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“Our second quarter results beat expectations across the board – we exceeded guidance for total revenue, subscription revenue, and professional services revenue. Q2 also underscores our commitment to driving profitable growth, with adjusted EBITDA growth of 39% year-over-year,” said Jason Blessing, president and chief executive officer of Model N. “Overperformance in Q2 was driven by a healthy contribution from all areas of the business. We signed new deals, closed a meaningful new SaaS transition, saw numerous customer base expansions, and we also enjoyed solid renewals. I’m pleased with our continued execution in this environment. We remain focused on driving profitability looking ahead.”

•Gross Profit: Gross profit was $35.0 million, an increase of 20% from the second quarter of fiscal year 2022. Gross margin was 56% for the second quarter of fiscal year 2023 compared to 55% for the second quarter of 2022. Non-GAAP gross profit was $37.8 million, an increase of 19% from the second quarter of fiscal year 2022. Non-GAAP gross margin was 60% for the second quarter of fiscal year 2023 and 2022. Subscription gross margin was 64% compared to 62% for the second quarter of fiscal year 2022. Non-GAAP subscription gross margin was 68% compared to 67% for the second quarter of fiscal year 2022.

•GAAP Net Loss: GAAP net loss was $33.3 million compared to a net loss of $8.0 million for the second quarter of fiscal year 2022. GAAP basic and diluted net loss per share attributable to common stockholders was $0.88 based upon weighted average shares outstanding of 37.9 million compared to net loss per share of $0.22 for the second quarter of fiscal year 2022 based upon weighted average shares outstanding of 36.6 million.

•Non-GAAP Net Income: Non-GAAP net income, was $8.6 million, an increase of 71% from the second quarter of fiscal year 2022. Non-GAAP net income per diluted share was $0.22 based upon diluted weighted average shares outstanding of 38.9 million compared to non-GAAP net income per diluted share of $0.14 for the second quarter of fiscal year 2022 based upon diluted weighted average shares outstanding of 36.8 million.

Model N will host a conference call today at 2:00 PM Pacific Time (5:00 PM Eastern Time) to review the company’s financial results for the second quarter fiscal year 2023 ended March 31, 2023. The conference call can be accessed by dialing 877-407-4018 from the United States or +1-201-689-8471 internationally. A live webcast and replay of the conference call can be accessed from the investor relations page of Model N’s website at investor.modeln.com. Following the completion of the call through 11:59 p.m. ET on May 23, 2023, a telephone replay will be available by dialing 844-512-2921 from the United States or +1-412-317-6671, internationally, with recording access code 13735135.

Our integrated cloud solution is proven to automate pricing, incentive, and contract decisions to scale business profitably and grow revenue. Model N is trusted across more than 120 countries by the world’s leading pharmaceutical, medical technology, semiconductor, and high-tech companies, including Johnson & Johnson, AstraZeneca, Stryker, Seagate Technology, Broadcom, and Microchip Technology. For more information, visit www.modeln.com.

This press release contains forward-looking statements including, among other things, statements regarding Model N’s second quarter and full year fiscal 2023 financial results, Model N’s profitability, future planned enhancements to our products and benefits from our products. The words “believe,” “may,” “will,” “estimate,” “continue,” “anticipate,” “intend,” “expect,” and similar expressions are intended to identify forward-looking statements. These forward-looking statements are subject to risks, uncertainties, and assumptions. If the risks materialize or assumptions prove incorrect, actual results could differ materially from the results implied by these forward-looking statements. Risks include, but are not limited to: (i) delays in closing customer contracts; (ii) our ability to improve and sustain our sales execution; (iii) the timing of new orders and the associated revenue recognition; (iv) adverse changes in general economic or market conditions; (v) delays or reductions in information technology spending and resulting variability in customer orders from quarter to quarter; (vi) competitive factors, including but not limited to pricing pressures, industry consolidation, entry of new competitors and new applications and marketing initiatives by our competitors; (vii) our ability to manage our growth effectively; (viii) acceptance of our applications and services by customers; (ix) success of new products; (x) the risk that the strategic initiatives that we may pursue will not result in significant future revenues; (xi) changes in health care regulation and policy and tax in the United States and worldwide; (xii) our ability to retain customers; and (xiii) adverse impacts on our business and financial condition due to macroeconomic and geopolitical

factors, such as inflation, rising interests, pandemics, banking system instability and geopolitical conflicts. Further information on risks that could affect Model N’s results is included in our filings with the Securities and Exchange Commission (“SEC”), including our most recent quarterly report on Form 10-Q and our annual report on Form 10-K for the fiscal year ended September 30, 2022, and any current reports on Form 8-K that we may file from time to time. Should any of these risks or uncertainties materialize, actual results could differ materially from expectations. Model N assumes no obligation to, and does not currently intend to, update any such forward-looking statements after the date of this release.

