Table of ~~other companies could require significant management attention, disrupt our business, dilute stockholder value and adversely affect our operating results.~~Contents

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 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 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.

~~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. 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.

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 operations until future periods. We may be unable to adjust our cost structure rapidly to compensate for this potential shortfall in subscription ~~revenues.~~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 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.

In May 2018, we entered into a credit agreement with Wells Fargo under which we incurred $50.0 million of indebtedness to refinance indebtedness that we incurred in January 2017 to fund the cash portion of our Revitas acquisition, and established a revolving credit facility of $5.0 million. This term loan is secured by substantially all of our assets and matures in May 2023. We also issued two promissory notes for an aggregate of $10.0 million in January 2017 to the sellers of Revitas, one of which was repaid in full in July 2018. The incurrence of 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.~~

On January 2, 2019, we prepaid approximately $4.8 million of principal and elected to apply the prepayment against the remaining principal installments in the direct order of maturity. On July 1, 2019, we made another prepayment of $5.0 million and such prepayment was applied against the remaining installments of principal of the term loan on a pro rata basis. After the prepayments, we must repay the remaining principal of approximately $39.8 million in quarterly installments from December 31, 2020 through March 31, 2023 for a total of $7.6 million and the rest of the principal amount of $32.2 million at maturity in May 2023. Additionally, our remaining promissory note to the sellers of Revitas will mature in January 2020. 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.

The term loan bears interest at a variable rate of either a base rate plus a margin ranging from 1.5% to 3.5%, or LIBOR plus a margin ranging from 2.5% to 4.5%, which exposes us to interest rate risk. Changes in economic conditions outside of our control could result in higher interest rates, thereby increasing our interest expense even though the amount borrowed remained the same.

Additionally, the credit agreement governing our term loans with Wells Fargo contains various restrictive covenants, including maintaining consolidated liquidity (cash in the United States plus revolving credit line availability) of at least $15.0 million, minimum levels of maintenance and subscription fee revenue and, if liquidity is less than $30.0 million for 90 consecutive days, a leverage ratio not greater than 3.50 to 1.00. The credit agreement also requires us and our guarantors to maintain certain non-financial covenants, including covenants restricting our ability to dispose of assets, changing our organizational documents,

merging with or acquiring other entities, incurring other indebtedness and making investments. Our ability to comply with some of these restrictive covenants can be affected by events beyond our control, and we may be unable to do so. Upon the occurrence of an event of default, our lenders could elect to declare all amounts outstanding under our financing agreement to be immediately due and payable. If we are unable to repay that amount, our lenders could seize our assets securing the loans and our financial condition could be adversely affected.

~~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. Significant litigation costs could impact our ability to comply with certain financial covenants under our credit agreement. 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~~ 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.~~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 ~~application suite,~~cloud products, and decreases in demand for our enterprise ~~application suite~~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 ~~application suite,~~cloud products, whether deployed as individual solutions or as a complete suite. We expect our enterprise ~~application suite~~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 ~~application suite~~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 ~~application suite.~~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

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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 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:

•develop or enhance our solutions;

•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.

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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 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:

•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.

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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 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.

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.

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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.

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.

~~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.

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.

~~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. 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 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, and fines. Accordingly, our future operating results could be materially and adversely affected as a result of factors that affect the Life Sciences industry generally.

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

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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.

~~Most of our implementation contracts are on a time and materials basis and may be terminated by the customer.~~

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 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:

•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.

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. We do not control the operation of these facilities. These facilities are vulnerable to damage or interruption from natural disasters, fires, power loss, telecommunications failures and similar events. 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 existing data centers, 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 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 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.

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. 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.

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:

•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.

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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 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 AGSE 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.

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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 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.

~~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.

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, ~~2019,~~2021, approximately ~~46%~~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

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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:

•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;

•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.

~~We are exposed~~Risks Related to ~~fluctuations~~Regulatory Compliance

Changes in ~~currency exchange rates, which could negatively affect~~privacy laws, regulations and standards may cause our ~~financial condition~~business to suffer.

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Personal privacy and ~~operating results.~~

~~Our sales contracts are primarily denominated~~data security have become significant issues in U.S. dollars, and therefore, substantially all of our revenues are not subject to foreign currency risk. However, a strengthening of the U.S. dollar could increase the real cost of our solutions to our customers outside of 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 ~~financial condition and operating results. In addition, an increasing portion~~business. We rely on a mixture of mechanisms to transfer personal data from our ~~operating expenses are incurred in India, are denominated in Indian Rupees~~EU business to the U.S. (including having previously relied on US-EU Privacy Shield) 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.

Weevaluating what additional mechanisms may be ~~sued by third parties~~required to establish adequate safeguards for ~~alleged infringement of their proprietary rights which could result in significant costs and harm our business.~~personal data transfer.

~~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~~Furthermore, federal, state or foreign government bodies or agencies have 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,~~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 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 ~~notices~~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 ~~claim~~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-

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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 ~~infringed, misappropriated~~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 ~~otherwise violated other parties’ intellectual property rights. To~~4% of global turnover. The relationship between the ~~extent we gain greater visibility, we face a higher risk of being~~U.K. and the ~~subject of intellectual property infringement claims, which is not uncommon with respect to software technologies in general~~EU remains uncertain, for example how data transfers between the U.K. 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 attentionthe EU 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 resultjurisdictions 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 ~~our having to stop using technology found to be in violation~~the wake of a ~~third party’s rights. We might~~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 ~~required~~reviewed by the European Commission and renewed only if the European Commission considers that the U.K. continues to ~~seek a license~~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 ~~intellectual property, which may not be available on reasonable terms or at all. Even if a license were available,~~EU and the UK. These changes will lead to additional costs as we ~~could be required~~try to ~~pay significant royalties, which would~~ensure compliance with new privacy legislation and will increase our ~~operating expenses. As a result,~~overall risk exposure. We have incurred substantial expense in complying with the obligations imposed by the GDPR and we may be required to ~~develop alternative non-infringing technology,~~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 ~~require significant effort~~harm our company.

Any inability to adequately address privacy and ~~expense. If we cannot license~~security concerns, even if unfounded, or ~~develop technology for any infringing aspect~~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 ~~business, we would be forced to~~customers may limit the use and adoption of, and reduce the overall demand for, our solutions. Privacy and data security concerns, whether valid or ~~stop sales of one or more~~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 ~~features~~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.

Failure to comply with certain certifications and standards pertaining to our solutions, ~~and~~as may be ~~unable~~required by governmental authorities or other standards-setting bodies could harm our business. Additionally, failure to ~~compete effectively. Any of~~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 ~~results~~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 ~~agreements~~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

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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, ~~partners include~~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.

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.

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.

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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 ~~under which~~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 ~~agree to indemnify them for losses suffered or incurred~~may incur significant liability, and as a result our business and financial position may be harmed.

We rely on a small number of ~~claims~~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 ~~intellectual property infringement~~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 ~~some cases, for damages caused by~~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 ~~property~~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 ~~persons. Large indemnity payments~~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.

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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 ~~results~~ and ~~financial condition.~~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.

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

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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.

~~Changes~~We license technology from third parties, and our inability to ~~government regulations~~maintain those licenses could harm our business. Certain third-party technology that we use may ~~reduce~~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. We cannot be certain that our licensors are not infringing the ~~size~~intellectual property rights of third parties or that our licensors have sufficient rights to the ~~market~~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 ~~harm demand for~~containing that technology would be severely limited and our ~~solutions, force us~~business could be harmed. Additionally, if we are unable to ~~update~~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 ~~solutions~~ability to offer new or ~~implement changes in our services~~competitive solutions and increase our costs of ~~doing business.~~

~~Any changes~~production. In addition, errors or defects in ~~government regulations that impact~~third-party hardware or software used in our ~~customers~~cloud-based solutions could result in errors or ~~their end customers could have~~ a ~~harmful effect on our business by reducing the size~~failure of our ~~addressable market, forcing us to update the~~cloud-based 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.

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 regulationswhich could harm our business.

~~Customers~~We may ~~require~~be sued by third parties for alleged infringement of their proprietary rights which could result in significant costs and harm our ~~solutions to comply with certain security~~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 ~~certifications~~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 ~~standards, which are promulgated by governmental authorities~~to defend claims that may be brought against them. The litigation may involve patent holding companies or other ~~standards-setting bodies. The requirements necessary to comply with these certifications~~adverse patent owners who have no relevant product revenue and ~~standards are complex~~against whom our potential patents may provide little or no deterrence. We have received, and ~~often change significantly. If our solutions are late~~may in ~~achieving or fail to achieve compliance with these certifications and standards, including when they are revised~~the future receive, notices that claim we have infringed, misappropriated or otherwise ~~change,~~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 ~~competitors achieve compliance~~technologies or business methods. Any intellectual property claims, with ~~these certifications~~or without merit, could be very time consuming, could be expensive to settle or litigate and ~~standards,~~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 ~~disqualified from selling~~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 ~~such customers, or at a competitive disadvantage, which~~compete effectively. Any of these results 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.~~

~~Certain~~

Table of our solutions are subject to U.S. export controls and may be exported outside the United States only with the required export license or through an export license exception. Additionally, we incorporate encryption technology into our solutions, which may require additional filings prior to export. 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. Obtaining the necessary export license for a particular sale may be time-consuming and may result in the delay or loss of salesContents

opportunities. Furthermore, U.S. export control laws and economic sanctions prohibit the shipment of certain products to U.S. embargoed or sanctioned countries, governments and persons. 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.

In addition, ~~various countries regulate the import~~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 ~~certain encryption technology, including through import permit~~claims of intellectual property infringement 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~~for damages caused by us to property 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,persons. Large indemnity payments 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.

~~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.~~

~~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 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.

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.

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.

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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, 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.

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 ~~risks~~performance of ~~earthquakes, fire, power outages, floods~~our business, as well as general economic, financial, competitive and other ~~catastrophic events,~~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 ~~interruption by manmade problems~~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

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alternatives, such as ~~terrorism.~~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.

~~Our corporate headquarters~~Recent and ~~facilities~~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 arbitrage strategy are ~~located near known earthquake fault zones~~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 ~~vulnerable~~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 ~~significant damage~~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 ~~earthquakes. The corporate headquarters~~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 ~~facilities are also vulnerable~~our future debt may contain limitations on our ability to ~~damage~~pay cash upon conversion or interruption from human error, intentional bad acts, earthquakes, hurricanes, floods, fires, war, terrorist attacks, power losses, hardware failures, systems failures, telecommunications failures and similar events. Therepurchase 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 ~~natural disaster~~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

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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.

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 ~~act~~entity must separately account for the liability and equity components of ~~terrorism~~the convertible debt instruments (such as our notes) that may be settled entirely or ~~vandalism~~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

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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 ~~misconduct~~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 ~~other unanticipated problems with~~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 ~~facilities~~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.

The conditional conversion feature of the notes could result in ~~lengthy interruptions~~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 ~~services.~~notes may convert their notes only if specified conditions are met. If ~~any disaster were~~the specific conditions for conversion are not met, our note holders will not be able to ~~occur, our ability to operate our business at our facilities could be seriously or completely impaired or destroyed. The insurance we maintain~~convert their notes, and they may not be ~~adequate~~able to ~~cover~~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 ~~losses resulting~~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 ~~disasters~~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

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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 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 ~~interruptions.~~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

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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 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

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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.

General Risk Factors

Our financial results may be adversely affected by changes in accounting principles generally accepted in the United States.

~~Generally accepted accounting principles in the United States (“~~U.S. ~~GAAP”)~~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. For example, in May 2014, the FASB issued Accounting Standards Update No. 2014-09 (Topic 606), Revenue from Contracts with Customers, which superseded nearly all existing revenue recognition guidance under U.S. GAAP. We implemented this guidance in the first quarter of our fiscal year 2019 through the modified retrospective method. The adoption of Topic 606 impacted the comparability of our financial results which might lead investors to draw incorrect conclusions which could harm investors’ interest in holding or purchasing our equity. Additionally, this or other changes in accounting principles could adversely affect our financial results. See Note 12 to the ~~condensed consolidated financial~~

~~statements~~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 our estimates or judgments relating to our critical accounting policies are based on assumptions that ch~~a~~nge 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.~~

~~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 requirements results in legal and financial compliance costs and make some activities more time consuming.

Additionally, as of September 30, 2018, we were no longer an “emerging growth company” and are now required to comply with additional disclosure and reporting requirements, including an attestation report on internal control over financial reporting issued by our independent registered public accounting firm. We are also required to include additional information regarding executive compensation in our proxy statements and begin holding nonbinding advisory votes on executive compensation. These additional reporting requirements may increase our legal and financial compliance costs and cause management and other personnel to divert attention from operational and other business matters to devote substantial time to these public company requirements.

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

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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 ~~may need additional capital,~~incur significant costs and devote substantial management time as a result of operating as a public company.

As a public company, we ~~cannot be certain that additional financing will be available.~~

~~We may require additional financing in~~incur significant legal, accounting and other expenses. For example, we are required to comply with 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 conditionrequirements 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. Additionally, under our credit agreement, we are restricted from incurring additional debt, subject to certain exceptions. If we raise additional funds through the issuanceSarbanes-Oxley Act of equity, equity-linked or debt securities, those securities may have rights, preferences or privileges senior to the rights of our common stock 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:~~

~~develop or enhance our solutions;~~

~~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 losses2002 (“~~NOLs”~~Sarbanes-Oxley Act”) 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. For these reasons, we may not be able to utilize a material portion of the NOLs, even if we attain profitability. For example, certain of our NOLs started expiring in 2016.

~~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 and the ~~valuations of companies perceived by investors to be comparable to us;~~Dodd Frank Wall Street Reform and ~~stockholder activism.~~

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. These fluctuations often have been unrelated or disproportionate to the operating performance of those companies. These broad market fluctuations,Consumer Protection Act, as well as ~~general economic, systemic, political~~rules and ~~market conditions, such as recessions, interest rate~~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 ~~international currency fluctuations, may negatively affect the market price of~~costly and increases demand on our ~~common stock.~~

systems and resources, particularly since we are no longer an “emerging growth company.” In ~~the past, many companies that have experienced volatility in the market price of their stock have become subject~~order to ~~securities class action litigation. We~~maintain and, if required, improve our disclosure controls and procedures and internal control over financial reporting, significant resources and management oversight may be ~~the target of this type of litigation in the future. Securities litigation against us could~~required. As a result, ~~in substantial costs and divert our~~ management’s attention may be diverted from other business concerns, which could ~~harm~~adversely affect our ~~business.~~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;

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•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.

