MODEL N, INC. Administration’s Dialogue and Evaluation of Monetary Place and Working Outcomes (Type 10-Okay)

You must learn the next dialogue and evaluation of our monetary situation
and outcomes of operations along with the Consolidated Monetary Statements
and associated notes which might be included elsewhere on this report. This dialogue
comprises forward-looking statements primarily based upon present expectations that contain
dangers and uncertainties. Our precise outcomes might differ materially from these
anticipated in these forward-looking statements on account of varied elements,
together with these set forth beneath "Threat Components" or in different components of this report.
A dialogue and evaluation relating to our monetary situation, outcomes of
operations and money flows for the 12 months ended September 30, 2021 in comparison with the
12 months ended September 30, 2020 is introduced under. A dialogue relating to our
monetary situation, outcomes of operations and money flows for the 12 months ended
September 30, 2020 in comparison with the 12 months ended September 30, 2019 is included in
Merchandise 7 of Half II, "Administration's Dialogue and Evaluation of Monetary Situation
and Outcomes of Operations" in our Annual Report on Type 10-Okay filed with the SEC
on November 23, 2020.
Overview
We're a number one supplier of cloud income administration options for all times
sciences and excessive tech corporations. Our software program and enterprise providers assist
corporations drive mission essential enterprise processes akin to pricing, quoting,
contracting, regulatory compliance, rebates and incentives. With deep business
experience, Mannequin N helps the advanced enterprise wants of the world's main
manufacturers in life sciences and excessive tech together with Johnson & Johnson, AstraZeneca,
Stryker, Seagate Expertise, Broadcom, and Microchip Expertise.
Mannequin N Income Cloud transforms the income life cycle right into a strategic,
end-to-end course of aligned throughout the enterprise. Deployments might differ from
particular divisions or territories to enterprise-wide implementations. Prospects
might buy and deploy a single cloud product or a full suite.
We derive revenues primarily from the sale of subscriptions to our cloud-based
options, in addition to subscriptions for managed help providers together with
enterprise providers, and upkeep and help associated to on-premise options.
We worth our options primarily based on a variety of elements, together with revenues beneath
administration and variety of customers. Subscription revenues are acknowledged ratably
over the protection interval. We additionally derive revenues from promoting skilled
providers associated to previous gross sales of perpetual licenses and implementation and
skilled providers related to our cloud-based options and associated to
the options offered by our latest acquisition. The precise timing of income
recognition might differ primarily based on our clients' implementation necessities and the
availability of our providers personnel.
We market and promote our options to clients within the life sciences and excessive tech
industries. Traditionally, our development was pushed by the sale of on-premise
options. Over the previous few years, we have now primarily been getting into into
cloud-based subscription preparations with our new and current clients and we
anticipate that subscription preparations would be the majority of latest
contractual preparations going ahead.
On December 31, 2020, we acquired sure belongings, properties and rights and
sure liabilities and obligations from Deloitte & Touche LLP's pricing and
contracting options enterprise. The acquired enterprise is complementary to our
current options and its choices are configured to fulfill our life sciences
clients' wants by offering a whole end-to-end answer for lowering
income loss and defending profitability all of the whereas assembly compliance
necessities. The full buy consideration was $57.8 million.
Our most vital clients in any given interval usually differ from interval to
interval as a result of timing within the supply of our skilled providers and
associated income recognition. Through the fiscal years ended September 30, 2021,
and 2020, no buyer represented greater than 10% of our complete revenues or extra
than 10% of our subscription revenues. For the fiscal years ended September 30,
2021, and 2020, roughly 7% and 9% of our complete revenues had been derived from
clients positioned outdoors america respectively.
For the fiscal years ended September 30, 2021, and 2020, our complete revenues had been
$193.4 million and $161.1 million respectively, representing a year-over-year
enhance of 20%. Income elevated in fiscal 12 months 2021 primarily as a result of
addition of subscription {and professional} providers revenues from enterprise
providers and elevated subscription {and professional} providers revenues from new
and current clients.
COVID-19
The World Well being Group declared the outbreak of COVID-19 a pandemic and
the U.S. federal authorities declared it a nationwide emergency in March 2020. Our
monetary outcomes for the fiscal 12 months ended September 30, 2021, and 2020 have
not been materially impacted by COVID-19. The extent of the affect of COVID-19
on our future operational and monetary efficiency, revenues, and liquidity
will depend upon sure developments, together with the length and unfold of the
outbreak, together with resulting from new variants, in addition to the affect on our clients,
workers, and companions, all of that are unsure and can't be predicted. We
are conducting enterprise with substantial modifications to worker journey,
worker
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work areas, and virtualization or cancellation of sure gross sales and
advertising and marketing occasions, amongst different modifications. A lot of our clients have
