Document Contents

Section 1: 10-Q (10-Q)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ☒ No ☐

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

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

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

As of April 27, 2018, the registrant had 30,529,972 shares of common stock, $0.00015 par value per share, outstanding.

	As of			As of
	March 31,			September 30,
	2018			2017
Assets
Current assets:
Cash and cash equivalents	$	55,229		$	57,558
Accounts receivable, net of allowance for doubtful accounts of $26 as of March 31, 2018 and $85 as of September 30, 2017		31,490			24,784
Prepaid expenses		4,242			3,733
Other current assets		571			1,013
Total current assets		91,532			87,088
Property and equipment, net		3,043			4,611
Goodwill		39,283			39,283
Intangible assets, net		37,358			40,156
Other assets		1,056			798
Total assets	$	172,272		$	171,936
Liabilities And Stockholders' Equity
Current liabilities:
Accounts payable	$	2,319		$	3,002
Accrued employee compensation		9,521			14,996
Accrued liabilities		3,172			4,979
Deferred revenue, current portion		56,025			49,186
Long term debt, current portion		5,225			4,753
Total current liabilities		76,262			76,916
Long term debt		52,458			52,452
Other long-term liabilities		1,369			1,307
Total liabilities		130,089			130,675
Commitments and contingencies
Stockholders' equity:
Common Stock, $0.00015 par value; 200,000 shares authorized; 30,530 and 29,323 shares issued and outstanding at March 31, 2018 and September 30, 2017, respectively		5			4
Preferred Stock, $0.00015 par value; 5,000 shares authorized; no shares issued and outstanding		—			—
Additional paid-in capital		227,107			217,052
Accumulated other comprehensive loss		(483	)		(502	)
Accumulated deficit		(184,446	)		(175,293	)
Total stockholders' equity		42,183			41,261
Total liabilities and stockholders' equity	$	172,272		$	171,936

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

	Three Months Ended March 31,						Six Months Ended March 31,
	2018			2017			2018			2017
Revenues:
SaaS and maintenance	$	32,997		$	27,257		$	65,320		$	49,897
License and implementation		6,237			6,000			12,981			11,423
Total revenues		39,234			33,257			78,301			61,320
Cost of revenues:
SaaS and maintenance		12,866			11,880			25,890			22,088
License and implementation		4,387			4,159			8,172			7,773
Total cost of revenues		17,253			16,039			34,062			29,861
Gross profit		21,981			17,218			44,239			31,459
Operating expenses:
Research and development		8,047			8,934			17,115			14,909
Sales and marketing		9,015			11,608			17,507			20,342
General and administrative		7,324			11,668			16,055			18,853
Total operating expenses		24,386			32,210			50,677			54,104
Loss from operations		(2,405	)		(14,992	)		(6,438	)		(22,645	)
Interest expense (income), net		1,449			1,380			2,872			1,347
Other expenses (income), net		(87	)		228			38			74
Loss before income taxes		(3,767	)		(16,600	)		(9,348	)		(24,066	)
(Benefit) provision for income taxes		129			(4,110	)		(195	)		(3,976	)
Net loss	$	(3,896	)	$	(12,490	)	$	(9,153	)	$	(20,090	)
Net loss per share attributable to common stockholders:
Basic and diluted	$	(0.13	)	$	(0.44	)	$	(0.31	)	$	(0.71	)
Weighted average number of shares used in computing net loss per share attributable to common stockholders:
Basic and diluted		29,983			28,452			29,689			28,228

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

	Three Months Ended March 31,						Six Months Ended March 31,
	2018			2017			2018			2017
Net loss	$	(3,896	)	$	(12,490	)	$	(9,153	)	$	(20,090	)
Other comprehensive (loss) income, net
Change in foreign currency translation adjustment		(90	)		160			19			47
Total comprehensive loss	$	(3,986	)	$	(12,330	)	$	(9,134	)	$	(20,043	)

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

	Six Months Ended March 31,
	2018			2017
Cash flows from operating activities:
Net loss	$	(9,153	)	$	(20,090	)
Adjustments to reconcile net loss to net cash used in operating activities
Depreciation and amortization		4,427			3,493
Stock-based compensation		7,282			4,448
Amortization of debt discount and issuance cost		478			244
Deferred income taxes		(572	)		(4,073	)
Other non-cash charges		(22	)		235
Changes in assets and liabilities, net of acquisition:
Accounts receivable		(6,622	)		(876	)
Prepaid expenses and other assets		(608	)		1,707
Deferred cost of implementation services		338			1,076
Accounts payable		(685	)		(762	)
Accrued employee compensation		(5,497	)		(818	)
Other accrued and long-term liabilities		(1,525	)		(1,926	)
Deferred revenue		7,133			3,731
Net cash used in operating activities		(5,026	)		(13,611	)
Cash flows from investing activities:
Purchases of property and equipment		(91	)		(222	)
Acquisition of businesses, net of cash acquired		—			(47,773	)
Capitalization of software development costs		—			(285	)
Net cash used in investing activities		(91	)		(48,280	)
Cash flows from financing activities:
Proceeds from exercise of stock options and issuance of employee stock purchase plan		2,773			1,548
Proceeds from term loan		—			48,686
Debt issuance costs		—			(806	)
Net cash provided by financing activities		2,773			49,428
Effect of exchange rate changes on cash and cash equivalents		15			(4	)
Net decrease in cash and cash equivalents		(2,329	)		(12,467	)
Cash and cash equivalents
Beginning of period		57,558			66,149
End of period	$	55,229		$	53,682

Supplemental Disclosure of Cash Flow Data:
Non-cash investing and financing activities:
Promissory notes issued for acquisition	$	-		$	8,643

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

Model N, Inc. (Company) was incorporated in Delaware on December 14, 1999. The Company is a provider of cloud revenue management solutions for the pharmaceutical, medical device, high tech, manufacturing and semiconductor 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.