~~We do not anticipate paying any dividends on our common stock.~~


~~ITEM 1B.~~	~~Unresolved Staff Comments~~

ITEM 1B. Unresolved Staff Comments

None.


~~ITEM 2.~~	~~Properties~~

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 ~~that expires on November 30, 2020.~~for our business operations and product development activities.

We have additional U.S. offices in Colorado, Illinois, Maine ~~Massachusetts~~ 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 84 to the Consolidated Financial Statements ~~and “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Contractual Payment Obligations”~~ for information regarding our lease obligations.


~~ITEM 3.~~	~~Legal Proceedings~~

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~~

ITEM 4. Mine Safety Disclosure

Not applicable

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 ~~1, 2019,~~4, 2022, there were 4530 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 ~~2020~~2023 (the “Proxy Statement”). See Part III, Item 12 “Security Ownership of Certain Beneficial Owners and Management” and “Equity Compensation Plan Information.”

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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.

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, ~~2014,~~2017, in our common stock, the NASDAQ Composite Index and the NASDAQ Computer Index, and assumes the reinvestment of any dividends.


	9/30/2017		9/30/2018		9/30/2019		9/30/2020		9/30/2021		9/30/2022
Model N	$	100.00	$	106.02	$	185.69	$	235.99	$	224.08	$	229.57
NASDAQ Composite Index	$	100.00	$	125.17	$	125.82	$	177.36	$	231.03	$	170.38
NASDAQ Computer Index	$	100.00	$	128.31	$	134.56	$	207.52	$	281.90	$	208.66

9/30/2014
9/30/2015
9/30/2016
9/30/2017
9/30/2018
9/30/2019
Model N $ 100.00
$ 101.52
$ 112.68
$ 151.62
$ 160.75
$ 281.54
NASDAQ Composite Index $ 100.00
$ 104.00
$ 121.08
$ 149.75
$ 187.44
$ 188.43
NASDAQ Computer Index $ 100.00
$ 100.26
$ 122.65
$ 158.67
$ 203.59
$ 213.50

ITEM 6. ~~Selected Consolidated Financial Data~~[Reserved]

The consolidated statements of operations data for the fiscal years ended September 30, 2019, 2018, and 2017, and the selected consolidated balance sheets data as of September 30, 2019, and 2018, are derived from our audited Consolidated Financial Statements included in this Form 10-K. The consolidated statements of operations data for fiscal years ended September 30, 2016 and 2015, and the selected consolidated balance sheets data as of September 30, 2017, 2016, and 2015, are derived from audited Consolidated Financial Statements that are not included in the Form 10-K. The information set forth below is not necessarily indicative of results of future operations, and should be read in conjunction with Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the Consolidated Financial Statements and related notes included in Part II, Item 8, “Consolidated Financial Statements and Supplementary Data” in this Annual Report on Form 10-K. We adopted ASC Topic 606, Revenue from Contracts with Customers, on October 1, 2018, using the modified retrospective method. The reported results for fiscal year 2019 reflect the application of ASC Topic 606, while the reported results for prior fiscal years are not adjusted and continue to be reported under ASC Topic 605.

Fiscal Years Ended September 30,
2019 2018 2017(1) 2016 2015
(in thousands, except per share data)
Consolidated Statements of Operations Data:

Revenues:

Subscription $ 105,219
$ 98,308
$ 86,151
$ 84,021
$ 55,713
Professional Services 36,016
56,324
45,018
22,950
38,055
Total revenues 141,235
154,632
131,169
106,971
93,768
Cost of Revenues:

Subscription 35,218
37,820
38,172
38,340
25,862
Professional Services 30,912
27,514
22,924
15,353
15,707
Total cost of revenues 66,130
65,334
61,096
53,693
41,569
Gross profit 75,105
89,298
70,073
53,278
52,199
Operating Expenses:

Research and development 30,009
32,416
31,064
23,706
17,906
Sales and marketing 32,894
35,482
41,339
32,261
30,300
General and administrative 27,213
42,178
36,281
30,051
23,132
Total operating expenses 90,116
110,076
108,684
86,018
71,338
Loss from operations (15,011 ) (20,778 ) (38,611 ) (32,740 ) (19,139 )
Interest expense (income), net 2,933
8,178
4,159
(50 ) (6 )
Other expenses (income), net 319
(722 ) 62
86
(22 )
Loss before income taxes (18,263 ) (28,234 ) (42,832 ) (32,776 ) (19,111 )
Provision for (benefit from) income taxes 1,030
(27 ) (3,285 ) 335
528
Net loss $ (19,293 ) $ (28,207 ) $ (39,547 ) $ (33,111 ) $ (19,639 )
Net loss per share attributable to common
   stockholders (2):

Basic and diluted $ (0.60 ) $ (0.93 ) $ (1.38 ) $ (1.21 ) $ (0.76 )
Weighted average number of shares used in
   computing net loss per share attributable to
   common stockholders (2):

Basic and diluted 32,232
30,370
28,649
27,379
26,015

Other Financial Data:

Adjusted EBITDA (3)
$ 13,119
$ 11,472
$ (8,269 ) $ (12,571 ) $ (3,332 )


~~(1)~~	~~On January 5, 2017, we completed the Revitas acquisition. See Note 13 to our Consolidated Financial Statements for more information.~~


~~(2)~~	~~See Note 11 to our Consolidated Financial Statements for a description of the method used to compute basic and diluted net loss per share attributable to common stockholders.~~


~~(3)~~	See “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Non-GAAP Financial Measure” in Item 7 for more information and a reconciliation of adjusted EBITDA to net loss, the most directly comparable financial measure calculated and presented in accordance with generally accepted accounting principles in the United States.

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As of September 30,
2019 2018 2017(1) 2016 2015
(in thousands)
Consolidated Balance Sheets Data
Cash and cash equivalents $ 60,780
$ 56,704
$ 57,558
$ 66,149
$ 91,019
Working capital 18,200
16,455
10,172
48,588
74,814
Total assets 169,593
166,153
171,936
112,967
121,970
Loan obligations, current and long-term 44,282
53,704
57,205
—
—
Total liabilities 116,871
126,119
130,675
46,765
38,908
Total stockholders’ equity 52,722
40,034
41,261
66,202
83,062


~~(1)~~	~~On January 5, 2017, we completed the Revitas acquisition. See Note 13 to our Consolidated Financial Statements for more information.~~

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~~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 onNovember 19, 2021.

Overview

We are a leading provider of cloud revenue management solutions for life sciences and high tech companies. Our software ~~helps~~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 ~~across more than 120 countries,~~ including Johnson & Johnson, AstraZeneca, ~~Novartis,~~Stryker, Seagate Technology, Broadcom, and Microchip ~~Technology, and ON Semiconductor.~~Technology.

Model N Revenue Cloud transforms the revenue life cycle into a strategic, end-to-end process aligned across the enterprise. ~~Our industry specific solution suites offer a range of solutions from individual applications to complete suites.~~ 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 ~~and managed support services~~ 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.~~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 ~~last~~past few years, we ~~shifted~~have primarily been entering into cloud-based subscription arrangements with our ~~focus to selling cloud-based software~~new and ~~in 2017,~~existing customers and we ~~started transitioning customers with on-premise software to cloud-based software.~~ 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 ~~year~~years ended September 30, ~~2019,~~2022, and 2021, no customer represented more than 10% of our total revenues or more than 10% of our subscription revenues. During the fiscal years ended September 30, 2018, and 2017, one customer, Johnson & Johnson, accounted for approximately 15% and 11% of our total revenues, respectively. No customer represented more than 10% of our subscription revenues during the fiscal years ended September 30, 2019, 2018, and 2017. For the fiscal years ended September 30, ~~2019, 2018,~~2022, and ~~2017,~~2021, approximately ~~8%, 12%,~~5% and ~~11%~~7% of our total revenues were derived from customers located outside the United States respectively.

For the fiscal years ended September 30, ~~2019, 2018,~~2022, and ~~2017,~~2021, our total revenues were ~~$141.2 million, $154.6~~$219.2 million and ~~$131.2~~$193.4 million respectively, representing a year-over-year ~~decrease of approximately 9% from 2018 to 2019 and year-over-over~~ increase of ~~approximately 18% from 2017 to 2018. Revenues decreased~~13%. Revenue increased in ~~the 2019~~ fiscal year 2022 primarily due to the ~~reduction in~~addition of subscription and professional services ~~revenue as we moved towards cloud-based solutions. Revenues~~revenues from business services and increased ~~in the 2018 fiscal year primarily due to improvement in sales execution~~subscription and ~~the full year effect of the acquisition of Revitas.~~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~~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,

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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 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 ~~competitors’ operating results. See “Non-GAAP Financial Measure” below.~~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

~~Change in Presentation~~

Previously, we presented revenue and cost of revenue on two lines: “SaaS and maintenance” and “License and implementation”. Historically, our growth was driven by the sale of on-premise solutions. Over the last few years, we shifted our focus to selling cloud-based software. As a result of our business model transition from an on-premise to a software-as-a-service (“SaaS”) model, we have updated the presentation in fiscal year 2019 to present the revenue and cost of revenue line items within our consolidated statements of operations with the break-out between two new lines called “Subscription” and “Professional services.” Revenues and cost of revenues in prior periods have been reclassified in this filing to conform to the new presentation. This change in presentation does not affect our previously-reported total revenues or total cost of revenues.

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~~basis. Managed support services revenue includes supporting, managing and ~~managed~~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. ~~Managed support services revenue includes supporting, managing and administering our software solutions and providing additional end user support.~~ 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 ~~SaaS~~software-as-a-service (“SaaS”) model is the primary way we sell to our customers in our vertical markets. Accordingly, we expect that subscription revenue for fiscal year 2020 will be higher as a percentage of total revenues than fiscal year 2019 as we continue to acquire new SaaS customers and expand our SaaS offerings within our existing customers.

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.~~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 and managed support services.~~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

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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.

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 and travel-related expenses.~~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. ~~As of September 30, 2019, the net book value of capitalized software development costs was $0.2 million.~~

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, ~~as well as~~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 ~~the periods presented~~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. ~~We adopted ASC Topic 606, Revenue from Contracts with Customers, on October 1, 2018, using the modified retrospective method. The reported results for fiscal year 2019 reflect the application~~


	Fiscal Years Ended September 30,
	2022		2021
	(in thousands)
Consolidated Statements of Operations Data:
Revenues:
Subscription	$	159,766	$	142,448
Professional services	59,398		50,997
Total revenues	219,164		193,445
Cost of Revenues:
Subscription	58,509		49,933
Professional services	38,611		36,715
Total cost of revenues	97,120		86,648
Gross profit	122,044		106,797
Operating Expenses:
Research and development	47,604		44,661
Sales and marketing	47,719		43,239
General and administrative	39,676		33,311
Total operating expenses	134,999		121,211
Loss from operations	(12,955)		(14,414)
Interest expense, net	14,763		14,344
Other expenses (income), net	(558)		210
Loss before income taxes	(27,160)		(28,968)
Provision for income taxes	1,475		769
Net loss	$	(28,635)	$	(29,737)

Table of ~~ASC Topic 606, while the reported results for prior fiscal years are not adjusted and continue to be reported under ASC Topic 605.~~Contents

Fiscal Years Ended September 30,
2019 2018 2017
(in thousands)
Consolidated Statements of Operations Data:

Revenues:

Subscription $ 105,219
$ 98,308
$ 86,151
Professional Services 36,016
56,324
45,018
Total revenues 141,235
154,632
131,169
Cost of Revenues:

Subscription 35,218
37,820
38,172
Professional Services 30,912
27,514
22,924
Total cost of revenues 66,130
65,334
61,096
Gross profit 75,105
89,298
70,073
Operating Expenses:

Research and development 30,009
32,416
31,064
Sales and marketing 32,894
35,482
41,339
General and administrative 27,213
42,178
36,281
Total operating expenses 90,116
110,076
108,684
Loss from operations (15,011 ) (20,778 ) (38,611 )
Interest expense, net 2,933
8,178
4,159
Other expenses (income), net 319
(722 ) 62
Loss before income taxes (18,263 ) (28,234 ) (42,832 )
Provision for (benefit from) income taxes 1,030
(27 ) (3,285 )
Net loss $ (19,293 ) $ (28,207 ) $ (39,547 )

Comparison of the Fiscal Years Ended September 30, ~~2019~~2022, and ~~2018~~2021

Revenues


	Fiscal Years Ended September 30,														Fiscal Years Ended September 30,
	2019				2018										2022				2021
			% of				% of										% of				% of
			Total				Total		Change						Amount		Total Revenues		Amount		Total Revenues		$ Change		% Change
	Amount		Revenues		Amount		Revenues		($)			(%)
	(in thousands, except percentages)														(in thousands, except percentages)
Revenues:														Revenues:
Subscription	$	105,219	74	%	$	98,308	64	%	$	6,911		7	%	Subscription	$	159,766	73	%	142,448		74	%	$	17,318	12	%
Professional services	36,016		26		56,324		36		(20,308		)	(36	)	Professional services	59,398		27	%	50,997		26	%	8,401		16	%
Total revenues	$	141,235	100	%	$	154,632	100	%	$	(13,397	)	(9	)%	Total revenues	$	219,164	100	%	$	193,445	100	%	$	25,719	13	%

Subscription

Subscription revenues increased by ~~$6.9~~$17.3 million, or 7%12%, to ~~$105.2~~$159.8 million for the fiscal year ended September 30, ~~2019,~~2022, from ~~$98.3~~$142.4 million for the fiscal year ended September 30, ~~2018.~~2021. As a percentage of total revenues, subscription revenues ~~increased~~decreased from ~~64%~~74% to ~~74%~~73%. The increase in our subscription revenues was due primarily ~~the result of adding new~~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 ~~in fiscal year 2019, as well as expanding the relationships we have with our 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 ~~decreased~~increased by ~~$20.3~~$8.4 million, or ~~36%~~16%, to ~~$36.0~~$59.4 million for the fiscal year ended September 30, ~~2019,~~2022, from ~~$56.3~~$51.0 million for the fiscal year ended September 30, ~~2018.~~2021. The increase in our professional services revenues was caused by the increase in delivery activities experienced during fiscal year 2022.