carried out related measures, which can restrict our capability to promote or present
skilled providers to them. Prospects may delay or cancel buying
selections or initiatives in mild of uncertainties to their companies arising from
the COVID-19 pandemic. As nearly all of our income is subscription-based, the
impact of the COVID-19 pandemic will not be absolutely mirrored in our outcomes of
operations till future durations.
Key Enterprise Metrics
Along with the measures of monetary efficiency introduced in our
Consolidated Monetary Statements, we use adjusted EBITDA to determine budgets
and operational targets and to judge and handle our enterprise internally. We
consider adjusted EBITDA supplies traders with consistency and comparability
with our previous monetary efficiency and facilitates period-to-period comparisons
of our working outcomes and our rivals' working outcomes.  See "Non-GAAP
Monetary Measure" under.
Key Elements of Outcomes of Operations
Revenues
Subscription
Subscription revenues primarily embody contractual preparations with clients
accessing our cloud-based options. These preparations, on common, are for
dedicated three-year phrases. Included in subscription revenues are revenues
related to managed help providers and upkeep and help which
usually renew on a one 12 months or three 12 months foundation. Managed help providers
income consists of supporting, managing and administering our software program options
and offering further finish person help together with the help offered by
enterprise providers. Upkeep and help revenues embody post-contract
buyer help and the fitting to unspecified software program updates and enhancements
on a when and if obtainable foundation from clients utilizing on-premise options.
Time period-based licenses for present merchandise with the fitting to make use of unspecified
future variations of the software program and upkeep and help through the protection
interval are additionally included in subscription revenues. Subscription income is
usually acknowledged ratably over the contractual time period of the association
starting on the date our service is made obtainable to the shopper. The
software-as-a-service ("SaaS") mannequin is the first method we promote to our clients
in our vertical markets.
Skilled Companies
Skilled providers revenues primarily embody charges generated from
implementation, cloud configuration, on-site help, and different consulting
providers. Additionally included in skilled providers revenues are revenues associated
to coaching and customer-reimbursed bills, in addition to providers associated to
software program licenses for our on-premise options and options offered by
enterprise providers. Skilled providers revenues are usually acknowledged as
the providers are rendered for time and supplies contracts or acknowledged utilizing a
proportional efficiency methodology as hours are incurred relative to complete
estimated hours for the engagement for fastened worth contracts. Nearly all of
our skilled providers contracts are on a time and supplies foundation. The
income from coaching and customer-reimbursed bills is acknowledged as we
ship these providers.
Value of Revenues
Subscription
Value of subscription revenues consists of prices associated to our cloud-based
options, managed help providers and help offered by enterprise providers,
and upkeep and help for our on-premise options. Value of subscription
revenues primarily consists of personnel-related prices together with wage, bonus,
and stock-based compensation in addition to prices for royalties, services expense,
amortization, depreciation, third-party contractors and cloud infrastructure
prices.
Skilled Companies
Value {of professional} providers revenues consists of prices associated to the set-up of
our cloud-based options, providers for on-premise and enterprise providers
options, coaching and customer-reimbursed bills. Value {of professional}
providers revenues primarily consists of personnel-related prices together with
wage, bonus, and stock-based compensation in addition to prices for third-party
contractors and different bills. Value {of professional} providers revenues might differ
from interval to interval relying on a variety of elements, together with the quantity of
implementation providers required to deploy our options and the extent of
involvement of third-party contractors offering implementation providers.
Working Bills
Analysis and Growth
Our analysis and improvement bills consist primarily of personnel-related
prices together with wage, bonus, stock-based compensation, and prices associated to
third-party contractors. Our software program improvement prices are usually expensed
as incurred. We capitalize sure improvement prices incurred in reference to
the cloud-based software program platform for inside use.
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Gross sales and Advertising
Our gross sales and advertising and marketing bills consist primarily of personnel-related prices
together with wage, bonus, commissions, stock-based compensation, in addition to
amortization of intangibles, travel-related bills, and advertising and marketing packages.
Normal and Administrative
Our basic and administrative bills consist primarily of personnel-related
prices together with wage, bonus, and stock-based compensation, in addition to audit
and authorized charges, prices associated to third-party contractors, services bills,
prices related to company transactions, and travel-related bills.
Outcomes of Operations
The next tables set forth our consolidated outcomes of operations for fiscal
years ended September 30, 2021, and 2020 and as a proportion of our complete
revenues for these durations. The period-to-period comparability of monetary outcomes
shouldn't be essentially indicative of monetary outcomes to be achieved in future
durations.
                                                                         

