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(cid:30)(cid:50)(cid:53)(cid:55)(cid:44)(cid:50)(cid:49)(cid:54)(cid:1)(cid:50)(cid:41)(cid:1)(cid:55)(cid:43)(cid:40)(cid:1)(cid:31)(cid:40)(cid:42)(cid:44)(cid:54)(cid:55)(cid:53)(cid:36)(cid:49)(cid:55)(cid:66)(cid:54)(cid:1)(cid:22)(cid:40)(cid:41)(cid:44)(cid:49)(cid:44)(cid:55)(cid:44)(cid:57)(cid:40)(cid:1)(cid:30)(cid:53)(cid:50)(cid:59)(cid:60)(cid:1)(cid:32)(cid:55)(cid:36)(cid:55)(cid:40)(cid:48)(cid:40)(cid:49)(cid:55)(cid:1)(cid:53)(cid:40)(cid:47)(cid:36)(cid:55)(cid:44)(cid:49)(cid:42)(cid:1)(cid:55)(cid:50)(cid:1)(cid:55)(cid:43)(cid:40)(cid:1)(cid:10)(cid:8)(cid:10)(cid:10)(cid:1)(cid:19)(cid:49)(cid:49)(cid:56)(cid:36)(cid:47)(cid:1)(cid:27)(cid:40)(cid:40)(cid:55)(cid:44)(cid:49)(cid:42)(cid:1)(cid:50)(cid:41)(cid:1)(cid:32)(cid:43)(cid:36)(cid:53)(cid:40)(cid:43)(cid:50)(cid:47)(cid:39)(cid:40)(cid:53)(cid:54)(cid:1)(cid:36)(cid:53)(cid:40)(cid:1)(cid:44)(cid:49)(cid:38)(cid:50)(cid:53)(cid:51)(cid:50)(cid:53)(cid:36)(cid:55)(cid:40)(cid:39)(cid:1)(cid:37)(cid:60)(cid:1)(cid:53)(cid:40)(cid:41)(cid:40)(cid:53)(cid:40)(cid:49)(cid:38)(cid:40)(cid:1)(cid:44)(cid:49)(cid:55)(cid:50)(cid:1)
(cid:30)(cid:36)(cid:53)(cid:55)(cid:1)(cid:25)(cid:25)(cid:25)(cid:1)(cid:50)(cid:41)(cid:1)(cid:55)(cid:43)(cid:44)(cid:54)(cid:1)(cid:31)(cid:40)(cid:51)(cid:50)(cid:53)(cid:55)(cid:7)(cid:1)
INDEX
PART I
Item 1. Business ................................................................................................................................................................
Item 1A. Risk Factors ..........................................................................................................................................................
Item 1B. Unresolved Staff Comments .................................................................................................................................
Properties ..............................................................................................................................................................
Item 2.
Item 3. Legal Proceedings .................................................................................................................................................
Item 4. Mine Safety Disclosures .......................................................................................................................................
PART II
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity
Securities ...............................................................................................................................................................
Item 6.
[Reserved] .............................................................................................................................................................
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations ................................
Item 7A. Quantitative and Qualitative Disclosures About Market Risk ..............................................................................
Item 8. Consolidated Financial Statements and Supplementary Data ...............................................................................
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure ................................
Item 9A. Controls and Procedures .......................................................................................................................................
Item 9B. Other Information .................................................................................................................................................
Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections ..................................................................
PART III
Item 10. Directors, Executive Officers and Corporate Governance ....................................................................................
Item 11. Executive Compensation .......................................................................................................................................
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters..............
Item 13. Certain Relationships and Related Transactions, and Director Independence ......................................................
Item 14. Principal Accountant Fees and Services ...............................................................................................................
PART IV
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Item 15. Exhibits, Financial Statements Schedules .............................................................................................................
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SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
PART I.
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 contained in this report other than statements of historical fact, including statements regarding our future results of
operations and financial position, our business strategy and plans, our objectives for future operations, and potential impacts
from macroeconomic and geopolitical events are forward-looking statements. The words “believe,” “may,” “will,” “estimate,”
“continue,” “anticipate,” “goal,” “plan,” “intend,” “expect,” “seek”, and similar expressions are intended to identify forward-
looking statements. We have based these forward-looking statements largely on our current expectations and projections about
future events and trends. These forward-looking statements are subject to a number of risks, uncertainties and assumptions,
including those described under “Part I, Item 1A. Risk Factors,” and elsewhere in this report. Moreover, we operate in a very
competitive and rapidly changing environment. New risks emerge from time to time. It is not possible for our management to
predict all risks, nor can we assess the impact of all factors on our business or the extent to which any factor, or combination of
factors, may cause actual results to differ materially from those contained in any forward-looking statements we may make. In
light of these risks, uncertainties and assumptions, the future events and trends discussed in this report may not occur and actual
results could differ materially and adversely from those anticipated or implied in the 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. We are under no duty to update any of these forward-looking statements after the date of this report or to
conform these statements to actual results or revised expectations.
As used in this report, the terms “Model N,” “we,” “us,” “our,” and “the Company” mean Model N, Inc. and its
subsidiaries unless the context indicates otherwise.
1
ITEM 1.
Business
Overview
Model N is a leading provider of cloud revenue management solutions for life sciences and high tech companies. Our
software helps companies drive mission critical business processes such as pricing, quoting, contracting, regulatory compliance,
rebates and incentives. With deep industry expertise, Model N supports the complex business needs of the world’s leading
brands in life sciences and high tech including Johnson & Johnson, AstraZeneca, Stryker, Seagate Technology, Broadcom, and
Microchip Technology.
Historically, companies tended to rely on a disjointed patchwork of manual processes, spreadsheets, point applications,
and legacy systems to manage their revenue processes. These processes and systems operated in isolation from one another and
were labor intensive, error prone, inflexible, and costly, often resulting in missed revenue opportunities, suboptimal margins,
incentive overpayments, and increased revenue compliance risk. Current industry trends, which include shortening product
lifecycles, tightening compliance and regulatory controls, increasing channel complexity and growing volumes of transactional
data, are causing these outdated processes and legacy systems to become increasingly ineffective.
Our expertise in cloud-based revenue management solutions, combined with our knowledge of the life sciences and high
tech industries, has enabled us to develop software designed to meet the unique, strategic needs of these industries, such as
managed care and government pricing for life sciences companies and channel incentives management for high tech companies.
Model N Revenue Cloud transforms the revenue lifecycle into a strategic, end-to-end process aligned across the enterprise. Our
industry specific solution suites – Revenue Cloud for Life Sciences and Revenue Cloud for High Tech – offer a range of
solutions from individual products to complete product suites.
Overview of the Life Sciences and High Tech Industries
The life sciences and high tech industries are large and highly fragmented. Companies in both industries market their
products to a global customer base through diverse channels. Additionally, high costs are required to launch a drug or medical
device to the global market. Regulatory pressures, consolidation, and other factors in both industries continue to drive a
considerable focus on revenue management.
Management of the revenue lifecycle is a strategic imperative and a source of competitive advantage for life sciences and
high tech companies as they address increasingly globalized markets, sophisticated buyers, complex channels, and expanding
volumes of data from internal and market sources. Emerging business models like outcome based pricing and service bundles
further complicate the revenue management processes, which increases the need for practical solutions.
Several trends specific to these industries further complicate revenue management.
Life Sciences:
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the emergence of large group purchasing, managed care organizations and integrated healthcare delivery networks
drive increased pricing pressure, contract volume, and complexity;
increased customer and channel incentives and rebates result in the increased risk of extending unearned discounts
and the overpayment of rebates;
the shift of purchasing influence from physicians to economic buyers makes price and commercial terms key
decision making factors;
increased spending on healthcare by governments instead of commercial entities adds further regulatory oversight
to transactions;
expanded scope of government mandates, frequency of regulatory reporting and audits, and fines, all of which
increase administrative burden and monitoring costs;
increased payer-provider consolidation which makes market access harder; and
increased revenue leakage through 340B channels.
High Tech:
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shortened product lifecycles driving rapid pricing changes and require quick responses to quotes and competitive
bidding;
increased number of core high tech products sold into different end markets with segment-specific pricing;
cyclicality and rising R&D costs contributing to a focus on maximizing sell time, margins and revenues;
increased complexity of multi-tiered global distribution channels intensifying channel conflict and price erosion;
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changing financial reporting requirements due to channel complexity; and
increased use of off-invoice discounting to offset upfront discounts and mask end-customer pricing resulting in a
lack of price transparency that can erode gross margins.
Challenges to Effective Revenue Management
Traditionally, companies addressed revenue management through a patchwork of manual processes and inflexible and
costly custom solutions. This outdated approach to revenue management impedes the ability of companies to respond to
changing market conditions, preventing them from maximizing revenue and increasing their revenue compliance risk. Critical
challenges include:
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Incomplete and unreliable information for critical strategic decisions. Legacy manual processes and systems
used to manage the revenue lifecycle create silos of data causing companies to make strategic marketing, pricing
and resource allocation decisions that are based on incomplete or inaccurate information. As a result, revenue
strategies can be suboptimal, budgets may be misallocated, and sales and marketing efforts can fail to positively
impact revenues.
Revenue leakage due to inadequate contract management and enforcement. Customer-specific contracts with
complex pricing and commercial terms are common in many industries, in particular life sciences and high tech.
When the commercial terms of these contracts are not automated and monitored systematically, deviations from
contract pricing can occur, volume commitments can be missed, unearned discounts may be given, and revenue
can be lost.
Revenue leakage due to the overpayment of incentives. life sciences and high tech companies process massive
volumes of rebates and incentives. A lack of centralized, automated and enforceable processes can result in
overpayment of incentives. Revenue leakage is also driven by inconsistent global pricing, poor price concession
controls, and unmet contractual volume commitments.
Ineffective pricing across geographies and complex channels. Sophisticated buyers deploy global procurement
strategies to discover and exploit regional and channel differences in pricing and contracting. The inability to
enforce a single price for a specific sales opportunity across regions and channels can result in channel conflicts,
which leads to price and revenue erosion.
Inaccurate financial reporting. Complex contracts and distribution channels have made it more difficult to obtain
and process financial information, which can result in inaccurate financial reporting. For example, high tech
companies face significant complexity in financial reporting and revenue recognition at the point of sale in their
distribution channels. Life sciences companies have substantial challenges correctly accruing their massive rebate
and incentive claim volumes.
Difficulty complying with complicated government regulations. Satisfying the regulatory requirements of
numerous federal and state programs is increasingly complex for life sciences companies. For example,
government-driven programs require sophisticated monitoring and reporting to compute and pay mandated rebates
and fees under numerous federal and state programs. Government audits can expose ineffective management of
these regulatory requirements and can result in penalties or program ineligibility.
Our Solutions
Our solutions enable customers to achieve significant returns on investment through increased revenues and gross
margins while addressing vital business objectives:
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Driving optimal pricing and contracting strategies. Our customers use our solutions to develop, deploy, monitor,
and drive optimal pricing and contracting strategies. Our solutions consolidate information across the revenue
lifecycle and provide visibility into historical volume, price, and contract performance trends. Our pricing
analytics enable our customers to identify untapped revenue opportunities across customers or products and make
better pricing and contracting decisions.
Realizing greater value from contracts. Our solutions enable customers to codify and automate complex pricing,
incentives, and financial and fulfillment terms that previously resided mainly on paper contracts. Our customers
can maximize the value of contracts and realize additional revenue by tracking their customers’ performance and
enforcing contract terms. Our solutions automatically price orders in real-time and enforce contract pricing and
commercial terms. Our solutions also enable customers to track and execute other revenue-enhancing financial
terms, such as negotiated price increases.
Maximizing revenue by standardizing and enforcing pricing and discounting policies. Our solutions allow
customers to standardize pricing policies that can be enforced automatically across the enterprise and the channels
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to restrict unauthorized sales practices and discounting by sales personnel. By raising the visibility of, requiring
authorization of, and enabling rapid resolution of, non-standard pricing, our customers can use our solutions to
reduce unauthorized discounting. Through our channel solutions, our customers can gain visibility into and
enforce channel pricing and reduce price erosion caused by different price quotes for the same end customer.
Executing and optimizing channel incentives. Our solutions enable customers to manage the entire incentive
lifecycle, from contracting to recognition and payment. Accurate management allows our customers to eliminate
unearned discounts and overpayment of incentives. Our solutions also provide our customers with greater cross
channel visibility to manage the effectiveness of their channel incentive programs. With this insight, our
customers can better utilize their channel incentives to positively influence channel behavior and thus increase
revenue.
Achieving accurate financial reporting. With our solutions, customers can manage all aspects of the contract-to-
payment process related to calculating, monitoring, processing and triggering payments to end customers and
channel intermediaries. For example, by automating all rebates, these liabilities can be accurately accrued,
enabling our customers to consistently record accruals in compliance with financial accounting requirements,
while ensuring customers and channels are credited on a timely basis.
Automating government regulatory compliance to reduce revenue risk. Our solutions enable customers to
comply systematically with government regulations, policies, procedures, pricing, and reporting requirements.
Further, by automating and integrating contract terms, incentives and pricing into mandated price and payment
calculations, our life sciences customers are better able to manage compliance with the terms of critical
government programs that provide significant sources of revenue.
Our Competitive Strengths
We believe our key competitive strengths include:
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Comprehensive approach to revenue management. Our solutions address the end-to-end revenue management
lifecycle. Our integrated, end-to-end application suites enable our customers to transform their revenue
management processes from disjointed tactical operations into a cohesive, strategic, end-to-end process. Providing
suites of cloud-based solutions is an advantage that enables us to address both decision making and process
automation.
Deep domain knowledge. Our expertise in the revenue management needs of life sciences and high tech
companies enables us to develop solutions that address the unique demands of these industries. By incorporating
best practices into our industry-specific solutions, implementation methodologies and support programs, our
customers can experience significantly accelerated time to value. Our team possesses deep industry expertise in
life sciences and high tech to enable our customers to maximize and accelerate the transformational benefits of our
solutions.
Strong customer base. We have established a reputation for delivering revenue management solutions to leading
life sciences and high tech customers. Our close customer relationships provide us with insight into how these
companies use our solutions and help us to maintain a competitive advantage by anticipating their future
requirements. We also believe that the use of our products by respected industry leaders also increases the value of
our brand in these industries.
Flexible deployment model. We have the capability to deploy our revenue management solutions as SaaS
applications, as fully managed and outsourced business services, or in a hybrid model mixing both SaaS and
business services across different applications. We believe this flexibility to deliver our solutions to suit customer
preferences is a meaningful competitive advantage given the inherent complexity of our customers’ businesses
processes and IT environments.
Talented team focused on customer success. We employ experts from the life sciences and high tech industries in
key customer-facing and development roles. Additionally, we have established strong core values that start with a
focus on customer success. Our customer focus has resulted in close relationships with our customers and a strong
reference base for sales opportunities.
Products
We provide solutions that span the organizational and operational boundaries of functions such as sales, marketing, and
finance and serve as a system of record for crucial revenue management processes including pricing, quoting, contracts, rebates,
incentives, channel management, reporting and regulatory compliance. Our solutions are purpose-built for the life sciences and
high tech industries and are designed to work with enterprise resource planning (ERP) and customer relationship management
(CRM) applications. Our solutions enable real-time pricing, contract management, deal management, quoting, and channel
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incentives management, including rebates, incentives, and regulatory compliance. Our Revenue Cloud suites comprise multiple
applications, which are integrated to work together but are flexible enough to be deployed individually. For example, when
deployed as an interconnected suite, our solutions allow prices that are set up in the price management process to flow into the
quoting process. Similarly, closed deals are captured in contract management and can be synchronized with ERP systems and
into regulatory reporting as required by government agencies. Our solutions provide critical data such as prices, quotes,
contracts, incentives, and rebate claims that are typically not available in other enterprise systems. Our solutions can also
provide customers predictive revenue insight optimization of sales and marketing investments and offers, as well as customer
profitability intelligence.
Revenue Cloud for Life Sciences – Our suite of revenue management solutions deliver end to end workflow, visibility and
control across the enterprise and integrate with front-office products (e.g. CRM) as well as back-office products (e.g. ERP).
This helps life science companies improve revenue and operational efficiency while adhering to government regulations as they
create and execute contracts with their customers.
Our integrated suite of solutions includes the following products:
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Global Pricing Management. Minimizes price erosion of products in international markets due to competitive
pressures and government mandate throughout the product lifecycle. Enables a streamlined pricing process by
consolidating information into a single system of record, which provides users’ access to accurate and up-to-date
information. Provides an in-built International Reference Pricing (IRP) simulation and price controls, launches
sequence optimization and tracking and forecasting of prices and sales among other features.
Global Tender Management. Improves revenue regionally and globally by enabling opportunity segmentation
and targeting, optimal bid pricing and post-award tracking to manage the contract lifecycle and award value.
Provider Management. Minimizes rebate overpayments and ensures compliance with price-tier commitments.
Manufacturers can effectively manage and execute complex institutional contracts with Providers (Hospitals,
IDNs, GPOs). This product helps minimize revenue leakage and improves operational efficiency by allowing the
manufacturer to set up contracts using structured pricing and price alerts for each product and customer,
implement the contracts and allow price look up, resolution and monitoring in end to end workflows enabled by
analytics to drive contract compliance. This product calculates fees to be paid to wholesalers and GPOs as well as
incentives to providers.
Payer Management. Minimizes revenue leakage and noncompliance of complex contracts with Payers (Pharmacy
Benefit Managers (PBMs)/Plan Sponsors). Significant revenue leakage can happen without proper handling of
rebate requests from PBMs. Payer Management is an end-to-end industry-leading payer management solution
which can help end revenue leakage in payer rebating processes and ensure adherence to complex government
pricing regulations.
Government Pricing. Supports Federal government-mandated calculations and reporting requirements for
average and minimum prices achieved by manufacturers across their product portfolio through various channels.
Optimizes revenue and reduces the risk of fines and other penalties due to non-compliance with regulatory
requirements.
Medicaid. Improves compliance with regulatory requirements and ensures payment of rebate claims on a timely
basis and at correct rates for government Medicaid programs, while helping manufacturers minimize revenue
leakage due to overpayment.
Validata. Enables manufacturers to validate, summarize and analyze prescription-level information in connection
with processing of various forms of rebates to ensure accurate payments are made and duplicate reimbursements
are avoided.
State Pricing Transparency Management. Highly configurable solution to manage and meet the pricing
calculations, reporting requirements, specific formats, and timelines mandated by various individual US States.
Reduces the potential risk of non-compliance with state price transparency requirements.
Deal Management. Helps increase revenue and reduce revenue leakage by connecting critical front and back-
office operations to ensure optimal product placement and pricing decisions leveraging customer memberships,
pricing tiers and past performance insights. Ensures better efficiency and alignment between sales and operations
teams of Life Sciences Manufacturers.
Advanced Membership Management. Helps manufacturers manage their customers’ membership with specific
Group Purchasing Organizations (GPOs). Reduces revenue leakage by validating eligibility for contracted pricing
and ensures compliance with specific rebate policies.
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Intelligence Cloud. Integrated business intelligence application to provide KPIs and trend analytics on all aspect
of pricing, contracting, and discounting data across our suite of solutions through easy to configure dashboards
and reports.
Revenue Cloud for High Tech – Our suite of solutions enables customers to modernize their sales processes by adopting a
strategic approach to manage the revenue lifecycle by planned revenue.
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Deal Management. Increases deal conversion and pricing consistency with pricing, quotes and contracts natively
supporting the High Tech Channel end-to-end.
Deal Intelligence. Provides High Tech manufacturers with the ability to analyze historical deal data, measure the
impact of different pricing and discounting strategies and apply their findings into current deals. Controls price
concessions and determines ideal prices by using in-context analytics.
Channel Management. Provides manufacturers a clearer view of inventory, including the ability to evaluate and
perform actions, such as price protection and stock rotation and matching available inventory to quotes. Increases
the ease of doing business with partners by streamlining commission calculations and validating inventory levels.
Market Development Fund Management. Allows companies to streamline their marketing development funds
MDF (MDF) programs and reduce revenue leakage by increasing partner participation through a self-service
portal that facilitates claims and tracks proof of execution.
Rebates Management. Centralizes control of rebate programs to reduce upfront discounts and enables effective
management of all incentives. Automates the end-to-end process of managing rebates from creation to payment
including dashboards and reports to manage compliance and performance for both internal and external users.
Channel Data Management. Automates the process of collection, cleansing, validation, and standardization of
channel partner data, such as point of sales (POS), inventory, and claims.
Payment Management. Enables companies to pay, audit, and manage incentive payments globally while reducing
costs to ensure their accuracy and timeliness.
Technology
Our Revenue Cloud solution is architected in multiple layers. The first layer is composed of end-user operational and
analysis solutions. The middle layer is comprised of supporting services and business engines. The lowest layer is made up of a
unified technology platform used to construct and support all modules in higher layers. The platform also provides access to the
normalized operational database where the transactional revenue management data used by the operational solutions are stored.
It also provides access and facilitates the synchronization with the de-normalized analytics database where the revenue
management data used by analytics and AI/ML solutions are stored.
Our Revenue Cloud solutions are built on a variety of industry standards such as Java EE, HTML5, ReactJS, Amazon
Web Services and Force.com, which gives end users an intuitive and familiar user experience. These standard technologies
enable us to offer our customers a familiar technology environment that is widely understood and utilized, as well as the ability
to use certain solutions on the “go” with a tablet or other mobile devices, including smartphones running iOS and Android.
Our technology platform has allowed us to quickly develop new solutions, features and functionalities. We believe the
platform is configured to meet the needs of broad horizontal markets as well as specific vertical markets and, within each
instance, to meet the specific needs of each of our customers. The flexibility of the technology platform has also allowed us to
add mobile device support and deploy cloud-based solutions in a rapid and efficient manner, and we believe it will enable us to
continue to add new capabilities in the future.
Our technology is designed specifically to handle the complex calculations and massive data sets associated with revenue
management processes typical in the life sciences and high tech industries. With the expansion of global deployments,
scalability has been a key requirement of our customers and a focus for us across all the layers of our application suites.
Our solutions have been designed to ensure high reliability and strong security, and the technology platform includes a
comprehensive set of built-in features and management tools to allow optimal and continuous operation. The Revenue Cloud
for Life Sciences and Revenue Cloud for High Tech suites are only offered to our customers through the cloud. We manage a
reliable architecture designed to reduce the risk associated with infrastructure outages, improve system scalability and security,
and allow for flexibility in deployment. The environment for our cloud-based solutions is designed to be secure and provide
high availability with disaster recovery capabilities.
Services and Customer Support
We offer a comprehensive set of services to assist our customers through the full lifecycle of new business
transformations or upgrades of existing solutions. We help our customers define, implement and support or manage our
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solutions. We provide implementation services, application services, business services, and strategic services both on and
offshore, as described below.
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Implementation services. We assist our customers in the implementation or upgrade of our Revenue Cloud,
including project management, design and solution blueprint, process improvement, application configuration or
customization, systems integration, data cleansing and migration, testing and performance tuning, production
cutover and post go-live support.
Application services. We offer managed services for customers using our solutions either on-premise through a
legacy contract or in the cloud, which include systems administration and infrastructure management, application
support, custom feature support and education services, including process, application and end-user training.
Business services. Through our acquisition of Deloitte & Touche LLP’s pricing and contracting solutions business
in fiscal year 2021, we offer a fully managed and outsourced deployment and consumption model for our core life
sciences commercial and regulatory solutions.
Strategic services. We assist our customers in defining best practices and strategies in revenue management,
assessing the capability of the existing transaction and decision support solutions, developing business cases for
change and transformation plans and answering strategic questions.
Customer support. We deliver customer support from support centers located in the United States, as well as at
our offices in India. We offer a range of support offerings, including 24x7x365, packaged into varying levels of
access to our support resources.
For project delivery, we use a standard implementation methodology incorporating lessons learned from past work to
ensure the success of our current projects. This methodology enables us to predictably estimate project costs and schedule, and
proactively mitigate most implementation challenges.
In addition, we have cultivated relationships to promote and assist with the implementation of our solutions with
consulting firms. While we do not maintain formal contractual relationships with these firms that require them to promote our
solutions to their clients, we work with them for implementation and other professional services projects. As a result, these
firms have expertise in our technologies and best practices and have invested in building out their practice areas with our
revenue management solutions.
We deploy our resources globally through offices located in the United States, India, and Switzerland.
Customers
As of September 30, 2022, we had approximately 194 customers. For the fiscal year ended September 30, 2022,
revenues from our life sciences and high tech customers accounted for approximately 85% and 15% of our total revenues,
respectively. Our customers range in size from the largest multi-national corporations to smaller, emerging companies. Our
customers represent a range of sub-verticals within the broader life sciences and high tech industries, including biotechnology,
pharmaceutical, medical device, generics, semiconductor, electronic component, consumer electronics, and software. During
the fiscal year ended September 30, 2022, we did not rely on any single customer for a material portion of our revenue or
subscription revenue.
We pursue close, long-term relationships with our customers because we believe strong customer relationships are the
key to our success. Many of these relationships date back to our original business model. Customers maintaining on-premise
implementations under legacy perpetual license contracts may purchase, at their discretion, maintenance and support services
and in some cases managed services on an annual basis. For the last several years, we have been transitioning our business
model to software as a service. New customers as well as customers who originally purchased a perpetual license now enter
into a software as a service agreement that provides for a subscription to our solutions as well as implementation services.
Sales and Marketing
We primarily target large and mid-sized organizations worldwide through our direct sales force. Our sales and marketing
programs are also organized by geographic region. We augment our sales professionals with solutions engineers and industry
domain experts via our Center of Excellence. These professionals work closely with prospective customers during the sales
process. Our marketing team supports sales with demand generation, competitive analysis and sales tools, and contributes to the
sales process through lead generation, brand building, industry analyst relations, public relations and industry research.
We host an annual customer conference, Rainmaker, which plays a significant role in driving sales of our solutions.
Customers are invited both as attendees and participants to deliver sessions relevant to the interests and practices of the life
sciences and high tech industries. We also invite potential customers to this conference to leverage our strong customer
relationships to accelerate sales cycles. In addition, Rainmaker provides a forum to build our ecosystem of strategic partner
relationships, offering partners the opportunity to work closely with our sales force on joint sales pursuits.
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Research and Development
Our research and development organization is responsible for the definition, design, development, testing, certification
and SaaS delivery of our solutions. Our efforts are focused on developing new solutions and technologies and further enhancing
the functionality, reliability, performance, and configurability of existing solutions. When considering improvements and
enhancements to our solutions, we engage with our customers and partners who provide essential input for product
development and innovation. We assess emerging customer demand and proactively focus our efforts in bringing new solutions
and enhancements to existing solutions to market following a seasonal release schedule. We also closely monitor the changes in
business environment and regulations in our target industries, particularly in life sciences, to quickly deliver updates to our
solutions that are critical for our customers to remain in compliance with government regulations.
As our solutions often serve as a system-of-record for our customers’ revenue management processes, our research and
development efforts reflect the extensive information technology (IT) needs of our customers in both the life sciences and high-
tech industries. Our research and development efforts continue to focus on evolving our solutions to meet the increasingly
complex infrastructure requirements of our customers in these industries.
Our product development is based on deep industry knowledge and familiarity with the specific requirements of
individual customers, combined with continued innovation using state of the art software development processes and tools. We
follow an “agile” development process, which helps us clarify requirements and receive feedback early, accommodate changes
and deliver products that better match the overall needs of our customers with higher quality.
As of September 30, 2022, our research and development team consisted of 316 employees globally.
Competition
The market for revenue management solutions is highly competitive, fragmented and subject to rapid changes in
technology. We face competition from spreadsheet-assisted manual processes, internally developed solutions, large integrated
systems vendors, providers of business process outsourcing services, horizontal revenue management solutions and smaller
companies that offer point solutions. Companies lacking IT resources often resort to spreadsheet-assisted manual processes or
personal database applications. Also, some potential customers, particularly large enterprises, may elect to develop their own
internal solutions, including custom-built solutions that are designed to support the needs of a single organization. Companies
with significant investments in ERP or CRM applications, which do not typically provide revenue management capabilities,
may extend these horizontal applications with customizations or point solution applications to address single or a small set of
revenue management sub processes or drivers. Common horizontal applications that customers attempt to configure for this
purpose in the life sciences and high tech industries include large integrated systems vendors like SAP AG and Oracle
Corporation. We also encounter competition from small independent companies such as Vistex, Inc., IntegriChain, iContracts,
Inc., EVERSANA, and E2open, LLC which compete based on price, unique product features or functions and custom
developments.
We believe we compete based primarily on the following factors:
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industry expertise;
comprehensiveness of solution;
flexibility of deployment models;
reliability, scalability and performance;
access to prospective customers through strategic partnerships;
global system and support capabilities; and
industry brand, reputation and customer base.
While we believe that we compete favorably on the basis of each of the factors listed above, many of our competitors
have greater name recognition, more substantial sales and marketing budgets, and greater resources than we do and may have
pre-existing relationships with our potential customers, including relationships with, and access to, key decision makers within
these organizations, and major distribution agreements with consultants and system integrators. Moreover, many software
vendors could bundle solutions or offer them at a low price as part of a larger product sale.
With the introduction of advanced technologies and market entrants, we expect competition to intensify in the future. We
also expect enterprise software vendors that focus on enterprise resource planning or back-office applications to enter our
market with competing products. Also, we expect sales force automation vendors to acquire or develop solutions that may
compete with our solutions.
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Intellectual Property
We rely upon a combination of copyright, trade secret, trademark and, to a lesser extent, patent laws, and we also rely on
contractual restrictions, such as confidentiality agreements and licenses, to establish and protect our proprietary rights. As of
September 30, 2022, we had two patent applications pending and thirteen issued patents expiring between 2023 and 2038. We
have a number of registered and unregistered trademarks. We maintain a policy requiring our employees, consultants and other
third parties to enter into confidentiality and proprietary rights agreements and to control access to our software, documentation
and other proprietary information. We also believe that factors resulting from our length of presence in the market and
significant research and development investments, such as our deep expertise in life sciences and high tech revenue
management practices, the ability of our solutions to handle the complexities of revenue management processes, the
technological and creative skills of our personnel, the creation of new features and functionality and frequent enhancements to
our solutions are essential to establishing and maintaining our technology leadership position.
Despite our efforts to protect our proprietary rights, unauthorized parties may attempt to copy or obtain and use our
technology to develop products with the same functionality as our solutions. Policing unauthorized use of our technology is
difficult. The laws of other countries in which we market our application suite may offer little or no effective protection for our
proprietary technology. Our competitors could also independently develop technologies equivalent to ours, and our intellectual
property rights may not be broad enough for us to prevent competitors from selling products incorporating those technologies.
Reverse engineering, unauthorized copying or other misappropriation of our proprietary technology could enable third parties
to benefit from our technology without paying us for it, which would significantly harm our business.
Human Capital Resources
As of September 30, 2022, we employed 1035 people, including 518 in services and customer support, 316 in research
and development, 104 in sales and marketing and 97 in a general and administrative capacity. As of such date, we had 541
employees in the United States and 494 employees in international locations. We also engage temporary employees and
consultants. None of our employees are represented by a labor union with respect to his or her employment with us. We have
not experienced any work stoppages and we consider our relations with our employees to be good. We conduct quarterly
employee engagement surveys to understand employee sentiment and we use that feedback to build a strong employee
experience.
We recognize that attracting, interviewing, motivating, and retaining diverse talent at all levels is vital to continuing our
success. By improving employee retention and engagement, we also improve our ability to support Model N’s customers and
protect the long-term interests of our stakeholders and stockholders. We invest in our employees through high-quality benefits
and various health and wellness initiatives, and offer competitive compensation packages, ensuring fairness in internal
compensation practices. We support employee well-being through a wellness strategy that includes extended holiday weekends,
an annual company-wide week off and programs to enable better time management and to boost productivity.
To further engage and incentivize our workforce, we offer a wide range of programs and avenues for support, motivation,
and professional recognition. We utilize both instructor-led training and online learning to provide custom training courses to
ensure our sales and services teams stay up-to-date on our products and service offerings. For our talent pipeline development,
we work closely with individual business functions to provide training and hands-on support for managers and leaders, who use
our Performance/Potential Matrix to assess talent, identify development opportunities, and discuss succession planning. Our
mentor program further supports the development of our talent by pairing less experienced high-potential employees with
experienced leaders for one-on-one mentorship and support.