Cost of Revenues


	Fiscal Years Ended September 30,
	2022				2021
	Amount		% of Revenues		Amount		% of Revenues		$ Change		% Change

	(in thousands, except percentages)
Cost of revenues
Subscription	$	58,509	37	%	$	49,933	35	%	$	8,576	17	%
Professional services	38,611		65	%	$	36,715	72	%	1,896		5	%
Total cost of revenues	$	97,120	44	%	$	86,648	45	%	10,472		12	%
Gross profit
Subscription	$	101,257	63	%	$	92,515	65	%	$	8,742	9	%
Professional services	20,787		35	%	$	14,282	28	%	6,505		46	%
Total gross profit	$	122,044	56	%	$	106,797	55	%	$	15,247	14	%

Subscription

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 ~~total~~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 ~~36%~~72% to ~~26%.~~65% primarily due to improved cost efficiencies.

Operating Expenses

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	Fiscal Years Ended September 30,
	2022		2021		$ Change		% Change

	(in thousands, except percentages)
Operating expenses:
Research and development	$	47,604	$	44,661	$	2,943	7	%
Sales and marketing	47,719		43,239		4,480		10	%
General and administrative	39,676		33,311		6,365		19	%
Total operating expenses	$	134,999	$	121,211	$	13,788	11	%

Research and Development

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 ~~in revenue in absolute dollars~~of acquisition-related expenses.

Interest and ~~as a percentage of total revenue~~Other (Income) Expense, Net


	Fiscal Years Ended September 30,
	2022		2021	$ Change		% Change

	(in thousands, except percentages)
Interest expense, net	$	14,763	14,344	$	419	3	%
Other (income) expenses, net	$	(558)	210	$	(768)	(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 ~~primarily~~ by the ~~fact that several large on-premise implementation projects related to the sale~~accretion of ~~our on-premise software concluded~~discount cost on convertible senior notes we issued in ~~fiscal year 2018 and were not replicated in fiscal year 2019 since we no longer sell on-premise software. Further contributing to the decrease is the adoption of ASC 606.~~May 2020. See ~~Note 2~~“Note 10. Convertible Senior Notes” of the Notes to Consolidated Financial Statements in Part II, Item 8 of this Form ~~10-K for more information on the impact of the adoption of ASC 606.~~

~~Cost of Revenues~~

Fiscal Years Ended September 30,
2019 2018
% of % of Change
Amount Revenues Amount Revenues ($) (%)
(in thousands, except percentages)
Cost of revenues

Subscription $ 35,218
33 % $ 37,820
38 % $ (2,602 ) (7 )%
Professional services 30,912
86
27,514
49
3,398
12
Total cost of revenues $ 66,130
47 % $ 65,334
42 % 796
1 %
Gross profit

Subscription $ 70,001
67 % $ 60,488
62 % $ 9,513
16 %
Professional services 5,104
14
28,810
51
(23,706 ) (82 )
Total gross profit $ 75,105
53 % $ 89,298
58 % $ (14,193 ) (16 )%

~~Subscription~~

Cost of subscription revenues decreased by $2.6 million, or 7%, to $35.2 million during the fiscal year ended September 30, 2019, from $37.8 million for the fiscal year ended September 30, 2018. As a percentage of subscription revenues, cost of subscription revenues decreased from 38% in fiscal year 2018 to 33% in fiscal year 2019 as we continued to improve gross margins by more efficiently delivering our cloud platform.

~~Professional Services~~

Cost of professional services revenues increased by $3.4 million, or 12%, to $30.9 million during the fiscal year ended September 30, 2019, from $27.5 million for the fiscal year ended September 30, 2018.10-K. The increase in ~~cost of professional services~~

in both absolute dollars and as a percentage of professional services revenues is due to the fact that professional services personnel were not utilized in other departments within the company in fiscal year 2019, therefore reducing the allocations to other departments.

~~Operating Expenses~~

Fiscal Years Ended September 30,
2019 2018 Change
Amount Amount ($) (%)
(in thousands, except percentages)
Operating expenses:

��
Research and development $ 30,009
$ 32,416
$ (2,407 ) (7 )%
Sales and marketing 32,894
35,482
(2,588 ) (7 )
General and administrative 27,213
42,178
(14,965 ) (35 )
Total operating expenses $ 90,116
$ 110,076
$ (19,960 ) (18 )%

~~Research and Development~~

Research and development expenses decreased by $2.4 million, or 7%, to $30.0 million during the fiscal year ended September 30, 2019, from $32.4 million for the fiscal year ended September 30, 2018. The decreaseinterest expense was ~~primarily due to a $1.7 million decrease in employee-related costs and a $0.6 million decrease in equipment related and outside services costs.~~

~~Sales and Marketing~~

Sales and marketing expenses decreased by $2.6 million, or 7%, to $32.9 million during the fiscal year ended September 30, 2019, from $35.5 million for the fiscal year ended September 30, 2018. This decrease was primarily due to a $1.7 million decrease in employee-related costs and from the capitalization of commission expense pursuant to ASC 340-40 in connection with the adoption of ASC 606 and a $0.9 million decrease in other costs including outside services costs.

~~General and Administrative~~

General and administrative expenses decreased by $15.0 million, or 35%, to $27.2 million during the fiscal year ended September 30, 2019, from $42.2 million for the fiscal year ended September 30, 2018. The decrease was primarily due to a $13.5 million decrease in employee-related costs mostly causedpartially off-set by the ~~stock issued~~increase in ~~the third quarter of fiscal year 2018 in connection with our former Chief Executive Officer’s departure~~income on marketable securities and ~~a $0.9 million decrease in outside services costs including legal costs.~~

~~Interest and Other (Income) Expense, Net~~

Fiscal Years Ended September 30,
2019 2018 Change
Amount Amount ($) (%)
(in thousands, except percentages)
Interest expense, net $ 2,933
$ 8,178
$ (5,245 ) (64 )%
Other (income) expenses, net $ 319
$ (722 ) $ 1,041
(144 )%

Interest expense, net, decreased by $5.2 million from $8.2 million during the fiscal year ended September 30, 2018, to $2.9 million during the fiscal year ended September 30, 2019. The decrease was driven by approximately $3.1 million of loss on extinguishment in connection with the refinancing of the term loan recorded in fiscal year ended September 30, 2018, as well as the lower interest rate as a result of the refinancing. See “Note 7. Debt” of the Notes to Consolidated Financial Statements in Part II, Item 8 of this Form 10-K.cash balances

The ~~increase~~change in other (income) expense, net was primarily due to currency ~~fluctuation.~~fluctuations.

Provision for ~~(Benefit from)~~ Income Taxes

Fiscal Years Ended September 30,
2019 2018 Change
Amount Amount ($) (%)
(in thousands, except percentages)
Provision for (benefit from) income taxes $ 1,030
$ (27 ) $ 1,057
(3,915 )%


	Fiscal Years Ended September 30,
	2022		2021		$ Change		% Change

	(in thousands, except percentages)
Provision for income taxes	$	1,475	$	769	$	706	92	%

The income tax provision for ~~income taxes in~~ fiscal year ~~2019 is~~2022 and 2021 was primarily related to foreign taxes on our profitable foreign ~~operations. The increase in the provision during fiscal year ended September 30, 2019, was primarily driven by the~~operations, foreign withholding taxes

we paid in the first quarter of fiscal year 2019 due to the repatriation of certain foreign subsidiary earnings to the United States, as well as the fact that in the first six months of fiscal year 2018, we recorded one-time benefits related to on dividends, and deferred ~~tax liabilities caused by the reduced corporate tax rate and a valuation allowance release.~~

~~Comparison of the Fiscal Years Ended September 30, 2018 and 2017~~

~~Revenues~~

Fiscal Years Ended September 30,
2018 2017
% of % of
Total Total Change
Amount Revenues Amount Revenues ($) (%)
(in thousands, except percentages)
Revenues:

Subscription $ 98,308
64 % $ 86,151
66 % $ 12,157
14 %
Professional services 56,324
36
45,018
34
11,306
25
Total revenues $ 154,632
100 % $ 131,169
100 % $ 23,463
18 %

~~Subscription~~

Subscription revenues increased by $12.2 million, or 14%, to $98.3 million for the fiscal year ended September 30, 2018 from $86.2 million for the fiscal year ended September 30, 2017. The increase in our subscription was due to new customers added and the revenue attributable from the acquisition of Revitas in the second quarter of fiscal year 2017.

~~Professional Services~~

Professional services revenues increased by $11.3 million, or 25%, to $56.3 million for the fiscal year ended September 30, 2018 from $45.0 million for the fiscal year ended September 30, 2017. The increase was primarily due to the revenue attributable from the acquisition of Revitas in the second quarter of fiscal year 2017 and the addition of new customers.

~~Cost of Revenues~~

Fiscal Years Ended September 30,
2018 2017
% of % of Change
Amount Revenues Amount Revenues ($) (%)
(in thousands, except percentages)
Cost of revenues

Subscription $ 37,820
38 % $ 38,172
44 % $ (352 ) (1 )%
Professional services 27,514
49
22,924
51
4,590
20
Total cost of revenues $ 65,334
42 % $ 61,096
47 % $ 4,238
7 %
Gross profit

Subscription $ 60,488
62 % $ 47,979
56 % $ 12,509
26 %
Professional services 28,810
51
22,094
49
6,716
30
Total gross profit $ 89,298
58 % $ 70,073
53 % $ 19,225
27 %

~~Subscription~~

Cost of subscription revenues decreased $0.4 million, or 1%, to $37.8 million during the fiscal year ended September 30, 2018 from $38.2 million for the fiscal year ended September 30, 2017. As a percentage of subscription revenues, cost of subscription revenues decreased from 44% to 38% in fiscal year 2018 as we continued to improve gross margins due to increased efficiencies in our business, full year effect of the synergies related to our acquisition of Revitas in the second quarter of fiscal year 2017, and as the optimization of our cloud platform.

~~Professional Services~~

Cost of professional services revenues increased $4.6 million, or 20%, to $27.5 million during the fiscal year ended September 30, 2018 from $22.9 million for the fiscal year ended September 30, 2017. As a percentage of professional services revenues, cost of professional services revenues decreased to 49% in fiscal year 2018 from 51% in fiscal year 2017. The

decrease in these costs as a percentage of total revenues was primarily due to an increase of professional services with higher profit margins in the overall mix of sales associated with license and implementation.

~~Operating Expenses~~

Fiscal Years Ended September 30,
2018 2017 Change
Amount Amount ($) (%)
(in thousands, except percentages)
Operating expenses:

Research and development $ 32,416
$ 31,064
$ 1,352
4 %
Sales and marketing 35,482
41,339
(5,857 ) (14 )
General and administrative 42,178
36,281
5,897
16
Total operating expenses $ 110,076
$ 108,684
$ 1,392
1 %

~~Research and Development~~

Research and development expenses increased by $1.4 million, or 4%, to $32.4 million during the fiscal year ended September 30, 2018 from $31.1 million for the fiscal year ended September 30, 2017. Employee-related expenses increased $1.4 million. We also had a $0.5 million increase in consulting costs, offset by a $0.5 million decreased in travel and other costs.

~~Sales and Marketing~~

Sales and marketing expenses decreased by $5.9 million, or 14%, to $35.5 million during the fiscal year ended September 30, 2018 from $41.3 million for the fiscal year ended September 30, 2017. Employee related expenses decreased $5.9 million in part due to headcount reduction and a $1.7 million decrease in marketing and travel costs, which were partially offset by an $0.8 million increase of intangible amortization expense related to the acquisition of Revitas in the second quarter of fiscal year 2017 and a $1.0 million increase in consulting and other costs.

~~General~~ ~~and~~ ~~Administrative~~

General and administrative expenses increased by $5.9 million, or 16%, to $42.2 million during the fiscal year ended September 30, 2018 from $36.3 million for the fiscal year ended September 30, 2017. The increase was primarily due to a $7.9 million increase in employee-related costs, which primarily reflects the impact of the common stock issued in connection with our former Chief Executive Officer’s departure, which was partially offset by a $2.0 million decrease in other costs such as facility, travel, third-party data center and other costs.

~~Interest and Other Income (Expense), Net~~

Fiscal Years Ended September 30,
2018 2017 Change
Amount Amount ($) (%)
(in thousands, except percentages)
Interest expense, net $ 8,178
$ 4,159
$ 4,019
97 %
Other income (expense), net $ (722 ) $ 62
$ (784 ) (1,265 )%

~~In May 2018, we refinanced the term loan related to the Revitas acquisition. The increase of $4.0 million during fiscal year 2018 was driven by approximately $3.1 million of loss~~taxes on ~~extinguishment in connection with the refinancing.~~

~~Change in other income (expense), net, was primarily related to currency fluctuation.~~

~~Provision for (Benefit from) Income Taxes~~

Fiscal Years Ended September 30,
2018 2017 Change
Amount Amount ($) (%)
(in thousands, except percentages)
Provision for (benefit from) income taxes $ (27 ) $ (3,285 ) $ 3,258
(99 )%

The change in income tax provision is primarily due to a discrete tax benefit of $4.2 million recorded in the second quarter of fiscal 2017. The discrete item is a result of releasing a portion of our valuation allowancegoodwill resulting from the ~~acquisition of Revitas.~~acquisition.

Benefit from income taxes was primarily related to the state minimum tax and foreign tax on our profitable foreign operations offset by discrete tax benefit recorded as a result of a reduction in deferred tax liabilities from the reduced corporate tax rate and valuation allowance release. This is in addition to a reversal of certain foreign unrecognized tax benefits.

