was amortized to interest expense at an effective interest rate over the contractual terms of the 2025 Notes. The equity component was recorded in additional paid-in capital and is not remeasured as long as it continues to meet the conditions for equity classification.

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In initial accounting for the issuance costs related to the 2025 Notes prior to the adoption of ASU 2020-06 on October 1, 2022, the Company allocated the total amount incurred to the liability and equity components of the 2025 Notes based on the proportion of the proceeds allocated to the debt and equity components. Issuance costs attributable to the liability component were $4.1 million and are amortized to interest expense using the effective interest method over the contractual terms of the 2025 Notes. Issuance costs attributable to the equity component of $2.0 million were netted with the equity component in stockholders’ equity.

As a result of the adoption of ASU 2020-06 on October 1, 2022, the Company no longer separately presents in equity an embedded conversion feature for such debt. Similarly, the debt discount, which was equal to the carrying value of the embedded conversion feature upon issuance, is no longer amortized into income as interest expense over the life of the instrument. For the impact of adoption see Note 1 to Condensed Consolidated Financial Statements.

In March 2023, the Company issued $253.0 million aggregate principal amount of 2028 Notes in a private placement, including $33.0 million which represents the exercise in full of the initial purchasers’ option to purchase additional notes. The net proceeds from the issuance of the 2028 Notes was $245.5 million, net of initial purchasers’ discounts and debt issuance costs of $7.6 million. The Company used $165.2 million of the net proceeds from this issuance to repurchase approximately $138.0 million in aggregate principal amount of its 2025 Notes concurrently with the issuance. The repurchase of the 2025 Notes was accounted for as a debt extinguishment. The Company recorded a $29.5 million loss on extinguishment of debt on its consolidated statements of operations during the fiscal quarter ended March 31, 2023, which includes a write-off of related deferred issuance costs of $2.3 million. After giving effect to the repurchase, the total remaining principal amount outstanding under the 2025 Notes as of March 31, 2023 was $34.5 million.

The 2028 Notes are senior, unsecured obligations of the Company and bear an interest rate of 1.875% per year payable semi-annually in arrears on September 15 and March 15 of each year, beginning on September 15, 2023. The Notes mature on March 15, 2028 unless repurchased, redeemed or converted in accordance with their terms prior to such date.

The 2028 Notes are convertible into cash, shares of the Company’s common stock or a combination thereof, at the Company’s election, at an initial conversion rate of 23.2364 shares of common stock per $1,000 principal amount of the 2028 Notes, which is equal to an initial conversion price of approximately $43.04 per share of common stock subject to adjustment, with a maximum conversion rate of 30.7881. The conversion value will be settled in cash in an amount no less than the principal amount being converted, and any excess of the conversion value over the principal amount will be settled, at the Company’s election, in cash or shares of the Company’s common stock. Prior to the close of business on the scheduled trading day immediately preceding December 15, 2027, holders of the 2028 Notes may convert all or a portion of their 2028 Notes in multiples of $1,000 principal amount, only under the following circumstances:

•during any calendar quarter commencing after the calendar quarter ending on June 30, 2023 (and only during such calendar quarter), if the last reported sale price of the Company’s common stock for at least 20 trading days (whether or not consecutive) during a period of 30 consecutive trading days ending on, and including, the last trading day of the immediately preceding calendar quarter is greater than or equal to 130% of the conversion price on each applicable trading day;

•during the five business day period after any five consecutive trading day period (the “measurement period”) in which the trading price per $1,000 principal amount of 2028 Notes for each trading day of the measurement period was less than 98% of the product of the last reported sale price of the Company’s common stock and the conversion rate on each such trading day;

•if the Company calls any or all of the 2028 Notes for redemption, at any time prior to the close of business on the scheduled trading day immediately preceding the redemption date; or

•upon the occurrence of specified corporate events.

On or after December 15, 2027 and prior to the close of business on the second scheduled trading day immediately preceding the maturity date, holders of the 2028 Notes may convert all or a portion of their Notes in multiples of $1,000 principal amount regardless of the foregoing conditions.

Holders of the 2028 Notes who convert their 2028 Notes in connection with a make-whole fundamental change (as defined in the applicable Indenture) or in connection with any optional redemption are, under certain circumstances, entitled to an increase in the conversion rate. Additionally, in the event of a fundamental change (as defined in the applicable Indenture), holders of the 2028 Notes may require the Company to repurchase all or a portion of their 2028 Notes at a price equal to 100% of the principal amount of 2028 Notes, plus any accrued and unpaid interest to, but excluding, the repurchase date.