We know that diverse perspectives drive our collective success, and we are committed to an inclusive workplace where
every employee is respected, championed, and recognized for their unique contributions. Our commitment to diversity, equity,
inclusion, and belonging is reflected in all of our talent practices. Our five Employee Affinity Groups provide a way for
employees to connect and build community, and our commitment to 100% pay parity across gender and ethnicity helps ensure
our pay practices are equitable. We work closely with the employee volunteers of our Global Diversity Council to continually
check in on how we’re progressing in these areas.
Corporate Information
We were incorporated in Delaware on December 14, 1999. Our principal offices are located at 777 Mariners Island
Boulevard, Suite 300, San Mateo, CA 94404, and our telephone number is (650) 610-4600. Our website address is
www.modeln.com. The information contained on, or that can be accessed through, our website is not part of this report.
Model N is our registered trademark in the United States and in various international jurisdictions. Model N, the Model N logo
and all of our product names appearing in this report are our trademarks. Other trademarks appearing in this report are the
property of their respective holders.
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Available Information
We file annual, quarterly and other reports, proxy statements and other information with the Securities and Exchange
Commission (the “SEC”) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”). We also make
available, free of charge on the investor relations portion of our website at investor.modeln.com, our annual report on Form
10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to those reports filed or furnished
pursuant to Section 13(a) or 15(d) of the Exchange Act as soon as reasonably practicable after they are filed electronically with
the SEC. You can also view these reports on the SEC’s website at https://www.sec.gov/ where you can obtain most of our SEC
filings. You can also obtain paper copies of these reports, without charge, by contacting Investor Relations at (650) 610-4600.
ITEM 1A.
Risk Factors
Our operating and financial results are subject to various risks and uncertainties. You should carefully consider the risks
and uncertainties described below, together with all of the other information in this report, including the Consolidated
Financial Statements and the related notes included elsewhere in this report, before deciding whether to invest in shares of our
common stock. The risks and uncertainties described below are not the only ones we face. Additional risks and uncertainties
that we are unaware of, or that we currently believe are not material, may also become important factors that adversely affect
our business. If any of the following risks or others not specified below actually occurs, our business, financial condition,
results of operations, and future prospects could be materially and adversely affected. In that event, the market price of our
common stock could decline, and you could lose part or all of your investment.
Risk Factors Summary
Our business is subject to a number of risks and uncertainties, including those risks discussed at-length below. These
risks include, among other things, the following:
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We have incurred losses in the past, and we may not be profitable in the future.
Our operating results are likely to vary significantly from period to period and be unpredictable, which could
cause the trading price of our common stock to decline.
We must improve our sales execution and increase our sales channels and opportunities in order to grow our
revenues, and if we are unsuccessful, our operating results may be adversely affected.
Our sales cycles are time-consuming, and it is difficult for us to predict when or if sales will occur.
Our revenues are dependent on our ability to maintain and expand existing customer relationships and our ability
to attract new customers.
The loss of one or more of our key customers could slow our revenue growth or cause our revenues to decline.
Because we recognize a majority of our subscription revenues from our customers over the term of their
agreements, downturns or upturns in sales of our cloud-based solutions may not be immediately reflected in our
operating results.
Our implementation cycle is lengthy and variable, depends upon factors outside our control and could cause us to
expend significant time and resources prior to earning associated revenues.
The COVID-19 outbreak has had a material impact on the U.S. and global economies and could have a material
adverse impact on our employees, suppliers and customers, which could adversely and materially impact our
business, financial condition and results of operations.
We depend on our management team and our key sales and development and services personnel, and the loss of
one or more key employees or groups could harm our business and prevent us from implementing our business
plan in a timely manner.
Our transition from an on-premise to a cloud-based business model is subject to numerous risks and uncertainties.
Our future growth is, in large part, dependent upon the increasing adoption of revenue management solutions.
We are highly dependent upon the life sciences industry, and factors that adversely affect this industry could also
adversely affect us.
Our acquisition of other companies could require significant management attention, disrupt our business, dilute
stockholder value and adversely affect our operating results.
We rely on third parties and their systems as we introduce a variety of new services, including the processing of
transaction data and settlement of funds to us and our counterparties, and these third parties’ failure to perform
these services adequately could materially and adversely affect our business.
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Failure to comply with applicable laws, regulations, or industry standards may harm our business and financial
condition.
If our solutions do not interoperate with our customers’ IT infrastructure, sales of our solutions could be
negatively affected, which would harm our business.
If our solutions experience data security breaches, and there is unauthorized access to our customers’ data, we may
lose current or future customers, our reputation and business may be harmed, and we may incur significant
liabilities.
Any failure to protect our intellectual property rights could impair our ability to protect our proprietary technology
and our brand, which would substantially harm our business and operating results.
Our stock price may be volatile, and you may be unable to sell your shares at or above your purchase price.
Our indebtedness could adversely affect our business and limit our ability to expand our business or respond to
changes, and we may be unable to generate sufficient cash flow to satisfy our debt service obligations.
Risks Related to Our Financial Condition
We have incurred losses in the past, and we may not be profitable in the future.
We have incurred net losses of $28.6 million and $29.7 million for the fiscal years ended September 30, 2022 and 2021,
respectively. As of September 30, 2022, we had an accumulated deficit of $284.4 million. Our expenses may increase in future
periods as we implement additional initiatives designed to grow our business, including, among other things, increasing sales to
existing customers, expanding our customer base, introducing new applications, enhancing existing solutions, extending into
the mid-market, and continuing to penetrate the technology industry and integrating the personnel, products, technologies and
customers from our acquisition of Deloitte & Touche LLP’s pricing and contracting solutions business. Increased operating
expenses related to personnel costs such as salary, bonus, commissions and stock-based compensation as well as third-party
contractors, travel-related expenses and marketing programs may also increase our expenses in future periods. In the near-term,
our revenues may not be sufficient to offset increases in operating expenses, and we expect that we will incur losses.
Additionally, we may encounter unforeseen expenses, difficulties, complications, delays and other unknown factors that may
result in losses in future periods. We cannot assure you that we will again obtain and maintain profitability in the future. Any
failure to return to profitability may materially and adversely affect our business, results of operations and financial condition.
Our operating results are likely to vary significantly from period to period and be unpredictable, which could cause
the trading price of our common stock to decline.
Our operating results have historically varied from period to period, and we expect that this trend will continue as a
result of a number of factors, many of which are outside of our control and may be difficult to predict, including:
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our ability to increase sales to and renew agreements with our existing customers;
our ability to expand and improve the productivity of our direct sales force;
our ability to attract and retain new customers and to improve sales execution;
our ability to continue to transition our customers from an on-premise to a cloud-based business model;
the timing and volume of incremental customer purchases of our cloud-based solutions, which may vary from
period to period based on a customer’s needs at a particular time;
our ability to successfully expand our business domestically and internationally;
disruptions in our relationships with partners;
the timing of new orders and revenue recognition for new and prior period orders;
changes in the competitive landscape of our industry, including mergers or consolidation among our customers or
competitors;
the complexity of implementations and the scheduling and staffing of the related personnel, each of which can
affect the timing and duration of revenue recognition;
issues related to changes in customers’ business requirements, project scope, implementations or market needs;
the mix of revenues in any particular period between subscription and professional services;
the timing of upfront recognition of sales commission expense relative to the deferred recognition of our revenues;
the timing of recognition of payment of royalties;
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the timing of our annual payment and recognition of employee non-equity incentive and bonus payments;
the budgeting cycles and purchasing practices of customers;
changes in customer requirements or market needs;
delays or reductions in information technology spending and resulting variability in customer orders from quarter
to quarter;
delays or difficulties encountered during customer implementations, including customer requests for changes to
the implementation schedule;
the timing and success of new product or service introductions by us or our competitors;
the amount and timing of any customer refunds or credits;
our ability to accurately estimate the costs associated with any fixed bid projects;
deferral of orders from customers in anticipation of new solutions or solution enhancements announced by us or
our competitors;
the length of time for the sale and implementation of our solutions to be complete, and our level of upfront
investments prior to the period we begin generating revenues associated with such investments;
the amount and timing of our operating expenses and capital expenditures, and our ability to timely repay our
debt;
price competition;
the rate of expansion and productivity of our direct sales force;
regulatory compliance costs;
required modifications to our solutions or services in response to changes in law or regulations;
sales commissions expenses related to large transactions;
technical difficulties or interruptions in the delivery of our cloud-based solutions;
seasonality or cyclical fluctuations in our industries;
future accounting pronouncements or changes in our accounting policies, including the impact of the adoption and
implementation of the Financial Accounting Standards Board’s new standard regarding revenue recognition;
increases or decreases in our expenses caused by fluctuations in foreign currency exchange rates, as a significant
portion of our expenses are incurred and paid in currencies other than the U.S. dollar;
general economic conditions, both domestically and in our foreign markets;
global epidemics, pandemics, or contagious diseases, such as COVID-19; and
entry of new competitors into our market.
Any one of the factors above or discussed elsewhere in this report or the cumulative effect of some of the factors referred
to above may result in significant fluctuations in our financial and other operating results. This variability and unpredictability
could result in our failure to meet expectations of investors for our revenues or other operating results for a particular period. If
we fail to meet or exceed such expectations for these or any other reasons, the market price of our common stock could
decrease.
We must improve our sales execution and increase our sales channels and opportunities in order to grow our
revenues, and if we are unsuccessful, our operating results may be adversely affected.
We must improve our sales execution in order to, among other things, increase the number of our sales opportunities and
grow our revenue. We must improve the market awareness of our solutions and expand our relationships with our channel
partners in order to increase our revenues. Further, we believe that we must continue to develop our relationships with new and
existing customers and partners and create additional sales opportunities to effectively and efficiently extend our geographic
reach and market penetration. Our efforts to improve our sales execution could result in a material increase in our sales and
marketing expense and general and administrative expense, and there can be no assurance that such efforts will be successful.
We have experienced challenges in sales execution in the past, and if we are unable to significantly improve our sales
execution, increase the awareness of our solutions, create additional sales opportunities, expand our relationships with channel
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partners, leverage our relationship with strategic partners, or effectively manage the costs associated with these efforts, our
operating results and financial condition could be materially and adversely affected.
Our sales cycles are time-consuming, and it is difficult for us to predict when or if sales will occur.
Our sales efforts are often targeted at larger enterprise customers, and as a result, we face greater costs, must devote
greater sales support to individual customers, have longer sales cycles and have less predictability in completing some of our
sales. Also, sales to large enterprises often require us to provide greater levels of education regarding the use and benefits of our
solutions. We believe that our customers view the purchase of our solutions as a significant and strategic decision. As a result,
customers carefully evaluate our solutions, often over long periods with a variety of internal constituencies. In addition, the
sales of our solutions may be subject to delays if the customer has lengthy internal budgeting, approval and evaluation
processes, which are quite common in the context of introducing large enterprise-wide technology solutions. As a result, it is
difficult to predict the timing of our future sales.
Our revenues are dependent on our ability to maintain and expand existing customer relationships and our ability to
attract new customers.
The continued growth of our revenues is dependent in part on our ability to expand the use of our solutions by existing
customers and attract new customers. Likewise, it is also important that customers using our on-premise solutions renew their
maintenance agreements and that customers using our cloud-based solutions renew their subscription agreements with us. Our
customers have no obligation to renew their agreements after the expiration of the initial term, and there can be no assurance
that they will do so. We have had in the past and may in the future have disputes with customers regarding our solutions, which
may impact such customers’ decisions to continue to use our solutions and pay for maintenance and support in the future.
If we are unable to expand our customers’ use of our solutions, sell additional solutions to our customers, maintain our
renewal rates for maintenance and subscription agreements and expand our customer base, our revenues may decline or fail to
increase at historical growth rates, which could adversely affect our business and operating results. In addition, if we experience
customer dissatisfaction with customers in the future, we may find it more difficult to increase use of our solutions within our
existing customer base and it may be more difficult to attract new customers, or we may be required to grant credits or refunds,
any of which could negatively impact our operating results and materially harm our business.
The loss of one or more of our key customers could slow our revenue growth or cause our revenues to decline.
A substantial portion of our total revenues in any given period may come from a relatively small number of customers.
As of September 30, 2022, we had approximately 194 customers. Although our largest customers typically change from period
to period, for the fiscal year ended September 30, 2022, our 15 largest customers accounted for 49% of our total revenues.
During the fiscal year ended September 30, 2022, no customer represented more than 10% of our total revenues or more than
10% of our subscription revenues. We expect that we will continue to depend upon a relatively small number of customers for a
significant portion of our total revenues for the foreseeable future. The loss of any of our significant customers or groups of
customers for any reason, or a change of relationship with any of our key customers may cause a significant decrease in our
total revenues.
Additionally, mergers or consolidations among our customers in the life sciences and high tech industries, both of which
are currently undergoing significant consolidation, could reduce the number of our customers and could adversely affect our
revenues and sales. In particular, if our customers are acquired by entities that are not also our customers, that do not use our
solutions or that have more favorable contract terms and choose to discontinue, reduce or change the terms of their use of our
solutions, our business and operating results could be materially and adversely affected.
Because we recognize a majority of our subscription revenues from our customers over the term of their agreements,
downturns or upturns in sales of our cloud-based solutions may not be immediately reflected in our operating results.
Subscription revenues primarily include contractual arrangements with customers accessing our cloud-based solutions
and revenues associated with maintenance and support agreements from license customers. We recognize a majority of our
subscription revenues over the term of our customer agreements, which, on average are typically one to three years. As a result,
most of our quarterly subscription revenues result from agreements entered into during previous quarters. Consequently, a
shortfall in sales of our cloud-based solutions or renewal of maintenance and support agreements in any quarter may not
significantly reduce our subscription revenues for that quarter but may negatively affect subscription revenues in future
quarters. Further, management measures sales performance and forecasts future subscription revenue based on the annualized
value, or SaaS ARR, which is derived by taking the SaaS portion of our recurring subscription revenue for the quarter, dividing
it by the number of days in the quarter, and multiplying it by 365 to get an annualized number. Management also uses SaaS Net
Dollar Retention, which uses the same SaaS ARR calculations to measure the percentage change in SaaS ARR from customers
that are in both the current period and the year-ago period. The amount of subscription revenue we actually recognize may be
different from ARR at the end of a period in which it was recorded. Accordingly, the effect of significant downturns in sales of
our cloud-based solutions or renewals of our maintenance and support agreements may not be fully reflected in our results of
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operations until future periods. We may be unable to adjust our cost structure rapidly to compensate for this potential shortfall
in subscription revenues, or at all, to take account of reduced revenue. Our revenue recognition model for our cloud-based
solutions and maintenance and support agreements also makes it difficult for us to rapidly increase our revenues through
additional sales in any period, as a significant amount of our revenues are recognized over the applicable agreement term. As a
result, changes in the volume of sales of our cloud-based solutions or the renewals of our maintenance and support agreements
in a particular period would not be fully reflected in our revenues until future periods.
Our implementation cycle is lengthy and variable, depends upon factors outside our control and could cause us to
expend significant time and resources prior to earning associated revenues.
The implementation and testing of our solutions typically range from a few months to up to twelve months, and
unexpected implementation delays and difficulties can occur including, but not limited to, those related to global epidemics,
pandemics, or contagious diseases, such as COVID-19. Implementing our solutions typically involves integration with our
customers’ systems, as well as adding their data to our system. This can be complex, time-consuming and expensive for our
customers and can result in delays in the implementation and deployment of our solutions. The lengthy and variable
implementation cycle may also have a negative impact on the timing of our revenues, causing our revenues and results of
operations to vary significantly from period to period.
A substantial majority of our total revenues have come from sales and renewals of our enterprise cloud products, and
decreases in demand for our enterprise cloud products could adversely affect our results of operations and financial
condition.
Historically, a substantial majority of our total revenues has been associated with our enterprise cloud products, whether
deployed as individual solutions or as a complete suite. We expect our enterprise cloud products to continue to generate a
substantial majority of our total revenues for the foreseeable future. Declines and variability in demand for our enterprise cloud
products could occur for a number of reasons, including improved products or product versions being offered by competitors,
competitive pricing pressures, failure to release new or enhanced versions on a timely basis, technological changes that we are
unable to address or that change the way our customers utilize our solutions, reductions in technology spending, export
restrictions or other regulatory or legislative actions that could limit our ability to sell those products to key customer or market
segments. Our business, results of operations, financial condition and cash flows would be adversely affected by a decline in
demand for our enterprise cloud products.
Most of our implementation contracts are on a time and materials basis and may be terminated by the customer.
The contracts under which we perform most of our implementation services may have a term typically ranging between
a few months to up to twelve months and are on a time and materials basis and may be terminated by the customer at any time.
If an implementation project is terminated sooner than we anticipated or a portion of the implementation is delayed, we would
lose the anticipated revenues that we might not be able to replace or it may take significant time to replace the lost revenues
with other work or we may be unable to eliminate the associated costs. Consequently, we may recognize fewer revenues than
we anticipated or incur unnecessary costs, and our results of operations in subsequent periods could be materially lower than
expected.
We are exposed to fluctuations in currency exchange rates, which could negatively affect our financial condition and
operating results.
Our sales contracts are primarily denominated in U.S. dollars, and therefore, substantially all of our revenues are not
subject to foreign currency risk. However, the continued strengthening of the U.S. dollar could increase the real cost of our
solutions to our customers outside of the United States, which could adversely affect our financial condition and operating
results. In addition, an increasing portion of our operating expenses are incurred in India, are denominated in Indian rupees and
are subject to fluctuations due to changes in foreign currency exchange rates. While we recently began using foreign exchange
forward contracts to hedge certain cash flow exposures resulting from changes in foreign currency exchange rates, this hedging
strategy may not ultimately be effective and may adversely affect our financial condition and operating results.
If we are required to collect sales and use taxes on the solutions we sell, we may be subject to liability for past sales
and our future sales may decrease.
State and local taxing jurisdictions have differing rules and regulations governing sales and use taxes, and these rules and
regulations are subject to varying interpretations that may change over time. In particular, the applicability of sales taxes to our
subscription services in various jurisdictions is unclear. Although we have historically collected and remitted sales tax in certain
circumstances, it is possible that we could face sales tax audits and that our liability for these taxes could exceed our estimates
as state tax authorities could still assert that we are obligated to collect additional amounts as taxes from our customers and
remit those taxes to those authorities. We could also be subject to audits with respect to state and international jurisdictions for
which we have not accrued tax liabilities. A successful assertion that we should be collecting additional sales or other taxes on
our services in jurisdictions where we have not historically done so and do not accrue for sales taxes could result in substantial
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tax liabilities for past sales, discourage customers from purchasing our solutions or otherwise harm our business and operating
results.
If our estimates or judgments relating to our critical accounting policies are based on assumptions that change or
prove to be incorrect, our operating results could fall below expectations of securities analysts and investors, resulting in a
decline in our stock price.
The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and
assumptions that affect the amounts reported in the Consolidated Financial Statements and accompanying notes. For example,
our revenue recognition policy is complex and we often must make estimates and assumptions that could prove to be
inaccurate. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable
under the circumstances, the results of which form the basis for making judgments about revenue recognition, capitalized
software, the carrying values of assets, taxes, liabilities, equity, revenues and expenses that are not readily apparent from other
sources. Our operating results may be adversely affected if our assumptions change or if actual circumstances differ from those
in our assumptions, which could cause our operating results to fall below the expectations of securities analysts and investors,
resulting in a decline in our stock price. Significant assumptions and estimates used in preparing our Consolidated Financial
Statements include those related to revenue recognition, share-based compensation and income taxes.
We may need additional capital, and we cannot be certain that additional financing will be available.
We may require additional financing in the future to operate or expand our business, acquire assets or repay or refinance
our existing debt. Our ability to obtain financing will depend, among other things, on our development efforts, business plans,
operating performance and condition of the capital markets at the time we seek financing. We cannot assure you that additional
financing will be available to us on favorable terms when required, or at all. If we raise additional funds through the issuance of
equity, equity-linked or debt securities, those securities may have rights, preferences or privileges senior to the rights of our
common stock, notes, or preferred stock, and our stockholders may experience dilution.
If we need additional capital and cannot raise it on acceptable terms, we may not be able to, among other things:
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continue to expand our sales and marketing and research and development organizations;
repay or refinance our existing debt;
acquire complementary technologies, solutions or businesses;
expand operations, in the United States or internationally;
hire, train and retain employees; or
respond to competitive pressures or unanticipated working capital requirements.
Our failure to do any of these things could seriously harm our business, financial condition, and operating results.
Our ability to use our net operating losses to offset future taxable income may be subject to certain limitations.
In general, under Section 382 of the U.S. Internal Revenue Code of 1986, as amended (Code), and similar state law
provisions, a corporation that undergoes an “ownership change” is subject to limitations on its ability to utilize its pre-change
net operating losses (“NOLs”) to offset future taxable income. If our existing NOLs are subject to limitations arising from
ownership changes, our ability to utilize NOLs could be limited by Section 382 of the Code. Future changes in our stock
ownership, some of which are outside of our control, also could result in an ownership change under Section 382 of the Code.
There is also a risk that our NOLs could expire, or otherwise be unavailable to offset future income tax liabilities due to
changes in the law, including regulatory changes, such as suspensions on the use of NOLs or other unforeseen reasons.
Additionally, the CARES Act, among other things, permits NOL carryovers and carrybacks to offset 100% of taxable income
for taxable years beginning before 2021. The CARES Act also temporarily repealed the 80% taxable income limitation for tax
years beginning before January 1, 2021; net operating loss carried forward generated from 2018 or later and carryforwards to
taxable years beginning after December 31, 2020 will be subject to the 80% limitation. Under the CARES Act, net operating
losses arising in 2018, 2019 and 2020 can be carried back 5 years.
Risks Related to Our Business and Industry
We depend on our management team and our key sales and development and services personnel, and the loss of one
or more key employees or groups could harm our business and prevent us from implementing our business plan in a timely
manner.
Our success depends on the expertise, efficacy and continued services of our executive officers, who are geographically
dispersed. We have in the past and may in the future continue to experience changes in our executive management team
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resulting from the departure of executives or subsequent hiring of new executives, which may be disruptive to our business.
Any changes in business strategies or leadership can create uncertainty, may negatively impact our ability to execute our
business strategy quickly and effectively and may ultimately be unsuccessful. The impact of hiring new executives may not be
immediately realized. We are also substantially dependent on the continued service of our existing development and services
personnel because of their familiarity with the inherent complexities of our solutions.
Our personnel do not have employment arrangements that require them to continue to work for us for any specified
period and, therefore, they could terminate their employment with us at any time. We do not maintain key personnel life
insurance policies on any of our employees. The loss of one or more of our key employees or groups could seriously harm our
business.
Our transition from an on-premise to a cloud-based business model is subject to numerous risks and uncertainties.
Our business model has shifted away from sales of on-premise software licenses to focus on sales of subscriptions for
our cloud-based solutions, which provide our customers the right to access certain of our software in a hosted environment for a
specified subscription period. This cloud-based strategy may give rise to a number of risks, including the following:
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if customers are uncomfortable with cloud-based solutions and desire only perpetual licenses, we may experience
longer than anticipated sales cycles and sales of our cloud-based solutions may lag behind our expectations;
our cloud-based strategy may raise concerns among our customer base, including concerns regarding changes to
pricing over time, service availability, information security of a cloud-based solution and access to files while
offline or once a subscription has expired;
we may be unsuccessful in maintaining our target pricing, adoption and projected renewal rates;
we may select a target price that is not optimal and could negatively affect our sales or earnings; and
we may incur costs at a higher than forecasted rate as we expand our cloud-based solutions.
Our cloud-based strategy also requires a considerable investment of technical, financial, legal and sales resources, and a
scalable organization. Market acceptance of such offerings is affected by a variety of factors, including but not limited to:
security, reliability, scalability, customization, performance, current license terms, customer preference, customer concerns with
entrusting a third party to store and manage their data, public concerns regarding privacy and the enactment of restrictive laws
or regulations. Whether our business model transition will prove successful and will accomplish our business and financial
objectives is subject to numerous uncertainties, including but not limited to: customer demand, renewal rates, channel
acceptance, our ability to further develop and scale infrastructure, our ability to include functionality and usability in such
solutions that address customer requirements, tax and accounting implications, pricing and our costs. In addition, the metrics we
use to gauge the status of our business may evolve over the course of the transition as significant trends emerge.
If we are unable to successfully execute our cloud-based strategy and navigate our business model transition in light of
the foregoing risks and uncertainties, our results of operations could be negatively impacted.
Our future growth is, in large part, dependent upon the increasing adoption of revenue management solutions.
Revenue management is at an early stage of market development and adoption, and the extent to which revenue
management solutions will become widely adopted remains uncertain. It is difficult to predict customer adoption rates,
customer demand for revenue management solutions, including our solutions in particular, the future growth rate and size of
this market and the timing of the introduction of additional competitive solutions. Any expansion of the revenue management
market depends on a number of factors, including the cost, performance and perceived value associated with revenue
management solutions. For example, many companies have invested substantial personnel, infrastructure and financial
resources in other revenue management infrastructure and therefore may be reluctant to implement solutions such as ours.
Additionally, organizations that use legacy revenue management products may believe that these products sufficiently address
their revenue management needs. Because this market is relatively undeveloped, we must spend considerable time educating
customers as to the benefits of our solutions. If revenue management solutions do not achieve widespread adoption, or if there
is a reduction in demand for revenue management solutions caused by a lack of customer acceptance, technological challenges,
competing technologies and products, decreases in corporate spending or otherwise, it could result in lower sales, reduced
renewal and upsell rates and decreased revenues and our business could be adversely affected.
We are highly dependent upon the life sciences industry, and factors that adversely affect this industry could also
adversely affect us.
Our future growth depends, in large part, upon continued sales to companies in the life sciences industry, and our recent
acquisition of Deloitte & Touche LLP’s pricing and contracting solutions business may increase our dependency. Demand for
our solutions could be affected by factors that adversely affect demand for the underlying life sciences products and services
that are purchased and sold pursuant to contracts managed through our solutions. The life sciences industry is affected by
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certain factors, including the emergence of large group purchasing and managed care organizations and integrated healthcare
delivery networks, increased customer and channel incentives and rebates, the shift of purchasing influence from physicians to
economic buyers, increased spending on healthcare by governments instead of commercial entities and increased scope of
government mandates, frequency of regulatory reporting and audits, fines, and global epidemics, pandemics, or contagious
diseases, such as COVID-19. Accordingly, our future operating results could be materially and adversely affected as a result of
factors that affect the life sciences industry generally.
Failure to adequately expand and train our direct sales force will impede our growth.
We rely almost exclusively on our direct sales force to sell our solutions. We believe that our future growth will depend,
to a significant extent, on the continued development of our direct sales force and its ability to manage and retain our existing
customer base, expand the sales of our solutions to existing customers and obtain new customers. Because our software is
complex and often must interoperate with complex computing requirements, it can take longer for our sales personnel to
become fully productive compared to other software companies. Our ability to achieve significant growth in revenues in the
future will depend, in large part, on our success in recruiting, training and retaining a sufficient number of direct sales
personnel. New hires require significant training and may, in some cases, take more than a year before becoming fully
productive, if at all. If we are unable to hire and develop sufficient numbers of productive direct sales personnel, and if these
sales personnel are unable to achieve full productivity, sales of our solutions will suffer and our growth will be impeded.
Our acquisition of other companies could require significant management attention, disrupt our business, dilute
stockholder value and adversely affect our operating results.
As part of our business strategy, we have in the past and may in the future make investments in other companies,
solutions or technologies to, among other reasons, expand or enhance our product offerings. In the future, any significant
acquisition would require the consent of our lenders. Any failure to receive such consent could delay or prohibit us from
acquiring companies that we believe could enhance our business.
We may not ultimately strengthen our competitive position or achieve our goals from any recent or any future
acquisition, and any acquisitions we complete could be viewed negatively by users, customers, partners or investors. In
addition, if we fail to integrate successfully such acquisitions, or the technologies associated with such acquisitions, into our
company, the revenues and operating results of the combined company could be adversely affected. In addition, we may not be
able to successfully retain the customers and key personnel of such acquisitions over the longer term, which could also
adversely affect our business. The integration of any recently-acquired business or future-acquired business will require
significant time and resources, and we may not be able to manage the process successfully. We may not successfully evaluate or
utilize the acquired technology and accurately forecast the financial impact of the acquisition, including accounting charges.
It is also possible that a governmental entity could initiate an antitrust investigation at any time. Among other things, an
investigation that is resolved unfavorably to us could delay or prevent the completion of a transaction, require us to divest or
sell the assets or businesses we acquired, limit the ability to realize the expected financial or strategic benefits of a transaction
or have other adverse effects on our current business and operations.
We may have to pay cash, incur debt or issue equity securities to pay for any acquisition, each of which could affect our
financial condition or the value of our capital stock. For example, in connection with our acquisition of Deloitte & Touche
LLP’s pricing and contracting solutions business, we paid approximately $60.0 million in cash. To fund any future acquisition,
we may issue equity, which would result in dilution to our stockholders, or incur more debt, which would result in increased
fixed obligations and could subject us to additional covenants or other restrictions that would impede our ability to manage our
operations.
Uncertainty in global economic conditions may adversely affect our business, operating results or financial condition.
Our operations and performance depend on global economic conditions. Challenging or uncertain economic conditions
including those related to global epidemics, pandemics, or contagious diseases, such as COVID-19, geopolitical turmoil, and
macroeconomic conditions, inflation, fluctuations in foreign exchange rates and interest rates, make it difficult for our
customers and potential customers to accurately forecast and plan future business activities and may cause our customers and
potential customers to slow or reduce spending, or vary order frequency, on our solutions. Furthermore, during challenging or
uncertain economic times, our customers may face difficulties gaining timely access to sufficient credit and experience
decreasing cash flow, which could impact their willingness to make purchases and their ability to make timely payments to us.
Global economic conditions have in the past and could continue to have an adverse effect on demand for our solutions,
including new bookings and renewal and upsell rates, on our ability to predict future operating results and on our financial
condition and operating results. If global economic conditions remain uncertain or deteriorate, it may materially impact our
business, operating results and financial condition.
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We rely on third parties and their systems as we introduce a variety of new services, including the processing of
transaction data and settlement of funds to us and our counterparties, and these third parties’ failure to perform these
services adequately could materially and adversely affect our business.
To provide our managed operations and payments solution and other products and services, we rely on third parties that
we do not control, such as financial institution partners, and systems like the Federal Reserve Automated Clearing House, and
other partners. We rely on these third parties for a variety of services, including the transmission of transaction data, settlement
of funds, and the provision of information and other elements of our services. For example, we directly or indirectly rely on
banking institutions to facilitate payment settlement. If such banking institution should stop providing the underlying services,
we must find other financial institutions to provide those services. If we are unable to find a replacement financial institution,
we may no longer be able to provide processing services to certain customers, which could negatively affect our operations or
cash flows.
Our customers often require significant configuration efforts to match their complex business processes. The failure
to meet their requirements could result in customer disputes, loss of anticipated revenues and additional costs, which could
harm our business.
Our customers often require significant configuration services to address their unique business processes. Supporting
such a diversity of configured settings and implementations could become difficult as the number of customers we serve grows.
In addition, supporting our customers could require us to devote significant development services and support personnel and
strain our personnel resources and infrastructure. We have had in the past and may in the future have disputes with customers
regarding the performance and implementation of our solutions. If we are unable to address the needs of our customers in a
timely fashion, our customers may decide to seek to terminate their relationship, renew on less favorable terms, not renew their
maintenance agreements or subscriptions, fail to purchase additional solutions or services, assert legal claims against us or
cease to be a reference. If any of these were to occur, our revenues may decline or we may be required to refund amounts to
customers and our operating results may be harmed.
If we are unable to enhance existing solutions and develop new solutions that achieve market acceptance or that keep
pace with technological developments, our business could be harmed.
Our ability to increase revenues from existing customers and attract new customers depends in large part on our ability to
enhance and improve our existing solutions and to develop and introduce new solutions. The success of any enhancement or
new solutions depends on several factors, including timely completion, adequate quality testing, introduction and market
acceptance. Any enhancement or new solutions that we develop or acquire may not be introduced in a timely or cost-effective
manner, may contain defects or may not achieve the broad market acceptance necessary to generate significant revenues. If we
are unable to successfully enhance our existing solutions and develop new solutions to meet customer requirements, our
business and operating results will be adversely affected.