~~Quarterly Results of Operations (Unaudited)~~

The following table sets forth our unaudited quarterly statements of operations data for the last eight fiscal quarters. The information for each of these quarters has been prepared on the same basis as the audited annual financial statements included elsewhere in this annual report and, in the opinion of management, includes all adjustments, which includes only normal recurring adjustments, necessary for the fair presentation of the results of operations for these periods. This data should be read in conjunction with our audited consolidated financial statements and related notes included elsewhere in this annual report. These quarterly operating results are not necessarily indicative of our operating results for any future period.

Three Months Ended
Sep 30, 2019 Jun 30, 2019 Mar 31, 2019 Dec 31, 2018 Sep 30, 2018 Jun 30, 2018 Mar 31, 2018 Dec 31, 2017
(in thousands, except per share amounts)
Revenues:

Subscription $ 27,439
$ 26,638
$ 25,940
$ 25,202
$ 25,513
$ 24,944
$ 24,004
$ 23,847
Professional Services 9,164
8,074
8,903
9,875
11,201
14,673
15,230
15,220
Total revenues 36,603
34,712
34,843
35,077
36,714
39,617
39,234
39,067
Cost of Revenues:

Subscription 8,970
8,658
8,852
8,738
9,201
9,564
9,440
9,615
Professional Services 7,983
7,206
7,894
7,829
5,626
6,881
7,813
7,194
Total cost of revenues 16,953
15,864
16,746
16,567
14,827
16,445
17,253
16,809
Gross profit 19,650
18,848
18,097
18,510
21,887
23,172
21,981
22,258
Operating Expenses:

Research and development 8,122
7,060
7,415
7,412
7,555
7,746
8,047
9,068
Sales and marketing 9,080
7,164
8,598
8,052
8,637
9,338
9,015
8,492
General and administrative 7,511
6,713
6,833
6,156
9,079
17,044
7,324
8,731
Total operating expenses 24,713
20,937
22,846
21,620
25,271
34,128
24,386
26,291
Loss from operations (5,063 ) (2,089 ) (4,749 ) (3,110 ) (3,384 ) (10,956 ) (2,405 ) (4,033 )
Interest expense, net 620
689
891
733
828
4,478
1,449
1,423
Other (income) expenses, net (89 ) (4 ) 127
285
(416 ) (344 ) (87 ) 125
Loss before income taxes (5,594 ) (2,774 ) (5,767 ) (4,128 ) (3,796 ) (15,090 ) (3,767 ) (5,581 )
Provision for (benefit from) income taxes 61
230
141
598
(177 ) 345
129
(324 )
Net loss $ (5,655 ) $ (3,004 ) $ (5,908 ) $ (4,726 ) $ (3,619 ) $ (15,435 ) $ (3,896 ) $ (5,257 )

Liquidity and Capital Resources

Our principal sources of liquidity are our cash and cash equivalents. As of September 30, ~~2019,~~2022, we had cash and cash equivalents of ~~$60.8~~$193.5 million.

Table of Contents

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 12twelve months. Our future capital 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 ~~through investment in or acquisition of complementary businesses or technologies,~~ 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 ~~additional~~more dilution to our ~~stockholders.~~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.

~~Term Loan~~

In connection with the Revitas acquisition, on January 5, 2017, we entered into a financing agreement (the “Financing Agreement”) with Crystal Financial SPV, LLC and TC Lending, LLC for a $50.0 million term loan. In May 2018, this term loan was extinguished and repaid in full in part from the proceeds of the refinancing with Wells Fargo Bank, N. A. (“Wells Fargo”), as discussed below.

~~Term Loan - Wells Fargo~~

On May 4, 2018, we entered into a Credit Agreement (the “Credit Agreement”) with Wells Fargo for a term loan of $50.0 million and a revolving line of credit for an amount up to $5.0 million. In conjunction with this refinancing, we repaid in full the existing term loan under the Financing Agreement discussed above. This refinancing allowed us to obtain a more favorable interest rate. The term loan under the Credit Agreement will mature on May 4, 2023. As of September 30, 2019, the Company had not drawn down from the line of credit and had ~~$5.0 million~~ ~~available.~~

On August 12, 2019, we entered into an amendment to the Credit Agreement whereby the applicable margins were revised. At our election, the term loan and the revolving line of credit will bear interest based upon our leverage ratio as defined in the Credit Agreement at either (i) a base rate plus applicable margin ranging from 1.5% to 3.5% or (ii) LIBOR plus applicable margin ranging from 2.5% to 4.5%. Interest is payable periodically, in arrears, at the end of each interest period we elect. For the first eight months of fiscal year 2019, our interest rate was at the LIBOR Rate plus 4.5%. For the last four months of fiscal year 2019, our interest rate was at the LIBOR Rate plus 3.5%. In addition, we are required to pay monthly in arrears an unused line fee ranging from 0.25% to 0.5% of the unused portion of the revolving line of credit based upon our leverage ratio.

We may voluntarily prepay the term loan, with any such prepayment applied against the remaining installments of principal of the term loan on a pro rata basis or direct order of maturity, subject to certain limitations. However, we are required to repay the term loan with proceeds from the sale of assets, the receipt of certain insurance proceeds, litigation proceeds or indemnity payments or the incurrence of debt (in each case subject to certain exceptions). We prepaid approximately $4.8 million of principal on January 2, 2019 and we elected to apply the prepayment against the remaining principal installments in the direct order of maturity. On July 1, 2019, we made another prepayment of $5.0 million and the prepayment was applied against the remaining installments of principal on a pro rata basis.

The Credit Agreement contains customary representations and warranties, subject to limitations and exceptions, and customary covenants restricting our ability and our subsidiaries to: incur additional indebtedness; incur liens; engage in mergers or other fundamental changes; consummate acquisitions; sell certain property or assets; change the nature of their business; prepay or amend certain indebtedness; pay cash dividends, other distributions or repurchase our equity interests or our subsidiaries; make investments; or engage in certain transactions with affiliates. The Credit Agreement also contains certain financial covenants, including maintaining consolidated liquidity (cash in the United States plus revolving credit line availability) of at least $15.0 million, minimum levels of maintenance and subscription fee revenue and, if liquidity is less than $30.0 million for 90 consecutive days, a leverage ratio of not greater than 3.50 to 1.00. Additionally, the Credit Agreement provides for customary events of default, including failure to pay amounts due or to comply with covenants, default on other indebtedness, or a change of control. As of September 30, 2019, we were in compliance with all covenant requirements.

~~Promissory Notes~~

Also in connection with the Revitas acquisition, we incurred $10.0 million in debt in the form of two $5.0 million promissory notes with the sellers, one of which matured and was paid on July 5, 2018 and the other of which will mature on January 5, 2020. The remaining outstanding promissory note bears interest at the rate of 3.0% per annum and is subject to a right of set-off as partial security for the indemnification obligations of the target’s stockholders under the merger agreement. This remaining promissory note is subordinate to the term loan with Wells Fargo.

Cash Flows


	Fiscal Years Ended September 30,
	2022		2021
	(in thousands)
Cash flows provided by operating activities	$	25,287	$	19,590
Cash flows used in investing activities	(993)		(58,904)
Cash flows provided by financing activities	4,543		4,623

Fiscal Years Ended September 30,
2019 2018 2017
(in thousands)
Cash flows provided by (used in) operating activities $ 10,450
$ 2,523
$ (11,965 )
Cash flows used in investing activities (280 ) (252 ) (48,501 )
Cash flows provided by (used in) financing activities (6,130 ) (3,003 ) 51,866

~~Cash Flows from~~ Operating Activities

Net cash provided by operating activities during the fiscal year ended September 30, ~~2019,~~2022 was primarily the result of non-cash adjustments of ~~$30.5~~$60.1 million exceeding our net loss of ~~$19.3~~$28.6 million ~~and an unfavorable change~~partially offset by net cash outflows of $6.2 million from changes in operating assets and

~~liabilities~~ liabilities. Non-cash expenses consisting primarily of ~~$0.8 million. Non-cash adjustments primarily included~~ stock-based compensation of ~~$21.3~~$36.1 million, amortization of debt discount and issuance costs of $11.1 million, depreciation and amortization of ~~$6.8~~$9.0 million, and amortization of capitalized contract acquisition ~~cost~~costs of ~~$1.8~~$4.3 million. The net change in operating assets and liabilities primarily reflects an outflow from the changes in prepaid ~~expense~~expenses and other assets of ~~$5.2~~$7.1 million, ~~partly~~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 accrued employee compensation of $2.0 million, the changes in accounts receivable of $0.9 million primarily reflective of the timing of cash collections, the changes in accounts payable of $0.7 million, and the changes in deferred revenue of ~~$0.5~~$4.8 million ~~primarily due to~~caused by the timing of amounts invoiced and revenue ~~recognized.~~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, ~~2018,~~2021 was primarily the result of non-cash adjustments of $51.0 million exceeding our net loss of ~~$28.2~~$29.7 million ~~and an $4.6~~partially offset by net cash outflows of $1.7 million ~~change~~from changes in operating assets and ~~liabilities, partially offset by $32.2 million~~liabilities. Non-cash expenses consisting primarily of ~~non-cash adjustments of deferred income taxes benefits,~~ 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 in loss on extinguishment of debt.~~million. The ~~$4.6 million~~ net change in operating assets and liabilities ~~consisted of a $3.6 million increase in accounts receivable,~~ primarily ~~reflective of invoicing in excess of collection during~~reflects an outflow from the ~~period, a $1.0 million increase~~changes in prepaid ~~expense~~expenses and other assets ~~a $0.5~~of $4.2 million, ~~decrease in deferred cost~~accounts receivable of ~~implementation services, an $3.2~~$3.5 million ~~increase in deferred revenue primarily~~ due to timing of ~~amount~~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, ~~a $0.7 million decrease in~~ accrued employee compensation ~~primarily due to payment~~ of ~~bonuses and other employee benefits, and $1.6 million decrease in other accrued and long term liabilities and a $1.4 million decrease in accounts payable.~~

~~Net cash used in operating activities during the fiscal year ended September 30, 2017, was primarily the result of our net loss of $39.5~~$1.9 million, and ~~an $11.9~~accounts payable of $1.7 million change in operating assets and liabilities, partially offset by $15.7 million of non-cash adjustments of deferred income taxes benefits, stock-based compensation and depreciation and amortization. The $11.9 million net change in operating assets and liabilities consisted of a $1.4 million decrease in accounts receivable, primarily reflective of collections in excess of invoicing during the period, a $2.1 million decrease in prepaid expense and other assets, a $1.5 million decrease in deferred cost of implementation services, an $5.8 million increase in deferred revenue primarily due to timing of ~~amount invoiced~~vendor invoices and ~~revenue recognized, a $2.6 million increase in accrued employee compensation primarily due to accrual of bonuses and other employee benefits, and a $1.6 million decrease in accounts payable.~~payments.

~~Cash Flows from~~ Investing Activities

Net cash used in investing activities for fiscal year ended September 30, ~~2019, was primarily due to~~2022, consisted of $1.0 million for purchases of property and equipment.

Net cash used in investing activities for fiscal year ended September 30, ~~2018, was primarily due to~~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 ~~used in investing~~provided by financing activities for the fiscal year ended September 30, ~~2017, was primarily due to $47.8~~2022 and 2021, resulted from $4.3 million ~~net cash paid for the acquisition of Revitas, $0.4 million associated with capitalization of software development costs and purchases of property and equipment of $0.4 million.~~

~~Cash Flows from Financing Activities~~

~~Net cash used in financing activities for fiscal year ended September 30, 2019, consisted of $10.0 million principal payment on our term loan with Wells Fargo partly offset by $3.9 million of~~ proceeds from ~~the exercises of stock options and purchases made under our employee stock purchase plan.~~

~~Net cash used in financing activities for fiscal year ended September 30, 2018, was driven by $4.4 million from the exercises of stock options and~~ purchases made under our employee stock purchase plan ~~offset by $2.2 million net cash used in extinguishing our term loan~~ and ~~new borrowing arrangement with Wells Fargo, as well as~~ the ~~$5.2 million principal related to promissory note and Wells Fargo’s quarterly principal.~~

Net cash provided by financing activities for fiscal year ended September 30, 2017, was primarily related to our borrowing activities related to the Revitas transaction, for which we received net cash proceeds of $47.9 million during fiscal year 2017, as well as $4.0 million from the exercisesexercise of stock options and ~~purchase made under our employee stock purchase plan.~~

~~Contractual Obligations~~

~~The following summarizes our contractual obligations as of September 30, 2019:~~$0.3 million increase in funds held for customers.

Table of Contents

Contractual Payment Obligations Due by Period
Total
Less than
1 Year

1 to 3
Years

3 to 5
Years

More than 5
Years
Debt (1)
$ 44,750
$ 5,000
$ 5,940
$ 33,810
$ —
Operating lease obligations (2)
6,500
3,400
2,600
500
—
Total $ 51,250
$ 8,400
$ 8,540
$ 34,310
$ —


~~(1)~~	~~Represents principal payments for the term loan with Wells Fargo and promissory note.~~


~~(2)~~	~~Represent our obligations to make payments under the lease agreements for our facilities leases.~~

~~Off-Balance Sheet Arrangements~~

As of September 30, 2019, we did not have any relationships with unconsolidated entities or financial partnerships, such as entities often referred to as structured finance or special purpose entities, which would have been established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes.

Critical Accounting Policies and Estimates

Our ~~consolidated financial statements~~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~~Consolidated Financial Statements in conformity 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 ~~adopted~~account for revenue in accordance with ASC Topic 606, Revenue from Contracts with ~~Customers, on October 1, 2018, using the modified retrospective method.~~

Customers. We ~~derive our revenues primarily from subscription revenues and professional services revenues and~~ apply the ~~following~~ five step framework to recognize ~~revenue:~~

~~Identification of the contract, or contracts, with a customer,~~

~~Identification of the performance obligations~~ revenue as described in our revenue recognition policy included in Note 2 in the ~~contract,~~notes to our Consolidated Financial Statements included in Part II, Item 8 of this Annual Report on Form 10-K.