Closed workouts September 30,

                                                                             2021                    2020
                                                                                  (in hundreds)
Consolidated Statements of Operations Knowledge:
Revenues:
Subscription                                                         $         142,448          $   116,184
Skilled providers                                                           50,997               44,872
Whole revenues                                                                 193,445              161,056
Value of Revenues:
Subscription                                                                    49,933               34,461
Skilled providers                                                           36,715               31,035
Whole value of revenues                                                          86,648               65,496
Gross revenue                                                                   106,797               95,560
Working Bills:
Analysis and improvement                                                        44,661               34,361
Gross sales and advertising and marketing                                                             43,239               38,979
Normal and administrative                                                      33,311               28,826
Whole working bills                                                       121,211              102,166
Loss from operations                                                           (14,414)              (6,606)
Curiosity expense, web                                                           14,344                6,322
Different bills (revenue), web                                                       210                  (76)
Loss earlier than revenue taxes                                                       (28,968)             (12,852)
Provision for revenue taxes                                                         769                  812
Web loss                                                             $         (29,737)         $   (13,664)



Comparability of the Fiscal Years Ended September 30, 2021 and 2020
Revenues
                                                             Fiscal Years Ended September 30,
                                                      2021                                          2020
                                                                  % of                                       % of
                                         Quantity              Whole Revenues            Quantity           Whole Revenues          $ Change             % Change

                                                                                 (in hundreds, besides percentages)
Revenues:
Subscription                       $       142,448                      74  %         116,184                      72  %       $ 26,264                     23  %
Skilled providers                       50,997                      26  %          44,872                      28  %          6,125                     14  %
Whole revenues                     $       193,445                     100  %       $ 161,056                     100  %       $ 32,389                     20  %


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Subscription
Subscription revenues elevated by $26.3 million, or 23%, to $142.4 million for
the fiscal 12 months ended September 30, 2021, from $116.2 million for the fiscal
12 months ended September 30, 2020. As a proportion of complete revenues, subscription
revenues elevated from 72% to 74%. The rise in our subscription revenues
was due primarily to the contribution from enterprise providers, a big
transaction with one buyer through the first fiscal quarter of 2021, and an
elevated variety of buyer contracts. We intend to proceed to deal with
rising our recurring income from SaaS subscriptions in future durations.
Skilled Companies
Skilled providers income elevated by $6.1 million, or 14%, to $51.0
million for the fiscal 12 months ended September 30, 2021, from $44.9 million for the
fiscal 12 months ended September 30, 2020. The rise in our skilled providers
revenues was attributable to the rise in supply actions skilled throughout
fiscal 12 months 2021 and the contribution from enterprise providers. As a proportion of
complete revenues, skilled providers income decreased from 28% to 26%. The
lower in our skilled providers income as a proportion of complete income
is primarily pushed by the change in enterprise mannequin as we proceed to maneuver
in direction of cloud-based options.
Value of Revenues
                                                                Fiscal Years Ended September 30,
                                                       2021                                            2020
                                       Quantity               % of Revenues              Quantity              % of Revenues             $ Change             % Change

                                                                                    (in hundreds, besides percentages)
Value of revenues
Subscription                        $   49,933                           35  %       $ 34,461                           30  %       $ 15,472                     45  %
Skilled providers                   36,715                           72  %       $ 31,035                           69  %          5,680                     18  %
Whole value of revenues              $   86,648                           45  %       $ 65,496                           41  %         21,152                     32  %
Gross revenue
Subscription                        $   92,515                           65  %       $ 81,723                           70  %       $ 10,792                     13  %
Skilled providers                   14,282                           28  %       $ 13,837                           31  %            445                      3  %
Whole gross revenue                  $  106,797                           55  %       $ 95,560                           59  %       $ 11,237                     12  %