Because we designed our solutions to operate on a variety of network, hardware and software platforms, we will need to
continuously modify and enhance our solutions to keep pace with changes in networking, internet-related hardware, and
software, communication, browser and database technologies. If we are unable to respond in a timely manner to these rapid
technological developments in a cost-effective manner, our solutions may become less marketable and less competitive or
obsolete and our operating results may be negatively impacted.
Our efforts to expand the adoption of our solutions in the technology industry will be affected by our ability to provide
solutions that adequately address trends in that industry.
We are attempting to expand the use of our solutions by companies in the technology industry, and our future growth
depends in part on our ability to increase sales of solutions to customers in this industry and potentially other industries. The
technology industry is affected by many factors, including shortening of product lifecycles, core technology products being sold
into different end markets with distinct pricing, increasing complexity of multi-tiered global distribution channels, changing
financial reporting requirements due to channel complexity and increasing use of off-invoice discounting. If our solutions are
not perceived by existing or potential customers in the technology industry as capable of providing revenue management tools
that will assist them in adequately addressing these trends, then our efforts to expand the adoption of our solutions in this
industry may not be successful, which would adversely impact our business and operating results.
The market for cloud-based solutions is at an earlier stage of acceptance relative to on-premise solutions, and if it
develops more slowly than we expect, our business could be harmed.
Although gaining wider acceptance, the market for cloud-based solutions is at an early stage relative to on-premise
solutions, and these types of deployments may not achieve and sustain high levels of demand and market acceptance. We plan
to accelerate the shift in our business model to recurring revenues, including revenues derived from our cloud-based solutions,
by continuing to expand the implementation of our cloud-based solutions both within our current installed base of customers as
well as new customers and additional markets in the future. Many companies have invested substantial personnel and financial
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resources to integrate traditional enterprise software into their businesses, and therefore may be reluctant or unwilling to
migrate to a cloud-based solution. Other factors that may affect the market acceptance of cloud-based solutions include:
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perceived security capabilities and reliability;
perceived concerns about ability to scale operations for large enterprise customers;
concerns with entrusting a third party to store and manage critical data;
the level of configurability or customizability of the solutions; and
ability to perform at or near the capabilities of our on-premise solutions.
If organizations do not perceive the benefits of our cloud-based solutions, or if our competitors or new market entrants
are able to develop cloud-based solutions that are or are perceived to be more effective than ours, our plan to accelerate the shift
in our business model to recurring revenues may not succeed or may develop more slowly than we expect, if at all, or may
result in short-term declines in recognized revenue, any of which would adversely affect our business.
If we or our solutions fail to perform properly, our reputation and customer relationships could be harmed, our
market share could decline, and we could be subject to liability claims.
Our solutions are inherently complex and may contain material vulnerabilities, defects or errors. Any defects in solution
functionality or that cause interruptions in availability could result in:
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lost or delayed market acceptance and sales;
reductions in current-period total revenues;
breach of warranty or other contract breach or misrepresentation claims;
sales credits or refunds to our customers;
loss of customers;
diversion of development and customer service resources; and
injury to our reputation.
The costs incurred in correcting any material vulnerabilities, defects or errors might be substantial and could adversely
affect our operating results. Because our customers often use our solutions as a system of record and many of our customers are
subject to regulation of pricing of their products or otherwise have complex pricing commitments and revenue recognition
policies, errors could result in an inability to process sales or lead to a violation of pricing requirements or misreporting of
revenues by our customers that could potentially expose them to fines or other substantial claims or penalties. Accordingly, we
could face increased exposure to product liability and warranty claims, litigation and other disputes and claims, resulting in
potentially material losses and costs. Our limitation of liability provisions in our customer agreements may not be sufficient to
protect us against any such claims.
Given the large amount of data that our solutions process and manage, it is possible that failures, vulnerabilities or errors
in our software could result in unauthorized access, data loss or corruption, or cause the information that we process to be
incomplete or contain inaccuracies that our customers regard as significant. We may be required to issue credits or refunds or
indemnify or otherwise be liable to our customers or third parties for damages they may incur resulting from certain of these
events.
Our insurance may be inadequate or may not be available in the future on acceptable terms, or at all. In addition, our
policy may not cover any claim against us for claims related to any product defects or errors or other indirect or consequential
damages and defending a suit, regardless of its merit, could be costly and divert management’s attention.
The market in which we participate is highly competitive, and if we do not compete effectively, our operating results
could be harmed.
The market for revenue management solutions is highly competitive, fragmented and subject to rapid changes in
technology. We face competition from spreadsheet-assisted manual processes, internally developed solutions, large integrated
systems vendors, providers of business process outsourcing services and smaller companies that offer point solutions.
Companies lacking IT resources often resort to spreadsheet-assisted manual processes or personal database applications.
In addition, some potential customers, particularly large enterprises, may elect to develop their own internal solutions, including
custom-built solutions that are designed to support the needs of a single organization. Companies with large investments in
packaged ERP or CRM applications, which do not typically provide revenue management capabilities, may extend these
horizontal applications with configurations or point solution applications in order to address one or a small set of revenue
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management sub processes or drivers. Common horizontal applications that customers attempt to configure for this purpose in
the life sciences and high tech industries include large integrated systems vendors like SAP SE and Oracle Corporation. We also
encounter competition from small independent companies which compete based on price, unique product features or functions
and custom developments.
Many of our competitors have greater name recognition, larger sales and marketing budgets and greater resources than
we do and may have pre-existing relationships with our potential customers, including relationships with, and access to, key
decision makers within these organizations, and major distribution agreements with consultants and system integrators.
Moreover, many software vendors could bundle solutions or offer them at a low price as part of a larger product sale.
With the introduction of new technologies and market entrants, we expect competition to intensify in the future. We also
expect enterprise software vendors that focus on enterprise resource planning or back-office applications to enter our market
with competing products. In addition, we expect sales force automation vendors to acquire or develop additional solutions that
may compete with our solutions. If we fail to compete effectively, our business will be harmed. In addition, pricing pressures
and increased competition generally could result in reduced sales, reduced margins, losses or the failure of our solutions to
achieve or maintain more widespread market acceptance, any of which could harm our business.
If we are not able to maintain and enhance our brand, our business and operating results may be adversely affected.
We believe that maintaining and enhancing the “Model N” brand identity is critical to our relationships with our
customers and partners and to our ability to attract new customers and partners. The successful promotion of our brand will
depend largely upon our marketing efforts, our ability to continue to offer high-quality solutions and our ability to successfully
differentiate our solutions from those of our competitors. Our brand promotion activities may not be successful or yield
increased revenues. In addition, independent industry analysts often provide reviews of our solution, as well as those of our
competitors, and perception of our solution in the marketplace may be significantly influenced by these reviews. If these
reviews are negative, or less positive as compared to those of our competitors’ products and services, our brand may be
adversely affected. Further, stockholder activism has been increasing in recent years. Any such activism or public criticism of
our company or management team may harm our brand and reputation.
The promotion of our brand requires us to make substantial expenditures, and we anticipate that the expenditures will
increase as our market becomes more competitive and as we expand into new verticals within the life sciences and high tech
industries. To the extent that these activities yield increased revenues, these revenues may not offset the increased expenses we
incur. If we do not successfully maintain and enhance our brand, our business may not grow, we may have reduced pricing
power relative to competitors with stronger brands and we could lose customers, partners, current employees and prospective
employees, all of which would adversely affect our business operations and financial results.
If we are unable to maintain successful relationships with system integrators, our business operations, financial
results and growth prospects could be adversely affected.
Our relationships with system integrators are generally non-exclusive, which means they may recommend to their
customers the solutions of several different companies, including solutions that compete with ours, and they may also assist in
the implementation of software or systems that compete with ours. If our system integrators do not choose to continue to refer
our solutions, assist in implementing our solutions, choose to use greater efforts to market and sell their own solutions or those
of our competitors, or fail to meet the needs of our customers, our ability to grow our business and sell our solutions may be
adversely affected. The loss of a substantial number of our system integrators, our possible inability to replace them or the
failure to recruit additional system integrators could harm our business.
Our ability to achieve revenue growth in the future will depend in part on our success in maintaining successful
relationships with our system integrators and in helping our system integrators enhance their ability to independently market
and implement our solutions. Our growth in revenues, particularly in international markets, will be influenced by the
development and maintenance of relationships with these companies. Although we have established relationships with some of
the leading system integrators, our solutions compete directly against the solutions of other leading system integrators. We are
unable to control the resources that our system integrators commit to implementing our solutions or the quality of such
implementation. If they do not commit sufficient resources to these activities, or if we are unable to maintain our relationships
with these system integrators or otherwise develop and expand our indirect distribution channel, our business, results of
operations, financial condition or cash flows could be adversely affected.
Any failure to offer high-quality customer support for our cloud platform may adversely affect our relationships with
our customers and harm our financial results.
Once our solutions are implemented, our customers use our support organization to resolve technical issues relating to
our solutions. In addition, we also believe that our success in selling our solutions is highly dependent on our business
reputation and on favorable recommendations from our existing customers. Any failure to maintain high-quality customer
support, or a market perception that we do not maintain high-quality support, could harm our reputation, adversely affect our
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ability to maintain existing customers or sell our solutions to existing and prospective customers, and harm our business,
operating results and financial condition.
We may be unable to respond quickly enough to accommodate short-term increases in customer demand for support
services. Increased customer demand for these services, without corresponding revenues, could also increase costs and
adversely affect our operating results.
Incorrect or improper implementation or use of our solutions could result in customer dissatisfaction and negatively
affect our business, operations, financial results and growth prospects.
Our customers and third-party partners may need training in the proper use of and the variety of benefits that can be
derived from our solutions to maximize their potential. We have implemented the Model N Align Program, which gives our
customers full access to expert knowledge through a portal for easy and fast access to information, experienced customer
success managers and defined customer success plans, in order to help our customers maximize the value of our solutions.
However, our customers may choose not to use such programs or may not use such programs efficiently or effectively and as a
result may become dissatisfied with our solutions. If our solutions are not implemented or used correctly or as intended,
inadequate performance may result. Since our customers rely on our solutions and customer support to manage key areas of
their businesses, the incorrect or improper implementation or use of our solutions, our failure to train customers on how to
efficiently and effectively use our solutions or our failure to provide services to our customers, may result in negative publicity,
failure of customers to renew their SaaS maintenance agreements or subscriptions or potentially make legal claims against us.
Also, as we continue to expand our customer base, any failure by us to properly provide these services will likely result in lost
opportunities for follow-on sales of our solutions.
Competition for our target employees is intense, and we may not be able to attract and retain the quality employees we
need to support our planned growth.
Our future success depends, in part, upon our ability to recruit and retain key management, technical, sales, marketing,
finance, and other critical personnel. Competition for qualified management, technical and other personnel is intense, and we
may not be successful in attracting and retaining such personnel. If we fail to attract and retain qualified employees, including
internationally, our ability to grow our business could be harmed. Competition for people with the specific skills that we require
is significant. In order to attract and retain personnel in a competitive marketplace, we believe that we must provide a
competitive compensation package, including cash and equity-based compensation. Volatility in our stock price may from time
to time adversely affect our ability to recruit or retain employees. If we are unable to hire and retain qualified employees, or
conversely, if we fail to manage employee performance or reduce staffing levels when required by market conditions, our
business and operating results could be adversely affected.
Our significant international operations subject us to additional risks that can adversely affect our business, results of
operations and financial condition.
We have significant international operations, including in emerging markets such as India, and we are continuing to
expand our international operations as part of our growth strategy. As of September 30, 2021, approximately 44% of our total
employees were located in India, where we conduct a portion of our development activities, implementation services and
support services. Our current international operations and our plans to expand our international operations have placed, and will
continue to place, a strain on our employees, management systems and other resources.
Operating in international markets requires significant resources and management attention and will subject us to
regulatory, economic and political risks and competition that are different from those in the United States. Because of our
limited experience with international operations, we cannot assure you that our international expansion efforts will be
successful or that returns on such investments will be achieved in the future. In addition, our international operations may fail to
succeed due to other risks inherent in operating businesses internationally, including:
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our lack of familiarity with commercial and social norms and customs in countries which may adversely affect our
ability to recruit, retain and manage employees in these countries;
difficulties and costs associated with staffing and managing foreign operations;
the potential diversion of management’s attention to oversee and direct operations that are geographically distant
from our U.S. headquarters;
compliance with multiple, conflicting and changing governmental laws and regulations, including employment,
tax, privacy and data protection laws and regulations;
legal systems in which our ability to enforce and protect our rights may be different or less effective than in the
United States and in which the ultimate result of dispute resolution is more difficult to predict;
greater difficulty collecting accounts receivable and longer payment cycles;
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higher employee costs and difficulty in terminating non-performing employees;
differences in workplace cultures;
unexpected changes in regulatory requirements;
the need to adapt our solutions for specific countries;
our ability to comply with differing technical and certification requirements outside the United States;
tariffs, export controls and other non-tariff barriers such as quotas and local content rules;
more limited protection for intellectual property rights in some countries;
adverse tax consequences, including as a result of transfer pricing adjustments involving our foreign operations;
fluctuations in currency exchange rates;
anti-bribery compliance by us or our partners;
restrictions on the transfer of funds;
global epidemics, pandemics, or contagious diseases;
general macroeconomic conditions, including rising interest rates and inflation, slower growth or recession;
geopolitical turmoil; and
new and different sources of competition.
Our failure to manage any of these risks successfully could harm our existing and future international operations and
seriously impair our overall business.
Risks Related to Regulatory Compliance
Changes in privacy laws, regulations and standards may cause our business to suffer.
Personal privacy and data security have become significant issues in the United States, Europe and in many other
jurisdictions where we offer our solutions. The regulatory framework for privacy and security issues worldwide is rapidly
evolving and is likely to remain uncertain for the foreseeable future. For example, the Court of Justice of the European Union
(“ECJ”) ruled in October 2015 that the US-EU Safe Harbor framework was invalid, and on July 16, 2020, invalidated its
successor program the US-EU Privacy Shield as a mechanism for managing personal data transfers between the European
Union and the United States (and other countries). While the ECJ upheld the adequacy of EU-specified standard contractual
clauses (a form of contract approved by the EU commission as an adequate data transfer mechanism), it made clear that reliance
on them alone may not necessarily be sufficient in all circumstances and that their use must be assessed on a case-by-case basis
taking into account the surveillance laws and right of individuals in the destination country. The ECJ went on to state that, if the
competent supervisory authority believes that the standard contractual clauses cannot be complied with in the recipient country
and the required level of protection cannot be secured by other means, such supervisory authority is under an obligation to
suspend or prohibit that transfer unless the data exporter has already done so itself. Further, on June 4, 2021 the European
Commission finalized new versions of the Standard Contractual Clauses, with the Implementing Decision now in effect as of
June 27, 2021. Under the Implementing Decision, we will have until December 27, 2022 to update any existing agreements, or
any new agreements executed before September 27, 2021, that rely on Standard Contractual Clauses as the data transfer
mechanism. To comply with the Implementing Decision and the new Standard Contractual Clauses, we may need to implement
additional safeguards to further enhance the security of data transferred out of the EEA, which could increase our compliance
costs, expose us to further regulatory scrutiny and liability, and adversely affect our business. We rely on a mixture of
mechanisms to transfer personal data from our EU business to the U.S. (including having previously relied on US-EU Privacy
Shield) and are evaluating what additional mechanisms may be required to establish adequate safeguards for personal data
transfer.
Furthermore, federal, state or foreign government bodies or agencies have in the past adopted, and may in the future
adopt, laws and regulations affecting data privacy. Evolving and changing definitions of personal data and personal
information, within the European Union, the United States, and elsewhere, especially relating to classification of IP addresses,
machine identification, location data, and other information, may limit or inhibit our ability to operate or expand our business,
including limiting strategic partnerships that may involve the sharing of data. For example, California recently enacted
legislation, the California Consumer Privacy Act (CCPA), that, among other things, requires covered companies to provide new
disclosures to California consumers, and afford such consumers new abilities to opt out of certain sales of personal information.
The CCPA took effect on January 1, 2020 and became enforceable by the California Attorney General on July 1, 2020. The
CCPA has been amended on multiple occasions and additional regulations of the California Attorney General came into effect
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on August 14, 2020 and were most recently amended on March 15, 2021. However, aspects of the CCPA and its interpretation
remain unclear. The effects of the CCPA are significant and may require us to modify our data processing practices and policies
and to incur substantial costs and expenses in an effort to comply. Moreover, a new privacy law, the California Privacy Rights
Act (CPRA) was recently approved by California voters in connection with the election on November 3, 2020. The CPRA
creates obligations relating to consumer data beginning on January 1, 2022, with implementing regulations expected on or
before July 1, 2022, and enforcement beginning July 1, 2023. The CCPA requires (and the CPRA will require) covered
companies to, among other things, provide new disclosures to California consumers, and affords such consumers new privacy
rights such as the ability to opt-out of certain sales of personal information and expanded rights to access and require deletion of
their personal information, opt out of certain personal information sharing, and receive detailed information about how their
personal information is collected, used and shared. The CCPA provides for civil penalties for violations, as well as a private
right of action for security breaches that may increase security breach litigation. Potential uncertainty surrounding the CCPA
and CPRA may increase our compliance costs and potential liability, particularly in the event of a data breach, and could have a
material adverse effect on our business, including how we use personal information, our financial condition, the results of our
operations or prospects. The CCPA has also prompted a number of proposals for new federal and state privacy legislation that,
if passed, could increase our potential liability, increase our compliance costs and adversely affect our business. Two states have
recently passed personal information laws: the Colorado Privacy Act, which goes in effect on July 1, 2023; and Virginia’s
Consumer Data Protection Act, which goes in effect on January 1, 2023.
Industry organizations also regularly adopt and advocate for new standards in this area. In the United States, these
include rules and regulations promulgated under the authority of federal agencies and state attorneys general and legislatures
and consumer protection agencies. In many jurisdictions, enforcement actions and consequences for noncompliance are also
rising. In addition to government regulation, privacy advocates and industry groups may propose new and different self-
regulatory standards that either legally or contractually applies to us.
Internationally, many jurisdictions in which we operate have established their own data security and privacy legal
framework with which we or our customers must comply, including but not limited to, the European General Data Protection
Regulation (GDPR), which imposes additional obligations and risks upon our business. Notably, the U.K. implemented the
Data Protection Act, effective May 2018 and statutorily amended in 2019, that contains provisions, including its own
derogations, for how GDPR is applied in the U.K. These developments in the European Union could increase the risk of non-
compliance and the costs of providing our products and services in a compliant manner. From the beginning of 2021 (when the
transitional period following Brexit expired), we have to continue to comply with the GDPR and also the Data Protection Act,
with each regime having the ability to fine up to the greater of €20 million (£17.5 million) or 4% of global turnover. The
relationship between the U.K. and the EU remains uncertain, for example how data transfers between the U.K. and the EU and
other jurisdictions will be treated and the role of the U.K.’s supervisory authority. For example, on June 28, 2021, the European
Commission adopted the adequacy decision (UK Adequacy Decision) in the wake of a non-binding vote by the European
Parliament against the then-Draft UK Adequacy Decision the month prior. Consequently, personal data can continue to flow
from the EEA to the U.K. without the need for appropriate safeguards. The UK Adequacy Decision includes a “sunset clause”,
rendering the decision valid for four years only, after which it will be reviewed by the European Commission and renewed only
if the European Commission considers that the U.K. continues to ensure an adequate level of data protection. The European
Commission also stated that it would intervene at any point within the four years if the U.K. deviates from the level of
protection presently in place. If this adequacy decision is reversed by the European Commission, it would require that
companies implement protection measures such as the Standard Contractual Clauses for data transfers between the EU and the
UK. These changes will lead to additional costs as we try to ensure compliance with new privacy legislation and will increase
our overall risk exposure. We have incurred substantial expense in complying with the obligations imposed by the GDPR and
we may be required to make further significant changes in our business operations as regulatory guidance changes, all of which
may adversely affect our revenue and our business overall. Despite our efforts to attempt to comply with the GDPR, a regulator
may determine that we have not done so and subject us to fines and public censure, which could harm our company.
Any inability to adequately address privacy and security concerns, even if unfounded, or comply with applicable privacy
and data security laws, regulations and policies, could result in additional cost and liability to us, damage our reputation, inhibit
sales and adversely affect our business. Furthermore, the costs of compliance with, and other burdens imposed by, the laws,
regulations, and policies that are applicable to the businesses of our customers may limit the use and adoption of, and reduce the
overall demand for, our solutions. Privacy and data security concerns, whether valid or not valid, may inhibit market adoption
of our solutions, particularly in foreign countries. If we are not able to adjust to changing laws, regulations and standards related
to privacy or security, our business may be harmed.
As mentioned, changing definitions of personal data and information may also limit or inhibit our ability to operate or
expand our business, including limiting strategic partnerships that may involve the sharing of data. Also, some jurisdictions
require that certain types of data be retained on servers within these jurisdictions. Our failure to comply with applicable laws,
directives, and regulations may result in enforcement action against us, including fines, and damage to our reputation, any of
which may have an adverse effect on our business and operating results.
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Failure to comply with certain certifications and standards pertaining to our solutions, as may be required by
governmental authorities or other standards-setting bodies could harm our business. Additionally, failure to comply with
governmental laws and regulations could harm our business.
Customers may require our solutions to comply with certain security or other certifications and standards, which are
promulgated by governmental authorities or other standards-setting bodies. The requirements necessary to comply with these
certifications and standards are complex and often change significantly. If our solutions are late in achieving or fail to achieve
compliance with these certifications and standards, including when they are revised or otherwise change, or our competitors
achieve compliance with these certifications and standards, we may be disqualified from selling our solutions to such
customers, or at a competitive disadvantage, which would harm our business, operating results and financial condition.
We are subject to governmental export and import controls that could subject us to liability or impair our ability to
compete in international markets.
U.S. export control laws and economic sanctions prohibit the shipment of certain products to U.S. embargoed or
sanctioned countries, governments and persons. If we were to fail to comply with U.S. export licensing requirements, U.S.
customs regulations, U.S. economic sanctions or other laws, we could be subject to substantial civil and criminal penalties,
including fines, incarceration for responsible employees and managers, and the possible loss of export or import privileges. In
addition, even though we take precautions to ensure that our channel partners comply with all relevant regulations, any failure
by our channel partners to comply with such regulations could have negative consequences, including reputational harm,
government investigations and penalties.
Furthermore, we incorporate encryption technology into our solutions. Various countries regulate the import of certain
encryption technology, including through import permit and license requirements, and have enacted laws that could limit our
ability to distribute our solutions or could limit our customers’ ability to implement our solutions in those countries. Changes in
our solutions or changes in export and import regulations may create delays in the introduction of our solutions into
international markets, prevent our customers with international operations from deploying our solutions globally or, in some
cases, prevent the export or import of our solutions to certain countries, governments or person’s altogether. Any change in
export or import regulations, economic sanctions or related legislation, shift in the enforcement or scope of existing regulations,
or change in the countries, governments, persons or technologies targeted by such regulations, could result in decreased use of
our solutions by, or in our decreased ability to export or sell our solutions to, existing or potential customers with international
operations. Any decreased use of our solutions or limitation on our ability to export or sell our solutions would likely adversely
affect our business, financial condition, and operating results.
Changes to government regulations may reduce the size of the market for our solutions, harm demand for our
solutions, force us to update our solutions or implement changes in our services and increase our costs of doing business.
Any changes in government regulations that impact our customers or their end customers could have a harmful effect on
our business by reducing the size of our addressable market, forcing us to update the solutions we offer or otherwise increasing
our costs. For example, with respect to our life sciences customers, regulatory developments related to government-sponsored
entitlement programs or U.S. Food and Drug Administration or foreign equivalent regulation of, or denial, withholding or
withdrawal of approval of, our customers’ products could lead to a lack of demand for our solutions. Other changes in
government regulations, in areas such as privacy, export compliance or anti-bribery statutes, such as the U.S. Foreign Corrupt
Practices Act, could require us to implement changes in our solutions, services or operations that increase our cost of doing
business and thereby adversely affecting our financial performance.
Any new implementation of or changes made to laws, regulations or other industry standards affecting our business
in any of the geographic regions in which we operate may require significant development efforts or have an unfavorable
effect on our business operations.
Various U.S. laws and regulations, such as the Bank Secrecy Act of 1970 (the “Bank Secrecy Act”) and many states
jurisdictions impose license and registration obligations on those companies engaged in the business of money transmission,
with varying definitions of what constitutes money transmission. Evaluation of our compliance efforts, as well as the questions
of whether and to what extent our products and services require licensure is subject to regulatory interpretation and could
change over time. Such changes could subject us to investigations and resulting liability, including governmental fines,
restrictions on our business, or other sanctions, and we could be forced to cease conducting certain aspects of our business with
customers of certain jurisdictions, or be required to obtain additional licenses or regulatory approvals. There can be no
assurance that we will be able to obtain any such licenses, and, even if we were able to do so, there could be substantial costs
and potential product changes involved in maintaining such licenses, which could have a material and adverse effect on our
business. In addition, as our business and products continue to develop and expand, we may become subject to additional rules,
regulations, and industry standards. We may not always be able to accurately predict the scope or applicability of certain
regulations to our business, particularly as we expand into new areas of operations, which could have a significant negative
effect on our existing business and our ability to pursue future plans.
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We may be the target of illegitimate or other improper transaction settlement despite compliance systems.
We are legally or contractually required to comply with the anti-money laundering laws and regulations, such as, the
Bank Secrecy Act, and other compliance standards related to providing managed payments and processing services for our
customers. In some contexts, we are directly subject to these requirements; in other contexts, we have contractually agreed to
assist our financial institutions with their obligation to comply with compliance requirements that apply to them. We have
developed procedures and controls that are designed to monitor and address legal and regulatory requirements and
developments and that are applicable to our payments sector. However, when our products and services are used to process
illegitimate transactions, or if our products and services are subject to internal data and transaction reporting errors, and invoice
or other payments settlements are improperly processed, we may suffer losses and liability. These types of illegitimate
transactions or improper settlements can also expose us to governmental and regulatory sanctions and potentially prevent us
from satisfying our contractual obligations to our customers or other third parties, which may cause us to be in breach of our
obligations.
Risks Related to Our Technology and Security
If our solutions do not interoperate with our customers’ IT infrastructure, sales of our solutions could be negatively
affected, which would harm our business.
Our solutions must interoperate with our customers’ existing IT infrastructure, which often have different specifications,
complex configuration, utilize multiple protocol standards, deploy products from multiple vendors and contain multiple
generations of products that have been added over time. As a result, when problems occur in a network, it may be difficult to
identify the sources of these problems. If we find errors in the existing products or defects in the hardware used in our
customers’ IT infrastructure or problematic network configurations or settings, we may have to modify our solutions or
platform so that our solutions will interoperate with our customers’ IT infrastructure. Any delays in identifying the sources of
problems or in providing necessary modifications to our solutions could have a negative impact on our reputation and our
customers’ satisfaction with our solutions, and our ability to sell solutions could be adversely affected.
If our solutions experience data security breaches, and there is unauthorized access to our customers’ data, we may
lose current or future customers, our reputation and business may be harmed, and we may incur significant liabilities.
Our solutions are used by our customers to manage and store personally identifiable information, proprietary information
and sensitive or confidential data relating to their business. Although we maintain security features in our solutions, our security
measures may not detect or prevent hacker interceptions, break-ins, security breaches, the introduction of viruses or malicious
code, such as “ransomware,” and other disruptions that may jeopardize the security of information stored in and transmitted by
our solutions. Cyber-attacks and other malicious Internet-based activity continue to increase generally and may be directed at
either the solution used by our customers or our corporate information technology software and infrastructure.
Because techniques used to obtain unauthorized access, exploit vulnerabilities or sabotage systems change frequently
and generally are not identified until they are launched against a target, we may be unable to anticipate these techniques, patch
vulnerabilities, or implement adequate preventative measures. Certain of our customers may have a greater sensitivity to
security defects or breaches in our software than to defects in other, less critical, software solutions. Any actual or perceived
security breach or theft of the business-critical data of one or more of our customers, regardless of whether the breach is
attributable to the failure of our software or solutions, may adversely affect the market’s perception of our solutions. There can
be no assurance that limitation of liability, indemnification or other protective provisions in our contracts would be applicable,
enforceable or adequate in connection with a security breach, or would otherwise protect us from any such liabilities or
damages with respect to any particular claim. We also cannot be sure that our existing general liability insurance coverage and
coverage for errors or omissions will continue to be available on acceptable terms or will be available in sufficient amounts to
cover one or more large claims, or that the insurer will not deny coverage as to any future claim. One or more large claims may
be asserted against us that exceed our available insurance coverage, or changes in our insurance policies may occur, including
premium increases or the imposition of large deductible or co-insurance requirements.
Furthermore, a party that is able to circumvent our security measures or exploit any vulnerabilities in our solutions could
misappropriate our or our customers’ proprietary or confidential information, cause interruption in their operations, damage or
misuse their computer systems, misuse any information that they misappropriate, cause early termination of our contracts,
subject us to notification and indemnity obligations, litigation, and regulatory investigation or governmental sanctions, cause us
to lose existing customers, and harm our ability to attract future customers. Any such breach could cause harm to our reputation,
business, financial condition and results of operations, and we may incur significant liability, and as a result our business and
financial position may be harmed.
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We rely on a small number of third-party service providers to host and deliver our cloud-based solutions, and any
interruptions or delays in services from these third parties could impair the delivery of our cloud-based solutions and harm
our business.
We currently operate our cloud-based solutions primarily through third-party data centers and cloud service providers.
We do not control the operation of these facilities. These facilities and third-parties are vulnerable to damage or interruption
from natural disasters, fires, power loss, telecommunications failures, global epidemics, pandemics, or contagious diseases,
such as COVID-19, and similar events, such as the current invasion of Ukraine by Russia. They are also subject to break-ins,
computer viruses, sabotage, intentional acts of vandalism and other misconduct. The occurrence of a natural disaster or an act of
terrorism, a decision to close the facilities without adequate notice or other unanticipated problems could result in lengthy
interruptions, which would have a serious adverse impact on our business. Additionally, our data center agreements are of
limited duration, subject to early termination rights in certain circumstances, may include inadequate indemnification and
liability provisions, and the providers of our data centers have no obligation to renew their agreements with us on commercially
reasonable terms, or at all.
If we continue to add data centers and add capacity in our third-party existing data centers and cloud service providers,
we may transfer data to other locations. Despite precautions taken during this process, any unsuccessful data transfers may
impair the delivery of our service. Interruptions in our service, data loss or corruption may subject us to liability to our
customers, cause customers to terminate their agreements and adversely affect our renewal rates and our ability to attract new
customers. Data transfers may also subject us to regional privacy and data protection laws that apply to the transmission of
customer data across international borders.
We also depend on access to the Internet through third-party bandwidth providers to operate our cloud-based solution. If
we lose the services of one or more of our bandwidth providers, or if these providers experience outages, for any reason, we
could experience disruption in delivering our cloud-based solutions or we could be required to retain the services of a
replacement bandwidth provider. Any Internet outages or delays could adversely affect our ability to provide our solutions to
our customers. Our data center operations also rely heavily on the availability of electricity, which also comes from third-party
providers. If we or the third-party data center facilities or cloud service provider facilities that we use to deliver our services
were to experience a major power outage or if the cost of electricity were to increase significantly, our operations and financial
results could be harmed. If we or our third-party data centers or cloud service provider facilities were to experience a major
power outage, we or they would have to rely on back-up generators, which might not work properly or might not provide an
adequate supply during a major power outage. Such a power outage could result in a significant disruption of our business.
Additionally, defects in our systems or those of third parties, errors or delays in the processing of payment transactions,
telecommunications failures, or other difficulties (including those related to system relocation) could result in loss of revenues,
loss of customers, loss of data, harm to our business or reputation, exposure to fraud losses or other liabilities, negative
publicity, additional operating and development costs, fines and other sanctions imposed by counterparties, and/or diversion of
technical and other resources.
Our use of open source and third-party technology could impose limitations on our ability to commercialize our
solutions.