~~Determination of the transaction price,~~

~~Allocation of the transaction price to the performance obligations in the contract, and~~

~~Recognition of revenue when, or as, we satisfy a performance obligation.~~

We enter into contracts with customers that can include various combinations of services which are generally distinct and accounted for as separate performance obligations. As a result, our contracts may contain multiple performance obligations. We determine whether the services are distinct based on whether the customer can benefit derive revenues from the ~~service on its own or together with other resources that are readily available and whether our commitment~~sale of subscriptions to ~~transfer the product or service to the customer is separately identifiable from other obligations in the contract. We generally consider~~ our cloud-based ~~subscription offerings,~~solutions, subscriptions for managed support services and maintenance and support, ~~managed service support, professional services and training as distinct performance obligations. Term-based licenses generally have two performance obligations: software~~term based licenses, and ~~software maintenance.~~implementation and other professional services.

~~The~~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 ~~determined based on the consideration to which we expect to be entitled in exchange for transferring services and products~~allocated to the ~~customer. Variable consideration (if any) is estimated and included in the transaction price if, in our~~

~~judgment, it is probable that there will not be a significant future reversal of cumulative revenue under the contract. We typically do not offer contractual rights of return or concessions.~~

~~For contracts~~single performance obligation. Contracts that contain multiple performance obligations require an allocation of the transaction price ~~is allocated~~ to each performance obligation based on its ~~relative~~ 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~~obligation. Some of our performance obligations, such as support and ~~judgment may be involved in~~training services, have observable inputs that are used to determine the ~~determination. We~~SSP of those distinct performance obligations. Where SSP is not directly observable, we determine SSP using information that ~~may include~~includes market conditions and other observable ~~inputs.~~inputs such as customer type and geography. We evaluate the SSP for our performance obligations on a quarterly basis.

Revenue is recognized when control of these services is transferred to our customers in an amount that reflects the consideration to which we expect to be entitled in exchange for these services. In instances where the timing of revenue recognition differs from the timing of invoicing, we have determined that our contracts generally do not include a significant financing component.

Subscription revenue related to cloud-based solutions, maintenance and support and managed service 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 customers. 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 our ~~professional~~contracts contain multiple performance obligations, such as when cloud-based solutions are sold with implementation services ~~contracts~~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 ondistinct 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 ~~time and materials basis. Revenue~~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 ~~training and customer-reimbursed expenses~~the estimate made. The carrying amount of the equity component representing the conversion option is ~~recognized as we deliver these services. Our implementation projects generally have a term ranging~~determined by deducting the fair value of the liability component from ~~a few months to twelve months and may be terminated by~~ the ~~customer at any time.~~

~~Capitalized Contract Acquisition Costs~~

~~We capitalize incremental costs incurred to acquire contracts with customers, primarily sales commissions, for which~~principal amount of the ~~associated revenue is expected to be recognized in future periods. We incur these costs in connection with both initial contracts and renewals.~~Notes. The ~~costs in connection with initial contracts and renewals are deferred and amortized over an expected customer life~~excess of ~~five years and~~the principal amount of the Notes over the ~~renewal term, respectively, which corresponds~~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 ~~period of benefit to the customer. We determined the period of benefit by considering our history of customer relationships, length of customer contracts, technological development~~liability 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 in the Consolidated Statements of Operations.

~~Revenue recognition under ASC Topic 605~~

~~We generate revenue from two sources: SaaS and maintenance and License and implementation.~~

License and implementation revenues include revenues from the sale of perpetual software licenses for our solutions and the related implementation services. SaaS and maintenance revenues primarily include subscription and the related implementation fees from customers accessing our cloud-based solutions and revenues associated with maintenance and support contracts from customers using on-premise solutions. Also included in SaaS and maintenance revenues are other revenues, such as managed support services, training and customer-reimbursed expenses. We commence revenue recognition when allequity components of the ~~following conditions are satisfied:~~

~~there is persuasive evidence of an arrangement exists,~~

~~delivery has occurred or services have been rendered,~~

~~the price is fixed or determinable, and~~

~~the collection of the fees is probable or reasonably estimable.~~

However, determining whether and when some of these criteria have been satisfied often involves assumptions and judgments that can have a significant impact on the timing and amount of revenues we report.

For SaaS arrangements related to Revenue Cloud for Life Sciences and High Tech companies we historically concluded that the SaaS deliverable did not have standalone value without the implementation services primarily because other vendors could not perform the services, and in some cases the complexity of the customer environment in which the SaaS deliverable was deployed.

Prior to fiscal year 2016, for SaaS arrangements related to Revenue Cloud for Life Sciences and High Tech companies we treated the entire arrangement consideration, including subscription fees and related implementation services fees, as a single unit of accounting and recognized the revenues ratably beginning the day the customer was provided access to the subscription service

through the end of contractual period. During fiscal year 2016, we concluded that a sufficient number of implementation projects had been completed with several third-party consulting companies participating in either a primary or sub-contractor role, such that the third-party vendors have the requisite know-how to complete, and, have completed the implementation services independently. Therefore, the Company concluded that the SaaS deliverable has standalone value to the customer without the implementation services. The total arrangement fee for a multiple-element arrangement is allocatedNotes based on the ~~relative selling price method. The consideration~~proportion of the proceeds allocated to ~~subscription fees is recognized as revenue ratably~~the debt and equity components. Issuance costs attributable to the liability component are amortized to interest expense using the effective interest method over the ~~contract period. The consideration allocated~~contractual terms of the Notes. Issuance costs attributable to ~~implementation services is recognized as revenue as services~~the equity component are ~~performed, in accordance~~netted with the ~~provisions~~equity component in stockholders’ equity.

Table of Financial Accounting Standards Board (FASB) Accounting Standards Update (ASU) No. 2009-13, Revenue Recognition (Accounting Standards Codification (ASC) Topic 605)—Multiple-Deliverable Revenue Arrangements.”Contents

For the remaining SaaS arrangements subscription fees and implementation services continue to have standalone value and we allocate revenue to each element in the arrangement based on a selling price hierarchy. The selling price for a deliverable is based on its vendor-specific objective evidence (VSOE), if available, third-party evidence (TPE), if VSOE is not available, or best estimated selling price (BESP), if neither VSOE nor TPE is available. For SaaS arrangements, where we utilize BESP, we established the BESP for each element by considering specific factors such as existing pricing and discounting. The total arrangement fee for a multiple element arrangement is allocated based on the relative BESP of each element. The consideration allocated to subscription fees is recognized as revenue ratably over the contract period. The consideration allocated to services is recognized as revenue as services are performed.

~~Revenue related to up-front fees are deferred and recognized ratably over the estimated period that the customer benefits from the related service.~~

Maintenance and support revenue include post-contract customer support and the right to unspecified software updates and enhancements on a when and if available basis. Managed support services revenue includes supporting, managing and administering our software solutions, and providing additional end user support. Maintenance and support revenue and managed support services revenue are recognized ratably over the period in which the services are provided. The revenue from training and customer-reimbursed expenses is recognized as we deliver services.

Arrangements that include term-based licenses for current products with the right to use unspecified future versions of the software during the coverage period, are also accounted for as subscriptions, with revenue recognized ratably over the coverage period.

License and implementation revenue is recognized based on the nature and scope of the implementation services, we have concluded that generally the implementation services are essential to our customers’ use of the on-premise solutions, and therefore, we recognize revenues from the sale of software licenses for our on-premise solutions and the related implementation services on a percentage-of-completion basis over the expected implementation period which is estimated at a few months to three years. The percentage-of-completion computation is measured as the hours expended on the implementation during the reporting period as a percentage of the total estimated hours needed to complete the implementation.

Stock-based compensation

We recognize compensation expense for ~~stock option,~~ 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 ~~stock option awards and~~ ESPP shares. ~~However, we have not granted~~Black-Scholes-Merton valuation model requires the input of subjective assumptions including expected stock ~~options since fiscal year 2013.~~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 ~~charges.~~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.

~~During~~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 ~~last three years, we have completed~~fair value of the ~~Revitas acquisition in January 2017.~~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. ~~However, if actual results are not consistent with our estimates or assumptions, we may be exposed to losses that could be material.~~

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.

~~On December 22, 2017,~~We apply judgment in determining our uncertain tax reform legislation known as the Tax Cuts and Jobs Act (the “Tax Legislation”) was enacted in the United States (“U.S.”). The Tax Legislation significantly revises the U.S. corporate income tax by, among other things, lowering the corporate income tax rate to 21%, implementing a modified territorial tax system and imposing a one-time repatriation tax on deemed repatriated earnings and profits of U.S.-owned foreign subsidiaries (the “Toll Charge”), and limiting the deductibility of certain expenses, such as interest expense. As a fiscal-year taxpayer, certain provisions of the Tax Legislation impact us in fiscal year 2018, including the change in the corporate income tax rate and the Toll Charge, while other provisions were effective starting at the beginning of fiscal year 2019.

On December 22, 2017, the SEC issued Staff Accounting Bulletin No.118 (“SAB 118”), which addresses how a company recognizes provisional estimates when a company does not have the necessary information available, prepared or analyzed (including computations) in reasonable detail to complete its accounting for the effect of the changes in the Tax Legislation. The measurement period ends when a company has obtained, prepared, and analyzed the information necessary to finalize its accounting, but cannot extend beyond one year. We have completed our final analysis and impact of the Tax Legislation during the first quarter of fiscal year 2019. In accordance with SAB 118, the Tax Legislation-related income tax effects that we initially reported as provisional estimates were refined as additional analysis was performed. There was no material impact to our Consolidated Financial Statements when the analysis was completed.

On January 22, 2018, the FASB released guidance on the accounting for tax on the global intangible low-taxed income (“GILTI”) provisions of the Tax Legislation. The GILTI provisions impose a tax on foreign income in excess of a deemed return on tangible assets of foreign corporations. The guidance indicates that either accounting for deferred taxes related to GILTI inclusions or treating any taxes on GILTI inclusions as a period cost are both acceptable methods, subject to an accounting policy election. We have elected to recognize any potential GILTI obligation as an expense in the period it is incurred.

As of September 30, 2019, we had gross deferred income tax assets, related primarily to net operating loss (“NOL”) carry forward, stock compensation, accruals and reserves that are not currently deductible, depreciation and amortization, and research and development tax credits of $83.0 million, which have been fully offset by deferred tax liabilities and valuation allowance. Utilization of these net loss carry forwards is subject to the limitations of IRC Section 382. A Section 382 study was performed in fiscal year 2013 and subsequent Section 382 analyses have been performed. It is determined that there is no material limitation 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 federal and state net operating losses will begin expiring in 2021 and 2020, respectively.

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

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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 ~~Measure~~Measures

Adjusted EBITDA

Adjusted EBITDA is a financial measure that is not calculated in accordance with generally accepted accounting principles in ~~U.S. GAAP.~~the United States. We define adjusted EBITDA as net loss before items discussed below, including: stock-based compensation expense, depreciation and amortization, acquisition ~~and integration~~ related expense, ~~deferred revenue adjustment related to the acquisition of Revitas,~~ interest ~~(income) expenses,~~expense, net, other ~~(income)~~ expenses (income), net, ~~certain legal expenses,~~ 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 include deferred revenue adjustment, integration, and expense related Revitas acquisition;~~

•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 ~~reflect legal expense related to class action lawsuits;~~include acquisition-related expense;

•adjusted EBITDA does not reflect cash requirements for income taxes and the cash impact of interest ~~income or~~ expense and other income orand expense; and

•other companies in our industry may calculate adjusted EBITDA differently than we do, limiting its usefulness as a comparative measure.


	Fiscal Years Ended September 30,
	2022		2021
	(in thousands)
Reconciliation of Adjusted EBITDA:
Net loss	$	(28,635)	$	(29,737)
Adjustments:
Stock-based compensation expense	36,054		29,963
Depreciation and amortization	8,991		7,972
Acquisition-related expense	—		2,509
Interest expense, net	14,763		14,344
Other expenses (income), net	(558)		210
Provision for income taxes	1,475		769
Adjusted EBITDA	$	32,090	$	26,030

Fiscal Years Ended September 30,
2019 2018 2017
(in thousands)
Reconciliation of Adjusted EBITDA:

Net loss $ (19,293 ) $ (28,207 ) (39,547 )
Adjustments:
Stock-based compensation expense 21,340
23,324
10,560
Depreciation and amortization 6,790
8,299
8,185
Deferred revenue adjustments —
627
5,151
Acquisition and integration related expense —
—
6,446
Interest expense, net 2,933
8,178
4,159
Other (income) expenses, net 319
(722 ) 62
Provision for (benefit from) income taxes 1,030
(27 ) (3,285 )
Adjusted EBITDA $ 13,119
$ 11,472
$ (8,269 )

Adjusted EBITDA was $13.1 million, $11.5 million and $(8.3) million for the fiscal years ended September 30, 2019, 2018, and 2017, respectively. The increase in our adjusted EBITDA for the fiscal year ended September 30, 2019 as compared to fiscal year ended September 30, 2018, was primarily due to decreased operating expenses.

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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 ~~and expense~~ 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 ~~addition, as~~May 2020, we issued $172.5 million aggregate principal amount of ~~September 30, 2019,~~2.625% convertible senior notes (the “Notes”) in a private placement. As the Notes have a fixed annual interest rate, we ~~had approximately $39.8 million in debt~~have no financial or economic interest exposure associated with ~~variable interest components. With respect to our interest expense for the fiscal year ended September 30, 2019, a 10% hypothetical change~~changes in interest rates. However, the fair value of fixed rate debt instruments fluctuates when interest rates ~~would have resulted in an increase~~change. Additionally, the fair value of ~~$0.3 million in~~the Notes can be affected when the market price of our ~~interest expense~~common stock fluctuates. We carry the Notes at face value less unamortized discount on our balance sheet, and we present the fair value for ~~such period.~~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 ~~2019,~~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 ~~$0.9~~$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.

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Item 8. Financial Statements and Supplementary Data

MODEL N, INC.