We have provided in this release financial information that has not been prepared in accordance with accounting standards generally accepted in the United States of America (“GAAP”). We use these non-GAAP financial measures internally in analyzing our financial results and believe they are useful to investors, as a supplement to GAAP measures, in evaluating our ongoing operational performance. We believe that the use of these non-GAAP financial measures provides an additional tool for investors to use in evaluating ongoing operating results and trends, and in comparing our financial results with other companies in our industry, many of which present similar non-GAAP financial measures to investors.

Non-GAAP financial measures should not be considered in isolation from, or as a substitute for, financial information prepared in accordance with GAAP. Investors are encouraged to review the reconciliation of these non-GAAP financial measures to their most directly comparable GAAP financial measures below. A reconciliation of our non-GAAP financial measures to their most directly comparable GAAP measures has been provided in the financial statement tables included below in this press release.

Our reported results include certain non-GAAP financial measures, including non-GAAP gross profit, non-GAAP gross margin, non-GAAP subscription gross profit, non-GAAP subscription gross margin, non-GAAP income from operations, non-GAAP net income, non-GAAP net income per share, adjusted EBITDA and free cash flow. Non-GAAP gross profit and subscription gross profit excludes stock-based compensation expenses and amortization of intangible assets as they are often excluded by other companies to help investors understand the operational performance of their business. Non-GAAP income from operations excludes stock-based compensation expense and amortization of intangible assets. Non-GAAP net income excludes stock-based compensation expense, amortization of intangible assets, amortization of debt discount and issuance costs, and loss on extinguishment of debt. Additionally, stock-based compensation expense varies from period to period and from company to company due to such things as valuation methodologies and changes in stock price. Adjusted EBITDA is defined as net loss, adjusted for depreciation and amortization, stock-based compensation expense, interest expense, net, other (income) expenses, net, provision for income taxes, and loss on extinguishment of debt. Reconciliation tables are provided in this press release.

SaaS ARR is defined as the annualized value of our SaaS revenue, which is derived by dividing the SaaS portion of our recurring subscription revenue for the quarter by the number of days in the quarter, and multiplying it by 365 to get an annualized number. 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. 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.

We have not reconciled guidance for non-GAAP financial measures to their most directly comparable GAAP measures because certain items that impact these measures are uncertain, out of our control and/or cannot be reasonably predicted or estimated, such as the difficulties of estimating certain items such as charges to stock-based compensation expense. Accordingly, a reconciliation of the non-GAAP financial measure guidance to the corresponding GAAP measures is not available without unreasonable effort.


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

Total current liabilities	96,856		106,928
Long-term liabilities
Long term debt	279,477		135,417
Operating lease liabilities, less current portion	8,895		12,142
Other long-term liabilities	3,403		3,139
Total long-term liabilities	291,775		150,698
Total liabilities	388,631		257,626
Stockholders’ equity
Common stock	6		6

Additional paid-in capital	394,622		421,473
Accumulated other comprehensive loss	(2,160)		(2,413)
Accumulated deficit	(300,307)		(284,445)
Total stockholders’ equity	92,161		134,621
Total liabilities and stockholders’ equity	$	480,792	$	392,247


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


	Six Months Ended March 31,
	2023		2022
Cash Flows from Operating Activities
Net loss	$	(37,369)	$	(14,305)
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation and amortization	4,262		4,479
Stock-based compensation	20,767		15,308
Amortization of debt discount and issuance costs	629		5,391
Loss on extinguishment of debt	29,493		—
Deferred income taxes	(156)		280
Amortization of capitalized contract acquisition costs	2,416		2,027
Other non-cash charges	1,077		32
Changes in assets and liabilities, net of acquisition
Accounts receivable	(27,963)		(4,682)
Prepaid expenses and other assets	8,471		2,614