We use open source software in our solutions and in our services engagements on behalf of customers. As we
increasingly handle configured implementation of our solutions on behalf of customers, we use additional open source software
that we obtain from all over the world. Although we try to monitor our use of open source software, the terms of many open
source licenses have not been interpreted by U.S. courts, and there is a risk that such licenses could be construed in a manner
that imposes unanticipated conditions or restrictions on our ability to market our solutions. In such event, we could be required
to seek licenses from third parties in order to continue offering our solutions, to re-engineer our technology or to discontinue
offering our solutions in the event re-engineering cannot be accomplished on a timely basis, any of which could cause us to
breach contracts, harm our reputation, result in customer losses or claims, increase our costs or otherwise adversely affect our
business, operating results and financial condition.
Some open source licenses contain requirements that we make available source code for modifications or derivative
works we create based upon the type of open source software we use. If we combine our proprietary software with open source
software in a certain manner, we could, under certain open source licenses, be required to release the source code of our
proprietary software to the public. This would allow our competitors to create similar solutions with lower development effort
and time and ultimately could result in a loss of product sales for us.
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Risks Related to Our Intellectual Property
Any failure to protect our intellectual property rights could impair our ability to protect our proprietary technology
and our brand, which would substantially harm our business and operating results.
The success of our business and the ability to compete depend in part upon our ability to protect and enforce our patents,
trade secrets, trademarks, copyrights and other intellectual property rights. We primarily rely on patent, copyright, trade secret
and trademark laws, trade secret protection and confidentiality or license agreements with our employees, customers, partners
and others to protect our intellectual property rights. However, the steps we take to protect our intellectual property rights may
be inadequate or we may be unable to secure intellectual property protection for all of our solutions. Any of our copyrights,
trademarks or other intellectual property rights may be challenged by others or invalidated through administrative process or
litigation. Competitors may independently develop technologies or solutions that are substantially equivalent or superior to our
solutions or that inappropriately incorporate our proprietary technology into their solutions. Competitors may hire our former
employees who may misappropriate our proprietary technology or misuse our confidential information. Although we rely in
part upon confidentiality agreements with our employees, consultants and other third parties to protect our trade secrets and
other confidential information, those agreements may not effectively prevent disclosure of trade secrets and other confidential
information and may not provide an adequate remedy in the event of misappropriation of trade secrets or unauthorized
disclosure of confidential information. In addition, others may independently discover our trade secrets and confidential
information, and in such cases we could not assert any trade secret rights against such parties.
In order to protect our intellectual property rights, we may be required to spend significant resources to monitor and
protect these rights. Litigation to protect and enforce our intellectual property rights could be costly, time-consuming and
distracting to management and could result in the impairment or loss of portions of our intellectual property. Furthermore, our
efforts to enforce our intellectual property rights may be met with defenses, counterclaims and countersuits attacking the
validity and enforceability of our intellectual property rights. Any litigation, whether or not it is resolved in our favor, could
result in significant expense to us and divert the efforts of our technical and management personnel, which may adversely affect
our business, operating results and financial condition. Certain jurisdictions may not provide adequate legal infrastructure for
effective protection of our intellectual property rights. Changing legal interpretations of liability for unauthorized use of our
solutions or lessened sensitivity by corporate, government or institutional users to refraining from intellectual property piracy or
other infringements of intellectual property could also harm our business.
It is possible that innovations for which we seek patent protection may not be protectable. Additionally, the process of
obtaining patent protection is expensive and time consuming, and we may not be able to prosecute all necessary or desirable
patent applications at a reasonable cost or in a timely manner. Given the cost, effort, risks and downside of obtaining patent
protection, including the requirement to ultimately disclose the invention to the public, we may not choose to seek patent
protection for certain innovations. However, such patent protection could later prove to be important to our business. Even if
issued, there can be no assurance that any patents will have the coverage originally sought or adequately protect our intellectual
property, as the legal standards relating to the validity, enforceability and scope of protection of patent and other intellectual
property rights are uncertain. Any patents that are issued may be invalidated or otherwise limited, or may lapse or may be
abandoned, enabling other companies to better develop products that compete with our solutions, which could adversely affect
our competitive business position, business prospects and financial condition.
We cannot assure you that the measures we have taken to protect our intellectual property will adequately protect us, and
any failure to protect our intellectual property could harm our business.
We may not be able to enforce our intellectual property rights throughout the world, which could adversely impact
our international operations and business.
The laws of some foreign countries do not protect intellectual property rights to the same extent as federal and state laws
in the United States. Many companies have encountered significant problems in protecting and enforcing intellectual property
rights in certain foreign jurisdictions. The legal systems of certain countries, particularly certain developing countries, do not
favor the enforcement of patents and other intellectual property protection. This could make it difficult for us to stop the
infringement or misappropriation of our intellectual property rights. Proceedings to enforce our proprietary rights in foreign
jurisdictions could result in substantial costs and divert our efforts and attention from other aspects of our business.
Accordingly, our efforts to enforce our intellectual property rights in such countries may be inadequate to obtain a significant
commercial advantage from the intellectual property that we develop, which could have a material adverse effect on our
business, financial condition and results of operations.
We license technology from third parties, and our inability to maintain those licenses could harm our business.
Certain third-party technology that we use may be difficult to replace or could cause errors or failures of our service.
We incorporate technology that we purchase or license from third parties, including hardware and software, into our
solutions. We cannot be certain that this technology will continue to be available on commercially reasonable terms, or at all.
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We cannot be certain that our licensors are not infringing the intellectual property rights of third parties or that our licensors
have sufficient rights to the licensed intellectual property in all jurisdictions in which we may sell our solutions. Some of our
agreements with our licensors may be terminated for convenience by them. If we are unable to continue to license any of this
technology because of intellectual property infringement claims brought by third parties against our licensors or against us, or if
we are unable to continue our license agreements or enter into new licenses on commercially reasonable terms, our ability to
develop and sell solutions containing that technology would be severely limited and our business could be harmed.
Additionally, if we are unable to license or obtain the necessary technology from third parties, we may be forced to acquire or
develop alternative technology of lower quality or performance standards. This would limit and delay our ability to offer new or
competitive solutions and increase our costs of production. In addition, errors or defects in third-party hardware or software
used in our cloud-based solutions could result in errors or a failure of our cloud-based solutions, which could harm our
business.
We may be sued by third parties for alleged infringement of their proprietary rights which could result in significant
costs and harm our business.
There is considerable patent and other intellectual property development activity in our industry. Our success depends
upon us not infringing upon the intellectual property rights of others. Companies in the software and technology industries,
including some of our current and potential competitors, own large numbers of patents, copyrights, trademarks and trade secrets
and frequently enter into litigation based on allegations of infringement, misappropriation or other violations of intellectual
property rights. In addition, many of these companies have the capability to dedicate substantially greater resources to enforce
their intellectual property rights and to defend claims that may be brought against them. The litigation may involve patent
holding companies or other adverse patent owners who have no relevant product revenue and against whom our potential
patents may provide little or no deterrence. We have received, and may in the future receive, notices that claim we have
infringed, misappropriated or otherwise violated other parties’ intellectual property rights. To the extent we gain greater
visibility, we face a higher risk of being the subject of intellectual property infringement claims, which is not uncommon with
respect to software technologies in general and information security technology in particular. There may be third-party
intellectual property rights, including issued or pending patents that cover significant aspects of our technologies or business
methods. Any intellectual property claims, with or without merit, could be very time consuming, could be expensive to settle or
litigate and could divert our management’s attention and other resources. These claims could also subject us to significant
liability for damages, potentially including treble damages if we are found to have willfully infringed patents or copyrights.
These claims could also result in our having to stop using technology found to be in violation of a third party’s rights. We might
be required to seek a license for the intellectual property, which may not be available on reasonable terms or at all. Even if a
license were available, we could be required to pay significant royalties, which would increase our operating expenses. As a
result, we may be required to develop alternative non-infringing technology, which could require significant effort and expense.
If we cannot license or develop technology for any infringing aspect of our business, we would be forced to limit or stop sales
of one or more of our solutions or features of our solutions and may be unable to compete effectively. Any of these results
would harm our business, operating results and financial condition.
In addition, our agreements with customers and partners include indemnification provisions under which we agree to
indemnify them for losses suffered or incurred as a result of claims of intellectual property infringement and, in some cases, for
damages caused by us to property or persons. Large indemnity payments could harm our business, operating results and
financial condition.
Risks Related to the Ownership of Our Common Stock
Our stock price may be volatile, and you may be unable to sell your shares at or above your purchase price.
The market price of our common stock could be subject to wide fluctuations in response to, among other things, the
factors described in this “Risk Factors” section or otherwise and other factors beyond our control, such as fluctuations in the
volume of shares traded, the valuations of companies perceived by investors to be comparable to us; stockholder activism; and
the general macroeconomic and geopolitical environment.
Furthermore, the stock markets have experienced price and volume fluctuations that have affected and continue to affect
the market prices of equity securities of many companies, particularly during this time of uncertainty as the world continues to
respond the war in Ukraine, rising inflation and increasing interest rates, and the COVID-19 pandemic. These fluctuations often
have been unrelated or disproportionate to the operating performance of those companies. These broad market fluctuations, as
well as general economic, systemic, political and market conditions, such as recessions, or impacts related to global epidemics,
pandemics, or contagious diseases, such as COVID-19, future interest rate changes or international currency fluctuations, may
negatively affect the market price of our common stock.
Many companies that have experienced volatility in the market price of their stock have become subject to securities
class action litigation. We have been in the past, and may be in the future, the target of this type of litigation. Securities
litigation against us could result in substantial costs and divert our management’s attention, which could harm our business.
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The exclusive forum provision in our restated certificate of incorporation may limit a stockholder’s ability to bring a
claim in a judicial forum that it finds favorable for disputes with us or any of our directors, officers, or other employees,
which may discourage lawsuits with respect to such claims.
Our restated certificate of incorporation, to the fullest extent permitted by law, provides that the Court of Chancery of the
State of Delaware is the exclusive forum for: any derivative action or proceeding brought on our behalf; any action asserting a
breach of fiduciary duty; any action asserting a claim against us arising pursuant to the Delaware General Corporation Law, or
the DGCL, our restated certificate of incorporation, or our restated bylaws; or any action asserting a claim against us that is
governed by the internal affairs doctrine. This exclusive forum provision does not apply to suits brought to enforce a duty or
liability created by the Exchange Act. It could apply, however, to a suit that falls within one or more of the categories
enumerated in the exclusive forum provision and asserts claims under the Securities Act, inasmuch as Section 22 of the
Securities Act creates concurrent jurisdiction for federal and state courts over all suits brought to enforce any duty or liability
created by the Securities Act or the rule and regulations thereunder. There is uncertainty as to whether a court would enforce
such provision with respect to claims under the Securities Act, and our stockholders will not be deemed to have waived our
compliance with the federal securities laws and the rules and regulations thereunder.
This choice of forum provision may limit a stockholder’s ability to bring a claim in a judicial forum that it finds
favorable for disputes with us or any of our directors, officers, or other employees, which may discourage lawsuits with respect
to such claims. Alternatively, if a court were to find the choice of forum provisions contained in our restated certificate of
incorporation to be inapplicable or unenforceable in an action, we may incur additional costs associated with resolving such
action in other jurisdictions, which could harm our business, results of operations and financial condition.
In addition, Section 203 of the DGCL may discourage, delay or prevent a change in control of our company. Section 203
imposes certain restrictions on mergers, business combinations and other transactions between us and holders of 15% or more
of our common stock.
Section 22 of the Securities Act of 1933, as amended (the Securities Act), creates concurrent jurisdiction for federal and
state courts over all claims brought to enforce any duty or liability created by the Securities Act or the rules and regulations
thereunder. In May 2020, we amended and restated our restated bylaws to provide that the federal district courts of the United
States of America will, to the fullest extent permitted by law, be the exclusive forum for resolving any complaint asserting a
cause of action arising under the Securities Act, or a Federal Forum Provision. Our decision to adopt a Federal Forum Provision
followed a decision by the Supreme Court of the State of Delaware holding that such provisions are facially valid under
Delaware law. While there can be no assurance that federal or state courts will follow the holding of the Delaware Supreme
Court or determine that the Federal Forum Provision should be enforced in a particular case, application of the Federal Forum
Provision means that suits brought by our stockholders to enforce any duty or liability created by the Securities Act must be
brought in federal court and cannot be brought in state court.
Section 27 of the Exchange Act creates exclusive federal jurisdiction over all claims brought to enforce any duty or
liability created by the Exchange Act or the rules and regulations thereunder. In addition, neither the exclusive forum provision
nor the Federal Forum Provision applies to suits brought to enforce any duty or liability created by the Exchange Act.
Accordingly, actions by our stockholders to enforce any duty or liability created by the Exchange Act or the rules and
regulations thereunder must be brought in federal court.
Our stockholders will not be deemed to have waived our compliance with the federal securities laws and the regulations
promulgated thereunder.
Any person or entity purchasing or otherwise acquiring or holding any interest in any of our securities shall be deemed to
have notice of and consented to our exclusive forum provisions, including the Federal Forum Provision. These provisions may
limit a stockholders’ ability to bring a claim in a judicial forum of their choosing for disputes with us or our directors, officers,
or other employees, which may discourage lawsuits against us and our directors, officers, and other employees.
We do not anticipate paying any dividends on our common stock.
We do not anticipate paying any cash dividends on our common stock in the foreseeable future. If we do not pay cash
dividends, you would receive a return on your investment in our common stock only if the market price of our common stock is
greater at the time you sell your shares than the market price at the time you bought your shares.
Risks Related to Ownership of Our Convertible Senior Notes
Our outstanding notes are effectively subordinated to our secured debt and any liabilities of our subsidiaries.
Our outstanding notes will rank senior in right of payment to all of our indebtedness that is expressly subordinated in
right of payment to the notes; equal in right of payment with all of our liabilities that are not so subordinated; effectively junior
to any of our secured indebtedness to the extent of the value of the assets securing such indebtedness; and structurally junior to
all indebtedness and other liabilities (including trade payables) of our subsidiaries. In the event of our bankruptcy, liquidation,
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reorganization or other winding up, our assets that secure debt ranking senior or equal in right of payment to the notes will be
available to pay obligations on the notes only after the secured debt has been repaid in full from these assets. There may not be
sufficient assets remaining to pay amounts due on any or all of the notes then outstanding. The indenture governing the notes
will not prohibit us from incurring additional senior debt or secured debt, nor will it prohibit any of our subsidiaries from
incurring additional liabilities.
Our notes are our obligations only, and to the extent our operations will be conducted through, and a substantial
portion of our consolidated assets will be held by, our subsidiaries, we may rely on distributions from such subsidiaries to
service our debt.
Our notes are our obligations exclusively. To the extent our operations will be conducted through, and a substantial
portion of our consolidated assets will be held by, our subsidiaries, our ability to service the notes will depend on the results of
operations of our subsidiaries and upon the ability of such subsidiaries to provide us with cash, whether in the form of
dividends, loans or otherwise, to pay amounts due on our obligations, including the notes. Our present and future subsidiaries
are separate and distinct legal entities and have no obligation, contingent or otherwise, to make payments on the notes or to
make any funds available for that purpose. In addition, dividends, loans or other distributions to us from such subsidiaries may
be subject to statutory, contractual and other restrictions and are subject to other business considerations.
Our indebtedness could adversely affect our business and limit our ability to expand our business or respond to
changes, and we may be unable to generate sufficient cash flow to satisfy our debt service obligations.
As of September 30, 2022, we had an aggregate principal amount of $172.5 million of notes outstanding. We may also
incur additional indebtedness in the future to meet future financing needs. Our current indebtedness and any future incurrence
of additional significant indebtedness could have adverse consequences, including the following:
•
•
•
•
reducing the availability of our cash flow for our operations, capital expenditures, future business opportunities
and other purposes;
limiting our flexibility in planning for, or reacting to, changes in our business and the industries in which we
operate;
increasing our vulnerability to general adverse economic and industry conditions; and
lengthening our sales process as customers evaluate our financial viability.
Our ability to generate cash to repay our indebtedness is subject to the performance of our business, as well as general
economic, financial, competitive and other factors that are beyond our control. If our business does not generate sufficient cash
flow from operating activities or if future borrowings are not available to us in amounts sufficient to enable us to fund our
liquidity needs, our operating results, financial condition and ability to expand our business may be adversely affected. In
addition, if we are unable to generate such cash flow or obtain sufficient borrowings, we may be required to adopt one or more
alternatives, such as selling assets, restructuring debt or obtaining additional equity capital on terms that may be onerous or
highly dilutive. Our ability to refinance our indebtedness will depend on the capital markets and our financial condition at such
time. We may not be able to engage in any of these activities or engage in these activities on desirable terms, which could result
in a default on our debt obligations.
Recent and future regulatory actions and other events may adversely affect the trading price and liquidity of our
notes.
We expect that many investors in our notes will employ, or seek to employ, a convertible arbitrage strategy with respect
to the notes. Investors would typically implement such a strategy by selling short the common stock underlying the notes and
dynamically adjusting their short position while continuing to hold the notes. Investors may also implement this type of strategy
by entering into swaps on our common stock in lieu of or in addition to short selling the common stock. The SEC and other
regulatory and self-regulatory authorities have implemented various rules and taken certain actions, and may in the future adopt
additional rules and take other actions, that may impact those engaging in short selling activity involving equity securities
(including our common stock). Such rules and actions include Rule 201 of SEC Regulation SHO, the adoption by the Financial
Industry Regulatory Authority, Inc. and the national securities exchanges of a ‘‘Limit Up-Limit Down’’ program, the imposition
of market-wide circuit breakers that halt trading of securities for certain periods following specific market declines, and the
implementation of certain regulatory reforms required by the Dodd-Frank Wall Street Reform and Consumer Protection Act of
2010. Any governmental or regulatory action that restricts the ability of investors in, or potential purchasers of, the notes to
effect short sales of our common stock, borrow our common stock or enter into swaps on our common stock could adversely
affect the trading price and the liquidity of our notes.
In addition, the liquidity of the market for our common stock may decline, which could reduce the number of shares
available for lending in connection with short sale transactions and the number of counterparties willing to enter into an equity
swap on our shares of common stock with a note investor. If investors in our notes seeking to employ a convertible note
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arbitrage strategy are unable to borrow or enter into equity swaps on our shares of common stock on commercially reasonable
terms, then the trading of, and the liquidity of the market for, our notes may significantly decline.
Volatility in the market price and trading volume of our common stock could adversely impact the trading price of our
notes.
We expect that the trading price of the notes will be significantly affected by the market price of our common stock. The
stock market in recent years has experienced significant price and volume fluctuations that have often been unrelated to the
operating performance of companies. The market price of our common stock could fluctuate significantly for many reasons,
including in response to the risks described in this section and this report, many of which are beyond our control, such as
reports by industry analysts, investor perceptions or negative announcements by our customers, competitors or suppliers
regarding their own performance, as well as industry conditions and general financial, economic and political instability. A
decrease in the market price of our common stock would likely adversely impact the trading price of our notes. The market
price of our common stock could also be affected by possible sales of our common stock by investors who view the notes as a
more attractive means of equity participation in us and by hedging or arbitrage trading activity that we expect to develop
involving our common stock. This trading activity could, in turn, affect the trading price of the notes.
In addition, the condition of the financial markets and changes in prevailing interest rates can have an adverse effect on
the trading price of our notes. For example, prevailing interest rates have fluctuated in the past, and are currently increasing.
This increase in prevailing interest rates could adversely affect the trading price of our notes.
We and our subsidiaries may incur substantially more debt or take other actions which would intensify the risks
discussed above.
We and our subsidiaries may be able to incur substantial additional debt in the future, subject to the restrictions contained
in our debt instruments, some of which may be secured debt. We are not restricted under the terms of the indenture governing
our notes from incurring additional debt, securing existing or future debt, recapitalizing our debt or taking a number of other
actions that are not limited by the terms of the indenture governing the notes that could have the effect of diminishing our
ability to make payments on our notes when due.
We may not have the ability to raise the funds necessary to settle conversions of our notes in cash, to repurchase our
notes for cash upon a fundamental change or to pay the redemption price for any notes we redeem, and our future debt may
contain limitations on our ability to pay cash upon conversion or repurchase of the notes.
Holders of our notes have the right to require us to repurchase all or a portion of their notes upon the occurrence of a
fundamental change (as defined in the indenture) at a fundamental change repurchase price equal to 100% of the principal
amount of the notes to be repurchased, plus accrued and unpaid interest, if any. In addition, upon conversion of the notes, unless
we elect to deliver solely shares of our common stock to settle such conversion (other than paying cash in lieu of delivering any
fractional shares), we will be required to make cash payments in respect of the notes being converted. However, we may not
have enough available cash or be able to obtain financing at the time we are required to make repurchases of notes surrendered
therefore or notes that are being redeemed or converted.
In addition, our ability to repurchase the notes or to pay cash upon redemptions or conversions of the notes may be
limited by law, by regulatory authority, or by other agreements governing our future indebtedness. Our failure to repurchase
notes at a time when the repurchase is required by the indenture or to pay any cash payable on future conversions of the notes
as required by the indenture would constitute a default under the indenture. A default under the indenture or the occurrence of a
fundamental change itself could also lead to a default under agreements governing our existing and future indebtedness. If the
repayment of the related indebtedness were to be accelerated after any applicable notice or grace periods, we may not have
sufficient funds to repay the indebtedness and repurchase the notes or make cash payments upon conversions thereof.
The conditional conversion feature of our notes, if triggered, may adversely affect our financial condition and
operating results.
In the event the conditional conversion feature of our notes is triggered, holders of notes will be entitled to convert the
notes at any time during specified periods at their option. If one or more holders elect to convert their notes, unless we elect to
satisfy our conversion obligation by delivering solely shares of our common stock (other than paying cash in lieu of delivering
any fractional shares), we would be required to settle a portion or all of our conversion obligation through the payment of cash,
which could adversely affect our liquidity. In addition, even if holders do not elect to convert their notes, we could be required
under applicable accounting rules to reclassify all or a portion of the outstanding principal of the notes as a current rather than
long-term liability, which would result in a material reduction of our net working capital.
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The accounting method for convertible debt securities that may be settled in cash, such as our outstanding notes,
could have a material effect on our reported financial results.
Under Accounting Standards Codification 470-20, Debt with Conversion and Other Options (‘‘ASC 470-20’’), an entity
must separately account for the liability and equity components of the convertible debt instruments (such as our notes) that may
be settled entirely or partially in cash upon conversion in a manner that reflects the issuer’s economic interest cost. The effect of
ASC 470-20 on the accounting for the notes is that the equity component is required to be included in the additional paid-in
capital section of stockholders’ equity on our consolidated balance sheet at the issuance date, and the value of the equity
component is treated as debt discount for purposes of accounting for the debt component of the notes. As a result, we are
required to record a greater amount of non-cash interest expense in current periods presented as a result of the accretion of the
discounted carrying value of the notes to their face amount over the respective terms of the notes. We report larger net losses (or
lower net income) in our financial results because ASC 470-20 requires interest to include both the current period’s accretion of
the debt discount and the instrument’s coupon interest rate, which could adversely affect our future financial results, the trading
price of our common stock or the trading price of the notes.
In addition, under certain circumstances, the treasury stock method for calculating diluted earnings per share is permitted
for convertible debt instruments (such as the notes) that may be settled entirely or partly in cash. As a result, for purposes of
calculating diluted earnings per share, we will include, under certain circumstances, the shares underlying the notes only to the
extent that the conversion value of the notes exceeds the principal amount; provided that we will not use the treasury stock
method if the effect on diluted earnings per share would be anti-dilutive.
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. This would reduce non-cash interest expense, and thereby decreasing net loss (or increasing net
income). Additionally, the treasury stock method for calculating earnings per share will no longer be allowed for convertible
debt instruments whose principal amount may be settled using shares. Rather, the if-converted method will be required.
Application of the ‘‘if-converted’’ method may reduce our reported diluted earnings per share. We cannot be sure whether other
changes may be made to the current accounting standards related to the notes, or otherwise, that could have an adverse impact
on our financial statements.
Future sales of our common stock or equity-linked securities in the public market could lower the market price for
our common stock and adversely impact the trading price of the notes.
In the future, we may sell additional shares of our common stock or equity-linked securities to raise capital. In addition,
a substantial number of shares of our common stock are reserved for issuance upon the exercise of stock options, settlement of
other equity incentive awards, and upon conversion of the notes. The indenture for our notes does not restrict our ability to issue
additional common stock or equity- linked securities in the future. We cannot predict the size of future issuances or the effect, if
any, that they may have on the market price for our common stock. The issuance and sale of substantial amounts of common
stock or equity-linked securities, or the perception that such issuances and sales may occur, could adversely affect the trading
price of our notes and the market price of our common stock and impair our ability to raise capital through the sale of additional
common stock or equity-linked securities.
Holders of our notes are not entitled to any rights with respect to our common stock, but they are subject to all
changes made with respect to them to the extent our conversion obligation includes shares of our common stock.
Holders of our notes are not entitled to any rights with respect to our common stock (including, without limitation,
voting rights and rights to receive any dividends or other distributions on our common stock) prior to the conversion date
relating to such notes (if we have elected to settle the relevant conversion by delivering solely shares of our common stock
(other than paying cash in lieu of delivering any fractional shares)) or the last trading day of the relevant observation period (if
we elect to pay and deliver, as the case may be, a combination of cash and shares of our common stock in respect of the
relevant conversion), but holders of notes will be subject to all changes affecting our common stock. For example, if an
amendment is proposed to our certificate of incorporation or bylaws requiring stockholder approval and the record date for
determining the stockholders of record entitled to vote on the amendment occurs prior to the conversion date related to a
holder’s conversion of its notes (if we have elected to settle the relevant conversion by delivering solely shares of our common
stock (other than paying cash in lieu of delivering any fractional shares)) or the last trading day of the relevant observation
period (if we elect to pay and deliver, as the case may be, a combination of cash and shares of our common stock in respect of
the relevant conversion), such holder will not be entitled to vote on the amendment, although such holder will nevertheless be
subject to any changes affecting our common stock.
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The conditional conversion feature of the notes could result in holders of our notes receiving less than the value of
our common stock into which the notes would otherwise be convertible.
Prior to the close of business on the business day immediately preceding March 1, 2025, the holders of our notes may
convert their notes only if specified conditions are met. If the specific conditions for conversion are not met, our note holders
will not be able to convert their notes, and they may not be able to receive the value of the cash, common stock or a
combination of cash and common stock, as applicable, into which the notes would otherwise be convertible.
Upon conversion of our notes, our note holders may receive less valuable consideration than expected because the
value of our common stock may decline after such exercise of conversion rights but before we settle our conversion
obligation.
Under the notes, a converting holder will be exposed to fluctuations in the value of our common stock during the period
from the date such holder surrenders notes for conversion until the date we settle our conversion obligation.
Upon conversion of the notes, we have the option to pay or deliver, as the case may be, cash, shares of our common
stock, or a combination of cash and shares of our common stock. If we elect to satisfy our conversion obligation in cash or a
combination of cash and shares of our common stock, the amount of consideration that our note holders will receive upon
conversion of their notes will be determined by reference to the volume-weighted average price of our common stock for each
trading day in a 40 consecutive trading day observation period. This period would be (i) subject to clause (ii), if the relevant
conversion date occurs prior to March 1, 2025, the 40 consecutive trading day period beginning on, and including, the second
trading day immediately succeeding such conversion date; (ii) if the relevant conversion date occurs on or after the date of our
issuance of a notice of redemption calling such note for redemption and on or prior to the business day immediately preceding
the relevant redemption date, the 40 consecutive trading days beginning on, and including, the 41st scheduled trading day
immediately preceding such redemption date; and (iii) subject to clause (ii), if the relevant conversion date occurs on or after
March 1, 2025, the 40 consecutive trading days beginning on, and including, the 41st scheduled trading day immediately
preceding the maturity date. Accordingly, if the price of our common stock decreases during this period, the amount and/or
value of consideration a note holder will receive will be adversely affected. In addition, if the market price of our common
stock at the end of such period is below the average volume-weighted average price of our common stock during such period,
the value of any shares of our common stock that our note holders will receive in satisfaction of our conversion obligation will
be less than the value used to determine the number of shares that they will receive.
If we elect to satisfy our conversion obligation solely in shares of our common stock upon conversion of the notes, we
will be required to deliver the shares of our common stock, together with cash for any fractional shares, on the second business
day following the relevant conversion date. Accordingly, if the price of our common stock decreases during this period, the
value of the shares that note holders receive will be adversely affected and would be less than the conversion value of the notes
on the conversion date.
Our notes are not protected by restrictive covenants.
The indenture governing the notes does not contain any financial or operating covenants or restrictions on the payments
of dividends, the incurrence of indebtedness or the issuance or repurchase of securities by us or any of our subsidiaries. The
indenture does not contain any covenants or other provisions to afford protection to holders of the notes in the event of a
fundamental change or other corporate transaction involving us except to the extent described in the indenture governing the
notes.
The increase in the conversion rate for notes converted in connection with a make-whole fundamental change or a
notice of redemption may not adequately compensate note holders for any lost value of their notes as a result of such
transaction or redemption.
If a make-whole fundamental change (as defined in the indenture) occurs prior to the maturity date or if we deliver a
notice of redemption, we will, under certain circumstances, increase the conversion rate by a number of additional shares of our
common stock for notes converted in connection with such make-whole fundamental change or notice of redemption, as the
case may be. The number of additional shares, if any, by which the conversion rate will be increased will be determined based
on the date on which the make-whole fundamental change occurs or becomes effective or the date of the notice of redemption,
as the case may be, and the price paid (or deemed to be paid) per share of our common stock in the make-whole fundamental
change or determined with respect to the notice of redemption, as the case may be. Although the increase in the conversion rate
is designed to compensate note holders for the option value that their notes lose as result of a make-whole fundamental change
or a redemption, as the case may be, the value provided by the increase in the conversion rate is only an approximation of the
lost option value and may not adequately compensate note holders for any lost value of their notes as a result of such
transaction or redemption, as the case may be. In addition, if the ‘‘stock price’’ (as defined in the indenture governing the notes)
is greater than $325.00 per share or less than $26.14 per share (in each case, subject to adjustment), no additional shares will be
33
added to the conversion rate. Moreover, in no event will the conversion rate per $1,000 principal amount of notes as a result of
this adjustment exceed 38.2555 shares of common stock, subject to adjustment.
Our obligation to increase the conversion rate for notes converted in connection with a make-whole fundamental change
or notice of redemption could be considered a penalty, in which case the enforceability thereof would be subject to general
principles of reasonableness and equitable remedies.
Upon any redemption of the notes on or after June 6, 2023 or any conversion of the notes in connection with a notice
of redemption, the cash comprising the redemption price, in the case of a redemption, or the applicable conversion rate, in
the case of a conversion in connection with a notice of redemption, as applicable, may not fully compensate note holders for
future interest payments or lost time value of their notes and may adversely affect their return on the notes.
On a redemption date occurring on or after June 6, 2023 and on or before the 41st scheduled trading day immediately
before the maturity date, we may redeem for cash all or any portion of the notes, at our option, if the last reported sale price of
our 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 we provide notice of redemption, during any
30 consecutive trading day period ending on, and including, the trading day immediately preceding the date on which we
provide notice of redemption at a redemption price equal to 100% of the principal amount of the notes to be redeemed, plus
accrued and unpaid interest to, but excluding, the redemption date. If we call any or all of the notes for redemption, our note
holders may convert their notes at any time prior to the close of business on the business day immediately preceding the
redemption date. Upon such redemption or conversion, the cash comprising the redemption price, in the case of a redemption,
or the applicable conversion rate, in the case of a conversion in connection with a notice of redemption, in either case, may not
fully compensate our note holders for any future interest payments that they would have otherwise received or any other lost
time value of their notes. In addition, we may choose to redeem some or all of the notes, including at times when prevailing
interest rates are relatively low and our note holders may not be able to reinvest the proceeds or conversion consideration they
receive from the redemption or conversion prior to the redemption, respectively, of such notes in a comparable security at an
effective interest rate as high as the interest rate on the notes being redeemed.
The conversion rate of our notes may not be adjusted for all dilutive events.
The conversion rate of our notes is subject to adjustment for certain events, including, but not limited to, the issuance of
certain stock dividends on our common stock, the issuance of certain rights or warrants, subdivisions, combinations,
distributions of capital stock, indebtedness, or assets, cash dividends and certain issuer tender or exchange offers. However, the
conversion rate will not be adjusted for other events, such as a third-party tender or exchange offer or an issuance of our
common stock for cash, that may adversely affect the trading price of the notes or our common stock. An event that adversely
affects the value of the notes may occur, and that event may not result in an adjustment to the conversion rate.