Index to Consolidated Financial Statements



			Page
Report of Independent Registered Public Accounting Firm (PCAOB Firm ID 238)			5051

Consolidated Balance Sheets			5253

Consolidated Statements of Operations			5354

Consolidated Statements of Comprehensive Loss			5455

Consolidated Statements of Stockholders’ Equity			5556

Consolidated Statements of Cash Flows			5657

Notes to Consolidated Financial Statements			5758

~~The supplementary financial information required by this Item 8 is included in Item 7 under the caption “Quarterly Results~~

Table of ~~Operations (Unaudited)”.~~Contents

Report of Independent Registered Public Accounting Firm

To theBoard 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, ~~2019~~2022 and ~~2018,~~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, ~~2019,~~2022, including the related notes and schedule of valuation and qualifying accounts for each of the three years in the period ended September 30, ~~2019~~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, ~~2019,~~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, ~~2019~~2022 and ~~2018,~~2021, and the results of its operations and its cash flows for each of the three years in the period ended September 30, ~~2019~~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, ~~2019,~~2022, based on criteria established in Internal Control - Integrated Framework(2013)issued by the COSO.

~~Change in Accounting Principle~~

~~As discussed in Note 2 to the consolidated financial statements, the Company changed the manner in which it accounts for revenues from contracts with customers in 2019.~~

Basis for Opinions

The ~~Company’s~~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~~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.

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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.

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 ~~15, 2019~~18, 2022

We have served as the Company’s auditor since 2007.

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MODEL N, INC.

Consolidated Balance Sheets

(in thousands, except per share data)


	As of September 30,							As of September 30,
	2019			2018				2022		2021
Assets							Assets
Current assets:							Current assets:
Cash and cash equivalents	$	60,780		$	56,704		Cash and cash equivalents	$	193,524	$	165,467
Accounts receivable, net of allowance for doubtful accounts of $51 and $172 as of September 30, 2019, and 2018, respectively	26,953			28,273
Funds held for customers							Funds held for customers	603		316
Accounts receivable, net of allowance of $102 and $225 as of September 30, 2022, and 2021, respectively							Accounts receivable, net of allowance of $102 and $225 as of September 30, 2022, and 2021, respectively	49,121		43,185
Prepaid expenses	2,776			3,631			Prepaid expenses	5,772		4,920
Other current assets	4,039			455			Other current assets	12,516		8,442
Total current assets	94,548			89,063			Total current assets	261,536		222,330
Property and equipment, net	1,043			2,146			Property and equipment, net	1,838		1,907
Operating lease right-of-use assets							Operating lease right-of-use assets	15,392		20,565
Goodwill	39,283			39,283			Goodwill	65,665		65,665
Intangible assets, net	29,131			34,597			Intangible assets, net	37,362		45,394
Other assets	5,588			1,064			Other assets	10,454		7,929
Total assets	$	169,593		$	166,153		Total assets	392,247		363,790
Liabilities and Stockholders’ Equity							Liabilities and Stockholders’ Equity
Current liabilities:							Current liabilities:
Accounts payable	$	2,302		$	1,664		Accounts payable	$	5,820	$	4,802
Customer funds payable							Customer funds payable	603		316
Accrued employee compensation	19,906			14,211			Accrued employee compensation	26,712		24,662
Accrued liabilities	4,354			3,182			Accrued liabilities	6,860		4,719
Operating lease liabilities, current portion							Operating lease liabilities, current portion	4,651		4,529
Deferred revenue, current portion	44,875			52,176			Deferred revenue, current portion	62,282		57,431
Long term debt, current portion	4,911			1,375

Total current liabilities	76,348			72,608			Total current liabilities	106,928		96,459
Long-term debt	39,371			52,329			Long-term debt	135,417		124,301
Operating lease liabilities, less current portion							Operating lease liabilities, less current portion	12,142		17,229
Other long-term liabilities	1,152			1,182			Other long-term liabilities	3,139		2,283
Total liabilities	116,871			126,119			Total liabilities	257,626		240,272
Commitments and contingencies (Note 8)
Convertible preferred stock:
Convertible preferred stock, $0.0005 par value; no shares authorized, issued and outstanding at September 30, 2019 and 2018, respectively	—			—
Commitments and contingencies (Note 11)							Commitments and contingencies (Note 11)

Stockholders’ equity:							Stockholders’ equity:
Common Stock, $0.00015 par value; 200,000 shares authorized; 32,995 and 31,444 shares issued and outstanding at September 30, 2019 and September 30, 2018, respectively	5			5
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							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	6		5
Preferred Stock, $0.00015 par value; 5,000 shares authorized; no shares issued and outstanding	—			—			Preferred Stock, $0.00015 par value; 5,000 shares authorized; no shares issued and outstanding	—		—
Additional paid-in capital	266,295			244,814			Additional paid-in capital	421,473		380,528
Accumulated other comprehensive loss	(1,169		)	(1,285		)	Accumulated other comprehensive loss	(2,413)		(1,205)
Accumulated deficit	(212,409		)	(203,500		)	Accumulated deficit	(284,445)		(255,810)
Total stockholders’ equity	52,722			40,034			Total stockholders’ equity	134,621		123,518
Total liabilities and stockholders’ equity	$	169,593		$	166,153		Total liabilities and stockholders’ equity	$	392,247	$	363,790

The accompanying notes are an integral part of these Consolidated Financial Statements.

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MODEL N, INC.

Consolidated Statements of Operations

(in thousands, except per share data)


	Fiscal Years Ended September 30,										Fiscal Years Ended September 30,
	2019			2018			2017				2022		2021		2020
Revenues:										Revenues:
Subscription	$	105,219		$	98,308		$	86,151		Subscription	$	159,766	$	142,448	$	116,184
Professional services	36,016			56,324			45,018			Professional services	59,398		50,997		44,872
Total revenues	141,235			154,632			131,169			Total revenues	219,164		193,445		161,056
Cost of revenues:										Cost of revenues:
Subscription	35,218			37,820			38,172			Subscription	58,509		49,933		34,461
Professional services	30,912			27,514			22,924			Professional services	38,611		36,715		31,035
Total cost of revenues	66,130			65,334			61,096			Total cost of revenues	97,120		86,648		65,496
Gross profit	75,105			89,298			70,073			Gross profit	122,044		106,797		95,560
Operating expenses:										Operating expenses:
Research and development	30,009			32,416			31,064			Research and development	47,604		44,661		34,361
Sales and marketing	32,894			35,482			41,339			Sales and marketing	47,719		43,239		38,979
General and administrative	27,213			42,178			36,281			General and administrative	39,676		33,311		28,826
Total operating expenses	90,116			110,076			108,684			Total operating expenses	134,999		121,211		102,166
Loss from operations	(15,011		)	(20,778		)	(38,611		)	Loss from operations	(12,955)		(14,414)		(6,606)
Interest expense, net	2,933			8,178			4,159			Interest expense, net	14,763		14,344		6,322
Other expenses (income), net	319			(722		)	62			Other expenses (income), net	(558)		210		(76)
Loss before income taxes	(18,263		)	(28,234		)	(42,832		)	Loss before income taxes	(27,160)		(28,968)		(12,852)
Provision for (benefit from) income taxes	1,030			(27		)	(3,285		)
Provision for income taxes										Provision for income taxes	1,475		769		812
Net loss	$	(19,293	)	$	(28,207	)	$	(39,547	)	Net loss	$	(28,635)	$	(29,737)	$	(13,664)
Net loss per share attributable to common stockholders:										Net loss per share attributable to common stockholders:
Basic and diluted	$	(0.60	)	$	(0.93	)	$	(1.38	)	Basic and diluted	$	(0.78)	$	(0.84)	$	(0.40)
Weighted average number of shares used in computing net loss per share attributable to common stockholders:										Weighted average number of shares used in computing net loss per share attributable to common stockholders:
Basic and diluted	32,232			30,370			28,649			Basic and diluted	36,744		35,461		34,008

The accompanying notes are an integral part of these Consolidated Financial Statements.

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MODEL N, INC.

Consolidated Statements of Comprehensive Loss

(in thousands)


	Fiscal Years Ended September 30,										Fiscal Years Ended September 30,
	2019			2018			2017				2022		2021		2020
Net loss	$	(19,293	)	$	(28,207	)	$	(39,547	)	Net loss	$	(28,635)	$	(29,737)	$	(13,664)
Other comprehensive income (loss), net:										Other comprehensive income (loss), net:
Unrealized gain on cash flow hedges	5			—			—
Foreign currency translation gain (loss)	111			(783		)	60
Unrealized gain (loss) on cash flow hedges										Unrealized gain (loss) on cash flow hedges	(316)		38		33

Foreign currency translation loss										Foreign currency translation loss	(892)		(30)		(77)
Total comprehensive loss	$	(19,177	)	$	(28,990	)	$	(39,487	)	Total comprehensive loss	$	(29,843)	$	(29,729)	$	(13,708)

The accompanying notes are an integral part of these Consolidated Financial Statements.

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MODEL N, INC.

Consolidated Statements of Stockholders’ Equity

(in thousands)


				Additional Paid-In Capital		Accumulated Other Comprehensive Loss		Accumulated Deficit		Total Stockholders' Equity
	Common Stock
	Shares	Amount
Balance at September 30, 2019	32,995	$	5	$	266,295	$	(1,169)	$	(212,409)	$	52,722
Issuance of common stock upon exercise of stock options	65	—		503		—		—		503
Issuance of common stock upon release of restricted stock units	1,613	—		—		—		—		—
Issuance of common stock under stock purchase plans	148	—		3,731		—		—		3,731
Stock-based compensation (1)	—	—		26,196		—		—		26,196
Equity component of convertible senior notes, net of issuance costs	—	—		55,227		—		—		55,227
Other comprehensive loss	—	—		—		(44)		—		(44)
Net loss	—	—		—		—		(13,664)		(13,664)
Balance at September 30, 2020	34,821	$	5	$	351,952	$	(1,213)	$	(226,073)	$	124,671
Issuance of common stock upon exercise of stock options	9	—		73		—		—		73
Issuance of common stock upon release of restricted stock units	1,091	—		—		—		—		—
Issuance of common stock under stock purchase plans	138	—		4,234		—		—		4,234
Stock-based compensation	—	—		24,269		—		—		24,269
Other comprehensive income	—	—		—		8		—		8
Net loss	—	—		—		—		(29,737)		(29,737)

Balance at September 30, 2021	36,059	$	5	$	380,528	$	(1,205)	$	(255,810)	$	123,518
Issuance of common stock upon exercise of stock options	21	—		232		—		—		232
Issuance of common stock upon release of restricted stock units	1,091	1		—		—		—		1
Issuance of common stock under stock purchase plans	187	—		4,023		—		—		4,023
Stock-based compensation (2)	—	—		36,690		—		—		36,690
Other comprehensive income	—	—		—		(1,208)		—		(1,208)
Net loss	—	—		—		—		(28,635)		(28,635)
Balance at September 30, 2022	37,358	$	6	$	421,473	$	(2,413)	$	(284,445)	$	134,621

Additional
Paid-In
Capital

Accumulated
Other
Comprehensive
Loss

Accumulated
Deficit

Total
Stockholders'
Equity
Common Stock
Shares Amount
Balance at September 30, 2016 27,891
4
202,506
(562 ) (135,746 ) 66,202
Issuance of common stock upon exercise of stock options 329
—
1,339
—
—
1,339
Issuance of common stock upon release of restricted stock units 813
—
—
—
—
—
Issuance of common stock under stock purchase plans 290
—
2,647
—
—
2,647
Stock-based compensation —
—
10,560
—
—
10,560
Other comprehensive income —
—
—
60
—
60
Net loss —
—
—
—
(39,547 ) (39,547 )
Balance at September 30, 2017 29,323
4
217,052
(502 ) (175,293 ) 41,261
Issuance of common stock upon exercise of stock options 180
—
1,546
—
—
1,546
Issuance of common stock upon release of restricted stock units 1,709
1
(1 ) —
—
—
Issuance of common stock under stock purchase plans 232
—
2,893
—
—
2,893
Stock-based compensation —
—
23,324
—
—
23,324
Other comprehensive loss —
—
—
(783 ) —
(783 )
Net loss —
—
—
—
(28,207 ) (28,207 )
Balance at September 30, 2018 31,444
$ 5
$ 244,814
$ (1,285 ) $ (203,500 ) $ 40,034
Adoption of ASC 606 —
—
—
—
10,384
10,384
Issuance of common stock upon exercise of stock options 120
—
822
—
—
822
Issuance of common stock upon release of restricted stock units 1,213
—
—
—
—
—
Issuance of common stock under stock purchase plans 218
—
3,048
—
—
3,048
Stock-based compensation —
—
17,611
—
—
17,611
Other comprehensive income —
—
—
116
—
116
Net loss —
—
—
—
(19,293 ) (19,293 )
Balance at September 30, 2019 32,995
5
266,295
(1,169 ) $ (212,409 ) $ 52,722
(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.

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MODEL N, INC.