Accounts payable	(1,300)		(729)
Accrued employee compensation	(9,890)		(5,517)
Other current and long-term liabilities	(5,150)		(1,707)
Deferred revenue	8,563		(263)
Net cash provided by (used in) operating activities	(6,150)		2,928
Cash Flows from Investing Activities
Purchases of property and equipment	(106)		(349)


Net cash used in investing activities	(106)		(349)
Cash Flows from Financing Activities
Proceeds from exercise of stock options and issuance of common stock under employee stock purchase plan	2,555		2,401



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


Model N, Inc.
Reconciliation of GAAP to Non-GAAP Operating Results
(in thousands, except per share amounts)


	Three Months Ended March 31,						Six Months Ended March 31,
	2023			2022			2023			2022
Reconciliation from GAAP net loss to adjusted EBITDA
GAAP net loss	$	(33,319)		$	(8,039)		$	(37,369)		$	(14,305)
Reversal of non-GAAP items
Stock-based compensation expense	10,362			8,322			20,767			15,308
Depreciation and amortization	1,989			2,239			4,262			4,479

Interest expense, net	(281)			3,848			(147)			7,626
Loss on extinguishment of debt	29,493			—			29,493			—
Other expenses (income), net	83			(112)			18			(12)
Provision for income taxes	902			360			1,334			734
Adjusted EBITDA	$	9,229		$	6,618		$	18,358		$	13,830

	Three Months Ended March 31,						Six Months Ended March 31,
	2023			2022			2023			2022
Reconciliation from GAAP gross profit to non-GAAP gross profit
GAAP gross profit	$	34,984		$	29,229		$	67,867		$	58,120
Reversal of non-GAAP expenses
Stock-based compensation (a)	2,370			1,936			4,847			3,415
Amortization of intangible assets (b)	427			709			1,136			1,418
Non-GAAP gross profit	$	37,781		$	31,874		$	73,850		$	62,953
Percentage of revenue	60.3		%	59.8		%	60.7		%	60.1		%

	Three Months Ended March 31,						Six Months Ended March 31,
	2023			2022			2023			2022
Reconciliation from GAAP subscription gross profit to non-GAAP subscription gross profit
GAAP subscription gross profit	$	28,804		$	23,779		$	57,412		$	47,951
Reversal of non-GAAP expenses
Stock-based compensation (a)	1,307			1,065			2,644			1,923
Amortization of intangible assets (b)	427			709			1,136			1,418
Non-GAAP subscription gross profit	$	30,538		$	25,553		$	61,192		$	51,292
Percentage of subscription revenue	68.0		%	66.8		%	68.6		%	67.2		%


	Three Months Ended March 31,						Six Months Ended March 31,
	2023			2022			2023			2022
Reconciliation from GAAP professional services gross profit to non-GAAP professional services gross profit
GAAP professional services gross profit	$	6,180		$	5,450		$	10,455		$	10,169
Reversal of non-GAAP expenses
Stock-based compensation (a)	1,063			871			$	2,203		$	1,492
Non-GAAP professional services gross profit	$	7,243		$	6,321		$	12,658		$	11,661
Percentage of professional services revenue	41.0		%	42.0		%	38.8		%	40.9		%


	Three Months Ended March 31,				Six Months Ended March 31,
	2023		2022		2023		2022
Reconciliation from GAAP operating loss to non-GAAP operating income
GAAP operating loss	$	(3,122)	$	(3,943)	$	(6,671)	$	(5,957)
Reversal of non-GAAP expenses
Stock-based compensation (a)	10,362		8,322		20,767		15,308
Amortization of intangible assets (b)	1,726		2,008		3,734		4,016

Non-GAAP operating income	$	8,966	$	6,387	$	17,830	$	13,367

Numerator
Reconciliation between GAAP net loss and non-GAAP net income
GAAP net loss	$	(33,319)	$	(8,039)	$	(37,369)	$	(14,305)
Reversal of non-GAAP expenses
Stock-based compensation (a)	10,362		8,322		20,767		15,308
Amortization of intangible assets (b)	1,726		2,008		3,734		4,016
Loss on extinguishment of debt (c)	29,493		—		29,493		—
Amortization of debt discount and issuance costs (d)	327		2,736		629		5,391
Non-GAAP net income	$	8,589	$	5,027	$	17,254	$	10,410