Provisions in the indenture for the notes may deter or prevent a business combination that may be favorable to our
security holders.
If a fundamental change occurs prior to the maturity date, holders of our notes will have the right, at their option, to
require us to repurchase all or a portion of their notes. In addition, if a make-whole fundamental change occurs prior the
maturity date, we will in some cases be required to increase the conversion rate for a holder that elects to convert its notes in
connection with such make-whole fundamental change. Furthermore, the indenture for the notes prohibits us from engaging in
certain mergers or acquisitions unless, among other things, the surviving entity assumes our obligations under the notes. These
and other provisions in the indenture could deter or prevent a third party from acquiring us even when the acquisition may be
favorable to our security holders.
Some significant restructuring transactions may not constitute a fundamental change, in which case we would not be
obligated to offer to repurchase the notes.
Upon the occurrence of a fundamental change, our note holders have the right to require us to repurchase their notes.
However, the fundamental change provisions will not afford protection to holders of notes in the event of other transactions that
could adversely affect the notes. For example, transactions such as leveraged recapitalizations, refinancings, restructurings, or
acquisitions initiated by us may not constitute a fundamental change requiring us to repurchase the notes. In the event of any
such transaction, the note holders would not have the right to require us to repurchase the notes, even though each of these
transactions could increase the amount of our indebtedness, or otherwise adversely affect our capital structure or any credit
ratings, thereby adversely affecting the holders of notes.
We have not registered the notes or the common stock issuable upon conversion of the notes, if any, which will limit
our note holders’ ability to resell them.
The offer and sale of the notes and the shares of common stock issuable upon conversion of the notes, if any, have not
been registered under the Securities Act or any state securities laws. Unless the notes and the shares of common stock issuable
34
upon conversion of the notes, if any, have been registered, the notes and such shares may not be transferred or resold except in a
transaction exempt from or not subject to the registration requirements of the Securities Act and applicable state securities laws.
We do not intend to file a registration statement for the resale of the notes and the common stock, if any, into which the notes
are convertible.
There may not be an active trading market for our notes.
We do not intend to apply to list the notes on any securities exchange or to arrange for quotation on any automated dealer
quotation system. The liquidity of the trading market in the notes, and the market price quoted for the notes, may be adversely
affected by changes in the overall market for this type of security and by changes in our financial performance or prospects or
in the prospects for companies in our industry generally. As a result, an active trading market may not be maintained for the
notes, and the market price and liquidity of the notes may be adversely affected. In that case note holders may not be able to sell
their notes at a particular time or they may not be able to sell their notes at a favorable price.
Any adverse rating of the notes may cause their trading price to fall.
We do not intend to seek a rating on the notes. However, if a rating service were to rate the notes and if such rating
service were to lower its rating on the notes below the rating initially assigned to the notes or otherwise announces its intention
to put the notes on credit watch, the trading price of the notes could decline.
Note holders may be subject to tax if we make or fail to make certain adjustments to the conversion rate of the notes
even though they do not receive a corresponding cash distribution.
The conversion rate of the notes is subject to adjustment in certain circumstances, including the payment of cash
dividends. If the conversion rate is adjusted as a result of a dividend that is taxable to our common stockholders, such as a cash
dividend, note holders will be deemed to have received a distribution subject to U.S. federal income tax, without the receipt of
any cash. In addition, a failure to adjust (or to adjust adequately) the conversion rate after an event that increases a note holder’s
proportionate interest in us could be treated as a deemed taxable dividend to the holder. If a make-whole fundamental change
occurs prior to the maturity date or if we deliver a notice of redemption, we will, under certain circumstances, increase the
conversion rate for notes converted in connection with the make-whole fundamental change or notice of redemption, as the case
may be. Such increase also may be treated as a distribution subject to U.S. federal income tax as a dividend. It is unclear
whether any such deemed dividend would be eligible for the preferential tax treatment generally available for dividends paid by
U.S. corporations to certain non-corporate U.S. holders. If a note holder is a non-U.S. holder, any deemed dividend would
generally be subject to U.S. federal withholding tax, which may be set off against subsequent payments on the notes or any
shares of our common stock owned by the holder or from any proceeds of any subsequent sale, exchange or other disposition of
the notes (including the retirement of a note) or such common stock or other funds or assets of the holder. The Internal Revenue
Service has proposed regulations addressing the amount and timing of deemed distributions, obligations of withholding agents
and filing and notice obligations of issuers, which if adopted could affect the U.S. federal income tax treatment of beneficial
owners of notes deemed to receive such a distribution.
We may invest or spend the proceeds of from the sale of our notes in ways with which our security holders may not
agree or in ways which may not yield a return.
Our management will have considerable discretion in the application of the net proceeds from the sale of our notes, and
our security holders will not have the opportunity to assess whether the proceeds are being used appropriately. The net proceeds
may be invested with a view towards long-term benefits for our stockholders and this may not increase our operating results or
market value. The failure by our management to apply these funds effectively may adversely affect the return on investment.
Because the notes will initially be held in book-entry form, holders must rely on DTC’s procedures to receive
communications relating to the notes and exercise their rights and remedies.
We will initially issue the notes in the form of one or more global notes registered in the name of Cede & Co., as
nominee of DTC. Beneficial interests in global notes will be shown on, and transfers of global notes will be effected only
through, the records maintained by DTC. Except in limited circumstances, we will not issue certificated notes. Accordingly, if a
note holder owns a beneficial interest in a global note, then it will not be considered an owner or holder of the notes. Instead,
DTC or its nominee will be the sole holder of the notes. Unlike persons who have certificated notes registered in their names,
owners of beneficial interests in global notes will not have the direct right to act on our solicitations for consents or requests for
waivers or other actions from holders. Instead, those beneficial owners will be permitted to act only to the extent that they have
received appropriate proxies to do so from DTC or, if applicable, a DTC participant. The applicable procedures for the granting
of these proxies may not be sufficient to enable owners of beneficial interests in global notes to vote on any requested actions
on a timely basis. In addition, notices and other communications relating to the notes will be sent to DTC. We expect DTC to
forward any such communications to DTC participants, which in turn would forward such communications to indirect DTC
participants. However, we can make no assurances that note holders will timely receive any such communications.
35
General Risk Factors
Our financial results may be adversely affected by changes in accounting principles generally accepted in the United
States.
U.S. GAAP is subject to interpretation by the Financial Accounting Standards Board (“FASB”), the American Institute of
Certified Public Accountants, the SEC and various bodies formed to promulgate and interpret appropriate accounting principles.
See Note 2 to the Consolidated Financial Statements included in this report regarding the effect of new accounting
pronouncements on our financial statements. Any difficulties in implementing these pronouncements could cause us to fail to
meet our financial reporting obligations, which could result in regulatory discipline and harm investors’ confidence in us.
Further, the implementation of this new guidance or a change in other principles or interpretations could have a significant
effect on our financial results and could affect the reporting of transactions completed before the announcement of a change.
If we fail to maintain an effective system of internal controls, our ability to produce timely and accurate financial
statements or comply with applicable regulations could be impaired.
As a public company, we are subject to the reporting requirements of the Securities Exchange Act of 1934 (Exchange
Act), the Sarbanes-Oxley Act and the rules and regulations of the applicable listing exchange. We expect that the requirements
of these rules and regulations will continue to increase our legal, accounting and financial compliance costs, make some
activities more difficult, time consuming and costly, and place significant strain on our personnel, systems and resources.
The Sarbanes-Oxley Act requires, among other things, that we maintain effective disclosure controls and procedures and
internal control over financial reporting. We are continuing to develop and refine our disclosure controls and other procedures
that are designed to ensure that information required to be disclosed by us in the reports that we file with the SEC is recorded,
processed, summarized and reported within the time periods specified in SEC rules and forms, and that information required to
be disclosed in reports under the Exchange Act is accumulated and communicated to our principal executive and financial
officers.
Our current controls and any new controls that we develop may become inadequate because of changes in conditions in
our business. For example, our recent acquisition of Deloitte & Touche LLP’s pricing and contracting solutions business may
present additional challenges as we integrate their business. Further, weaknesses in our internal controls may be discovered in
the future. Any failure to develop or maintain effective controls, any deficiencies found in the technology system we use to
support our controls, or any difficulties encountered in their implementation or improvement, could harm our operating results
or cause us to fail to meet our reporting obligations and may result in a restatement of our financial statements for prior periods.
Any failure to implement and maintain effective internal controls also could adversely affect the results of periodic
management evaluations and annual independent registered public accounting firm attestation reports regarding the
effectiveness of our internal control over financial reporting that we are required to include in our periodic reports we file with
the SEC under Section 404 of the Sarbanes-Oxley Act. For example, our independent registered public accounting firm may
issue a report that is adverse in the event it is not satisfied with the level at which our controls are documented, designed or
operating. Ineffective disclosure controls and procedures and internal control over financial reporting could also cause investors
to lose confidence in our reported financial and other information, which would likely have a negative effect on the trading
price of our common stock.
In order to maintain and improve the effectiveness of our disclosure controls and procedures and internal control over
financial reporting, we have expended, and anticipate that we will continue to expend, significant resources, including
accounting-related costs, and provide significant management oversight. Any failure to maintain the adequacy of our internal
controls, or consequent inability to produce accurate financial statements on a timely basis, could increase our operating costs
and could materially impair our ability to operate our business. In the event that our internal controls are perceived as
inadequate or that we are unable to produce timely or accurate financial statements, investors may lose confidence in our
operating results and our stock price could decline. In addition, if we are unable to continue to meet these requirements, we may
not be able to remain listed on the New York Stock Exchange.
We incur significant costs and devote substantial management time as a result of operating as a public company.
As a public company, we incur significant legal, accounting and other expenses. For example, we are required to comply
with the requirements of the Sarbanes-Oxley Act of 2002 (“Sarbanes-Oxley Act”) and the Dodd Frank Wall Street Reform and
Consumer Protection Act, as well as rules and regulations subsequently implemented by the Securities and Exchange
Commission (“SEC”) and the New York Stock Exchange, including the establishment and maintenance of effective disclosure
and financial controls and changes in corporate governance practices. Compliance with these rules and regulations increases our
legal and financial compliance costs, makes some activities more difficult, time‑consuming or costly and increases demand on
our systems and resources, particularly since we are no longer an “emerging growth company.” In order to maintain and, if
required, improve our disclosure controls and procedures and internal control over financial reporting, significant resources and
36
management oversight may be required. As a result, management’s attention may be diverted from other business concerns,
which could adversely affect our business and operating results.
If securities analysts do not publish research or reports or if they publish unfavorable or inaccurate research about
our business and our stock, the price of our stock and the trading volume could decline.
We expect that the trading market for our common stock will be affected by research or reports that industry or financial
analysts publish about us or our business. There are many large, well-established companies active in our industry and portions
of the markets in which we compete, which may mean that we receive less widespread analyst coverage than our competitors.
If one or more of the analysts who covers us downgrades their evaluations of our company or our stock, the price of our stock
could decline. If one or more of these analysts cease coverage of our company, our stock may lose visibility in the market,
which in turn could cause our stock price to decline.
Our business is subject to the risks of earthquakes, fire, power outages, floods and other catastrophic events, and to
interruption by manmade problems such as terrorism.
Our corporate headquarters and facilities are located near known earthquake fault zones and are vulnerable to significant
damage from earthquakes. The corporate headquarters and facilities are also vulnerable to damage or interruption from human
error, intentional bad acts, earthquakes, hurricanes, floods, fires, global epidemics, pandemics, or contagious diseases, war,
terrorist attacks, power losses, hardware failures, systems failures, telecommunications failures and similar events. The
occurrence of a natural disaster or an act of terrorism or vandalism or other misconduct or other unanticipated problems with
our facilities could result in lengthy interruptions to our services. If any disaster were to occur, our ability to operate our
business at our facilities could be seriously or completely impaired or destroyed. The insurance we maintain may not be
adequate to cover our losses resulting from disasters or other business interruptions.
We may face risks related to securities litigation that could result in significant legal expenses and settlement or
damage awards.
We have been in the past and may in the future become subject to claims and litigation alleging violations of the
securities laws or other related claims, which could harm our business and require us to incur significant costs. We are generally
obliged, to the extent permitted by law, to indemnify our current and former directors and officers who are named as defendants
in these types of lawsuits. Regardless of the outcome, litigation may require significant attention from management and could
result in significant legal expenses, settlement costs or damage awards that could have a material impact on our financial
position, results of operations and cash flows.
Our restated certificate of incorporation and restated bylaws and Delaware law could prevent a takeover that
stockholders consider favorable and could also reduce the market price of our stock.
Our restated certificate of incorporation and restated bylaws contain provisions that could delay or prevent a change in
control of us. These provisions could also make it more difficult for stockholders to elect directors and take other corporate
actions. These provisions include:
•
•
•
•
•
•
•
providing for a classified board of directors with staggered, three-year terms;
authorizing the board of directors to issue, without stockholder approval, preferred stock with rights senior to
those of our common stock;
providing that vacancies on our board of directors be filled by appointment by the board of directors;
prohibiting stockholder action by written consent;
requiring that certain litigation must be brought in Delaware;
limiting the persons who may call special meetings of stockholders; and
requiring advance notification of stockholder nominations and proposals.
In addition, we are subject to Section 203 of the Delaware General Corporation Law which may prohibit large
stockholders, in particular those owning fifteen percent or more of our outstanding voting stock, from merging or combining
with us for a certain period of time without the consent of our board of directors.
These and other provisions in our restated certificate of incorporation and our restated bylaws and under the Delaware
General Corporation Law could discourage potential takeover attempts, reduce the price that investors might be willing to pay
in the future for shares of our common stock and result in the market price of our common stock being lower than it would be
without these provisions.
37
ITEM 1B.
Unresolved Staff Comments
None.
ITEM 2.
Properties
Our corporate headquarters are located in San Mateo, California, and consist of approximately 35,000 square feet of
space under a lease for our business operations and product development activities.
We have additional U.S. offices in Colorado, Illinois, Maine and New Jersey. We also have international office locations
in India and Switzerland. We believe our facilities are adequate for our current needs and for the foreseeable future; however,
we will continue to seek additional space as needed. See Note 4 to the Consolidated Financial Statements for information
regarding our lease obligations.
ITEM 3.
Legal Proceedings
We are not currently a party to any pending material legal proceedings. From time to time, we may become involved in
legal proceedings arising in the ordinary course of our business. Regardless of outcome, litigation can have an adverse impact
on us due to defense and settlement costs, diversion of management resources, negative publicity and reputational harm and
other factors.
ITEM 4.
Mine Safety Disclosure
Not applicable.
38
PART II
ITEM 5.
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity
Securities
Market Information for Common Stock
Model N’s common stock is traded on the New York Stock Exchange under the symbol “MODN”.
Dividend Policy
We have never declared or paid, and do not anticipate declaring or paying in the foreseeable future, any cash dividends
on our capital stock. Any future determination as to the declaration and payment of dividends, if any, will be at the discretion of
our board of directors, subject to applicable laws and will depend on then existing conditions, including our financial condition,
operating results, contractual restrictions, capital requirements, business prospects, and other factors our board of directors may
deem relevant.
Stockholders
As of November 4, 2022, there were 30 holders of record of our common stock, including The Depository Trust
Company, which holds shares of our common stock on behalf of an indeterminate number of beneficial owners.
Securities Authorized for Issuance under Equity Compensation Plans
The information called for by this item is incorporated by reference to our Proxy Statement for the Annual Meeting of
Stockholders to be held in 2023 (the “Proxy Statement”). See Part III, Item 12 “Security Ownership of Certain Beneficial
Owners and Management” and “Equity Compensation Plan Information.”
Stock Performance Graph
The following shall not be deemed “filed” for purposes of Section 18 of the Exchange Act, or incorporated by reference
into any of our other filings under the Exchange Act or the Securities Act of 1933, as amended, except to the extent we
specifically incorporate it by reference into such filing.
39
This chart compares the cumulative total return on our common stock with that of the NASDAQ Composite Index and
the NASDAQ Computer Index. The chart assumes $100 was invested at the close of market on September 30, 2017, in our
common stock, the NASDAQ Composite Index and the NASDAQ Computer Index, and assumes the reinvestment of any
dividends.
Model N
NASDAQ Composite Index
NASDAQ Computer Index
[Reserved]
ITEM 6.
9/30/2017
9/30/2018
9/30/2022
$ 100.00 $ 106.02 $ 185.69 $ 235.99 $ 224.08 $ 229.57
$ 100.00 $ 125.17 $ 125.82 $ 177.36 $ 231.03 $ 170.38
$ 100.00 $ 128.31 $ 134.56 $ 207.52 $ 281.90 $ 208.66
9/30/2019
9/30/2020
9/30/2021
40
ITEM 7.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
You should read the following discussion and analysis of our financial condition and results of operations together with
the Consolidated Financial Statements and related notes that are included elsewhere in this report. This discussion contains
forward-looking statements based upon current expectations that involve risks and uncertainties. Our actual results may differ
materially from those anticipated in these forward-looking statements as a result of various factors, including those set forth
under “Risk Factors” or in other parts of this report.
A discussion and analysis regarding our financial condition, results of operations and cash flows for the year ended
September 30, 2022 compared to the year ended September 30, 2021 is presented below. A discussion regarding our financial
condition, results of operations and cash flows for the year ended September 30, 2021 compared to the year ended
September 30, 2020 is included in Item 7 of Part II, “Management’s Discussion and Analysis of Financial Condition and
Results of Operations” in our Annual Report on Form 10-K filed with the SEC on November 19, 2021.
Overview
We are a leading provider of cloud revenue management solutions for life sciences and high tech companies. Our
software and business services help companies drive mission critical business processes such as pricing, quoting, contracting,
regulatory compliance, rebates and incentives. With deep industry expertise, Model N supports the complex business needs of
the world’s leading brands in life sciences and high tech including Johnson & Johnson, AstraZeneca, Stryker, Seagate
Technology, Broadcom, and Microchip Technology.
Model N Revenue Cloud transforms the revenue life cycle into a strategic, end-to-end process aligned across the
enterprise. Deployments may vary from specific divisions or territories to enterprise-wide implementations. Customers may
purchase and deploy a single cloud product or a full suite.
We derive revenues primarily from the sale of subscriptions to our cloud-based solutions, as well as subscriptions for
managed support services including business services, and maintenance and support related to on-premise solutions. We price
our solutions based on a number of factors, including revenues under management and number of users. Subscription revenues
are recognized ratably over the coverage period. We also derive revenues from selling professional services related to past sales
of perpetual licenses and implementation and professional services associated with our cloud-based solutions and related to the
solutions provided by our recent acquisition. The actual timing of revenue recognition may vary based on our customers’
implementation requirements and the availability of our services personnel.
We market and sell our solutions to customers in the life sciences and high tech industries. Historically, our growth was
driven by the sale of on-premise solutions. Over the past few years, we have primarily been entering into cloud-based
subscription arrangements with our new and existing customers and we anticipate that subscription arrangements will be the
majority of new contractual arrangements going forward.
Our most significant customers in any given period generally vary from period to period due to the timing in the delivery
of our professional services and related revenue recognition. During the fiscal years ended September 30, 2022, and 2021, no
customer represented more than 10% of our total revenues or more than 10% of our subscription revenues. For the fiscal years
ended September 30, 2022, and 2021, approximately 5% and 7% of our total revenues were derived from customers located
outside the United States respectively.
For the fiscal years ended September 30, 2022, and 2021, our total revenues were $219.2 million and $193.4 million
respectively, representing a year-over-year increase of 13%. Revenue increased in fiscal year 2022 primarily due to the addition
of subscription and professional services revenues from business services and increased subscription and professional services
revenues from new and existing customers.
Key Business Metrics
In addition to the measures of financial performance presented in our Consolidated Financial Statements, we use
adjusted EBITDA, SaaS ARR and Net Dollar Retention to establish budgets and operational goals and to evaluate and manage
our business internally. We believe adjusted EBITDA, SaaS ARR and Net Dollar Retention provides investors with consistency
and comparability with our past financial performance and facilitates period-to-period comparisons of our operating results. For
more information regarding adjusted EBITDA, see “Non-GAAP Financial Measures” below.
SaaS ARR and Net Dollar Retention
We use SaaS ARR as a measure of our SaaS revenue trend and an indicator of our future revenue opportunity from
existing recurring customer contracts, assuming zero cancellations. SaaS ARR is the annualized value of our SaaS revenue,
which is derived by taking the SaaS portion of our recurring subscription revenue for the quarter, dividing it by the number of
days in the quarter, and multiplying it by 365 to get an annualized number. SaaS ARR is not adjusted for the impact of any
known or projected future customer cancellations, service upgrades or downgrades or price increases or decreases. The amount
41
of actual SaaS revenue that we recognize over any 12-month period is likely to differ from SaaS ARR at the beginning of that
period, sometimes significantly. This may occur due to new bookings, subsequent changes in our pricing, service cancellations,
upgrades or downgrades and acquisitions or divestitures. Our calculation of SaaS ARR may differ from similarly-titled metrics
presented by other companies.
We believe that our ability to retain and expand our revenue generated from our existing customers is an indicator of the
long-term value of our customer relationships and our potential future business opportunities. SaaS Net Dollar Retention uses
the same SaaS ARR calculations to measure the percentage change in SaaS ARR from customers that are in both the current
period and the year-ago period. SaaS ARR that has been added from new customers that were not in the year-ago calculation is
excluded from the SaaS Net Dollar Retention calculation. Our SaaS Net Dollar Retention Rate will fluctuate in future periods
due to a number of factors, including the level of SaaS ARR, the level of penetration within our customer base, expansion of
products and features, and our ability to retain our customers. SaaS ARR and SaaS Net Dollar Retention should be viewed
independently of revenue, deferred revenue, and remaining performance obligations, and are not intended to be a substitute for,
or combined with, any of these items.
For the quarter ended September 30, 2022, SaaS ARR was $109.4 million, which reflects a 31% year-over-year increase
from $83.8 million for the quarter ended September 30,2021. SaaS Net Dollar Retention increased to 129% for the 12 months
ended September 30, 2022 from 118% for the 12 months ended September 30,2021.
Key Components of Results of Operations
Revenues
Subscription
Subscription revenues primarily include contractual arrangements with customers accessing our cloud-based solutions.
These arrangements, on average, are for committed three-year terms. Included in subscription revenues are revenues associated
with managed support services and maintenance and support which generally renew on a one year or three year basis. Managed
support services revenue includes supporting, managing and administering our software solutions and providing additional end
user support including the support provided by business services. Maintenance and support revenues include post-contract
customer support and the right to unspecified software updates and enhancements on a when and if available basis from
customers using on-premise solutions. Term-based licenses for current products with the right to use unspecified future versions
of the software and maintenance and support during the coverage period are also included in subscription revenues.
Subscription revenue is generally recognized ratably over the contractual term of the arrangement beginning on the date our
service is made available to the customer. The software-as-a-service (“SaaS”) model is the primary way we sell to our
customers in our vertical markets.
Professional Services
Professional services revenues primarily include fees generated from implementation, cloud configuration, on-site
support, and other consulting services. Also included in professional services revenues are revenues related to training and
customer-reimbursed expenses, as well as services related to software licenses for our on-premise solutions and solutions
provided by business services. Professional services revenues are generally recognized as the services are rendered for time and
materials contracts or recognized using a proportional performance method as hours are incurred relative to total estimated
hours for the engagement for fixed price contracts. The majority of our professional services contracts are on a time and
materials basis. The revenue from training and customer-reimbursed expenses is recognized as we deliver these services.
Cost of Revenues
Subscription
Cost of subscription revenues includes costs related to our cloud-based solutions, managed support services and support
provided by business services, and maintenance and support for our on-premise solutions. Cost of subscription revenues
primarily consists of personnel-related costs including salary, bonus, and stock-based compensation as well as costs for
royalties, facilities expense, amortization, depreciation, third-party contractors and cloud infrastructure costs.
Professional Services
Cost of professional services revenues includes costs related to the set-up of our cloud-based solutions, services for on-
premise and business services solutions, training and customer-reimbursed expenses. Cost of professional services revenues
primarily consists of personnel-related costs including salary, bonus, and stock-based compensation as well as costs for third-
party contractors and other expenses. Cost of professional services 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.
42
Operating Expenses
Research and Development
Our research and development expenses consist primarily of personnel-related costs including salary, bonus, stock-based
compensation, and costs related to third-party contractors. Our software development costs are generally expensed as incurred.
We capitalize certain development costs incurred in connection with the cloud-based software platform for internal use.
Sales and Marketing
Our sales and marketing expenses consist primarily of personnel-related costs including salary, bonus, commissions,
stock-based compensation, as well as amortization of intangibles, travel-related expenses, and marketing programs.
General and Administrative
Our general and administrative expenses consist primarily of personnel-related costs including salary, bonus, and stock-
based compensation, as well as audit and legal fees, costs related to third-party contractors, facilities expenses, costs associated
with corporate transactions, and travel-related expenses.
Results of Operations
The following tables set forth our consolidated results of operations for fiscal years ended September 30, 2022, and 2021
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.
Fiscal Years Ended September 30,
2022
2021
(in thousands)
$
159,766 $
59,398
219,164
58,509
38,611
97,120
122,044
47,604
47,719
39,676
134,999
(12,955)
14,763
(558)
(27,160)
1,475
(28,635) $
$
142,448
50,997
193,445
49,933
36,715
86,648
106,797
44,661
43,239
33,311
121,211
(14,414)
14,344
210
(28,968)
769
(29,737)
Consolidated Statements of Operations Data:
Revenues:
Subscription
Professional services
Total revenues
Cost of Revenues:
Subscription
Professional services
Total cost of revenues
Gross profit
Operating Expenses:
Research and development
Sales and marketing
General and administrative
Total operating expenses
Loss from operations
Interest expense, net
Other expenses (income), net
Loss before income taxes
Provision for income taxes
Net loss
43
Comparison of the Fiscal Years Ended September 30, 2022, and 2021
Revenues
Fiscal Years Ended September 30,
2022
2021
Amount
% of
Total Revenues
% of
Total Revenues
(in thousands, except percentages)
Amount
$ Change
% Change
Revenues:
Subscription
Professional services
Total revenues
Subscription
$ 159,766
59,398
$ 219,164
142,448
73 %
27 %
50,997
100 % $ 193,445
74 % $
26 %
100 % $
17,318
8,401
25,719
12 %
16 %
13 %
Subscription revenues increased by $17.3 million, or 12%, to $159.8 million for the fiscal year ended September 30,
2022, from $142.4 million for the fiscal year ended September 30, 2021. As a percentage of total revenues, subscription
revenues decreased from 74% to 73%. The increase in our subscription revenues was due primarily to increased SaaS revenue
relating to an increase in subscriptions for our cloud-based solutions, but partially offset by declines in maintenance revenue
relating to our on-premise solutions and term licenses. The increase in subscriptions for our cloud-based solutions is primarily
due to more existing customers transitioning to SaaS from on-premise solutions and term licenses. We intend to continue to
focus on growing our recurring revenue from SaaS subscriptions in future periods.
Professional Services
Professional services revenue increased by $8.4 million, or 16%, to $59.4 million for the fiscal year ended September 30,
2022, from $51.0 million for the fiscal year ended September 30, 2021. The increase in our professional services revenues was
caused by the increase in delivery activities experienced during fiscal year 2022.
Cost of Revenues
Cost of revenues
Subscription
Professional services
Total cost of revenues
Gross profit
Subscription
Professional services
Total gross profit
Subscription
Fiscal Years Ended September 30,
Amount
2022
% of Revenues
2021
% of Revenues
(in thousands, except percentages)
Amount
$ Change
% Change
$
$
58,509
38,611
97,120
$ 101,257
20,787
$ 122,044
37 % $
65 % $
44 % $
49,933
36,715
86,648
92,515
63 % $
35 % $
14,282
56 % $ 106,797
35 % $
72 %
45 %
8,576
1,896
10,472
65 % $
28 %
55 % $
8,742
6,505
15,247
17 %
5 %
12 %
9 %
46 %
14 %
Cost of subscription revenues increased by $8.6 million, or 17%, to $58.5 million during the fiscal year ended
September 30, 2022, from $49.9 million for the fiscal year ended September 30, 2021. As a percentage of subscription
revenues, cost of subscription revenues increased from 35% in fiscal year 2021 to 37% in fiscal year 2022 primarily due to
higher cost from employee-related costs. The cost of subscription revenue also included $2.8 million of amortization expense
related to the recently acquired intangible assets.
Professional Services
Cost of professional services revenues increased by $1.9 million, or 5%, to $38.6 million during the fiscal year ended
September 30, 2022, from $36.7 million for the fiscal year ended September 30, 2021. As a percentage of professional services
revenue, cost of professional services revenues decreased from 72% to 65% primarily due to improved cost efficiencies.
44
Operating Expenses
Operating expenses:
Research and development
Sales and marketing
General and administrative
Total operating expenses
Research and Development
Fiscal Years Ended September 30,
2022
2021
$ Change
(in thousands, except percentages)
% Change
$
$
47,604 $
47,719
39,676
134,999 $
44,661 $
43,239
33,311
121,211 $
2,943
4,480
6,365
13,788
7 %
10 %
19 %
11 %
Research and development expenses increased by $2.9 million, or 7%, to $47.6 million during the fiscal year ended
September 30, 2022, from $44.7 million for the fiscal year ended September 30, 2021. The increase was primarily due to the
impact of business services mainly from employee-related costs of $2.1 million and equipment expense of $0.8 million.
Sales and Marketing
Sales and marketing expenses increased by $4.5 million, or 10%, to $47.7 million during the fiscal year ended
September 30, 2022, from $43.2 million for the fiscal year ended September 30, 2021. This increase was primarily due to a $2.7
million increase in employee-related costs, a $0.3 million increase in outside services, a $0.9 million increase in travel and
entertainment expenses and $0.4 million increase in other operating expenses.
General and Administrative
General and administrative expenses increased by $6.4 million, or 19%, to $39.7 million during the fiscal year ended
September 30, 2022, from $33.3 million for the fiscal year ended September 30, 2021. The increase was primarily driven by a
$4.9 million increase in employee-related costs, a $3.2 million increase in outside services, a $0.2 million increase in travel and
entertainment expense, a $0.5 million increase in equipment expense, partially offset by a $2.5 million decrease of acquisition-
related expenses.
Interest and Other (Income) Expense, Net
Interest expense, net
Other (income) expenses, net
Fiscal Years Ended September 30,
2022
2021
$ Change
(in thousands, except percentages)
% Change
$
$
14,763
(558)
14,344 $
210 $
419
(768)
3 %
(366) %
Interest expense, net, increased by $0.4 million to $14.8 million during the fiscal year ended September 30, 2022, from
$14.3 million during the fiscal year ended September 30, 2021. The increase was primarily driven by the accretion of discount
cost on convertible senior notes we issued in May 2020. See “Note 10. Convertible Senior Notes” of the Notes to Consolidated
Financial Statements in Part II, Item 8 of this Form 10-K. The increase in interest expense was partially off-set by the increase
in income on marketable securities and cash balances
The change in other (income) expense, net was primarily due to currency fluctuations.
Provision for Income Taxes
Fiscal Years Ended September 30,
Provision for income taxes
$
1,475 $
2022
2021
$ Change
(in thousands, except percentages)
769 $
706
% Change
92 %
The income tax provision for fiscal year 2022 and 2021 was primarily related to foreign taxes on our profitable foreign
operations, foreign withholding taxes on dividends, and deferred taxes on goodwill resulting from the acquisition.
Liquidity and Capital Resources
Our principal sources of liquidity are our cash and cash equivalents. As of September 30, 2022, we had cash and cash
equivalents of $193.5 million.
Based on our future expectations and historical usage, we believe our current cash and cash equivalents are sufficient to
meet our operating needs including principal payments related to our debt for at least the next twelve months. Our future capital
45
requirements will depend on many factors, including our rate of revenue growth, the expansion of our sales and marketing
activities, the timing and extent of spending to support research and development efforts, expansion of our business and capital
expenditures. To the extent that existing cash and cash equivalents and cash from operations are insufficient to fund our future
activities, we may elect to raise additional capital through the sale of additional equity or debt securities, obtain a credit facility
or sell certain assets. If additional funds are raised through the issuance of debt securities, these securities could have rights,
preferences and privileges senior to holders of common stock and terms of any debt could impose restrictions on our
operations. The sale of additional equity or additional convertible debt securities could result in more dilution to our
stockholders and additional financing may not be available in amounts or on terms acceptable to us. We may also seek to invest
in, or acquire complementary businesses or technologies, any of which could also require us to seek additional equity or debt
financing. Additional funds may not be available on terms favorable to us or at all.