Subscription
Value of subscription revenues elevated by $15.5 million, or 45%, to $49.9
million through the fiscal 12 months ended September 30, 2021, from $34.5 million for
the fiscal 12 months ended September 30, 2020. As a proportion of subscription
revenues, value of subscription revenues elevated from 30% in fiscal 12 months 2020
to 35% in fiscal 12 months 2021 primarily resulting from larger prices from enterprise providers.
The price of subscription income additionally included $1.3 million of amortization
expense associated to the lately acquired intangible belongings.
Skilled Companies
Value {of professional} providers revenues elevated by $5.7 million, or 18%, to
$36.7 million through the fiscal 12 months ended September 30, 2021, from $31.0
million for the fiscal 12 months ended September 30, 2020. As a proportion of
skilled providers income, value {of professional} providers revenues elevated
from 69% to 72% primarily resulting from larger prices from enterprise providers.
Working Bills
                                               Fiscal Years Ended September 30,
                                                   2021                2020              $ Change               % Change

                                                                     (in hundreds, besides percentages)
Working bills:
Analysis and improvement                      $    44,661          $   34,361          $   10,300                        30  %
Gross sales and advertising and marketing                                43,239              38,979               4,260                        11  %
Normal and administrative                         33,311              28,826               4,485                        16  %
Whole working bills                      $   121,211          $  102,166          $   19,045                        19  %


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Analysis and Growth
Analysis and improvement bills elevated by $10.3 million, or 30%, to $44.7
million through the fiscal 12 months ended September 30, 2021, from $34.4 million for
the fiscal 12 months ended September 30, 2020. The rise was primarily as a result of
affect of enterprise providers primarily from employee-related prices, outdoors
providers, and gear expense.
Gross sales and Advertising
Gross sales and advertising and marketing bills elevated by $4.3 million, or 11%, to $43.2 million
through the fiscal 12 months ended September 30, 2021, from $39.0 million for the
fiscal 12 months ended September 30, 2020. This enhance was primarily resulting from a $3.9
million enhance in employee-related prices, a $1.2 million enhance in
intangible amortization expense associated to the acquisition, and a $0.1 million
enhance in advertising and marketing packages partially offset by a $0.9 million lower in
journey and leisure bills.
Normal and Administrative
Normal and administrative bills elevated by $4.5 million, or 16%, to $33.3
million through the fiscal 12 months ended September 30, 2021, from $28.8 million for
the fiscal 12 months ended September 30, 2020. The rise was primarily pushed by
$2.5 million of acquisition-related bills, a $1.2 million enhance in
employee-related prices, a $1.0 million enhance in services expense, a $0.5
million enhance in gear expense, a $0.3 million enhance in depreciation
expense, and a $0.3 million enhance in workplace bills partially offset by a
$1.1 million lower in outdoors providers and a $0.2 million lower in journey
and leisure bills.
Curiosity and Different (Earnings) Expense, Web
                                             Fiscal Years Ended September 30,
                                                2021                    2020                $ Change               % Change

                                                                    (in hundreds, besides percentages)
Curiosity expense, web                    $         14,344                 6,322          $     8,022                       127  %
Different (revenue) bills, web             $            210                   (76)         $       286                      (376) %


Curiosity expense, web, elevated by $8.0 million to $14.3 million through the
fiscal 12 months ended September 30, 2021, from $6.3 million through the fiscal 12 months
ended September 30, 2020. The rise was primarily pushed by the curiosity
expense associated to the convertible senior notes we issued in Could 2020. See "Observe
10. Convertible Senior Notes" of the Notes to Consolidated Monetary Statements
in Half II, Merchandise 8 of this Type 10-Okay.
The change in different (revenue) expense, web was primarily resulting from forex
fluctuations.
Provision for Earnings Taxes
                                             Fiscal Years Ended September 30,
                                                 2021                   2020               $ Change               % Change

                                                                   (in hundreds, besides percentages)
Provision for revenue taxes               $             769          $      812          $       (43)                       (5) %


The revenue tax provision for fiscal 12 months 2021 was primarily associated to international
taxes on our worthwhile international operations, international withholding taxes on
dividends, and deferred taxes on goodwill ensuing from the acquisition. The
revenue tax provision for fiscal 12 months 2020 was primarily associated to international taxes
on our worthwhile international operations and international withholding taxes on dividends
partially offset by a discrete tax profit for a true-up in federal revenue tax
payable.