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The Company may not redeem the 2028 Notes prior to March 20, 2026. The Company may redeem for cash all or part of the 2028 Notes, at its option, on or after March 20, 2026 and on or before the 41st scheduled trading day immediately before the maturity date, at a redemption price equal to 100% of the principal amount thereof, plus accrued and unpaid interest if the last reported sale price of the Company’s common stock has been at least 130% of the conversion price then in effect for at least 20 trading days (whether or not consecutive), including the trading day immediately preceding the date on which the Company provides notice of redemption, during any 30 consecutive trading day period ending on, and including, the trading day immediately preceding the date on which the Company provides notice of redemption. No sinking fund is provided for the 2028 Notes.

The Company intends to use the remaining net proceeds from the issuance of 2028 Notes for general corporate purposes, including working capital and to fund growth and potential strategic projects.

During the three months ended March 31, 2023, the conditions allowing holders of the Convertible Senior Notes to convert were not met. The Convertible Senior Notes were classified as long-term debt on the condensed consolidated balance sheets as of March 31, 2023.

In accordance with ASU 2020-06, the 2028 Notes are accounted for as a single liability.

The net carrying amounts of the liability and equity components for the 2025 Notes were as follows (in thousands):


	As of March 31, 2023		As of September 30, 2022
Liability component:
Principal amount	$	34,530	$	172,500
Unamortized discount	—		(34,354)
Unamortized issuance costs	(552)		(2,729)
Net carrying amount	$	33,978	$	135,417

Equity component, net of issuance costs	$	—	$	55,227

The net carrying amounts of the liability for the 2028 Notes were as follows (in thousands):


	As of March 31, 2023		As of September 30, 2022
Liability component:
Principal amount	$	253,000	$	—
Unamortized issuance costs	(7,501)		—
Net carrying amount	$	245,499	$	—

The following table sets forth the interest expense recognized related to the Convertible Senior Notes (in thousands):


	Three Months Ended March 31,				Six Months Ended March 31,
	2023		2022		2023		2022
Coupon interest expense	$	1,181	$	1,132	$	2,313	$	2,264
Amortization of debt discount	—		2,575		—		5,079
Amortization of debt issuance costs	327		161		629		312
Total interest expense related to the Notes	$	1,508	$	3,868	$	2,942	$	7,655

The issuance costs related to the 2025 Notes and the 2028 Notes are being amortized to interest expense over the respective contractual term, at effective interest rates of 3.4% and 2.5%, respectively. As of March 31, 2023 unamortized debt issuance costs will be amortized over the remaining life of the 2025 Notes and the 2028 Notes which is approximately 26 months, and 60 months, respectively.

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As of March 31, 2023, the total estimated fair value of the 2025 Notes and 2028 Notes was approximately $41.3 million and $259.4 million, respectively. The fair value was determined based on the closing trading price per $100 of the applicable series of the Convertible Senior Notes as of the last day of trading for the period. The fair value of the Convertible Senior Notes is primarily affected by the trading price of the Company’s common stock and market interest rates. The fair value of the Convertible Senior Notes is considered a Level 2 measurement as they are not actively traded.

9. Stockholders’ Equity

The following tables present the changes in the components of stockholders’ equity (in thousands):


	Three Months Ended March 31, 2023
	Common Stock			Additional Paid-In Capital		Accumulated Other Comprehensive Loss		Accumulated Deficit		Total Stockholders’ Equity
	Shares	Amount
Balance at December 31, 2022	37,734	$	6	$	381,733	$	(2,214)	$	(266,988)	$	112,537


Issuance of common stock upon exercise of stock options	2	—		27		—		—		27
Issuance of common stock upon release of restricted stock units	274	—		—		—		—		—
Issuance of common stock upon ESPP purchase	96	—		2,500		—		—		2,500
Stock-based compensation	—	—		10,362		—		—		10,362

Other comprehensive income	—	—		—		54		—		54
Net loss	—	—		—		—		(33,319)		(33,319)
Balance at March 31, 2023	38,106	6		394,622		(2,160)		(300,307)		92,161


	Three Months Ended March 31, 2022
	Common Stock				Additional Paid-In Capital		Accumulated Other Comprehensive Loss		Accumulated Deficit		Total Stockholders’ Equity
	Shares		Amount
Balance at December 31, 2021	$	36,433	$	5	$	393,278	$	(1,218)	$	(262,076)	$	129,989
Issuance of common stock upon exercise of stock options	—		—		8		—		—		8
Issuance of common stock upon release of restricted stock units	275		1		—		—		—		1
Issuance of common stock upon ESPP purchase	108		—		2,321		—		—		2,321
Stock-based compensation	—		—		7,932		—		—		7,932

Other comprehensive loss	—		—		—		(284)		—		(284)
Net loss	—		—		—		—		(8,039)		(8,039)
Balance at March 31, 2022	36,816		$	6	$	403,539	$	(1,502)	$	(270,115)	$	131,928