Cash Flows
Cash flows provided by operating activities
Cash flows used in investing activities
Cash flows provided by financing activities
Operating Activities
Fiscal Years Ended September 30,
2022
2021
(in thousands)
$
25,287 $
(993)
4,543
19,590
(58,904)
4,623
Net cash provided by operating activities during the fiscal year ended September 30, 2022 was primarily the result of
non-cash adjustments of $60.1 million exceeding our net loss of $28.6 million partially offset by net cash outflows of $6.2
million from changes in operating assets and liabilities. Non-cash expenses consisting primarily of stock-based compensation of
$36.1 million, amortization of debt discount and issuance costs of $11.1 million, depreciation and amortization of $9.0 million,
and amortization of capitalized contract acquisition costs of $4.3 million. The net change in operating assets and liabilities
primarily reflects an outflow from the changes in prepaid expenses and other assets of $7.1 million, accounts receivable of $5.7
million due to timing of billing and cash collections, and other current and long-term liabilities of $2.2 million, partially offset
by an inflow from the changes in deferred revenue of $4.8 million caused by the timing of amounts invoiced and revenue
recognized, accrued employee compensation of $2.9 million, and accounts payable of $1.0 million due to timing of vendor
invoices and payments.
Net cash provided by operating activities during the fiscal year ended September 30, 2021 was primarily the result of
non-cash adjustments of $51.0 million exceeding our net loss of $29.7 million partially offset by net cash outflows of $1.7
million from changes in operating assets and liabilities. Non-cash expenses consisting primarily of stock-based compensation of
$30.0 million, amortization of debt discount and issuance costs of $9.9 million, depreciation and amortization of $8.0 million,
and amortization of capitalized contract acquisition costs of $3.1 million. The net change in operating assets and liabilities
primarily reflects an outflow from the changes in prepaid expenses and other assets of $4.2 million, accounts receivable of $3.5
million due to timing of billing and cash collections, and other current and long-term liabilities of $2.0 million, partially offset
by an inflow from the changes in deferred revenue of $4.5 million caused by the timing of amounts invoiced and revenue
recognized, accrued employee compensation of $1.9 million, and accounts payable of $1.7 million due to timing of vendor
invoices and payments.
Investing Activities
Net cash used in investing activities for fiscal year ended September 30, 2022, consisted of $1.0 million for purchases of
property and equipment.
Net cash used in investing activities for fiscal year ended September 30, 2021, consisted of $57.8 million used in
connection with the acquisition and $1.1 million for purchases of property and equipment. See Note 6 in the notes to our
Consolidated Financial Statements included in Part II, Item 8 of this Annual Report on Form 10-K for additional information of
the acquisition.
Financing Activities
Net cash provided by financing activities for the fiscal year ended September 30, 2022 and 2021, resulted from $4.3
million proceeds from purchases made under our employee stock purchase plan and the exercise of stock options and $0.3
million increase in funds held for customers.
Critical Accounting Policies and Estimates
Our Consolidated Financial Statements have been prepared in conformity with generally accepted accounting principles
in the United States (“U.S. GAAP”). The preparation of the accompanying Consolidated Financial Statements in conformity
46
with U.S. GAAP requires us to make certain estimates and assumptions that affect the reported amounts of assets, liabilities,
revenues, costs, and expenses, as well as related disclosures. These estimates and assumptions are based on our management’s
best estimates and judgment. Our management regularly evaluates these estimates and assumptions using historical experience
and other factors; however, actual results could differ significantly from these estimates.
Note 2, “Summary of Significant Accounting Policies,” of the Notes to Consolidated Financial Statements in Part II,
Item 8 of this Form 10-K describes the significant accounting policies and methods used in the preparation of the Company’s
Consolidated Financial Statements. We believe that the assumptions and estimates associated with revenue recognition,
convertible senior notes, share-based compensation, business combinations, and income taxes have the greatest potential impact
on our Consolidated Financial Statements. Therefore, we consider these to be our critical accounting policies and estimates.
Revenue recognition under ASC Topic 606
We account for revenue in accordance with ASC Topic 606, Revenue from Contracts with Customers. We apply the five
step framework to recognize revenue as described in our revenue recognition policy included in Note 2 in the notes to our
Consolidated Financial Statements included in Part II, Item 8 of this Annual Report on Form 10-K.
We derive revenues from the sale of subscriptions to our cloud-based solutions, subscriptions for managed support
services and maintenance and support, term based licenses, and implementation and other professional services.
We use estimates and assumptions requiring significant judgment under our revenue policy in accordance with ASC
Topic 606. If the contract contains a single performance obligation, the entire transaction price is allocated to the single
performance obligation. Contracts that contain multiple performance obligations require an allocation of the transaction price to
each performance obligation based on its standalone selling price (“SSP”) in relation to the total fair value of all performance
obligations in the arrangement. SSP is estimated for each distinct performance obligation. Some of our performance
obligations, such as support and training services, have observable inputs that are used to determine the SSP of those distinct
performance obligations. Where SSP is not directly observable, we determine SSP using information that includes market
conditions and other observable inputs such as customer type and geography. We evaluate the SSP for our performance
obligations on a quarterly basis.
The majority of our contracts contain multiple performance obligations, such as when cloud-based solutions are sold
with implementation services or training services. As customers enter into a subscription agreement for cloud-based solutions to
migrate from an on-premise application, an allocation of the transaction price to each performance obligation is required.
Additionally, contract modifications for services and products that are distinct but are not priced commensurate with their SSP
or are not distinct from performance obligations under the existing contract may affect the initial transaction price or the
allocation of the transaction price to the performance obligations in the contract.
Convertible Senior Notes
In May 2020, we issued $172.5 million aggregate principal amount of 2.625% convertible senior notes. We separate our
convertible senior notes (the “Notes”) into liability and equity components. The carrying amount of the liability component is
calculated by measuring the fair value of a similar debt instrument that does not have an associated convertible feature. We
estimated the discount rate used in measuring the fair value of a similar debt instrument that does not have an associated
convertible feature. Because the estimate is uncertain, the actual result may differ from the estimate made. The carrying amount
of the equity component representing the conversion option is determined by deducting the fair value of the liability component
from the principal amount of the Notes. The excess of the principal amount of the Notes over the carrying amount of the
liability component (“debt discount”) is amortized to interest expense at an effective interest rate over the contractual terms of
the Notes. The equity component is recorded in additional paid-in capital and is not remeasured as long as it continues to meet
the conditions for equity classification. We allocate the issuance costs to the liability and equity components of the Notes based
on the proportion of the proceeds allocated to the debt and equity components. Issuance costs attributable to the liability
component are amortized to interest expense using the effective interest method over the contractual terms of the Notes.
Issuance costs attributable to the equity component are netted with the equity component in stockholders’ equity.
47
Stock-based compensation
We recognize compensation expense for restricted stock units, employee stock purchase plan (“ESPP”), and performance
based restricted stock units. We use the Black-Scholes-Merton valuation model to estimate the fair value of ESPP shares. Black-
Scholes-Merton valuation model requires the input of subjective assumptions including expected stock price volatility over the
expected term. The fair value of restricted stock units and performance based restricted stock units with vesting conditions
based on pre-established performance goals of the Company is determined based on the intrinsic value of the award on the
grant date. For performance share unit grants with market condition performance criteria, we use a Monte Carlo simulation
model to determine their fair value on the grant date. The fair value of these grants with a market condition is recognized using
the graded-vesting attribution method over the requisite service period. The Monte-Carlo simulation model takes into account
the same input assumptions as the Black-Scholes-Merton model; however, it also further incorporates into the fair value
determination the possibility that the performance criteria may not be satisfied. The estimation of the possibility that the
performance criteria may not be satisfied is inherently uncertain.
Changes in the estimates used to determine the fair value of share-based equity compensation instruments could result in
changes to our stock-based compensation expense. We have not made any material changes to our assumptions and estimates
related to our stock-based compensation during the periods presented.
Business Combinations
We use all available information to estimate fair values. We typically engage outside appraisal firms to assist in the fair
value determination of identifiable assets such as customer contracts and any other significant assets or liabilities and
contingent consideration. We adjust the preliminary purchase price allocation, as necessary, up to one year after the acquisition
closing date if we obtain more information regarding asset valuation and liabilities assumed.
Our purchase price allocation methodology contains uncertainties because it requires assumptions and management’s
judgment to estimate the fair value of assets acquired and liabilities assumed at the acquisition date. Management estimates the
fair value of assets and liabilities based upon quoted market prices, the carrying value of the acquired assets and widely
accepted valuation techniques, including discounted cash flows and market multiple analyses. Our estimates are inherently
uncertain and subject to refinement. Unanticipated events or circumstances may occur which could affect the accuracy of our
fair value estimates, including assumptions regarding industry economic factors and business strategies.
On December 31, 2020, we acquired certain assets, properties and rights and certain liabilities and obligations from
Deloitte & Touche LLP’s pricing and contracting solutions business. We used significant estimates and assumptions in
estimating the fair value of the intangible assets acquired such as customer attrition rate, obsolescence rate, and discount rate,
We do not believe there is a reasonable likelihood that there will be a material change in the estimates or assumptions we used
for the purchase price allocations and the fair value of assets acquired and liabilities assumed.
Income Taxes
We account for income taxes in accordance with the FASB ASC No. 740—Accounting for Income Taxes (“ASC 740).
We make certain estimates and judgments in determining income tax expense for financial statement purposes. These estimates
and judgments occur in the calculation of tax credits, tax benefits and deductions and in the calculation of certain tax assets and
liabilities, which arise from differences in the timing of recognition of revenue and expense for tax and financial statement
purposes. Significant changes to these estimates may result in an increase or decrease to our tax provision in the subsequent
period when such a change in estimate occurs.
We regularly assess the likelihood that our deferred income tax assets will be realized from future taxable income based
on the realization criteria set forth in ASC 740. To the extent that we believe any amounts are not more likely than not to be
realized, we record a valuation allowance to reduce the deferred income tax assets. In assessing the need for a valuation
allowance, we consider all available evidence, including past operating results, estimates of future taxable income and the
feasibility of tax planning strategies. In the event we determine that all or part of the net deferred tax assets are not realizable in
the future, an adjustment to the valuation allowance would be charged to earnings in the period such determination is made.
Similarly, if we subsequently realize deferred income tax assets that were previously determined to be unrealizable, the
respective valuation allowance would be reversed, resulting in an adjustment to earnings in the period such determination is
made.
We apply judgment in determining our uncertain tax positions. We account for uncertainty in income taxes using a two-
step approach to recognizing and measuring uncertain tax positions. The first step is to evaluate the tax position for recognition
by determining if the weight of available evidence indicates that it is more likely than not that the position will be sustained on
audit, including resolution of related appeals or litigation processes, if any. The second step is to measure the tax benefit as the
largest amount that is more than 50% likely of being realized upon settlement. We classify the liability for unrecognized tax
48
benefits as current to the extent that our anticipated payment or receipt of cash is within one year. Interest and penalties related
to uncertain tax positions are recognized in the provision for income taxes.
Recent Accounting Pronouncements
See “Note 2. Summary of Significant Accounting Policies and Estimates” of the Notes to Consolidated Financial
Statements in “Item 8. Financial Statements and Supplementary Data” for a full description of recent accounting
pronouncements including the respective expected dates of adoption and estimated effects, if any, on our Consolidated
Financial Statements.
Non-GAAP Financial Measures
Adjusted EBITDA
Adjusted EBITDA is a financial measure that is not calculated in accordance with generally accepted accounting
principles in the United States. We define adjusted EBITDA as net loss before items discussed below, including: stock-based
compensation expense, depreciation and amortization, acquisition related expense, interest expense, net, other expenses
(income), net, and provision for (benefit from) income taxes. We believe adjusted EBITDA provides investors with consistency
and comparability with our past financial performance and facilitates period-to-period comparisons of our operating results and
our competitors’ operating results. We also use this measure internally to establish budgets and operational goals to manage our
business and evaluate our performance.
We understand that, although adjusted EBITDA is frequently used by investors and securities analysts in their
evaluations of companies, adjusted EBITDA has limitations as an analytical tool, and it should not be considered in isolation or
as a substitute for analysis of our results of operations as reported under U.S. GAAP. These limitations include:
•
•
•
•
•
adjusted EBITDA does not reflect stock-based compensation expense;
depreciation and amortization are non-cash charges, and the assets being depreciated or amortized will often have
to be replaced in the future; adjusted EBITDA does not reflect any cash requirements for these replacements;
adjusted EBITDA does not include acquisition-related expense;
adjusted EBITDA does not reflect cash requirements for income taxes and the cash impact of interest expense and
other income and expense; and
other companies in our industry may calculate adjusted EBITDA differently than we do, limiting its usefulness as
a comparative measure.
Reconciliation of Adjusted EBITDA:
Net loss
Adjustments:
Stock-based compensation expense
Depreciation and amortization
Acquisition-related expense
Interest expense, net
Other expenses (income), net
Provision for income taxes
Adjusted EBITDA
Fiscal Years Ended September 30,
2021
2022
(in thousands)
$
(28,635) $
(29,737)
36,054
8,991
—
14,763
(558)
1,475
32,090 $
29,963
7,972
2,509
14,344
210
769
26,030
$
49
Item 7A.
Quantitative and Qualitative Disclosures about Market Risk
We are exposed to market risks in the ordinary course of our business. Market risk represents the risk of loss that may
impact our financial position due to adverse changes in financial market prices and rates. Our market risk exposure is primarily
a result of fluctuations in interest rates and foreign currency exchange rates. We do not hold or issue financial instruments for
trading purposes.
Interest Rate Sensitivity
Our exposure to market risk for changes in interest rates relates primarily to our cash and cash equivalents, which bear
interest at a fixed interest rate. Our primary exposure to market risk is interest income sensitivity, which is affected by changes
in the general level of the interest rates in the United States. However, because of the short-term nature of our interest-bearing
securities, a 10% change in market interest rates would not be expected to have a material impact on our consolidated financial
condition or results of operations.
In May 2020, we issued $172.5 million aggregate principal amount of 2.625% convertible senior notes (the “Notes”) in a
private placement. As the Notes have a fixed annual interest rate, we have no financial or economic interest exposure associated
with changes in interest rates. However, the fair value of fixed rate debt instruments fluctuates when interest rates change.
Additionally, the fair value of the Notes can be affected when the market price of our common stock fluctuates. We carry the
Notes at face value less unamortized discount on our balance sheet, and we present the fair value for required disclosure
purposes only.
Foreign Currency Exchange Risk
Our customers typically pay us in U.S. dollars. However, in foreign jurisdictions, our expenses are typically denominated
in local currency. Our expenses and cash flows are subject to fluctuations due to changes in foreign currency exchange rates.
The volatility of exchange rates depends on many factors that we cannot forecast with reliable accuracy. A significant
fluctuation in the exchange rates between our subsidiaries’ local currencies, especially Indian Rupee, and the U.S. dollar, could
have an adverse impact on our results of operations and cash flows.
In the first quarter of 2019, we initiated a hedging program with respect to foreign currency risk. During fiscal year
September 30, 2022, the effect of a hypothetical 10% change in foreign currency exchange rates to which we have exposure,
after considering foreign currency hedges, would have had an impact of approximately $1.8 million on our net loss. As our
international operations grow, we will continue to reassess our approach to managing our risk relating to fluctuations in
currency rates.
50
Item 8.
Financial Statements and Supplementary Data
MODEL N, INC.
Index to Consolidated Financial Statements
Report of Independent Registered Public Accounting Firm (PCAOB Firm ID 238)
Consolidated Balance Sheets
Consolidated Statements of Operations
Consolidated Statements of Comprehensive Loss
Consolidated Statements of Stockholders’ Equity
Consolidated Statements of Cash Flows
Notes to Consolidated Financial Statements
Page
52
54
55
56
57
58
59
51
Report of Independent Registered Public Accounting Firm
To the Board of Directors and Stockholders of Model N, Inc.
Opinions on the Financial Statements and Internal Control over Financial Reporting
We have audited the accompanying consolidated balance sheets of Model N, Inc. and its subsidiaries (the “Company”) as
of September 30, 2022 and 2021, and the related consolidated statements of operations, of comprehensive loss, of stockholders’
equity and of cash flows for each of the three years in the period ended September 30, 2022, including the related notes and
schedule of valuation and qualifying accounts for each of the three years in the period ended September 30, 2022 appearing
under Item 15(a)(2) (collectively referred to as the “consolidated financial statements”). We also have audited the Company's
internal control over financial reporting as of September 30, 2022, based on criteria established in Internal Control - Integrated
Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial
position of the Company as of September 30, 2022 and 2021, and the results of its operations and its cash flows for each of the
three years in the period ended September 30, 2022 in conformity with accounting principles generally accepted in the United
States of America. Also in our opinion, the Company maintained, in all material respects, effective internal control over
financial reporting as of September 30, 2022, based on criteria established in Internal Control - Integrated Framework (2013)
issued by the COSO.
Basis for Opinions
The Company's management is responsible for these consolidated financial statements, for maintaining effective internal
control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included
in Management’s Annual Report on Internal Control over Financial Reporting appearing under Item 9A. Our responsibility is to
express opinions on the Company’s consolidated financial statements and on the Company's internal control over financial
reporting based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight
Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S.
federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and
perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material
misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in
all material respects.
Our audits of the consolidated financial statements included performing procedures to assess the risks of material
misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to
those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the
consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates
made by management, as well as evaluating the overall presentation of the consolidated financial statements. Our audit of
internal control over financial reporting included obtaining an understanding of internal control over financial reporting,
assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal
control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the
circumstances. We believe that our audits provide a reasonable basis for our opinions.
Definition and Limitations of Internal Control over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally
accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures
that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and
dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit
preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and
expenditures of the company are being made only in accordance with authorizations of management and directors of the
company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or
disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements.
Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
52
Critical Audit Matters
The critical audit matter communicated below is a matter arising from the current period audit of the consolidated
financial statements that was communicated or required to be communicated to the audit committee and that (i) relates to
accounts or disclosures that are material to the consolidated financial statements and (ii) involved our especially challenging,
subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the
consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below,
providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.
Revenue Recognition - Identifying and Evaluating Terms and Conditions in Contracts
As described in Note 2 to the consolidated financial statements, the Company applies the five step revenue recognition
framework to recognize revenue from contracts with customers. Management applies judgment in identifying and evaluating
any terms and conditions in contracts which may impact revenue recognition. The Company has $219 million of total revenue
for the year ended September 30, 2022 generated from contracts with customers.
The principal considerations for our determination that performing procedures relating to revenue recognition,
specifically the identification and evaluation of terms and conditions in contracts is a critical audit matter are the significant
judgment by management when identifying and evaluating terms and conditions in contracts that impact revenue recognition,
which in turn led to a high degree of auditor judgment, subjectivity and effort in performing procedures to evaluate whether
terms and conditions in contracts were appropriately identified and evaluated by management.
Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our
overall opinion on the consolidated financial statements. These procedures included testing the effectiveness of controls relating
to the revenue recognition process, including controls relating to the identification and evaluation of terms and conditions in
revenue contracts that impact revenue recognition. These procedures also included, among others, evaluating the
appropriateness of management’s identification and evaluation of the terms and conditions in revenue contracts by examining
contracts with customers on a test basis and evaluating management’s determination of the impact of those terms and conditions
on revenue recognition.
/s/ PricewaterhouseCoopers LLP
San Jose, California
November 18, 2022
We have served as the Company’s auditor since 2007.
53
MODEL N, INC.
Consolidated Balance Sheets
(in thousands, except per share data)
As of September 30,
2022
2021
Assets
Current assets:
Cash and cash equivalents
Funds held for customers
Accounts receivable, net of allowance of $102 and $225 as of
September 30, 2022, and 2021, respectively
Prepaid expenses
Other current assets
Total current assets
Property and equipment, net
Operating lease right-of-use assets
Goodwill
Intangible assets, net
Other assets
Total assets
Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable
Customer funds payable
Accrued employee compensation
Accrued liabilities
Operating lease liabilities, current portion
Deferred revenue, current portion
Total current liabilities
Long-term debt
Operating lease liabilities, less current portion
Other long-term liabilities
Total liabilities
Commitments and contingencies (Note 11)
Stockholders’ equity:
Common Stock, $0.00015 par value; 200,000 shares authorized; 37,358 and 36,059
shares issued and outstanding at September 30, 2022 and September 30, 2021,
respectively
Preferred Stock, $0.00015 par value; 5,000 shares authorized; no shares issued and
outstanding
Additional paid-in capital
Accumulated other comprehensive loss
Accumulated deficit
Total stockholders’ equity
Total liabilities and stockholders’ equity
$
$
$
193,524 $
603
165,467
316
43,185
4,920
8,442
222,330
1,907
20,565
65,665
45,394
7,929
363,790
4,802
316
24,662
4,719
4,529
57,431
96,459
124,301
17,229
2,283
240,272
49,121
5,772
12,516
261,536
1,838
15,392
65,665
37,362
10,454
392,247
5,820 $
603
26,712
6,860
4,651
62,282
106,928
135,417
12,142
3,139
257,626
6
5
—
421,473
(2,413)
(284,445)
134,621
392,247 $
—
380,528
(1,205)
(255,810)
123,518
363,790
The accompanying notes are an integral part of these Consolidated Financial Statements.
54
Revenues:
Subscription
Professional services
Total revenues
Cost of revenues:
Subscription
Professional services
Total cost of revenues
Gross profit
Operating expenses:
Research and development
Sales and marketing
General and administrative
Total operating expenses
MODEL N, INC.
Consolidated Statements of Operations
(in thousands, except per share data)
Fiscal Years Ended September 30,
2021
2020
2022
$
159,766 $
59,398
219,164
142,448 $
50,997
193,445
58,509
38,611
97,120
122,044
47,604
47,719
39,676
134,999
(12,955)
14,763
(558)
(27,160)
1,475
(28,635) $
49,933
36,715
86,648
106,797
44,661
43,239
33,311
121,211
(14,414)
14,344
210
(28,968)
769
(29,737) $
116,184
44,872
161,056
34,461
31,035
65,496
95,560
34,361
38,979
28,826
102,166
(6,606)
6,322
(76)
(12,852)
812
(13,664)
(0.78) $
(0.84) $
(0.40)
36,744
35,461
34,008
Loss from operations
Interest expense, net
Other expenses (income), net
Loss before income taxes
Provision for income taxes
Net loss
Net loss per share attributable to common stockholders:
Basic and diluted
Weighted average number of shares used in computing net loss per
share attributable to common stockholders:
Basic and diluted
$
$
The accompanying notes are an integral part of these Consolidated Financial Statements.
55
MODEL N, INC.
Consolidated Statements of Comprehensive Loss
(in thousands)
Net loss
Other comprehensive income (loss), net:
Unrealized gain (loss) on cash flow hedges
Foreign currency translation loss
Total comprehensive loss
Fiscal Years Ended September 30,
2021
(29,737) $
2022
(28,635) $
2020
(13,664)
(316)
(892)
(29,843) $
38
(30)
(29,729) $
33
(77)
(13,708)
$
$
The accompanying notes are an integral part of these Consolidated Financial Statements.
56
MODEL N, INC.
Consolidated Statements of Stockholders’ Equity
(in thousands)
Common Stock
Amount
Accumulated
Other
Comprehensive
Loss
Additional
Paid-In
Capital
5 $ 266,295 $
Accumulated
Deficit
(212,409) $
(1,169) $
Total
Stockholders'
Equity
Balance at September 30, 2019
Issuance of common stock upon exercise of
stock options
Issuance of common stock upon release of
restricted stock units
Issuance of common stock under stock
purchase plans
Stock-based compensation (1)
Equity component of convertible senior
notes, net of issuance costs
Other comprehensive loss
Net loss
Balance at September 30, 2020
Issuance of common stock upon exercise of
stock options
Issuance of common stock upon release of
restricted stock units
Issuance of common stock under stock
purchase plans
Stock-based compensation
Other comprehensive income
Net loss
Balance at September 30, 2021
Issuance of common stock upon exercise of
stock options
Issuance of common stock upon release of
restricted stock units
Issuance of common stock under stock
purchase plans
Stock-based compensation (2)
Other comprehensive income
Net loss
Balance at September 30, 2022
Shares
32,995 $
65
1,613
148
—
—
—
—
34,821 $
9
1,091
138
—
—
—
36,059 $
21
1,091
187
—
—
—
37,358 $
—
—
503
—
—
3,731
—
26,196
55,227
—
—
—
—
—
5 $ 351,952 $
—
—
—
—
73
—
4,234
24,269
—
—
—
—
5 $ 380,528 $
—
1
232
—
4,023
—
36,690
—
—
—
—
—
6 $ 421,473 $
—
—
—
—
—
—
—
—
—
(44)
—
(1,213) $
—
—
(13,664)
(226,073) $
—
—
—
—
—
—
—
—
8
—
(1,205) $
—
(29,737)
(255,810) $
—
—
—
—
52,722
503
—
3,731
26,196
55,227
(44)
(13,664)
124,671
73
—
4,234
24,269
8
(29,737)
123,518
232
1
—
—
(1,208)
—
4,023
—
—
36,690
(1,208)
—
(28,635)
(28,635)
(2,413) $ (284,445) $ 134,621
(1) For the year ended September 30, 2020, the additional paid-in capital included $3.7 million related to restricted stock unit grants for the portion of the bonus
recorded as stock-based compensation for the year ended September 30, 2019.
(2) For the year ended September 30, 2022, the additional paid in capital included $5.4 million related to restricted stock unit grants for the portion of the bonus
recorded as stock-based compensation for the year ended September 30, 2021.
The accompanying notes are an integral part of these Consolidated Financial Statements.
57
MODEL N, INC.
Consolidated Statements of Cash Flows
(in thousands)
Fiscal Years Ended September 30,
2021
2022
2020
Cash flows from operating activities:
Net loss
Adjustments to reconcile net loss to net cash provided by operating activities
$
(28,635) $
(29,737) $
(13,664)
Depreciation and amortization
Stock-based compensation
Amortization of debt discount and issuance costs
Deferred income taxes
Amortization of capitalized contract acquisition costs
Loss on early extinguishment of debt
Other non-cash charges
Changes in assets and liabilities, net of acquisition:
Accounts receivable
Prepaid expenses and other assets
Accounts payable
Accrued employee compensation
Other accrued and long-term liabilities
Deferred revenue
Net cash provided by operating activities
Cash flows from investing activities:
Purchases of property and equipment
Acquisition of business
Net cash used in investing activities
Cash flows from financing activities:
Proceeds from exercise of stock options and issuance of employee stock
purchase plan
Proceeds from issuance of convertible senior notes, net of issuance costs
Principal payments on loan
Net changes in customer funds payable
Net cash provided by financing activities
Effect of exchange rate changes on cash and cash equivalents
Net increase (decrease) in cash and cash equivalents
Cash and cash equivalents
Beginning of period
End of period
Supplemental Disclosure of Cash Flow Data:
Cash paid for income taxes
Cash paid for interest
8,991
36,054
11,114
389
4,349
—
(797)
(5,685)
(7,108)
1,049
2,946
(2,197)
4,817
25,287
7,972
29,963
9,863
95
3,114
—
10
(3,542)
(4,224)
1,695
1,933
(2,003)
4,451
19,590
(993)
—
(993)
(1,055)
(57,849)
(58,904)
5,498
22,500
3,405
389
2,459
319
(4)
(8,836)
(3,091)
544
927
(2,433)
6,393
14,406
(579)
—
(579)
4,255
—
—
288
4,543
(493)
28,344
4,307
—
—
316
4,623
(17)
(34,708)
4,234
166,409
(44,750)
—
125,893
(9)
139,711
165,783
60,780
$ 194,127 $ 165,783 $ 200,491
200,491
$
995 $
4,528
936 $
4,641
488
1,433
The accompanying notes are an integral part of these Consolidated Financial Statements.
58
MODEL N, INC.
Notes to Consolidated Financial Statements
Note 1. The Company
Model N, Inc. (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 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 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 2022, for example, refer to the fiscal year
ended September 30, 2022.
Note 2. Summary of Significant Accounting Policies and Estimates
Basis for Presentation
The Company’s Consolidated Financial Statements and accompanying notes are prepared in accordance with accounting
principles generally accepted in the United States of America (“U.S. GAAP”) and include the accounts of the Company and its
wholly owned subsidiaries. All intercompany balances and transactions have been eliminated upon consolidation. The
Company has evaluated subsequent events through the date that the financial statements were issued.
Use of Estimates
The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and
assumptions that affect the amounts reported in the Consolidated Financial Statements and accompanying Notes to the
Consolidated Financial Statements. Significant items subject to such estimates include revenue recognition, liability and equity
allocation of convertible senior notes, income taxes, stock-based compensation, and business combinations. 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.
COVID-19
The Company is subject to risks and uncertainties as a result of the COVID-19 pandemic. At this point, the extent to
which COVID-19 may impact the Company’s financial condition or results of operations is uncertain. As of the date of issuance
of these financial statements, the Company is not aware of any specific event or circumstance that would require us to update
our estimates, judgments or revise the carrying value of our assets or liabilities. The estimates discussed above may change, as
new events occur and additional information is obtained, and are recognized in the Consolidated Financial Statements as soon
as they become known.
Revenue Recognition under ASC Topic 606
The Company derives revenues primarily from subscription revenues and professional services revenues. The Company
accounts for revenue in accordance with Accounting Standards Codification 606, Revenue from Contracts with Customers
(“ASC 606”). The core principle of ASC 606 is to recognize revenue upon the transfer of services or products to customers in
an amount that reflects the consideration the Company expects to be entitled to in exchange for those services or products. The
Company applies the following five step revenue recognition framework to recognize revenue from contracts with customers:
•
•
•
•
•
Identification of the contract, or contracts, with a customer,
Identification of the performance obligations in the contract,
Determination of the transaction price,
Allocation of the transaction price to the performance obligations in the contract, and
Recognition of revenue when, or as, the Company satisfies a performance obligation.
The Company enters into contracts with customers that can include various combinations of products and services which
are generally distinct and accounted for as separate performance obligations. As a result, the contracts may contain multiple
performance obligations. The Company determines whether the products and services are distinct based on whether the
customer can benefit from the product or service on its own or together with other resources that are readily available and
whether the Company’s commitment to transfer the product or service to the customer is separately identifiable from other
obligations in the contract. The Company generally considers its cloud-based subscription offerings, managed service support,
59
MODEL N, INC.
Notes to Consolidated Financial Statements
maintenance and support on license arrangements, professional services and training to be distinct performance obligations.
Term-based licenses generally have two performance obligations: software licenses and software maintenance.
The transaction price is determined based on the consideration to which the Company expects to be entitled in exchange
for transferring products and services to the customer. Variable consideration, if any, is estimated and included in the transaction
price if, in the Company’s judgment, it is probable that there will not be a significant future reversal of cumulative revenue
under the contract. The Company typically does not offer contractual rights of return or concessions.
The Company applies judgment in identifying and evaluating any terms and conditions in contracts which may impact
revenue recognition. For contracts that contain multiple performance obligations, the transaction price is allocated to each
performance obligation based on its relative standalone selling price (“SSP”). SSP is estimated for each distinct performance
obligation and judgment may be involved in the determination. The Company determines SSP using information that may
include market conditions and other observable inputs. The Company evaluates SSP for its performance obligations on a
quarterly basis.
Revenue is recognized when control of these products and services is transferred to the customers in an amount that
reflects the consideration to which the Company expects to be entitled in exchange for these products and services. In instances
where the timing of revenue recognition differs from the timing of invoicing, the Company has determined that its contracts
generally do not include a significant financing component.
Subscription revenue related to cloud-based solutions, managed service and support, and maintenance and support
revenues are generally recognized ratably over the contractual term of the arrangement beginning on the date that our service is
made available to the customer. These arrangements, in general, are for committed one to three-year terms. For term-based
license contracts, the transaction price allocated to the software element is recognized when it is made available to the customer.