Liquidity and Capital Sources
Our principal sources of liquidity are our money and money equivalents. As of
September 30, 2021, we had money and money equivalents of $165.5 million.
Primarily based on our future expectations and historic utilization, we consider our present
money and money equivalents are enough to fulfill our working wants together with
principal funds associated to our debt for a minimum of the following twelve months. Our
future capital necessities will depend upon many elements, together with our charge of
income development, the enlargement of our gross sales and advertising and marketing actions, the timing
and extent of spending to help analysis and improvement efforts, enlargement of
our enterprise and capital expenditures. To the extent that current money and money
equivalents and money from operations are inadequate to fund our future
actions, we might elect to boost further capital by the sale of
further fairness or debt securities, get hold of a credit score facility or promote sure
belongings. If further funds are raised by the issuance of debt securities,
these securities might have rights, preferences and privileges senior to holders
of frequent inventory and phrases of any debt might impose restrictions on our
operations.
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The sale of further fairness or further convertible debt securities might
lead to extra dilution to our stockholders and extra financing will not be
obtainable in quantities or on phrases acceptable to us. We may search to take a position
in, or purchase complementary companies or applied sciences, any of which might additionally
require us to hunt further fairness or debt financing. Extra funds might not
be obtainable on phrases favorable to us or in any respect.
In Could 2020, we issued $172.5 million combination principal quantity of two.625%
convertible senior notes (the "Notes"). The Notes mature on June 1, 2025 until
repurchased, redeemed or transformed in accordance with their phrases previous to such
date. The online proceeds from the issuance of the Notes was $166.4 million, web of
preliminary purchasers' reductions. We used $40.0 million of the online proceeds to
repay in full the debt excellent beneath, and terminated the credit score settlement
dated Could 4, 2018, as amended, by and amongst us, Wells Fargo, as administrative
agent, and the lenders occasion thereto. Seek advice from Observe 10 within the notes to our
Consolidated Monetary Statements included in Half II, Merchandise 8 of this Annual
Report on Type 10-Okay for extra data.
Money Flows
                                                                        

Closed workouts September 30,

                                                                           2021                    2020
                                                                                 (in hundreds)
Money flows offered by working actions                         $         19,590          $    14,406
Money flows utilized in investing actions                                      (58,904)                (579)
Money flows offered by financing actions                                    4,623              125,893