Consolidated Statements of Cash Flows

(in thousands)


	Fiscal Years Ended September 30,										Fiscal Years Ended September 30,
	2019			2018			2017				2022		2021		2020
Cash flows from operating activities:										Cash flows from operating activities:
Net loss	$	(19,293	)	$	(28,207	)	$	(39,547	)	Net loss	$	(28,635)	$	(29,737)	$	(13,664)
Adjustments to reconcile net loss to net cash provided by (used in) operating activities
Adjustments to reconcile net loss to net cash provided by operating activities										Adjustments to reconcile net loss to net cash provided by operating activities
Depreciation and amortization	6,790			8,299			8,185			Depreciation and amortization	8,991		7,972		5,498
Stock-based compensation	21,340			23,324			10,560			Stock-based compensation	36,054		29,963		22,500
Amortization of debt discount and issuance costs	579			800			683			Amortization of debt discount and issuance costs	11,114		9,863		3,405
Deferred income taxes	176			(392		)	(3,952		)	Deferred income taxes	389		95		389
Amortization of capitalized contract acquisition costs	1,781			—			—			Amortization of capitalized contract acquisition costs	4,349		3,114		2,459
Loss on early extinguishment of debt										Loss on early extinguishment of debt	—		—		319
Other non-cash charges	(121		)	137			216			Other non-cash charges	(797)		10		(4)
Loss on extinguishment	—			3,142			—
Changes in assets and liabilities, net of acquisition:										Changes in assets and liabilities, net of acquisition:
Accounts receivable	860			(3,555		)	1,420			Accounts receivable	(5,685)		(3,542)		(8,836)
Prepaid expenses and other assets	(5,158		)	(960		)	2,117			Prepaid expenses and other assets	(7,108)		(4,224)		(3,091)
Deferred cost of implementation services	—			486			1,502
Accounts payable	692			(1,434		)	(1,558		)	Accounts payable	1,049		1,695		544
Accrued employee compensation	2,015			(687		)	2,626			Accrued employee compensation	2,946		1,933		927
Other accrued and long-term liabilities	240			(1,622		)	13			Other accrued and long-term liabilities	(2,197)		(2,003)		(2,433)
Deferred revenue	549			3,192			5,770			Deferred revenue	4,817		4,451		6,393
Net cash provided by (used in) operating activities	10,450			2,523			(11,965		)
Net cash provided by operating activities										Net cash provided by operating activities	25,287		19,590		14,406
Cash flows from investing activities:										Cash flows from investing activities:
Purchases of property and equipment	(280		)	(252		)	(359		)	Purchases of property and equipment	(993)		(1,055)		(579)
Acquisition of business, net of cash acquired	—			—			(47,773		)
Capitalization of software development costs	—			—			(369		)
Acquisition of business										Acquisition of business	—		(57,849)		—
Net cash used in investing activities	(280		)	(252		)	(48,501		)	Net cash used in investing activities	(993)		(58,904)		(579)
Cash flows from financing activities:										Cash flows from financing activities:
Proceeds from exercise of stock options and issuance of employee stock purchase plan	3,870			4,439			3,986			Proceeds from exercise of stock options and issuance of employee stock purchase plan	4,255		4,307		4,234
Proceeds from term loan	—			49,588			48,686
Debt issuance costs	—			(280		)	(806		)
Proceeds from issuance of convertible senior notes, net of issuance costs										Proceeds from issuance of convertible senior notes, net of issuance costs	—		—		166,409
Principal payments on loan	(10,000		)	(55,250		)	—			Principal payments on loan	—		—		(44,750)
Early payment penalty	—			(1,500		)	—
Net cash (used in) provided by financing activities	(6,130		)	(3,003		)	51,866
Net changes in customer funds payable										Net changes in customer funds payable	288		316		—
Net cash provided by financing activities										Net cash provided by financing activities	4,543		4,623		125,893
Effect of exchange rate changes on cash and cash equivalents	36			(122		)	9			Effect of exchange rate changes on cash and cash equivalents	(493)		(17)		(9)
Net decrease in cash and cash equivalents	4,076			(854		)	(8,591		)
Net increase (decrease) in cash and cash equivalents										Net increase (decrease) in cash and cash equivalents	28,344		(34,708)		139,711
Cash and cash equivalents										Cash and cash equivalents
Beginning of period	56,704			57,558			66,149			Beginning of period	165,783		200,491		60,780
End of period	$	60,780		$	56,704		$	57,558		End of period	$	194,127	$	165,783	$	200,491

Supplemental Disclosure of Cash Flow Data:										Supplemental Disclosure of Cash Flow Data:
Cash paid for income taxes	$	993		$	622		$	677		Cash paid for income taxes	$	995	$	936	$	488
Cash paid for interest	3,225			4,181			3,462			Cash paid for interest	4,528		4,641		1,433
Noncash Investing and Financing Activities:
Promissory notes issued for acquisition	$	—		$	—		$	8,643

The accompanying notes are an integral part of these Consolidated Financial Statements.

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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 ~~2019,~~2022, for example, refer to the fiscal year ended September 30, ~~2019.~~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.

~~Change in Presentation~~

Previously, the Company presented revenue and cost of revenue on two lines: “SaaS and maintenance” and “License and implementation.” Historically, the Company’s growth was driven by the sale of on-premise solutions. Over the last few years, the Company shifted its focus to selling cloud-based software. As a result of the business model transition from an on-premise to a software-as-a-service (“SaaS”) model, the Company updated the presentation in fiscal year 2019 to present the revenue and cost of revenue line items within the Consolidated Statements of Operations with the break-out between two new lines called “Subscription” and “Professional services.” Revenues and cost of revenues in prior periods have been reclassified in this filing to conform to the new presentation. This change in presentation does not affect our previously-reported total revenues and total cost of revenues.

~~Subscription~~

Subscription revenues primarily include contractual arrangements with customers accessing our cloud-based solutions. Subscription revenues also include revenues associated with maintenance and support and managed support 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 to customers using on-premise solutions. Managed support services revenues include supporting, managing and administering our software solutions and providing additional end user support. 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.

~~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.

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 ~~combination.~~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 adopted ASC Topic 606, Revenue from Contracts with Customers, on October 1, 2018, using the modified retrospective method.~~

~~Table of Contents~~

~~MODEL N, INC.~~

~~Notes to Consolidated Financial Statements~~

The Company derives revenues primarily from subscription revenues and professional services ~~revenues and~~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:~~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,

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MODEL N, INC.

Notes to Consolidated Financial Statements

maintenance and support on license arrangements, ~~managed service support,~~ 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 ~~services~~products and ~~products~~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, ~~maintenance~~managed service and support, and ~~managed service~~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.

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.

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~~MODEL N, INC.~~

~~Notes to Consolidated Financial Statements~~

~~Revenue Recognition under ASC Topic 605~~

~~Revenues are comprised of Software as a Service (“SaaS”) and maintenance revenues and license and implementation revenues.~~

~~SaaS and Maintenance~~

SaaS and maintenance revenues primarily include subscription and the related implementation fees from customers accessing the Company’s cloud-based solutions and revenues associated with maintenance and support contracts from customers using on-premise solutions. Also included in SaaS and maintenance revenues are other revenues, including revenues related to managed support services, training and customer-reimbursed expenses.

The Company has determined that its subscriptions have standalone value without the implementation services and allocates revenue to each deliverable in the arrangement based on a selling price hierarchy. The selling price for a deliverable is based on its vendor-specific objective evidence (VSOE), if available, third-party evidence (TPE), if VSOE is not available, or best estimated selling price (BESP), if neither VSOE nor TPE are available. As the Company has been unable to establish VSOE or TPE for the elements of its SaaS arrangements, the Company established the BESP for each element by considering company-specific factors such as existing pricing and discounting. The total arrangement fee for a multiple element arrangement is allocated based on the relative selling price method, taking into consideration contingent revenue restraints. The consideration allocated to subscription fees is recognized as revenue ratably over the contract period. The consideration allocated to implementation services is recognized as revenue as services are performed.

Prior to fiscal year 2016, for SaaS arrangements related to Revenue Cloud for Life Science and High Tech companies the Company treated the entire arrangement consideration, including subscription fees and related implementation services fees, as a single unit of accounting and recognized the revenues ratably beginning the day the customer was provided access to the subscription service through the end of contractual period. During fiscal year 2016, the Company concluded that the SaaS deliverable has standalone value to the customer without the implementation services, primarily due to the number of third-party consulting companies that have the know-how to be able to independently perform the implementation services.

~~Revenue related to up-front fees are deferred and recognized ratably over the estimated period that the customer benefits from the related service.~~

Arrangements that include 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 accounted for as subscriptions, with revenue recognized ratably over the coverage period.

~~License and Implementation~~

License and implementation revenues include revenues from the sale of perpetual software licenses for the Company’s solutions and the related implementation services. Based on the nature and scope of the implementation services, the Company has concluded that generally the implementation services are essential to its customers’ use of the on-premise solutions, and therefore, the Company recognizes revenues from the sale of software licenses for its on-premise solutions and the related implementation services on a percentage-of-completion basis over the expected implementation period. The Company estimates the length of this period based on a number of factors, including the number of licensed applications and the scope and complexity of the customer’s deployment requirements. The percentage-of-completion computation is measured as the hours expended on the implementation during the reporting period as a percentage of the total estimated hours needed to complete the implementation.

~~Revenue Recognition~~

The Company commences revenue recognition when all of the following conditions are satisfied: persuasive evidence of an arrangement exists, delivery has occurred or services have been rendered, the price is fixed or determinable and collection of the fees is probable or reasonably estimable. However, determining whether and when some of these criteria have been satisfied often involves assumptions and judgments that can have a significant impact on the timing and amount of revenues the Company reports.

For multiple software element arrangements, the Company allocates the sales price among each of the deliverables using the residual method, under which revenue is allocated to undelivered elements based on their VSOE of fair value. VSOE is the

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~~MODEL N, INC.~~

~~Notes to Consolidated Financial Statements~~

~~price charged when an element is sold separately or a price set by management with the relevant authority. The Company has established VSOE for maintenance and support and training.~~

The Company does not offer any contractual rights of return or concessions. 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. Should a loss be anticipated on a contract, the full amount of the loss is recorded when the loss is determinable. The Company updates its estimates regarding the completion of implementations based on changes to the expected contract value and revisions to its estimates of time required to complete each implementation project. Amounts that may be payable to customers to settle customer disputes are recorded as a reduction in revenues or reclassified from deferred revenue to customer payables in accrued liabilities and other long-term liabilities.

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

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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 ~~or remaining~~ 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.

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~~MODEL N, INC.~~

~~Notes to Consolidated Financial Statements~~

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, ~~that, at times, exceed federally insured limits.~~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 atas of September 30, ~~2019,~~2022, and ~~2018 and~~2021:


	As of September 30,
Accounts Receivable	2022	2021
Company A	less than 10%	13%

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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, ~~2019, 2018,~~2022, 2021, and ~~2017, respectively:~~

As of September 30,
Accounts Receivable 2019 2018
Company A 12% less than 10%
Company B less than 10% 10%

Fiscal Years Ended September 30,
Revenue 2019 2018 2017
Company C less than 10% 15% 11%
2020.

Accounts Receivable and Allowance ~~for Doubtful Accounts~~

Accounts receivable are recorded at the invoiced amount, net of allowances for ~~doubtful accounts.~~credit losses. The allowance for ~~doubtful accounts~~credit losses is based on management’s assessment of the collectability of accounts. The Company regularly reviews the adequacy of this allowance for ~~doubtful accounts~~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 ~~uncollectable~~uncollectible are charged against the allowance for ~~doubtful accounts~~credit losses when identified.

Revenue that has been recognized, but for which the Company has not invoiced the customer, amounting to ~~$5.9~~$14.0 million and ~~$3.6~~$6.0 million is recorded as unbilled receivables and is included in accounts receivables in the Consolidated Balance Sheets as of September 30, ~~2019,~~2022, and ~~2018,~~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						2-5 years
Furniture and fixtures						2-5 years
Leasehold improvements						Shorter of the lease term or estimated useful life
Software development costs						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

~~Table of Contents~~

~~MODEL N, INC.~~

~~Notes to Consolidated Financial Statements~~

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, ~~2019,~~2022, and ~~2018.~~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 ~~our~~the single reporting unit is less than its carrying amount as a basis for determining whether it is necessary to perform the ~~two-step~~ goodwill impairment ~~under Accounting Standards Update (“ASU”) No. 2011-08,~~ ~~Goodwill and Other (Topic 350): Testing Goodwill for Impairment,~~ ~~issued by~~test. When performing the ~~Financial Accounting Standards Board (“FASB”). If the Company determines that it is more likely than not that its fair value is less than its carrying amount, then the two-step~~ goodwill impairment test, ~~is performed. The first step, identifying a potential impairment,~~the Company compares the fair value of the single reporting unit with its carrying amount. IfAn impairment charge is recognized for the amount by which the carrying amount exceeds ~~its~~the fair value ~~the second step would need to be performed; otherwise, no further step is required. The second step, measuring the impairment loss, compares the implied fair value of the~~with goodwill ~~with the carrying amount of the goodwill. Any excess of the goodwill carrying amount over the applied fair value is recognized as an impairment loss and the carrying value of goodwill is~~ written down ~~to fair value.~~accordingly. There have been no goodwill impairments during the periods presented.

Intangible assets, consisting of developed technology, ~~backlog,~~customer relationships, non-compete agreements, and ~~customer relationships,~~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 ~~ten~~fifteen years. Amortization expense related to developed technology is included in cost of subscription revenue while amortization expense related to ~~backlog~~customer relationships, non-compete agreements, and ~~customer relationships~~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. ~~The Company capitalized software development costs of zero, zero, and $0.4 million during the fiscal years ended September 30, 2019, 2018, and 2017, respectively.~~

Fair Value of Financial Instruments

The financial instruments of the Company consist primarily of cash and cash equivalents, accounts receivable, accounts payable, ~~and~~ certain accrued ~~liabilities.~~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.

Based on borrowing rates currently available to the Company for financing obligations with similar terms and considering the Company’s credit risks, the carrying value of the financing obligation approximates fair value.

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.



☒			ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
			For the fiscal year ended September 30, ~~2019~~2022
			OR
☐			TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM TO



Delaware		77-0528806
(State or ~~other jurisdiction~~Other Jurisdiction of ~~incorporation~~ Incorporation or ~~organization)~~ Organization)		(I.R.S. Employer Identification No.)