The transaction price allocated to the related support and updates is recognized ratably over the contract term. Term-based
license arrangements may include termination rights that limit the term of the arrangement to a month, quarter or year.
Professional services revenues are generally recognized as the services are rendered for time and materials contracts or
recognized using a proportional performance method as hours are incurred relative to total estimated hours for the engagement
for fixed price contracts. The majority of the Company’s professional services contracts are on a time and materials basis.
Revenue from training and customer-reimbursed expenses is recognized as the Company delivers these services. The
Company’s implementation projects generally have a term ranging from a few months to twelve months and may be terminated
by the customer at any time.
Capitalized Contract Acquisition Costs under ASC Topic 606
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 ratably 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 Consolidated Balance Sheets. Amortization expense
is included in sales and marketing expenses on the Consolidated Statements of Operations.
Cost of Revenues
Cost of subscription revenues primarily consists of personnel-related costs including salary, bonus, and stock-based
compensation as well as costs for royalties, facilities expense, amortization, depreciation, third-party contractors and cloud
infrastructure costs. Cost of professional services revenues primarily consists of personnel-related costs including salary, bonus,
and stock-based compensation as well as costs for third-party contractors and other expenses.
Warranty
The Company provides limited warranties on all sales and provides for the estimated cost of warranties at the date of
sale. The estimated cost of warranties has not been material to date.
Foreign Currency Translation
The functional currency of the Company’s foreign subsidiaries is their respective local currency. The Company translates
all assets and liabilities of foreign subsidiaries to U.S. dollars at the current exchange rate as of the applicable consolidated
balance sheet date. Revenues and expenses are translated at the average exchange rate prevailing during the period. The effects
60
MODEL N, INC.
Notes to Consolidated Financial Statements
of foreign currency translations are recorded in accumulated other comprehensive loss as a separate component of stockholders’
equity in the Consolidated Statements of Stockholders’ Equity. Realized gains and losses from foreign currency transactions are
included in other expenses, net in the Consolidated Statements of Operations and have not been material for all periods
presented.
Hedging
Cash Flow Hedging—Hedges of Forecasted Foreign Currency Operation Costs
The Company’s customers typically pay in U.S. dollars; however, in foreign jurisdictions, the expenses are typically
denominated in local currency. The Company may use foreign exchange forward contracts to hedge certain cash flow exposures
resulting from changes in these foreign currency exchange rates. These foreign exchange contracts generally range from one
month to one year in duration.
To receive hedge accounting treatment, all hedging relationships are formally documented at the inception of the hedge
and the hedges must be highly effective in offsetting changes to future cash flows on hedged transactions. The Company
records changes in the fair value of cash flow hedges in accumulated other comprehensive loss in the 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. In the event the underlying forecasted transaction does not
occur or it becomes probable that it will not occur, the gain or loss on the related cash flow hedge is reclassified into earnings
from accumulated other comprehensive loss. If the Company does not elect hedge accounting or the contract does not qualify
for hedge accounting treatment, the changes in fair value from period to period are recognized immediately in the same
financial statement line item to which the derivative relates.
Hedge Effectiveness
For foreign currency hedges designated as cash flow hedges, the Company elected to utilize the critical terms method to
determine if the hedges are highly effective and thus, eligible for hedge accounting treatment. The Company evaluates the
effectiveness of the foreign exchange contracts on a quarterly basis.
Cash and Cash Equivalents
The Company considers all highly liquid investments with an original maturity of three months at date of purchase to be
cash equivalents. The Company’s cash equivalents are comprised of money market funds and US Treasury securities and are
maintained with financial institutions with high credit ratings.
Concentration of Credit Risk and Significant Customers
The Company maintains cash and cash equivalents with major financial institutions. The Company’s cash and cash
equivalents consist of bank deposits held with banks, money market funds, and US Treasury securities. The Company limits its
credit risk by dealing with counterparties that are considered to be of high credit quality and by performing periodic evaluations
of its investments and of the relative credit standing of these financial institutions.
Credit risk is the risk of loss from amounts owed by financial counterparties. Credit risk can occur at multiple levels; as a
result of broad economic conditions, challenges within specific sectors of the economy, or from issues affecting individual
companies. Financial instruments that potentially subject the Company to credit risk consist of cash equivalents and accounts
receivable.
In the normal course of business, the Company is exposed to credit risk from its customers. To reduce credit risk, the
Company performs ongoing credit evaluations of its customers.
The following customers comprised 10% or more of the Company’s accounts receivable as of September 30, 2022, and
2021:
Accounts Receivable
Company A
As of September 30,
2022
less than 10%
2021
13%
61
MODEL N, INC.
Notes to Consolidated Financial Statements
No customer represented more than 10% of the Company’s total revenues for the fiscal years ended September 30, 2022,
2021, and 2020.
Accounts Receivable and Allowance
Accounts receivable are recorded at the invoiced amount, net of allowances for credit losses. The allowance for credit
losses is based on management’s assessment of the collectability of accounts. The Company regularly reviews the adequacy of
this allowance for credit losses by considering historical experience, the age of the accounts receivable balances, the credit
quality of the customers, current economic conditions, reasonable and supportable forecasts of future economic conditions, and
other factors that may affect customers’ ability to pay to determine whether a specific allowance is appropriate. Accounts
receivable deemed uncollectible are charged against the allowance for credit losses when identified.
Revenue that has been recognized, but for which the Company has not invoiced the customer, amounting to $14.0
million and $6.0 million is recorded as unbilled receivables and is included in accounts receivables in the Consolidated Balance
Sheets as of September 30, 2022, and 2021, respectively. Invoices that have been issued before revenue has been recognized are
recorded as deferred revenue in the Consolidated Balance Sheets.
Property and Equipment, Net
Property and equipment are stated at cost less accumulated depreciation. Depreciation of property and equipment is
calculated on a straight-line basis over the estimated useful lives of the assets. Leasehold improvements are amortized on a
straight-line basis over the shorter of the lease term or the estimated useful lives of the assets.
The estimated useful lives of property and equipment are as follows:
Computer software and equipment
Furniture and fixtures
Leasehold improvements
Software development costs
2-5 years
2-5 years
Shorter of the lease term or estimated useful life
3 years
Costs of maintenance and repairs that do not improve or extend the lives of the respective assets are charged to expense
as incurred. Upon retirement or sale of property and equipment, the cost and related accumulated depreciation are removed
from the balance sheet and the resulting gain or loss is reflected in the Consolidated Statement of Operations.
Leases
The Company adopted ASC Topic 842, Leases, on October 1, 2019, using the alternative modified transition method.
The Company determines if an arrangement contains a lease at inception. The Company has entered into operating lease
agreements primarily for offices. The Company does not have any finance leases.
Operating lease assets, also known as right-of-use asset (“ROU assets") represent the Company’s right to use an
underlying asset for the lease term and operating lease liabilities represent the Company’s obligation to make payments arising
from the lease. Operating leases are included in “Operating lease right-of-use assets”, “Operating lease liabilities, current
portion”, and “Operating lease liabilities, less current portion” in the consolidated balance sheets.
Operating lease ROU assets and operating lease liabilities are recognized at the present value of the future lease
payments at commencement date. ROU assets also include any initial direct costs incurred and any lease payments made at or
before the lease commencement date, less lease incentives received.
The Company’s lease arrangements may contain lease and non-lease components. The Company elected to combine
lease and non-lease components. In determining the present value of the future lease payments, the Company considers only
payments that are fixed and determinable at commencement date, including non-lease components. Variable components such
as utilities and maintenance costs are expensed as incurred. The Company uses its incremental borrowing rate based on the
information available at the commencement date in determining the lease liabilities as the Company’s leases generally do not
provide an implicit rate. In determining the appropriate incremental borrowing rate, the Company considers information
including, but not limited to, its credit rating, the lease term, and the economic environment where the leased asset is located.
Lease terms include periods under options to extend or terminate the lease when the Company is reasonably certain to exercise
those options or not to exercise those options, respectively. Lease expense is recognized on a straight-line basis over the lease
term.
The Company also elected to apply the short-term lease measurement and recognition exemption in which ROU assets
and lease liabilities are not recognized for leases with a term of 12 months or less.
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MODEL N, INC.
Notes to Consolidated Financial Statements
Business Combination
The Company includes the results of operations of the businesses that are acquired as of the acquisition date. The
Company allocates the purchase price of acquisitions to the assets acquired and liabilities assumed based on the estimated fair
values. The excess of the purchase price over the fair values of the identifiable assets and liabilities is recorded as goodwill.
Acquisition related costs are recognized separately from the business combination and are expensed as incurred.
Goodwill and Intangible Assets
The Company records goodwill when consideration paid in an acquisition exceeds the fair value of the net tangible assets
and the identified intangible assets acquired. Goodwill is not amortized, but rather is tested for impairment annually or more
frequently if events or changes in circumstances indicate that the carrying value may not be recoverable. The Company
conducted the annual impairment test of goodwill as of September 30, 2022, and 2021. For purposes of goodwill impairment
testing, the Company has one reporting unit. The Company has elected to first assess the qualitative factors to determine
whether it is more likely than not that the fair value of the single reporting unit is less than its carrying amount as a basis for
determining whether it is necessary to perform the goodwill impairment test. When performing the goodwill impairment test,
the Company compares the fair value of the single reporting unit with its carrying amount. An impairment charge is recognized
for the amount by which the carrying amount exceeds the fair value with goodwill written down accordingly. There have been
no goodwill impairments during the periods presented.
Intangible assets, consisting of developed technology, customer relationships, non-compete agreements, and trade name
are stated at cost less accumulated amortization. All intangible assets have been determined to have finite lives and are
amortized on a straight-line basis over their estimated remaining economic lives, ranging from three to fifteen years.
Amortization expense related to developed technology is included in cost of subscription revenue while amortization expense
related to customer relationships, non-compete agreements, and trade name is included in sales and marketing expenses.
Long-lived Assets
The Company continually monitors events and changes in circumstances that could indicate that carrying amounts of its
long-lived assets, including property and equipment and intangible assets, may not be recoverable. When such events or
changes in circumstances occur, the Company assesses the recoverability of long-lived assets by determining whether the
carrying value of such assets will be recovered through their undiscounted expected future cash flows. If the future
undiscounted cash flows are less than the carrying amount of these assets, the Company recognizes an impairment loss based
on the excess of the carrying amount over the fair value of the assets. The Company did not recognize any impairment charges
on its long-lived assets during any periods presented.
Research and Development and Capitalization of Software Development Costs
The Company generally expenses costs related to research and development, including those activities related to
software solutions to be sold, leased or otherwise marketed. As such development work is essentially completed concurrently
with the establishment of technological feasibility, and accordingly, the Company has not capitalized any such development
costs.
The Company capitalizes certain software development costs incurred in connection with its cloud-based software
platform for internal use. The Company capitalizes software development costs when application development begins, it is
probable that the project will be completed, and the software will be used as intended. When development becomes
substantially complete and ready for its intended use, such capitalized costs are amortized on a straight-line basis over the
estimated useful life of the related asset, which is generally three years. Costs associated with preliminary project stage
activities, training, maintenance and all post implementation stage activities are expensed as incurred.
Fair Value of Financial Instruments
The financial instruments of the Company consist primarily of cash and cash equivalents, accounts receivable, accounts
payable, certain accrued liabilities and convertible senior notes. 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.
The Company’s cash equivalents consist of money market funds and US Treasury securities, which are classified within
Level 1 of the fair value hierarchy because they are valued based on quoted prices in active markets for identical assets or
liabilities.
The fair value of the Notes is primarily affected by the trading price of the Company’s common stock and market interest
rates. The fair value of the Notes is considered a Level 2 measurement as they are not actively traded.
63
MODEL N, INC.
Notes to Consolidated Financial Statements
Convertible Senior Notes
In May 2020, the Company issued $172.5 million aggregate principal amount of 2.625% convertible senior notes. The
Company separates its convertible senior notes (the “Notes”) into liability and equity components. The carrying amount of the
liability component is 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 is determined by
deducting the fair value of the liability component from the principal amount of the Notes. The excess of the principal amount
of the Notes over the carrying amount of the liability component (“debt discount”) is amortized to interest expense at an
effective interest rate over the contractual term of the Notes. The equity component is recorded in additional paid-in capital and
is not remeasured as long as it continues to meet the conditions for equity classification. The Company allocates the issuance
costs to the liability and equity components of the Notes based on the proportion of the proceeds allocated to the debt and
equity components. Issuance costs attributable to the liability component are amortized to interest expense using the effective
interest method over the contractual terms of the Notes. Issuance costs attributable to the equity component are netted with the
equity component in stockholders’ equity.
Advertising and Promotion Costs
Advertising and promotion costs are expensed as incurred. The Company incurred $0.2 million, $0.3 million, and $0.2
million in advertising and promotions costs during the fiscal years ended September 30, 2022, 2021, and 2020, respectively.
Employee Benefit Plan
The Company has a savings plan that qualifies under Section 401(k) of the Internal Revenue Code (IRC). Under the
401(k) Plan, matching contributions are based upon the amount of the employees’ contributions subject to certain limitations.
The Company contributed approximately $0.8 million, $0.8 million, and $0.6 million for the years ended September 30,
2022, 2021, and 2020, respectively.
Stock-Based Compensation
Stock-based compensation expense for all share-based payment awards granted to the employees and directors is
measured and recognized based on the fair value of the awards on the grant date. The fair value is recognized as expense, net of
estimated forfeitures on a ratable basis, over the requisite service period, which is generally the vesting period of the respective
award. The Company uses the Black-Scholes-Merton valuation model to estimate the fair value of stock purchase right granted
under the employee stock purchase plan (“ESPP”). The Black-Scholes-Merton valuation model requires the use of subjective
assumptions including the expected stock price volatility over the expected term, risk-free interest rates, and expected
dividends. The fair value of RSUs is determined based on the closing quoted price of the Company’s common stock on the
grant date. The Company periodically estimates the portion of awards which will ultimately vest based on its historical
forfeiture experience. These estimates are adjusted over the requisite service period to the extent that actual forfeitures differ, or
are expected to differ, from the prior estimates.
The Company grants performance-based restricted stock units (“PB-RSUs”) to executives and leadership team and has
determined no forfeiture rate would be applied to the PB-RSUs. PB-RSUs have vesting conditions either based on pre-
established performance goals of the Company or the performance of the Company’s total shareholder return relative to that of
the Russell 3000 Index. For the former, the fair value is determined based on the closing quoted price of the Company’s
common stock on the grant date and the fair value is recognized using the graded-vesting attribution method over the requisite
service period. For the latter, the Company uses a Monte Carlo simulation model to determine the fair value on the grant date
and the fair value is recognized using the graded-vesting attribution method over the requisite service period.
Income Taxes
The Company accounts for income taxes in accordance with the FASB ASC No. 740—Accounting for Income
Taxes (“ASC 740”). The Company makes certain estimates and judgments in determining income tax expense for financial
statement purposes. These estimates and judgments occur in the calculation of tax credits, tax benefits and deductions and in the
calculation of certain tax assets and liabilities, which arise from differences in the timing of recognition of revenue and expense
for tax and financial statement purposes. Significant changes to these estimates may result in an increase or decrease to our tax
provision in the subsequent period when such a change in estimate occurs. The Company regularly assesses the likelihood that
its deferred income tax assets will be realized from future taxable income based on the realization criteria set forth in ASC 740.
To the extent that the Company believes any amounts are not more likely than not to be realized, the Company records a
valuation allowance to reduce the deferred income tax assets. In assessing the need for a valuation allowance, the Company
considers all available evidence, including past operating results, estimates of future taxable income and the feasibility of tax
planning strategies. In the event the Company determines that it is more likely than not that all or part of the net deferred tax
assets are not realizable in the future, an adjustment to the valuation allowance would be charged to income tax expense in the
64
MODEL N, INC.
Notes to Consolidated Financial Statements
period such determination is made. Similarly, if the Company subsequently realizes deferred income tax assets that were
previously determined to be unrealizable, the respective valuation allowance would be reversed, resulting in an adjustment to
income tax expense in the period such determination is made.
As of September 30, 2022, and 2021, the Company had gross deferred income tax assets, related primarily to net
operating loss (“NOL”) carry forwards, stock compensation, accruals and reserves that are not currently deductible,
depreciation and amortization, and research and development tax credits of $110.3 million and $107.6 million, respectively,
which have been fully offset by valuation allowance and deferred tax liabilities. Utilization of these net loss carry forwards is
subject to the limitations of IRC Section 382 (“Section 382 Limitations”). A Section 382 study was performed in fiscal year
2013 and subsequent Section 382 analyses have been performed. It is determined that there are no material limitations of IRC
Section 382. However, in the future, some portion or all of these carry forwards may not be available to offset any future
taxable income.
The Company accounts for uncertainty in income taxes using a two-step approach to recognizing and measuring
uncertain tax positions. The first step is to evaluate the tax position for recognition by determining if the weight of available
evidence indicates that it is more likely than not that the position will be sustained on audit, including resolution of related
appeals or litigation processes, if any. The second step is to measure the tax benefit as the largest amount that is more than 50%
likely of being realized upon settlement. The Company classifies the liability for unrecognized tax benefits as current to the
extent that the Company anticipates payment or receipt of cash within one year. Interest and penalties related to uncertain tax
positions are recognized in the provision for income taxes.
Segment
The Company has one operating segment with one business activity: developing and monetizing revenue management
solutions. The Company’s Chief Operating Decision Maker (“CODM”) is its Chief Executive Officer, who manages operations
on a consolidated basis for purposes of allocating resources. When evaluating performance and allocating resources, the CODM
reviews financial information as presented on a consolidated basis.
Comprehensive Loss
Comprehensive loss is comprised of net loss and other comprehensive income (loss). Other comprehensive income (loss)
includes foreign currency translation adjustments and unrealized gain (loss) on cash flow hedges.
Recent Accounting Pronouncements
Recently Adopted Accounting Pronouncements
In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740), Simplifying the Accounting for Income
Taxes, which simplifies the accounting for incomes taxes by removing certain exceptions to the general principles in Topic 740
and amending existing guidance to improve consistent application. ASU 2019-12 is effective for fiscal years, and interim
periods within those years, beginning after 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 2018, the FASB issued ASU 2018-15, Intangibles (Topic 350), Customer’s Accounting for Implementation
Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract, which aligns the requirements for capitalizing
implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing
implementation costs incurred to develop or obtain internal-use software. This standard also requires customers to amortize the
capitalized implementation costs of a hosting arrangement that is a service contract over the term of the hosting arrangement.
ASU 2018-15 is effective for fiscal years, and interim periods within those years, beginning after December 15, 2019, with
early adoption permitted. The Company adopted this guidance prospectively in the first quarter of fiscal year 2021 and it did
not have a material impact on the Consolidated Financial Statements.
In June 2016, the FASB issued ASU 2016-13, Financial Instruments-Credit Losses (Topic 326), Measurement of Credit
Losses on Financial Instruments, which requires the measurement and recognition of expected credit losses for financial assets
held at amortized cost. ASU 2016-13 replaces the existing incurred loss impairment model with an expected loss model which
requires the use of forward-looking information to calculate credit loss estimates. ASU 2016-13 is effective for fiscal years, and
interim periods within those years, beginning after December 15, 2019, with early adoption permitted. ASU 2016-13 requires a
cumulative effect adjustment to the balance sheet as of the beginning of the first reporting period in which the guidance is
effective. The Company adopted this guidance in the first quarter of fiscal year 2021 and it did not have a material impact on
the Consolidated Financial Statements.
65
MODEL N, INC.
Notes to Consolidated Financial Statements
Recent Accounting Pronouncements Not Yet Adopted
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 impact the diluted EPS computation. ASU
2020-06 is effective for fiscal years, and interim periods within those years, beginning after December 15, 2021, with early
adoption permitted after December 31, 2020, and can be adopted either on modified retrospective or full retrospective basis.
The Company will adopt this ASU on October 1, 2022 on a modified retrospective basis. The adoption is expected to reduce
paid-in capital by approximately $55 million due to the recombination of the equity conversion component of the convertible
debt, which was initially separated and recorded in stockholders’ equity and to increase convertible debt by approximately
$34 million due to removal of the remaining debt discount, related to the previous separation. The net effect of these
adjustments of approximately $21 million will be recorded as a reduction in the balance of the opening accumulated deficit as
of October 1, 2022.
The Company expects that the adoption of this ASU will result in the reduction of non-cash interest expense for the year
ending September 30, 2023 and future periods until the settlement of the remaining outstanding Notes.
Upon adoption, the Company will prospectively utilize the if-converted method to calculate the impact of convertible
instruments on diluted earnings per share.
The adoption of this ASU will have no impact on the consolidated statement of cash flows.
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 is currently evaluating the potential
impact of ASU 2021-08 to its consolidated financial statements.
Note 3. 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 15, Geographic Information, for information on revenue by geography.
Customer Contract Balances
The following table reflects balances related to contracts with customers (in thousands):
Accounts receivable, net
Unbilled accounts receivable, net
Total accounts receivable, net
Contract asset
Deferred revenue
Capitalized contract acquisition costs
Accounts Receivable
As of September 30,
2022
2021
$
$
$
$
$
35,095 $
14,026
49,121 $
7,671 $
62,649 $
13,041 $
37,177
6,008
43,185
4,891
57,796
9,539
Accounts receivable represents our 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. The
additions, write-offs and deductions to the allowance for credit losses were immaterial for the fiscal years ended September 30,
2022, 2021, and 2020.
66
MODEL N, INC.
Notes to Consolidated Financial Statements
Unbilled Accounts Receivable
Unbilled accounts receivable consist of a receivable primarily for the revenue recognized for services performed but not
yet billed. As of September 30, 2022 and 2021, the unbilled accounts receivable were $14.0 million and $6.0 million,
respectively. There was no allowance for credit losses associated with unbilled accounts receivable as of September 30, 2022
and 2021.
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 Consolidated Balance Sheets.
During the year ended September 30, 2022, the Company recognized $57.4 million of revenue that was included in the deferred
revenue balance at the beginning of the period.
Capitalized Contract Acquisition Costs
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 $4.3 million. $3.1 million, and $2.5 million of contract
acquisition costs during the years ended September 30, 2022, 2021, and 2020, respectively. For the years ended September 30,
2022, 2021, and 2020, 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 arrangement. These amounts are included in accrued liabilities on the Consolidated Balance Sheets. The customer
deposits amount was immaterial as of September 30, 2022, and 2021.
Standard payment terms to customers generally range from thirty to ninety days; however, payment terms and conditions
in the 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 September 30,
2022, the aggregate amount of the transaction price allocated to performance obligations either unsatisfied or partially
unsatisfied was $334.7 million, 40% of which the Company expects to recognize as revenue over the next 12 months and the
remainder thereafter.
Note 4. Leases
The Company leases facilities under noncancelable 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 $5.8 million, $4.6 million and $3.2 million for the years ended September 30, 2022, 2021 and
2020, respectively. Short-term lease costs, variable lease costs, and sublease income were immaterial for the years ended
September 30, 2022, 2021 and 2020 .
Cash flow information related to operating leases is as follows (in thousands):
Cash paid for amounts included in the measurement of operating lease liabilities
$
Operating lease ROU assets obtained in exchange for new operating lease liabilities $
5,032 $
— $
2,789
20,593
Fiscal Years Ended September 30,
2022
2021
67
MODEL N, INC.
Notes to Consolidated Financial Statements
Operating lease ROU assets obtained in exchange for new operating lease liabilities during the year ended September 30,
2021 are primarily related to the Company’s headquarters lease and the lease for new office space in India that commenced
during the period.
The weighted-average remaining lease terms were 3.6 years and 4.5 years as of September 30, 2022, and 2021,
respectively. The weighted-average discount rates were 2.9% and 2.9% as of September 30, 2022, and 2021, respectively.
Maturities of operating lease liabilities as of September 30, 2022 are as follows (in thousands):
Fiscal Year
2023
2024
2025
2026
2027
2028 and thereafter
Total operating lease payments
Less imputed interest
Total operating lease liabilities
Note 5. Financial Instruments
$
$
5,060
4,907
4,545
2,601
515
60
17,688
896
16,792
The table below sets forth the Company’s cash equivalents as of September 30, 2022, and 2021, 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. The Company had no liabilities measured at fair value on a recurring
basis.
As of September 30, 2022
Level 1:
Money market funds
US Treasury securities
Total
As of September 30, 2021
Level 1:
Money market funds
US Treasury securities
Total
Amortized Cost Unrealized Gains Unrealized Losses
Fair Value
Reported as:
Cash and Cash
Equivalents
$
$
$
$
61,956 $
89,679
151,635 $
40,755 $
84,997
125,752 $
— $
11
11 $
— $
—
— $
— $
(6)
(6) $
61,956 $
89,684
151,640 $
61,956
89,684
151,640
— $
—
— $
40,755 $
84,997
125,752 $
40,755
84,997
125,752
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, and accrued liabilities, and are reflected in the
financial statements at cost and approximates their fair value due to their short-term nature.
See Note 8 for the fair value measurement of the Company’s derivative contracts and Note 10 for the fair value
measurement of the Company’s convertible senior notes.
Note 6. Acquisition, Goodwill, and Intangible Assets
Acquisition
On December 31, 2020, the Company acquired certain assets, properties and rights and certain liabilities and obligations
from Deloitte & Touche LLP’s pricing and contracting solutions business for a contractual purchase price of $60.0 million
subject to net working capital adjustments (the “Acquisition”). The acquired business operates primarily in the same markets as
the Company’s existing operations. The reason for the Acquisition was to increase the Company’s addressable market and
expand the opportunity to sell existing Model N products. This Acquisition has been accounted for as a business combination.
68
MODEL N, INC.
Notes to Consolidated Financial Statements
The Company has included these results in its Consolidated Financial Statements since the date of Acquisition. The Company
incurred $2.5 million of acquisition-related expense during the year ended September 30, 2021, which was recorded as general
and administrative expenses.
The total purchase consideration was $57.8 million and reflected a $2.2 million net working capital adjustment from the
contractual purchase price. The original estimate was $0.1 million in the first quarter of fiscal year 2021 which resulted in a
measurement period adjustment of $2.1 million. The Company paid the entire purchase consideration in cash during the year
ended September 30, 2021.
The purchase price was allocated to assets acquired and liabilities assumed based upon their estimated fair values as of
the date of the acquisition. The excess of the purchase price over the estimated fair value of the net assets acquired was
recorded as goodwill. The following table sets forth the allocation of the purchase price in connection with the Acquisition (in
thousands):
Acquisition Date Fair Value
Accounts receivable
Property and equipment, net
Operating lease right-of-use assets
Goodwill
Intangible assets
Total assets acquired
Operating lease liabilities, current portion
Deferred revenue, current portion
Operating lease liabilities, less current portion
Total liabilities assumed
Total purchase price
$
$
3,844
511
2,764
26,382
28,210
61,711
656
1,549
1,657
3,862
57,849
Intangible assets included customer relationships of $15.5 million, developed technology of $10.2 million, non-compete
agreements of $1.6 million, and trade name of $0.9 million, which are amortized on a straight-line basis over 15 years, 6 years,
5 years, and 3 years, respectively, and over a weighted average period of 10.8 years. Fair value of the customer relationships
was estimated using a multi-period excess earnings valuation method and fair value of the developed technology was estimated
using a relief from royalty valuation method. The Company applied significant judgment in estimating the fair value of the
customer relationships and developed technology intangible assets, which involved the use of significant assumptions.
Significant assumptions used in the valuation of customer relationships intangible asset included subscription revenue growth
rates, research and development expenses as percentage of revenue, discount rate, subscription gross margins, and customer
attrition rate. Significant assumptions used in the valuation of developed technology intangible asset included royalty rate,
obsolescence rate, and discount rate. Goodwill is comprised of expected synergies for the combined operations and the
assembled workforce acquired in the Acquisition. This goodwill is deductible for income tax purposes.
The Acquisition contributed $18.5 million to the Company’s revenues and increased operating loss, which approximated
net loss, by $6.2 million since the date of Acquisition. The Company has not presented the supplemental pro forma information
for revenue and earnings related to the Acquisition, as it is deemed impracticable to determine and disclose this information,
due to the unavailability of the information provided to the Company by Deloitte & Touche LLP, management’s inability to
reasonably estimate the amounts from the carve out business and differing fiscal year-ends.
Goodwill
The following table summarizes the changes in the carrying amount of goodwill (in thousands):
Balance at September 30, 2021
Addition from Acquisition
Balance at September 30, 2022
$
$
65,665
—
65,665
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MODEL N, INC.
Notes to Consolidated Financial Statements
Intangible Assets
The following table summarizes the gross intangible assets, accumulated amortization, and net intangible assets balances
as of September 30, 2022:
Intangible Assets:
Customer relationships
Developed technology
Non-compete agreements
Trade name
Total
Estimated Useful
Life (in years)
Gross
Carrying
Amount
Accumulated
Amortization
Net Carrying
Amount
(in thousands)
3-15
5-6
5
3
$
$
52,109 $
22,333
1,600
850
76,892 $
(23,684) $
(14,791)
(560)
(496)
(39,531) $
28,425
7,543
1,040
354
37,362
The following table summarizes the gross intangible assets, accumulated amortization, and net intangible assets balances
as of September 30, 2021:
Intangible Assets:
Customer relationships
Developed technology
Non-compete agreements
Trade name
Total
Estimated Useful
Life (in years)
Gross
Carrying
Amount
Accumulated
Amortization
Net Carrying
Amount
(in thousands)
3-15
5-6
5
3
$
$
$
$
52,109 $
22,333
1,600 $
850 $
76,892 $
(19,092) $
(11,954)
(240) $
(212) $
(31,498) $
33,017
10,379
1,360
638
45,394
The Company recorded amortization expense related to the acquired intangible assets of $8.0 million, $7.2 million and
$4.8 million during the fiscal years ended September 30, 2022, 2021, and 2020, respectively.
Estimated future amortization expense for the intangible assets as of September 30, 2022 is as follows:
2023
2024
2025
2026
2027
2028 and thereafter
Total future amortization
Fiscal Years Ending
September 30,
(in thousands)
$
$
7,186
6,691
6,620
6,069
2,266
8,530
37,362
Note 7. Cash, Cash Equivalents, and Funds Held for Customers
As part of the acquisition of Deloitte & Touche LLP’s pricing and contracting solutions business, the Company now
provides payment processing services to some customers whereby the Company has contractual obligations to remit funds to
various third parties on behalf of these customers. Funds received from these customers represent cash and cash equivalents and
are reflected in the “Funds held for customers” line item on the Consolidated Balance Sheets.
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MODEL N, INC.
Notes to Consolidated Financial Statements
The table below reconciles the cash and cash equivalents and funds held for customers as reported on the Consolidated
Balance Sheets to the cash and cash equivalents on the Consolidated Statements of Cash Flows (in thousands):
Cash and cash equivalents
Funds held for customers
Total cash and cash equivalents
Note 8. Derivative Instruments and Hedging
As of September 30,
2022
2021
$
$
193,524 $
603
194,127 $
165,467
316
165,783
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 amounts reclassified to expenses related to the hedged transactions were immaterial for the years ended
September 30, 2022, 2021, and 2020. 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, and 2021.
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 Company's outstanding foreign currency forward contracts designated as cash flow
hedges were $4.3 million and $6.8 million as of September 30, 2022, and 2021, respectively.
Note 9. Property and Equipment
Components of property and equipment consisted of the following:
Computer software and equipment
Furniture and fixtures
Leasehold improvements
Software development costs
Total property and equipment
Less: Accumulated depreciation and amortization
Total Property and equipment, net
As of September 30,
2022
2021
(in thousands)
5,372 $
1,148
527
5,753
12,800 $
(10,962)
1,838 $
5,542
1,257
481
7,801
15,081
(13,174)
1,907
$
$
$
Depreciation expense including depreciation of assets under capital leases totaled $1.0 million, $0.8 million, and $0.7
million for the fiscal years ended September 30, 2022, 2021, and 2020, respectively.
Note 10. Convertible Senior Notes
In May 2020, the Company issued $172.5 million aggregate principal amount of 2.625% convertible senior 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 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 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 Notes mature on June 1, 2025
unless repurchased, redeemed or converted in accordance with their terms prior to such date.
The 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 Notes, which is
71
MODEL N, INC.