Working Actions
Web money offered by working actions through the fiscal 12 months ended
September 30, 2021 was primarily the results of non-cash changes of $51.0
million exceeding our web lack of $29.7 million partially offset by web money
outflows of $1.7 million from adjustments in working belongings and liabilities.
Non-cash bills consisting primarily of stock-based compensation of $30.0
million, amortization of debt low cost and issuance prices of $9.9 million,
depreciation and amortization of $8.0 million, and amortization of capitalized
contract acquisition prices of $3.1 million. The online change in working belongings
and liabilities primarily displays an outflow from the adjustments in pay as you go
bills and different belongings of $4.2 million, accounts receivable of $3.5 million
resulting from timing of billing and money collections, and different present and long-term
liabilities of $2.0 million, partially offset by an influx from the adjustments in
deferred income of $4.5 million attributable to the timing of quantities invoiced and
income acknowledged, accrued worker compensation of $1.9 million, and accounts
payable of $1.7 million resulting from timing of vendor invoices and funds.
Web money offered by working actions through the fiscal 12 months ended September
30, 2020, was primarily the results of non-cash changes of $34.6 million
exceeding our web lack of $13.7 million partially offset by web money outflows of
$6.5 million from adjustments in working belongings and liabilities. Non-cash bills
consisting primarily of stock-based compensation of $22.5 million, depreciation
and amortization of $5.5 million, amortization of debt low cost and issuance
prices of $3.4 million, and amortization of capitalized contract acquisition
prices of $2.5 million. The online change in working belongings and liabilities
primarily displays an outflow from the adjustments in accounts receivable of $8.8
million resulting from timing of billing and money collections, pay as you go bills and
different belongings of $3.1 million, and different present and long-term liabilities of
$2.4 million, partially offset by an influx from the adjustments in deferred income
of $6.4 million attributable to the timing of quantities invoiced and income acknowledged,
accrued worker compensation of $0.9 million, and accounts payable of $0.5
million resulting from timing of vendor invoices and funds.
Investing Actions
Web money utilized in investing actions for fiscal 12 months ended September 30, 2021,
consisted of $57.8 million utilized in reference to the acquisition and $1.1
million for purchases of property and gear. See Observe 6 within the notes to our
Consolidated Monetary Statements included in Half II, Merchandise 8 of this Annual
Report on Type 10-Okay for extra data of the acquisition.
Web money utilized in investing actions for fiscal 12 months ended September 30, 2020,
was primarily resulting from purchases of property and gear.
Financing Actions
Web money offered by financing actions for the fiscal 12 months ended September
30, 2021, resulted from $4.3 million proceeds from purchases made beneath our
worker inventory buy plan and the train of inventory choices and $0.3 million
enhance in funds held for purchasers.
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Web money offered by financing actions for the fiscal 12 months ended September
30, 2020, consisted of $166.4 million web proceeds from the issuance of our
convertible senior notes and $4.2 million proceeds from purchases made beneath our
worker inventory buy plan and the workouts of inventory choices, partially
offset by the $44.8 million reimbursement of our time period mortgage with Wells Fargo.
Crucial Accounting Insurance policies and Estimates
Our Consolidated Monetary Statements have been ready in conformity with
usually accepted accounting ideas in america ("U.S. GAAP"). The
preparation of the accompanying Consolidated Monetary Statements in conformity
with U.S. GAAP requires us to make sure estimates and assumptions that have an effect on
the reported quantities of belongings, liabilities, revenues, prices, and bills, as
properly as associated disclosures. These estimates and assumptions are primarily based on our
administration's finest estimates and judgment. Our administration frequently evaluates
these estimates and assumptions utilizing historic expertise and different elements;
nevertheless, precise outcomes might differ considerably from these estimates.
Observe 2, "Abstract of Important Accounting Insurance policies," of the Notes to
Consolidated Monetary Statements in Half II, Merchandise 8 of this Type 10-Okay describes
the numerous accounting insurance policies and strategies used within the preparation of the
Firm's Consolidated Monetary Statements. We consider that the assumptions and
estimates related to income recognition, convertible senior notes,
share-based compensation, enterprise combos, and revenue taxes have the
best potential affect on our Consolidated Monetary Statements. Subsequently,
we think about these to be our essential accounting insurance policies and estimates.
Income recognition beneath ASC Matter 606
We account for income in accordance with ASC Matter 606, Income from Contracts
with Prospects. We apply the 5 step framework to acknowledge income as
described in our income recognition coverage included in Observe 2 within the notes to
our Consolidated Monetary Statements included in Half II, Merchandise 8 of this Annual
Report on Type 10-Okay.
We derive revenues from the sale of subscriptions to our cloud-based options,
subscriptions for managed help providers and upkeep and help, time period
primarily based licenses, and implementation and different skilled providers.
We use estimates and assumptions requiring vital judgment beneath our
income coverage in accordance with ASC Matter 606. If the contract comprises a
single efficiency obligation, your entire transaction worth is allotted to the
single efficiency obligation. Contracts that include a number of efficiency
obligations require an allocation of the transaction worth to every efficiency
obligation primarily based on its standalone promoting worth ("SSP") in relation to the
complete honest worth of all efficiency obligations within the association. SSP is
estimated for every distinct efficiency obligation. A few of our efficiency
obligations, akin to help and coaching providers, have observable inputs that
are used to find out the SSP of these distinct efficiency obligations. The place