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	Six Months Ended March 31, 2023
	Common Stock			Additional Paid-In Capital		Accumulated Other Comprehensive Loss		Accumulated Deficit		Total Stockholders’ Equity
	Shares	Amount
Balance at September 30, 2022	37,358	$	6	$	421,473	$	(2,413)	$	(284,445)	$	134,621
Cumulative effect of ASU 2020-06 adoption	—	—		(55,227)		—		21,507		(33,720)
Balance at October 1, 2022	37,358	6		366,246		(2,413)		(262,938)		100,901
Issuance of common stock upon exercise of stock options	4	—		54		—		—		54
Issuance of common stock upon release of restricted stock units	648	—		—		—		—		—
Issuance of common stock upon ESPP purchase	96	—		2,500		—		—		2,500
Stock-based compensation	—	—		25,822		—		—		25,822

Other comprehensive income	—	—		—		253		—		253
Net loss	—	—		—		—		(37,369)		(37,369)
Balance at March 31, 2023	38,106	$	6	$	394,622	$	(2,160)	$	(300,307)	$	92,161


	Six Months Ended March 31, 2022
	Common Stock			Additional Paid-In Capital		Accumulated Other Comprehensive Loss		Accumulated Deficit		Total Stockholders’ Equity
	Shares	Amount
Balance at September 30, 2021	36,059	$	5	$	380,528	$	(1,205)	$	(255,810)	$	123,518

Issuance of common stock upon exercise of stock options	8	—		80		—		—		80
Issuance of common stock upon release of restricted stock units	641	1		—		—		—		1
Issuance of common stock upon ESPP purchase	108	—		2,321		—		—		2,321
Stock-based compensation	—	—		20,610		—		—		20,610

Other comprehensive loss	—	—		—		(297)		—		(297)
Net loss	—	—		—		—		(14,305)		(14,305)
Balance at March 31, 2022	36,816	$	6	$	403,539	$	(1,502)	$	(270,115)	$	131,928

For the six months ended March 31, 2023, additional paid-in capital included $5.1 million, related to restricted stock unit (“RSU”) grants for the portion of the bonus recorded as stock-based compensation for the year ended September 30, 2022.

For the six months ended March 31, 2022, additional paid-in capital included $5.4 million, related to RSU grants for the portion of the bonus recorded as stock-based compensation for the year ended September 30, 2021.

10. Stock-based Compensation

As of March 31, 2023, the Company had approximately 4.4 million shares available for future stock awards under its equity plans and any additional releases resulting from an over-achievement relating to performance-based restricted stock units.

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The following table summarizes our RSU activity which includes performance-based RSUs under all equity plans for the six months ended March 31, 2023:


	Restricted Stock Units Outstanding (in thousands)	Weighted Average Grant Date Fair Value
Balance at September 30, 2022	2,055	$	33.08
Granted	1,301	38.01
Released	(648)	32.43
Forfeited	(50)	32.01
Balance at March 31, 2023	2,658	$	35.67

Stock-based compensation recorded in the condensed consolidated statements of operations is as follows (in thousands):


	Three Months Ended March 31,				Six Months Ended March 31,
	2023		2022		2023		2022
Cost of revenues
Subscription	$	1,307	$	1,065	$	2,644	$	1,923
Professional services	1,063		871		2,203		1,492
Total stock-based compensation in cost of revenues	2,370		1,936		4,847		3,415
Operating expenses
Research and development	1,831

MODEL N, INC. [MODN] Filings
10-Q	[2023-05-09]
10-Q	[2023-02-07]
10-K	[2022-11-18]
10-Q	[2022-08-09]
10-Q	[2022-05-10]
10-Q	[2022-02-09]
10-K	[2021-11-19]
10-Q	[2021-08-09]
10-Q	[2021-05-10]
10-Q	[2021-02-09]
10-K	[2020-11-23]
10-Q	[2020-08-05]
10-Q	[2020-05-06]
10-Q	[2020-02-05]
10-K	[2019-11-15]
10-Q	[2019-08-07]
10-Q	[2019-05-08]
10-Q	[2019-02-06]
10-K	[2018-11-16]
10-Q	[2018-08-08]
10-Q	[2018-05-09]
10-Q	[2018-02-07]
10-K	[2017-11-15]
10-Q	[2017-08-09]
10-Q	[2017-05-09]
10-Q	[2017-02-08]
10-K	[2016-11-18]
10-Q	[2016-08-09]
10-Q	[2016-05-10]
10-Q	[2016-02-09]
10-K	[2015-11-23]
10-Q	[2015-08-10]
10-Q	[2015-05-11]
10-Q	[2015-02-12]
10-K	[2014-11-19]
10-Q	[2014-08-08]
10-Q	[2014-05-15]
10-Q	[2014-02-12]
10-K	[2013-12-09]
10-Q	[2013-08-09]
10-Q	[2013-05-10]
S-1	[2013-02-13]