Notes to Consolidated Financial Statements
equal to an initial conversion price of approximately $33.33 per share of common stock subject to adjustment, with a maximum
conversion rate of 38.2555. The Company intends to settle the principal amount of the Notes with cash. Prior to the close of
business on the scheduled trading day immediately preceding March 1, 2025, holders of the Notes may convert all or a portion
of their 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 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 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 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 Notes who convert their Notes in connection with a make-whole fundamental change (as defined in the
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 Indenture), holders of the Notes may
require the Company to repurchase all or a portion of their Notes at a price equal to 100% of the principal amount of Notes,
plus any accrued and unpaid interest to, but excluding, the repurchase date.
The Company may not redeem the Notes prior to June 6, 2023. The Company may redeem for cash all or part of the
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 Notes.
During the year ended September 30, 2022, the conditions allowing holders of the Notes to convert were not met. The
Notes were classified as long-term debt on the Consolidated Balance Sheets as of September 30, 2022.
In accounting for the issuance of the Notes, the Company separated the 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 Notes. The excess of the principal amount of the Notes over the carrying amount of the liability
component is amortized to interest expense at an effective interest rate over the contractual terms of the 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.
In accounting for the issuance costs related to the Notes, the Company allocated the total amount incurred to the liability
and equity components of the 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 Notes. Issuance costs attributable to the equity component of $2.0 million
were netted with the equity component in stockholders’ equity.
72
MODEL N, INC.
Notes to Consolidated Financial Statements
The net carrying amounts of the liability and equity components for the Notes were as follows (in thousands):
Liability component:
Principal amount
Unamortized discount
Unamortized issuance costs
Net carrying amount
Equity component, net of issuance costs
As of September 30,
2022
2021
$
$
$
172,500 $
(34,354)
(2,729)
135,417 $
55,227 $
The following table sets forth the interest expense recognized related to the Notes (in thousands):
Fiscal Years Ended September 30,
2022
2021
Coupon interest expense
Amortization of debt discount
Amortization of debt issuance costs
Total interest expense related to the Notes
Effective interest rate of the liability component
$
$
$
$
4,528
10,448
666
15,642
12.32 %
172,500
(44,803)
(3,396)
124,301
55,227
4,528
9,344
519
14,391
12.32 %
The unamortized debt discount and debt issuance costs will be amortized over 32 months as of September 30, 2022.
As of September 30, 2022, the total estimated fair value of the Notes was approximately $211.7 million which includes
the equity component. The fair value was determined based on the closing trading price per $100 of the Notes as of the last day
of trading for the period. The fair value of the Notes is primarily affected by the trading price of the Company’s common stock
and market interest rates. The fair value of the Notes is considered a Level 2 measurement as they are not actively traded.
Note 11. Commitments and Contingencies
Leases
See Note 4 for details of leases.
Indemnification Obligations
Each of the Company’s software licenses contains the terms of the contractual arrangement with the customer and
generally includes certain provisions for defending the customer against any claims that the Company’s software infringes upon
a patent, copyright, trademark, or other proprietary right of a third party. The software license also provides for indemnification
by the Company of the customer against losses, expenses, and liabilities from damages that may be assessed against the
customer in the event the Company’s software is found to infringe upon such third party rights.
The Company has not had to reimburse any of its customers for losses related to indemnification provisions, and there
were no material claims against the Company outstanding as of September 30, 2022, and 2021. For several reasons, including
the lack of prior indemnification claims and the lack of a monetary liability limit for certain infringement cases under the
software license, the Company cannot estimate the amount of potential future payments, if any, related to indemnification
provisions.
Legal Proceedings
The Company is not currently a party to any pending material legal proceedings. From time to time, the Company may
become involved in legal proceedings arising in the ordinary course of our business. Regardless of outcome, litigation can have
an adverse impact on the Company due to defense and settlement costs, diversion of management resources, negative publicity
and reputational harm and other factors.
73
MODEL N, INC.
Notes to Consolidated Financial Statements
Note 12. Stock-Based Compensation
2000 Stock Plan
The 2000 Stock Plan (the “2000 Plan”) authorized the board of directors (the “Board”) to grant incentive share options
and non-statutory share options to employees, directors and other eligible participants. Stock purchase rights may also be
granted under the 2000 Plan. The exercise price of the stock options shall not be less than the estimated fair value of the
underlying shares of the common stock on the grant date. Options generally vest over four years and expire ten years from the
date of grant. In connection with the adoption of the 2010 Equity Incentive Plan (the “2010 Plan”) in June 2010, the 2000 Plan
was terminated and all shares of common stock previously reserved but unissued were transferred to the 2010 Plan.
2010 Equity Incentive Plan
On June 15, 2010, the Board adopted the 2010 Plan under which employees, directors, and other eligible participants of
the Company or any subsidiary of the Company may be granted incentive stock options, nonstatutory stock options and all
other types of awards to purchase shares of the Company’s common stock. The total number of shares reserved and available
for grant and issuance pursuant to the 2010 Plan consists of (a) any authorized shares not issued or subject to outstanding grants
under the 2000 Plan on the adoption date, (b) shares that are subject to issuance upon exercise of options granted under the
2000 Plan but cease to exist for any reason other than exercise of such options; and (c) shares that were issued under the 2000
Plan which are repurchased by the Company at the original issue price or forfeited. In connection with the adoption of the 2013
Equity Incentive Plan (the “2013 Plan”) in February 2013, the 2010 Plan was terminated and all shares of common stock
previously reserved but unissued were transferred to the 2013 Plan.
2013 Equity Incentive Plan
In February 2013, the Board adopted the 2013 Plan. The 2013 Plan was approved with a reserve of 8.0 million shares,
which consists of 2.5 million shares of the Company’s common stock reserved for future issuance under the 2013 Plan and
shares of common stock previously reserved but unissued under the 2010 Plan. Additionally, the 2013 Plan provides for
automatic increases in the number of shares available for issuance under it on October 1 of each of the first four calendar years
during the term of the 2013 Plan by the lesser of 5% of the number of shares of common stock issued and outstanding on each
September 30 immediately prior to the date of increase or the number determined by the Board. In fiscal year 2018, 2.0 million
additional shares were approved by the Company’s stockholders for issuance under the 2013 Plan. The 2013 Plan provides for
the grant of incentive stock options, nonqualified stock options, restricted stock awards, stock appreciation rights, performance
stock awards, restricted stock units and stock bonuses. Awards generally vest over four years and expire ten years from the date
of grant. In connection with the adoption of the 2021 Equity Incentive Plan (the “2021 Plan”) in February 2021, the 2013 Plan
was terminated and all shares of common stock previously reserved but unissued were transferred to the 2021 Plan.
2021 Equity Incentive Plan
The Board adopted the 2021 Plan in December 2020, and the stockholders approved the 2021 Plan in February 2021.
The 2021 Plan became effective on February 19, 2021 and will terminate on February 18, 2031. The 2021 Plan serves as the
successor equity compensation plan to the 2013 Plan. No further grants will be made under the 2013 Plan, and the balances
under the 2013 Plan have been transferred to the 2021 Plan. The 2021 Plan was approved with a reserve of 3.9 million shares,
which consists of 1.7 million shares of the Company’s common stock reserved for future issuance under the 2021 Plan and
shares of common stock previously reserved but unissued under the 2013 Plan.
The 2021 Plan provides for the grant of incentive stock options, nonqualified stock options, restricted stock awards,
stock appreciation rights, performance stock awards, restricted stock units, and stock bonuses. Awards generally vest over four
years and expire ten years from the date of grant. As of September 30, 2022, 2.2 million shares were available for future stock
awards under the 2021 Plan and any additional releases resulting from an over-achievement relating to performance-based
restricted stock units.
Stock Options
There were no stock options granted in fiscal years ended September 30, 2022, 2021, and 2020. The expected terms of
options granted were calculated using the simplified method, determined as the average of the contractual term and the vesting
period. Estimated volatility is derived from the historical closing prices of common shares of similar entities whose share prices
are publicly available for the expected term of the option. The risk-free interest rate is based on the U.S. treasury constant
maturities in effect at the time of grant for the expected term of the option. The Company uses historical data to estimate the
number of future stock option forfeitures.
74
MODEL N, INC.
Notes to Consolidated Financial Statements
The following table summarized the stock option activity and related information under all stock option plans:
Balance at September 30, 2019
Exercised
Expired
Balance at September 30, 2020
Exercised
Balance at September 30, 2021
Exercised
Balance at September 30, 2022
Options exercisable as of September 30, 2022
Options vested and expected to vest as of
September 30, 2022
Number of
Shares
(in thousands)
Weighted
Average
Exercised
Price
100 $
(65)
(1)
34
(9)
25
(21)
4 $
4 $
8.66
7.72
1.74
10.57
8.20
11.41
11.10
13.50
13.50
4 $
13.50
Weighted
Average
Remaining
Contract
Term (in years)
Aggregate
Intrinsic
Value
(in thousands)
2.23 $
1,911
1.68 $
0.82 $
0.41 $
0.41 $
0.41 $
846
560
83
83
83
The intrinsic value of options exercised during fiscal years ended September 30, 2022, 2021, and 2020 was $0.4 million,
$0.2 million, and $1.4 million, respectively.
Employee Stock Purchase Plan
The 2021 Employee Stock Purchase Plan (the “ESPP”) became effective on February 19, 2021, and replaced the 2013
Employee Stock Purchase Plan. The ESPP allows eligible employees to purchase shares of the Company’s common stock at a
discount through payroll deductions of up to 15% of their eligible compensation, at not less than 85% of the fair market value,
as defined in the ESPP, subject to any plan limitations. The ESPP provides for six-month offering periods, starting on February
20 and August 20 of each year.
The following table summarizes the weighted-average assumptions used to estimate the fair value of rights to acquire
stock granted under the Company’s ESPP during the periods presented:
Risk-free interest rate
Dividend yield
Volatility
Expected term (in years)
Fair value at grant date
Fiscal Years Ended September 30,
2021
2020
2022
1.97 %
— %
47 %
0.50
0.05 %
— %
41 %
0.50
0.84 %
— %
52 %
0.50
$
8.07
$
9.68
$
11.20
Restricted Stock Units and Performance-based Restricted Stock Units
During the years ended September 30, 2022, 2021, and 2020, the Compensation Committee of the Board approved
grants of performance-based restricted stock units to the Company’s certain senior officers, including the Chief Executive
Officer and the Chief Financial Officer. For the performance-based restricted stock units granted in fiscal years 2021 and 2022,
under the terms of these grants, the actual number of shares that will vest and be released will range from 0% to 200% of the
grant based on the performance of the Company’s total shareholder return (“TSR”) relative to that of the Russell 3000 Index
(the “Index”). These grants vest over a three-year period with 50% vesting on each of the second and the third annual
anniversary of the vesting commencing date. The grant date fair values of the performance-based restricted stock units granted
in fiscal year 2022 were determined using Monte-Carlo simulation model with risk-free interest rate of 0.57%–0.87% and
volatility of 45%–50%. For the performance-based restricted stock units granted in fiscal year 2020, under the terms of these
grants, the actual number of shares that will vest and be released will range from 0% to 150% of the grant based on the
achievement of the pre-established performance goals of the Company. These grants vest over a three-year period with one
third vesting on the first anniversary of the vesting commencing date and quarterly thereafter. As of September 30, 2022,
75
MODEL N, INC.
Notes to Consolidated Financial Statements
0.3 million shares were reserved for any additional release resulting from over-achievement relating to performance-based
restricted stock units.
The following table summarizes the Company’s restricted stock unit activity (including performance based restricted
stock awards) under all equity award plans:
Balance at September 30, 2019
Granted
Released
Forfeited
Balance at September 30, 2020
Granted
Released
Forfeited
Balance at September 30, 2021
Granted
Released
Forfeited
Balance at September 30, 2022
Restricted Stock
Units Outstanding
(in thousands)
Weighted
Average
Grant Date
Fair Value
2,350 $
1,390
(1,613)
(170)
1,957 $
1,200
(1,091)
(318)
1,748 $
1,699
(1,091)
(301)
2,055 $
16.36
28.91
19.60
18.21
22.43
36.00
22.79
27.88
30.54
32.22
28.29
30.85
33.08
The total fair value of restricted stock and performance based restricted stock awards vested for the years
ended September 30, 2022, 2021, and 2020, was $31.7 million, $41.1 million, and $54.9 million, respectively.
The following table summarizes certain information of the unvested awards as of September 30, 2022:
Total compensation cost for unvested (in millions)
Weighted-average period to recognize (in years)
(1) Includes restricted stock units and performance-based restricted stock awards.
$
Stock-based Compensation
Restricted Stock
Units (1)
ESPP
50.2 $
2.3
0.7
0.4
Stock-based compensation recorded in the Consolidated Statements of Operations is as follows:
Cost of revenues:
Subscription
Professional Services
Total stock-based compensation in cost of revenues
Operating expenses:
Research and development
Sales and marketing
General and administrative
Total stock-based compensation in operating expenses
Total stock-based compensation
2022
Fiscal Years Ended September 30,
2021
(in thousands)
2020
$
$
4,887 $
4,074
8,961
6,655
8,138
12,300
27,093
36,054 $
3,658 $
4,032
7,690
6,051
7,541
8,681
22,273
29,963 $
1,865
2,229
4,094
4,625
6,160
7,621
18,406
22,500
The total stock-based compensation included $5.1 million and $5.7 million related to bonus, for the fiscal year ended
September 30, 2022, and 2021, respectively, which was recorded in the accrued employee compensation line item in the
76
MODEL N, INC.
Notes to Consolidated Financial Statements
Consolidated Balance Sheets. For the fiscal year ended September 30, 2020, the total stock-based compensation included an
immaterial amount related to bonus.
Note 13. Income Taxes
The components of loss before income taxes are as follows:
Domestic
Foreign
Loss before taxes
The components of the provision for income taxes are as follows:
Current
Federal
State
Foreign
Deferred
Federal
State
Foreign
Total provision for income taxes
2022
Fiscal Years Ended September 30,
2021
(in thousands)
2020
$
$
(30,819) $
3,659
(27,160) $
(30,734) $
1,766
(28,968) $
(14,252)
1,400
(12,852)
2022
Fiscal Years Ended September 30,
2021
(in thousands)
2020
$
$
$
$
$
— $
42
1,010
1,052 $
1 $
143
279
423 $
1,475 $
— $
84
589
673 $
67 $
130
(101)
96 $
769 $
(106)
21
508
423
86
70
233
389
812
Reconciliation of the statutory federal income tax to the Company’s effective tax is as follows:
Tax at statutory federal rate
State tax, net of federal benefit
Permanent differences
Stock-based compensation
Section 162(m)
Foreign tax rate differential
Change in valuation allowance
Research and development tax credits
Change in deferred tax liabilities
Other
Total provision for income taxes
2022
Fiscal Years Ended September 30,
2021
(in thousands)
2020
$
$
(5,702) $
40
19
816
1,099
315
6,113
(951)
(274)
—
1,475 $
(6,083) $
84
(320)
(2,757)
2,389
61
8,459
(1,013)
(84)
33
769 $
(2,699)
21
(195)
(5,163)
2,266
213
7,778
(1,370)
69
(108)
812
The current United States federal income tax legislation generally allows companies to make distributions of previously
taxed non-U.S. earnings to the U.S. without incurring additional federal income tax. As a result, the Company expects to
repatriate future foreign earnings in certain foreign jurisdictions over time. During the year ended September 30, 2022, the
Company did not repatriate foreign subsidiary earnings to the U.S. in the form of cash and paid zero foreign withholding taxes.
During the year ended September 30, 2021, the Company repatriated $1.5 million of foreign subsidiary earnings to the U.S. in
the form of cash and paid foreign withholding taxes of $0.2 million. During the year ended September 30, 2020, the Company
repatriated $1.0 million of foreign subsidiary earnings to the U.S. in the form of cash and paid foreign withholding taxes
77
MODEL N, INC.
Notes to Consolidated Financial Statements
of $0.2 million. As of September 30, 2022, the Company recorded a deferred tax liability of $0.3 million for the additional non-
U.S. taxes that are expected to be incurred related to the repatriation of $2.3 million in foreign subsidiary earnings.
Deferred tax assets and liabilities consisted of the following:
Deferred tax assets:
Depreciation and amortization
Accruals and other
Deferred revenue
NOL carry-forward
Stock compensation
Research and development tax credits
Total deferred tax assets
Valuation allowance
Net deferred tax assets
Deferred tax liabilities:
Convertible senior notes
Intangibles
Capitalized contract acquisition costs
Other
Net deferred tax liabilities
As of September 30,
2022
2021
(in thousands)
1,670 $
15,684
100
68,841
4,208
19,812
110,315 $
(89,581)
20,734 $
(8,723) $
(5,624)
(3,538)
(3,316)
(467) $
1,287
15,531
243
69,388
3,261
17,927
107,637
(83,444)
24,193
(11,501)
(6,189)
(2,624)
(4,254)
(375)
$
$
$
$
$
A valuation allowance is provided when it is more likely than not that the deferred tax assets will not be realized. The
Company has established a full valuation allowance to offset net deferred tax assets as of September 30, 2022, and 2021, due to
the uncertainty of realizing future tax benefits from its net operating loss carry-forwards and other deferred tax assets. The net
increase in the total valuation allowance for the year ended September 30, 2022 was approximately $6.1 million.
As of September 30, 2022, the Company has federal and state NOL carry-forwards of approximately $257.8 million and
$371.0 million, respectively. The federal NOL and the state NOLs began expiring in 2021. As of September 30, 2022, the
Company had federal and state research and development credit carry-forwards of approximately $13.7 million and $14.0
million, respectively. The federal research and development credit carry-forwards began expiring in 2021. The California and
Massachusetts tax credits can be carried forward indefinitely.
Internal Revenue Code section 382 places a limitation (“Section 382 Limitation”) on the amount of taxable income can
be offset by NOL carry-forwards after a change in control (generally greater than 50% change in ownership) of a loss
corporation. California has similar rules. Generally, after a control change, a loss corporation cannot deduct NOL carry-
forwards in excess of the Section 382 Limitation. An IRC Section 382 analysis has been performed as of September 30, 2022
and determined there would be no effect on the NOL deferred tax asset if ownership changes occurred.
As of September 30, 2022, the Company had unrecognized tax benefits of approximately $5.6 million. It is unlikely that
the amount of liability for unrecognized tax benefits will significantly change over the next twelve months. The Company’s
policy is to recognize interest and penalties accrued on any unrecognized tax benefits as a component of income tax expense.
As of September 30, 2022, the liability related to uncertain tax positions recorded on the financial statements was immaterial.
78
MODEL N, INC.
Notes to Consolidated Financial Statements
A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows:
Unrecognized tax benefits at the beginning of the period
Gross decrease based on tax positions during the prior period
Gross increase based on tax positions during the prior period
Gross increase based on tax positions during the
current period
Unrecognized tax benefits at the end of the period
2022
Fiscal Years Ended September 30,
2021
(in thousands)
2020
$
$
5,118 $
(54)
557
5,621 $
4,655 $
(179)
—
642
5,118 $
3,961
(8)
—
702
4,655
The Company is subject to income taxes in U.S. federal and various state, local and foreign jurisdictions. The tax years
ended from September 2001 to September 2022 remain open to examination due to the carryover of unused net operating losses
or tax credits.
Note 14. Net Loss Per Share
The Company’s basic net loss per share attributable to common stockholders is calculated by dividing the net loss
attributable to common stockholders by the weighted average number of shares of common stock outstanding for the period,
which excludes unvested restricted stock awards. The diluted net loss per share attributable to common stockholders is
computed by giving effect to all potentially dilutive common stock equivalents outstanding for the period including options to
purchase common stock, unvested restricted stock units, ESPP, and convertible senior notes.
2022
Fiscal Years Ended September 30,
2021
(in thousands, except per share data)
2020
Numerator:
Basic and diluted:
Net loss attributable to common stockholders
$
(28,635) $
(29,737) $
(13,664)
Denominator:
Basic and diluted:
Weighted Average Shares Used in Computing Net
Loss per Share Attributable to Common
Stockholders
Net Loss per Share Attributable to Common Stockholders:
Basic and diluted
36,744
35,461
34,008
$
(0.78) $
(0.84) $
(0.40)
Potentially dilutive securities that were not included in the calculation of diluted net loss per share because their effect
would have been anti-dilutive are as follows (in thousands):
Stock options
Performance-based RSUs and RSUs
Shares issuable pursuant to the employee stock purchase plan
Convertible senior notes
2022
As of September 30,
2021
(in thousands)
2020
4
2,055
95
—
25
1,748
91
5,176
34
1,957
66
5,176
Since the Company expects to settle the principal amount of its Notes in cash and any excess in cash or shares of the
Company’s common stock, the Company uses the treasury stock method for calculating any potential dilutive effect of the
conversion spread on diluted net income per share, if applicable. The conversion spread will have a dilutive impact on diluted
net income per share of common stock when the average market price of the Company’s common stock for a given period
exceeds the conversion price of $33.33 per share for the Notes.
79
MODEL N, INC.
Notes to Consolidated Financial Statements
Note 15. 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 the United States were 5%, 7%, and 9% of total revenues for the fiscal years ended
September 30, 2022, 2021, and 2020, respectively.
Long-Lived Assets
The following table sets forth the Company’s property and equipment, net by geographic region:
United States
India
Total property and equipment, net
As of September 30,
2022
2021
(in thousands)
1,113 $
725
1,838 $
1,374
533
1,907
$
$
80
ITEM 9.
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
None.
ITEM 9A.
Controls and Procedures
Evaluation of Disclosure Controls and Procedures
Our management, with the participation of our Chief Executive Officer and our Chief Financial Officer, evaluated the
effectiveness of our disclosure controls and procedures as of September 30, 2022. The term “disclosure controls and
procedures,” as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, means controls and other procedures of a
company that are designed to ensure that information required to be disclosed by a company in the reports that it files or
submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the
SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to
ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is
accumulated and communicated to the Company’s management, including its principal executive and principal financial
officers, as appropriate to allow timely decisions regarding required disclosure. Based on the evaluation of our disclosure
controls and procedures as of September 30, 2022, our Chief Executive Officer and Chief Financial Officer concluded that, as
of such date, our disclosure controls and procedures were effective at the reasonable assurance level.
Management’s Annual Report on Internal Control over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting as
defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act. Under the supervision and with the participation of our
management, including our Chief Executive Officer and Chief Financial Officer, we conducted an evaluation of the
effectiveness of our internal control over financial reporting as of September 30, 2022, using the criteria established in Internal
Control—Integrated Framework (2013 framework) issued by the Committee of Sponsoring Organizations of the Treadway
Commission (COSO).
Based on our evaluation under the COSO framework, our management has concluded that our internal control over
financial reporting was effective as of September 30, 2022, to provide reasonable assurance regarding the reliability of financial
reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting
principles.
The effectiveness of our internal control over financial reporting as of September 30, 2022, has been audited by
PricewaterhouseCoopers LLP, an independent registered public accounting firm, as stated in their report which appears herein.
Changes in Internal Control over Financial Reporting
There was no change in our internal control over financial reporting identified in connection with the evaluation required
by Rules 13a-15(d) and 15d-15(d) of the Exchange Act that occurred during the quarter ended September 30, 2022, that has
materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
Inherent Limitations on Effectiveness of Controls
Our management, including our Chief Executive Officer and Chief Financial Officer, believes that our disclosure
controls and procedures and internal control over financial reporting are designed to provide reasonable assurance of achieving
their objectives and are effective at the reasonable assurance level. However, our management does not expect that our
disclosure controls and procedures or our internal control over financial reporting will prevent all errors and all fraud. A control
system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of
the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and
the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no
evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, have been detected.
These inherent limitations include the realities that judgments in decision making can be faulty, and that breakdowns can occur
because of a simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by
collusion of two or more people or by management override of the controls. The design of any system of controls also is based
in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will
succeed in achieving its stated goals under all potential future conditions; over time, controls may become inadequate because
of changes in conditions, or the degree of compliance with policies or procedures may deteriorate. Because of the inherent
limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected.
ITEM 9B.
Other Information
None.
81
ITEM 9C.
Disclosure Regarding Foreign Jurisdictions that Prevent Inspections
None.
82
ITEM 10.
Directors, Executive Officers and Corporate Governance
PART III
Information about our Executive Officers and our Directors is incorporated by reference to information contained in the
Proxy Statement for the 2023 Annual Meeting of Stockholders to be filed with the SEC within 120 days of September 30, 2022.
We have adopted a code of business conduct for directors and a code of business conduct for all of our employees,
including our executive officers, and those employees responsible for financial reporting. Both codes of business conduct are
available on the investor relations portion of our website at investor.modeln.com. A copy may also be obtained without charge
by contacting Investor Relations, Model N, Inc., 777 Mariners Island Boulevard, Suite 300, San Mateo, CA 94404 or by calling
(650) 610-4998.
We plan to post on our website at the address described above any future amendments or waivers of our codes of
business conduct.
ITEM 11.
Executive Compensation
The information required by this item is incorporated by reference to information contained in the Proxy Statement for
the 2023 Annual Meeting of Stockholders to be filed with the SEC within 120 days of September 30, 2022.
ITEM 12.
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
The information required by this item is incorporated by reference to information contained in the Proxy Statement for
the 2023 Annual Meeting of Stockholders to be filed with the SEC within 120 days of September 30, 2022.
ITEM 13.
Certain Relationships and Related Transactions, and Director Independence
The information required by this item is incorporated by reference to information contained in the Proxy Statement for
the 2023 Annual Meeting of Stockholders to be filed with the SEC within 120 days of September 30, 2022.
ITEM 14.
Principal Accountant Fees and Services
The information required by this item is incorporated by reference to information contained in the Proxy Statement for
the 2023 Annual Meeting of Stockholders to be filed with the SEC within 120 days of September 30, 2022.
83
ITEM 15.
Exhibits and Financial Statement Schedules
(a)
(1)
The following documents filed as a part of the report:
Financial Statements
PART IV
The financial statements are set forth in Item 8 of this Annual Report on Form 10-K.
(2)
Financial Statement Schedule
Schedule II - Valuation and qualifying accounts
The table below presents the changes in the valuation allowance for deferred tax assets for the fiscal years ended
September 30, 2022, 2021, and 2020, respectively.
Description
Valuation allowance for deferred tax
assets
For the Year Ended September 30, 2022
For the Year Ended September 30, 2021
For the Year Ended September 30, 2020
(3)
Exhibits
Balance at
Beginning of
Period
Additions
Charges to
Costs and
Expenses
Write-offs
and
Deductions
Balance at
End of
Period
$
$
$
83,444
73,372
74,885
7,742
14,332
15,261
1,605 $
4,260 $
16,774 $
89,581
83,444
73,372
The following exhibits are included herein or incorporated herein by reference:
Incorporated by Reference
Exhibit
Number
3.1
Exhibit Description
Amended and Restated Certificate of
Incorporation of the Registrant
Form
10-Q
File No.
001-35840
Exhibit
Filing
Date
Filed
Herewith
3.2
4.1
4.2
4.3
Amended and Restated Bylaws of the Registrant
Form of Registrant’s Common Stock certificate
Indenture dated May 22, 2020 between the
Registrant and U.S. Bank, National Association
Form of Global Note, representing the
Registrant’s 2.625% Convertible Senior Notes
due 2025
4.4
10.1
10.2
10.3†
10.4†
10.5†
10.6†
10.7†
10.8
10.9
Description of Registrant’s Securities
Form of Indemnity Agreement to be entered into
between Registrant and each of its officers and
directors
Form of Change in Control and Severance
Agreement (Non-CEO Executives)
2010 Equity Incentive Plan and forms of stock
option agreement and stock option exercise
agreement
2013 Equity Incentive Plan and forms of stock
option agreement and stock option exercise
agreement
2013 Employee Stock Purchase Plan
Form of Restricted Stock Unit Agreement
Employment agreement dated May 7, 2018 by
and between Registrant and Jason Blessing
Form of Change in Control and Severance
Agreement (CEO)
Lease by and between RV VI 777 Mariners, LLC
and Registrant dated April 7, 2020
10-Q
S-1
8-K
001-35840
333-186668
001-35840
3.1 5/10/2013
5/6/2020
3.1
4.01
3/7/2013
4.1 5/22/2020
8-K
001-35840
4.1 5/22/2020
10-K
S-1
001-35840
333-186668
4.5 11/23/2020
10.01 3/12/2013
8-K
001-35840
10.2
5/9/2019
S-1
333-186668
10.03 2/13/2013
S-1
333-186668
10.04
3/7/2013
S-8
10-K
10-Q
333-187388
001-35840
001-35840
99.4 3/20/2013
10.12 12/6/2013
8/8/2018
10.2
8-K
001-35840
10.1
5/9/2019
10-Q
001-35840
10.1
5/6/2020
84
Exhibit Description
Exhibit
Number
10.10† 2021 Equity Incentive Plan
10.11† 2021 Employee Stock Purchase Plan
10.12† Form of Executive Employment Agreement
21.1
List of Subsidiaries of Registrant
23.1
24.1
31.1
31.2
32.1*
32.2*
Consent of PricewaterhouseCoopers LLP,
independent registered public accounting firm
Power of Attorney (included on the signature
page to this report)
Certification of Periodic Report by Principal
Executive Officer under Section 302 of the
Sarbanes-Oxley Act of 2002
Certification of Periodic Report by Principal
Financial Officer under Section 302 of the
Sarbanes-Oxley Act of 2002
Certification of Chief Executive Officer Pursuant
to 18 U.S.C. Section 1350 as Adopted Pursuant
to Section 906 of the Sarbanes-Oxley Act of
2002
Certification of Principal Financial Officer
Pursuant to 18 U.S.C. Section 1350 as Adopted
Pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002
101.INS Inline XBRL Instance Document
101.SCH
101.CAL
101.DEF
101.LAB
101.PRE
104
Inline XBRL Taxonomy Extension Schema
Document
Inline XBRL Taxonomy Extension Calculation
Linkbase Document
Inline XBRL Taxonomy Extension Definition
Linkbase Document
Inline XBRL Taxonomy Extension Label
Linkbase Document
Inline XBRL Taxonomy Extension Presentation
Linkbase Document
Cover Page Interactive Data File (formatted as
Inline XBRL and contained in Exhibit 101)
Incorporated by Reference
Form
File No.
DEF 14A 001-35840
DEF 14A 001-35840
001-35840
10-K
Filed
Herewith
Exhibit
Appendix A
Appendix B
Filing
Date
1/8/2021
1/8/2021
10.12 11/19/2021
X
X
X
X
X
X
X
X
X
X
X
X
X
X
†
*
Indicates a management contract or compensatory plan.
These exhibits are furnished with this Annual Report on Form 10-K and are not deemed filed with the Securities and
Exchange Commission and are not incorporated by reference in any filing of the Registrant under the Securities Act of
1933 or the Exchange Act of 1934, whether made before or after the date hereof and irrespective of any general
incorporation language in such filings.
85
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly
caused this Annual Report on Form 10-K to be signed on its behalf by the undersigned, thereunto duly authorized, in San
Mateo, State of California, on this 18th day of November 2022.
SIGNATURES
MODEL N, INC.
By:
/S/ JOHN EDERER
John Ederer
Chief Financial Officer
86
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below constitutes and
appoints Jason Blessing or John Ederer, or any of them, their attorneys-in-fact, for such person in any and all capacities, to sign
any amendments to this report and to file the same, with exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, hereby ratifying and confirming all that either of said attorneys-in-fact, or substitute or
substitutes, may do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following
persons on behalf of the Registrant and in the capacities and on the dates indicated.
Name
Title
Chief Executive Officer and Director
(Principal Executive Officer)
Date
November 18, 2022
/S/ JASON BLESSING
Jason Blessing
/S/ JOHN EDERER
John Ederer
Additional Directors:
/S/ TIM ADAMS
Tim Adams
/S/ BALJIT DAIL
Baljit Dail
/S/ KIMBERLY DECARLIS
Kimberly DeCarlis
/S/ MELISSA FISHER
Melissa Fisher
/S/ MANISHA SHETTY GULATI
Manisha Shetty Gulati
/S/ ALAN HENRICKS
Alan Henricks
/S/ SCOTT REESE
Scott Reese
/S/ DAVE YARNOLD
Dave Yarnold
Chief Financial Officer
(Principal Financial Officer and Accounting Officer)
November 18, 2022
November 18, 2022
November 18, 2022
November 18, 2022
November 18, 2022
November 18, 2022
November 18, 2022
November 18, 2022
November 18, 2022
Director
Director
Director
Director
Director
Director
Director
Director
87