SSP shouldn't be straight observable, we decide SSP utilizing data that features
market situations and different observable inputs akin to buyer sort and
geography. We consider the SSP for our efficiency obligations on a quarterly
foundation.
Nearly all of our contracts include a number of efficiency obligations, akin to
when cloud-based options are bought with implementation providers or coaching
providers. As clients enter right into a subscription settlement for cloud-based
options emigrate from an on-premise utility, an allocation of the
transaction worth to every efficiency obligation is required. Moreover,
contract modifications for providers and merchandise which might be distinct however usually are not
priced commensurate with their SSP or usually are not distinct from efficiency
obligations beneath the prevailing contract might have an effect on the preliminary transaction worth
or the allocation of the transaction worth to the efficiency obligations within the
contract.
Convertible Senior Notes
In Could 2020, we issued $172.5 million combination principal quantity of two.625%
convertible senior notes. We separate our convertible senior notes (the "Notes")
into legal responsibility and fairness parts. The carrying quantity of the legal responsibility
part is calculated by measuring the honest worth of an analogous debt instrument
that doesn't have an related convertible characteristic. We estimated the low cost
charge utilized in measuring the honest worth of an analogous debt instrument that doesn't
have an related convertible characteristic. As a result of the estimate is unsure, the
precise end result might differ from the estimate made. The carrying quantity of the
fairness part representing the conversion choice is decided by deducting
the honest worth of the legal responsibility part from the principal quantity of the
Notes. The surplus of the principal quantity of the Notes over the carrying quantity
of the legal responsibility part ("debt low cost") is amortized to curiosity expense at
an efficient rate of interest over the contractual phrases of the Notes. The fairness
part is recorded in further paid-in capital and isn't remeasured as
lengthy because it continues to fulfill the situations for fairness classification. We
allocate the issuance prices to the legal responsibility and fairness parts of the Notes
primarily based on the proportion of the proceeds allotted to the debt and fairness
parts. Issuance prices attributable to the legal responsibility part are amortized
to curiosity expense utilizing the efficient curiosity methodology over the contractual
phrases of the Notes. Issuance prices attributable to the fairness part are
netted with the fairness part in stockholders' fairness.
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Inventory-based compensation
We acknowledge compensation expense for restricted inventory items, worker inventory
buy plan ("ESPP"), and efficiency primarily based restricted inventory items. We use the
Black-Scholes-Merton valuation mannequin to estimate the honest worth of ESPP shares.
Black-Scholes-Merton valuation mannequin requires the enter of subjective
assumptions together with anticipated inventory worth volatility over the anticipated time period.
The honest worth of restricted inventory items and efficiency primarily based restricted inventory
items with vesting situations primarily based on pre-established efficiency targets of the
Firm is decided primarily based on the intrinsic worth of the award on the grant
date. For efficiency share unit grants with market situation efficiency
standards, we use a Monte Carlo simulation mannequin to find out their honest worth on
the grant date. The honest worth of those grants with a market situation is
acknowledged utilizing the graded-vesting attribution methodology over the requisite
service interval. The Monte-Carlo simulation mannequin takes under consideration the identical
enter assumptions because the Black-Scholes-Merton mannequin; nevertheless, it additionally additional
incorporates into the honest worth dedication the likelihood that the
efficiency standards will not be glad. The estimation of the likelihood
that the efficiency standards will not be glad is inherently unsure.
Adjustments within the estimates used to find out the honest worth of share-based fairness
compensation devices might lead to adjustments to our stock-based compensation
expense. We've got not made any materials adjustments to our assumptions and estimates
associated to our stock-based compensation through the durations introduced.
Enterprise Mixtures
We use all obtainable data to estimate honest values. We usually interact
outdoors appraisal companies to help within the honest worth dedication of
identifiable belongings akin to buyer contracts and every other vital belongings
or liabilities and contingent consideration. We regulate the preliminary buy
worth allocation, as mandatory, as much as one 12 months after the acquisition closing
date if we get hold of extra data relating to asset valuation and liabilities
assumed.
Our buy worth allocation methodology comprises uncertainties as a result of it
requires assumptions and administration's judgment to estimate the honest worth of
belongings acquired and liabilities assumed on the acquisition date. Administration
estimates the honest worth of belongings and liabilities primarily based upon quoted market
costs, the carrying worth of the acquired belongings and extensively accepted valuation
methods, together with discounted money flows and market a number of analyses. Our
estimates are inherently unsure and topic to refinement. Unanticipated
occasions or circumstances might happen which might have an effect on the accuracy of our honest
worth estimates, together with assumptions relating to business financial elements and
enterprise methods.
On December 31, 2020, we acquired sure belongings, properties and rights and
sure liabilities and obligations from Deloitte & Touche LLP's pricing and
contracting options enterprise. We used vital estimates and assumptions in
estimating the honest worth of the intangible belongings acquired akin to buyer
attrition charge, obsolescence charge, and low cost charge, We don't consider there may be
an affordable chance that there will likely be a fabric change within the estimates or
assumptions we used for the acquisition worth allocations and the honest worth of
belongings acquired and liabilities assumed.