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

	~~Page~~
			Page
		PART I

Item 1.		Business	2
Item 1A.		Risk Factors	910
Item 1B.		Unresolved Staff Comments	2738
Item 2.		Properties	2838
Item 3.		Legal Proceedings	2838
Item 4.		Mine Safety Disclosures	2838

		PART II

Item 5.		Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities	2838
Item 6.		~~Selected Consolidated Financial Data~~[Reserved]	2939
Item 7.		Management’s Discussion and Analysis of Financial Condition and Results of Operations	3240
Item 7A.		Quantitative and Qualitative Disclosures About Market Risk	4849
Item 8.		Consolidated Financial Statements and Supplementary Data	4950
Item 9.		Changes in and Disagreements with Accountants on Accounting and Financial Disclosure	7881
Item 9A.		Controls and Procedures	7981
Item 9B.		Other Information	7981
Item 9C.		Disclosure Regarding Foreign Jurisdictions that Prevent Inspections	82

		PART III

Item 10.		Directors, Executive Officers and Corporate Governance	8083
Item 11.		Executive Compensation	8083
Item 12.		Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	8083
Item 13.		Certain Relationships and Related Transactions, and Director Independence	8083
Item 14.		Principal Accountant Fees and Services	8083

		PART IV

Item 15.		Exhibits, Financial Statements Schedules	8184



	Fiscal Year Ended September 30, 2019
(in thousands, except per share amounts)	As Reported			Adjustments			As if presented under ASC 605
Revenues
Subscription	$	105,219		$	(1,546	)	$	103,673
Professional services	36,016			3,417			39,433
Total revenues	141,235			1,871			143,106
Cost of professional services revenues	30,912			(364		)	30,548
Sales and marketing	32,894			3,302			36,196
Loss from operations	(15,011		)	(1,067		)	(16,078		)
Net loss	(19,293		)	(1,067		)	(20,360		)
Net loss per share - basic and diluted	(0.60		)	(0.03		)	(0.63		)



	As of October 1, 2018⁽¹⁾		As of September 30, 2019		Change
Accounts receivable, net	$	27,694	$	26,953	$	(741	)
Contract asset	579		1,588		$	1,009
Deferred revenue	44,854		45,385		$	531
Capitalized contract acquisition costs	3,324		6,626		$	3,302



	9/30/2014		9/30/2015		9/30/2016		9/30/2017		9/30/2018		9/30/2019
Model N	$	100.00	$	101.52	$	112.68	$	151.62	$	160.75	$	281.54
NASDAQ Composite Index	$	100.00	$	104.00	$	121.08	$	149.75	$	187.44	$	188.43
NASDAQ Computer Index	$	100.00	$	100.26	$	122.65	$	158.67	$	203.59	$	213.50



	Three Months Ended
	Sep 30, 2019			Jun 30, 2019			Mar 31, 2019			Dec 31, 2018			Sep 30, 2018			Jun 30, 2018			Mar 31, 2018			Dec 31, 2017
	(in thousands, except per share amounts)
Revenues:
Subscription	$	27,439		$	26,638		$	25,940		$	25,202		$	25,513		$	24,944		$	24,004		$	23,847
Professional Services	9,164			8,074			8,903			9,875			11,201			14,673			15,230			15,220
Total revenues	36,603			34,712			34,843			35,077			36,714			39,617			39,234			39,067
Cost of Revenues:
Subscription	8,970			8,658			8,852			8,738			9,201			9,564			9,440			9,615
Professional Services	7,983			7,206			7,894			7,829			5,626			6,881			7,813			7,194
Total cost of revenues	16,953			15,864			16,746			16,567			14,827			16,445			17,253			16,809
Gross profit	19,650			18,848			18,097			18,510			21,887			23,172			21,981			22,258
Operating Expenses:
Research and development	8,122			7,060			7,415			7,412			7,555			7,746			8,047			9,068
Sales and marketing	9,080			7,164			8,598			8,052			8,637			9,338			9,015			8,492
General and administrative	7,511			6,713			6,833			6,156			9,079			17,044			7,324			8,731
Total operating expenses	24,713			20,937			22,846			21,620			25,271			34,128			24,386			26,291
Loss from operations	(5,063		)	(2,089		)	(4,749		)	(3,110		)	(3,384		)	(10,956		)	(2,405		)	(4,033		)
Interest expense, net	620			689			891			733			828			4,478			1,449			1,423
Other (income) expenses, net	(89		)	(4		)	127			285			(416		)	(344		)	(87		)	125
Loss before income taxes	(5,594		)	(2,774		)	(5,767		)	(4,128		)	(3,796		)	(15,090		)	(3,767		)	(5,581		)
Provision for (benefit from) income taxes	61			230			141			598			(177		)	345			129			(324		)
Net loss	$	(5,655	)	$	(3,004	)	$	(5,908	)	$	(4,726	)	$	(3,619	)	$	(15,435	)	$	(3,896	)	$	(5,257	)



	Contractual Payment Obligations Due by Period
	Total		Less than 1 Year		1 to 3 Years		3 to 5 Years		More than 5 Years
Debt (1)	$	44,750	$	5,000	$	5,940	$	33,810	$	—
Operating lease obligations (2)	6,500		3,400		2,600		500		—
Total	$	51,250	$	8,400	$	8,540	$	34,310	$	—



	Fiscal Years Ended September 30,
Revenue	2019	2018	2017
Company C	less than 10%	15%	11%



(in thousands)	Balance at September 30, 2018			Cumulative effect adjustments due to the adoption of ASC 606			Balance at October 1, 2018
Assets
Accounts receivables, net	$	28,273		$	(579	)	$	27,694
Other current assets	455			1,668			2,123
Other assets	1,064			2,142			3,206
Liabilities
Accrued liabilities	3,182			600			3,782
Deferred revenue, current portion	52,176			(7,753		)	44,423
Stockholders’ Equity
Accumulated deficit	(203,500		)	10,384			(193,116		)


Fiscal Year
2023	$	5,060
2024	4,907
2025	4,545
2026	2,601
2027	515
2028 and thereafter	60
Total operating lease payments	17,688
Less imputed interest	896
Total operating lease liabilities	$	16,792


									Reported as:
	Amortized Cost		Unrealized Gains		Unrealized Losses		Fair Value		Cash and Cash Equivalents
As of September 30, 2022
Level 1:
Money market funds	$	61,956	$	—	$	—	$	61,956	$	61,956
US Treasury securities	89,679		11		(6)		89,684		89,684
Total	$	151,635	$	11	$	(6)	$	151,640	$	151,640

As of September 30, 2021
Level 1:
Money market funds	$	40,755	$	—	$	—	$	40,755	$	40,755
US Treasury securities	84,997		—		—		84,997		84,997
Total	$	125,752	$	—	$	—	$	125,752	$	125,752



	Level 1		Level 2		Level 3		Total
	(in thousands)
As of September 30, 2019:
Assets:
Cash equivalents	$	32,792	$	—	$	—	$	32,792
Total	$	32,792	$	—	$	—	$	32,792
As of September 30, 2018:
Assets:
Cash equivalents	$	43,741	$	—	$	—	$	43,741
Total	$	43,741	$	—	$	—	$	43,741


	Acquisition Date Fair Value
Accounts receivable	$	3,844
Property and equipment, net	511
Operating lease right-of-use assets	2,764
Goodwill	26,382
Intangible assets	28,210
Total assets acquired	61,711
Operating lease liabilities, current portion	656
Deferred revenue, current portion	1,549
Operating lease liabilities, less current portion	1,657
Total liabilities assumed	3,862
Total purchase price	$	57,849



Balance at September 30, 2021	$	65,665
Addition from Acquisition	—
Balance at September 30, 2022	$	65,665


~~ITEM 1.~~	~~Business~~



	Estimated Useful Life (in years)	Gross Carrying Amount		Accumulated Amortization		Net Carrying Amount
		(in thousands)
Intangible Assets:
Customer relationships	3-15	$	52,109	$	(23,684)	$	28,425
Developed technology	5-6	22,333		(14,791)		7,543
Non-compete agreements	5	1,600		(560)		1,040
Trade name	3	850		(496)		354
Total		$	76,892	$	(39,531)	$	37,362


	Fiscal Years Ending September 30,
	(in thousands)
2023	$	7,186
2024	6,691
2025	6,620
2026	6,069
2027	2,266
2028 and thereafter	8,530
Total future amortization	$	37,362



		As of September 30, 2018
	Estimated Useful Life (in years)	Gross Carrying Amount		Accumulated Amortization			Net Carrying Amount
		(in thousands)
Intangible Assets:
Developed technology	5-6	$	12,083	$	(6,448	)	$	5,635
Backlog	5	280		(275		)	5
Customer relationships	3-10	36,599		(7,642		)	28,957
Total		$	48,962	$	(14,365	)	$	34,597



Principal	$	44,750
Unamortized debt discount and issuance costs	(468		)
Net carrying amount	$	44,282


~~(1)~~	~~Operating lease obligations represent our obligations to make payments under the lease agreements for our facilities leases.~~


								Number of Shares (in thousands)	Weighted Average Exercised Price		Weighted Average Remaining Contract Term (in years)	Aggregate Intrinsic Value (in thousands)
	Number of Shares (in thousands)	Weighted Average Exercised Price		Weighted Average Remaining Contract Term (in years)	Aggregate Intrinsic Value (in thousands)
Balance at September 30, 2016	806	$	6.31	3.56	$	4,103
Balance at September 30, 2019							Balance at September 30, 2019	100	$	8.66	2.23	$	1,911
Exercised	(329)	4.06					Exercised	(65)	7.72
Expired	(24)	11.69					Expired	(1)	1.74
Balance at September 30, 2017	453	7.71		3.53	$	3,281
Balance at September 30, 2020							Balance at September 30, 2020	34	10.57		1.68	$	846
Exercised	(179)	8.61					Exercised	(9)	8.20
Expired	(47)	4.65
Balance at September 30, 2018	227	7.64		2.94	$	1,861
Balance at September 30, 2021							Balance at September 30, 2021	25	11.41		0.82	$	560
Exercised	(120)	6.87					Exercised	(21)	11.10
Expired	(7)	6.13
Balance at September 30, 2019	100	$	8.66	2.23	$	1,911
Options exercisable as of September 30, 2019	100	$	8.66	2.23	$	1,911
Options vested and expected to vest as of September 30, 2019	100	$	8.66	2.23	$	1,911

Balance at September 30, 2022							Balance at September 30, 2022	4	$	13.50	0.41	$	83
Options exercisable as of September 30, 2022							Options exercisable as of September 30, 2022	4	$	13.50	0.41	$	83
Options vested and expected to vest as of September 30, 2022							Options vested and expected to vest as of September 30, 2022	4	$	13.50	0.41	$	83


						Restricted Stock Units Outstanding (in thousands)	Weighted Average Grant Date Fair Value
	Restricted Stock Units Outstanding (in thousands)		Weighted Average Grant Date Fair Value
Balance at September 30, 2016	3,117		$	11.81
Balance at September 30, 2019					Balance at September 30, 2019	2,350	$	16.36
Granted	1,817		11.67		Granted	1,390	28.91
Released	(813	)	10.58		Released	(1,613)	19.60
Forfeited	(1,204	)	10.65		Forfeited	(170)	18.21
Balance at September 30, 2017	2,917		$	12.55
Balance at September 30, 2020					Balance at September 30, 2020	1,957	$	22.43
Granted	1,355		22.92		Granted	1,200	36.00
Released	(1,137	)	13.99		Released	(1,091)	22.79
Forfeited	(822	)	18.57		Forfeited	(318)	27.88
Balance at September 30, 2018	2,313		$	15.78
Balance at September 30, 2021					Balance at September 30, 2021	1,748	$	30.54
Granted	1,638		16.09		Granted	1,699	32.22
Released	(1,213	)	15.35		Released	(1,091)	28.29
Forfeited	(388	)	14.91		Forfeited	(301)	30.85
Balance at September 30, 2019	2,350		$	16.36
Balance at September 30, 2022					Balance at September 30, 2022	2,055	$	33.08



	Restricted Stock Units (1)		ESPP
Total compensation cost for unvested (in millions)	$	23.7	$	0.4
Weighted-average period to recognize (in years)	2.1		0.4



(1):			Includes restricted stock units and performance-based restricted stock awards.



	(in thousands, except per share data)
Revenue	$	140,227
Net loss	(45,346		)
Net loss per shares-basic and diluted	$	(1.58	)


~~(a)~~	~~The following documents filed as a part of the report:~~


Description	Balance at Beginning of Period		Additions Charges to Costs and Expenses	Write-offs and Deductions	Balance at End of Period




Valuation allowance for deferred tax assets
For the Year Ended September 30, 2022	$	83,444	7,742	1,605	$	89,581
For the Year Ended September 30, 2021	$	73,372	14,332	4,260	$	83,444
For the Year Ended September 30, 2020	$	74,885	15,261	16,774	$	73,372


		Incorporated by Reference
Exhibit Number	Exhibit Description	Form	File No.	Exhibit	Filing Date	Filed Herewith
3.1	Amended and Restated Certificate of Incorporation of the Registrant	10-Q	001-35840	3.1	5/10/2013
3.2	Amended and Restated Bylaws of the Registrant	10-Q	001-35840	3.1	5/6/2020
4.1	Form of Registrant’s Common Stock certificate	S-1	333-186668	4.01	3/7/2013

4.2	Indenture dated May 22, 2020 between Model N, Inc. and U.S. Bank, National Association	8-K	001-35840	4.1	5/22/2020
4.3	Form of Global Note, representing Model N, Inc.’s 2.625% Convertible Senior Notes due 2025	8-K	001-35840	4.1	5/22/2020
4.4	Description of Registrant’s Securities	10-K	001-35840	4.5	11/23/2020
10.1	Form of Indemnity Agreement to be entered into between Registrant and each of its officers and directors	S-1	333-186668	10.01	3/12/2013
10.2	Form of Change in Control and Severance Agreement (Non-CEO Executives )	8-K	001-35840	10.2	5/9/2019
10.3†	2010 Equity Incentive Plan and forms of stock option agreement and stock option exercise agreement	S-1	333-186668	10.03	2/13/2013
10.4†	2013 Equity Incentive Plan and forms of stock option agreement and stock option exercise agreement	S-1	333-186668	10.04	3/7/2013
10.5†	2013 Employee Stock Purchase Plan	S-8	333-187388	99.4	3/20/2013


10.6†	Form of Restricted Stock Unit Agreement	10-K	001-35840	10.12	12/6/2013
10.7†	Employment agreement dated May 7, 2018 by and between Registrant and Jason Blessing	10-Q	001-35840	10.2	8/8/2018
10.8	Form of Change in Control and Severance Agreement (CEO)	8-K	001-35840	10.1	5/9/2019
10.9	Lease by and between RV VI 777 Mariners, LLC and Registrant dated April 7, 2020	10-Q	001-35840	10.1	5/6/2020



*			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.



			MODEL N, INC.

			By:			/S/ D~~AVID~~ B~~ARTER~~JOHN EDERER
						~~David Barter~~John Ederer
						Chief Financial Officer