Denominator
Reconciliation between GAAP net loss and non-GAAP net income per share
Shares used in computing GAAP net loss per share:
Basic	37,917		36,619		37,719		36,419
Diluted	37,917		36,619		37,719		36,419
Shares used in computing non-GAAP net income per share
Basic	37,917		36,619		37,719		36,419
Add: effect of shares for stock plan activity	555		192		589		274
Add: effect of shares related to convertible senior notes	378				486
Diluted	38,850		36,811		38,794		36,693
GAAP net loss per share
Basic and diluted	$	(0.88)	$	(0.22)	$	(0.99)	$	(0.39)
Non-GAAP net income per share
Basic	$	0.23	$	0.14	$	0.46	$	0.29
Diluted	$	0.22	$	0.14	$	0.44	$	0.28


	Three Months Ended March 31,				Six Months Ended March 31,
	2023		2022		2023		2022
Amortization of intangibles assets recorded in the statements of operations
Cost of revenues
Subscription	$	427	$	709	$	1,136	$	1,418

Total amortization of intangibles assets in cost of revenue (b)	427		709		1,136		1,418
Operating expenses

Sales and marketing	1,299		1,299		2,598		2,598

Total amortization of intangibles assets in operating expense (b)	1,299		1,299		2,598		2,598
Total amortization of intangibles assets (b)	$	1,726	$	2,008	$	3,734	$	4,016


	Three Months Ended March 31,				Six Months Ended March 31,
	2023		2022		2023		2022
Stock-based compensation recorded in the statements of operations
Cost of revenues
Subscription	$	1,307	$	1,065	$	2,644	$	1,923
Professional services	1,063		871		2,203		1,492
Total stock-based compensation in cost of revenue (a)	2,370		1,936		4,847		3,415
Operating expenses
Research and development	1,831		1,509		3,653		2,790
Sales and marketing	2,561		1,826		4,949		3,446
General and administrative	3,600		3,051		7,318		5,657
Total stock-based compensation in operating expense (a)	7,992		6,386		15,920		11,893
Total stock-based compensation (a)	$	10,362	$	8,322	$	20,767	$	15,308

To supplement our condensed consolidated financial statements presented on a GAAP basis, we use non-GAAP measures of adjusted EBITDA, gross profit, gross margin, income from operations, net income, weighted average shares outstanding and net income per share, which are adjusted to exclude stock-based compensation expense, amortization of intangible assets, depreciation of fixed assets, amortization of debt discount and issuance costs, loss on extinguishment of debt and include dilutive shares where applicable. We believe these adjustments are appropriate to enhance an overall understanding of our past financial performance and also our prospects for the future. These adjustments to our current period GAAP results are made with the intent of providing both management and investors a more complete understanding of our underlying operating results

and trends and our marketplace performance. The non-GAAP results are an indication of our baseline performance that are considered by management for the purpose of making operational decisions. In addition, these non-GAAP results are the primary indicators management uses as a basis for our planning and forecasting of future periods. The presentation of this additional information is not meant to be considered in isolation or as a substitute for operating loss, net loss or basic and diluted net loss per share prepared in accordance with generally accepted accounting principles in the United States. Non-GAAP financial measures are not based on a comprehensive set of accounting rules or principles and are subject to limitations.

(c)The repurchase of our 2.625% convertible senior notes due 2025 was accounted for as a debt extinguishment. The Company recorded a $29.5 million loss on extinguishment of debt on its consolidated statements of operations during the fiscal quarter ended March 31, 2023, which includes the write-off of related deferred issuance costs of $2.3 million. We believe exclusion of these expenses provides for a better comparison of our operating results to prior periods and to our peer companies.

(d)Amortization of debt discount and issuance costs. Prior to the adoption of ASU 2020-06, Debt with Conversion and Other Options, on October 1, 2022 we were required to recognize non-cash interest expense related to amortization of debt discount and issuance costs. Subsequent to the adoption of ASU 2020-06, Debt with Conversion and Other Options, we only recognize non-cash interest expense related to amortization of issuance costs. We believe exclusion of these expenses provides for a better comparison of our operating results to prior periods and to our peer companies.


(in $ millions, except per share)	Third Quarter Fiscal 2023	Full Year Fiscal 2023
Total revenues	61.5 - 62.5	244.0 - 246.0
Subscription revenues	45.0 - 45.5	180.0 - 181.0
Non-GAAP income from operations	9.2 - 10.2	37.9 - 39.0
Non-GAAP net income per share	0.23 - 0.25	0.94 - 0.99
Adjusted EBITDA	9.5 - 10.5	39.0 - 41.0