Earnings Taxes
We account for revenue taxes in accordance with the FASB ASC No. 740-Accounting
for Earnings Taxes ("ASC 740). We make sure estimates and judgments in
figuring out revenue tax expense for monetary assertion functions. These estimates
and judgments happen within the calculation of tax credit, tax advantages and
deductions and within the calculation of sure tax belongings and liabilities, which
come up from variations within the timing of recognition of income and expense for
tax and monetary assertion functions. Important adjustments to those estimates might
lead to a rise or lower to our tax provision within the subsequent interval
when such a change in estimate happens.
We frequently assess the chance that our deferred revenue tax belongings will likely be
realized from future taxable revenue primarily based on the conclusion standards set forth
in ASC 740. To the extent that we consider any quantities usually are not extra possible than
to not be realized, we document a valuation allowance to scale back the deferred
revenue tax belongings. In assessing the necessity for a valuation allowance, we think about
all obtainable proof, together with previous working outcomes, estimates of future
taxable revenue and the feasibility of tax planning methods. Within the occasion we
decide that each one or a part of the online deferred tax belongings usually are not realizable in
the long run, an adjustment to the valuation allowance can be charged to
earnings within the interval such dedication is made. Equally, if we subsequently
notice deferred revenue tax belongings that had been beforehand decided to be
unrealizable, the respective valuation allowance can be reversed, leading to
an adjustment to earnings within the interval such dedication is made.
We apply judgment in figuring out our unsure tax positions. We account for
uncertainty in revenue taxes utilizing a two-step strategy to recognizing and
measuring unsure tax positions. Step one is to judge the tax
place for recognition by figuring out if the burden of accessible proof
signifies that it's extra possible than not that the place will likely be sustained on
audit, together with decision of associated appeals or litigation processes, if any.
The second step is to measure the tax profit as the most important quantity that's extra
than 50% possible of being realized upon settlement. We classify the legal responsibility for
unrecognized tax
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advantages as present to the extent that our anticipated fee or receipt of
money is inside one 12 months. Curiosity and penalties associated to unsure tax
positions are acknowledged within the provision for revenue taxes.
Latest Accounting Pronouncements
See "Observe 2. Abstract of Important Accounting Insurance policies and Estimates" of the
Notes to Consolidated Monetary Statements in "Merchandise 8. Monetary Statements and
Supplementary Knowledge" for a full description of latest accounting pronouncements
together with the respective anticipated dates of adoption and estimated results, if
any, on our Consolidated Monetary Statements.
Non-GAAP Monetary Measure
Adjusted EBITDA
Adjusted EBITDA is a monetary measure that isn't calculated in accordance with
usually accepted accounting ideas in america ("U.S. GAAP"). We
outline adjusted EBITDA as web loss earlier than gadgets mentioned under, together with:
stock-based compensation expense, depreciation and amortization, acquisition
associated expense, curiosity expense, web, different bills (revenue), web, and
provision for (profit from) revenue taxes. We consider adjusted EBITDA supplies
traders with consistency and comparability with our previous monetary efficiency
and facilitates period-to-period comparisons of our working outcomes and our
rivals' working outcomes. We additionally use this measure internally to determine
budgets and operational targets to handle our enterprise and consider our
efficiency.
We perceive that, though adjusted EBITDA is incessantly utilized by traders and
securities analysts of their evaluations of corporations, adjusted EBITDA has
limitations as an analytical device, and it shouldn't be thought-about in isolation
or as an alternative choice to evaluation of our outcomes of operations as reported beneath
U.S. GAAP. These limitations embody:
•adjusted EBITDA doesn't replicate stock-based compensation expense;
•depreciation and amortization are non-cash costs, and the belongings being
depreciated or amortized will usually have to get replaced sooner or later; adjusted
EBITDA doesn't replicate any money necessities for these replacements;
•adjusted EBITDA doesn't embody acquisition-related expense;
•adjusted EBITDA doesn't replicate money necessities for revenue taxes and the
money affect of curiosity expense and different revenue and expense; and
•different corporations in our business might calculate adjusted EBITDA otherwise than
we do, limiting its usefulness as a comparative measure.
                                             Fiscal Years Ended September 30,
                                                   2021                      2020
                                                      (in hundreds)
Reconciliation of Adjusted EBITDA:
Web loss                             $         (29,737)                   $ 

(13,664)

Changes:

Inventory-based compensation expense                29,963                       22,500
Depreciation and amortization                    7,972                        5,498
Acquisition-related expense                      2,509                            -
Curiosity expense, web                           14,344                        6,322
Different bills (revenue), web                       210                          (76)
Provision for revenue taxes                         769                          812
Adjusted EBITDA                      $          26,030                    $  21,392


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