The Company’s fiscal year ends on September 30. References to fiscal year 2018, for example, refer to the fiscal year ending September 30, 2018.

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States (U.S. GAAP) and applicable rules and regulations of the Securities and Exchange Commission (SEC) regarding interim financial reporting. Certain information and note disclosures normally included in the financial statements prepared in accordance with U.S. GAAP have been condensed or omitted pursuant to such rules and regulations. The unaudited condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes included in the Annual Report on Form 10-K for the fiscal year ended September 30, 2017. There have been no changes in the significant accounting policies from those that were disclosed in the audited consolidated financial statements for the fiscal year ended September 30, 2017 included in the Annual Report on Form 10-K.

In the opinion of management, the unaudited interim consolidated financial statements include all the normal recurring adjustments necessary to present fairly the condensed consolidated financial statements. The results of operations for the six months ended March 31, 2018 were not necessarily indicative of the operating results for the full fiscal year 2018 or any future periods.

The Company’s condensed consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. All significant intercompany transactions and balances have been eliminated upon consolidation.

The preparation of condensed consolidated financial statements in conformity with U.S. GAAP requires management to make certain estimates and assumptions that affect the amounts of assets and liabilities reported, disclosures about contingent assets and liabilities, and reported amounts of revenues and expenses during the reporting periods. Significant items subject to such estimates include revenue recognition, legal contingencies, income taxes, stock-based compensation, and valuation of goodwill and intangibles. These estimates and assumptions are based on management’s best estimates and judgment. Management regularly evaluates its estimates and assumptions using historical experience and other factors. However, actual results could differ significantly from these estimates.

In May 2014, the Financial Accounting Standards Board (FASB) issued a new standard, Accounting Standards Update (ASU) 2014-09, Revenue from Contracts with Customers, as amended, which will supersede nearly all existing revenue recognition guidance. Under ASU 2014-09, an entity is required to recognize revenue upon transfer of promised goods or services to customers in an amount that reflects the expected consideration received in exchange for those goods or services. ASU 2014-09 defines a five-step process in order to achieve this core principle, which may require the use of judgment and estimates, and also requires expanded qualitative and quantitative disclosures relating to the nature, amount, timing and uncertainty of revenue and cash flows arising from contracts with customers, including significant judgments and estimates used.

The FASB has issued several amendments to the new standard, including clarification on accounting for licenses of intellectual property and identifying performance obligations. The amendments include ASU 2016-08, Revenue from Contracts with Customers

(Topic 606)—Principal versus Agent Considerations, which was issued in March 2016, and clarifies the implementation guidance for principal versus agent considerations in ASU 2014-09, and ASU 2016-10, Revenue from Contracts with Customers (Topic 606)—Identifying Performance Obligations and Licensing, which was issued in April 2016, and amends the guidance in ASU 2014-09 related to identifying performance obligations and accounting for licenses of intellectual property.

The new standard permits adoption either by using (i) a full retrospective approach for all periods presented in the period of adoption or (ii) a modified retrospective approach with the cumulative effect of initially applying the new standard recognized at the date of initial application and providing certain additional disclosures. The new standard is effective for annual reporting periods beginning after December 15, 2017, with early adoption permitted for annual reporting periods beginning after December 15, 2016. The Company does not plan to early adopt, and accordingly, the Company will adopt the new standard effective October 1, 2018. The Company currently anticipates adopting the standard using the modified retrospective method.

The Company has identified, and is in the process of implementing, appropriate changes to its business processes, systems and controls to support recognition and disclosure under the new standard. Based on the Company’s ongoing evaluation, the Company believes the impacts of this ASU will be primarily related to the capitalization and amortization of sales commissions, the timing of revenue recognition for certain sales contracts, and related disclosures. The Company expects that under this ASU it will now be required to capitalize sales commissions and amortize them over the period which the sales commissions are expected to benefit the Company. Sales commissions are currently expensed as incurred. In addition, there will be a change in relation to the timing of revenue recognition for certain sales contracts, due primarily to the removal of the current limitation on contingent revenue. These changes are being evaluated to determine the potential impact to the financial statements and disclosures. While the Company continues to assess the potential impacts of the new standard, including the areas described above, our preliminary conclusions may change.

In February 2016, the FASB issued ASU 2016-02, Lease (Topic 842), guidance on the recognition and measurement of leases. Under the new guidance, lessees are required to recognize a lease liability, which represents the discounted obligation to make future minimum lease payments, and a corresponding right-of-use asset on the balance sheet for most leases. The guidance retains the current accounting for lessors and does not make significant changes to the recognition, measurement, and presentation of expenses and cash flows by a lessee. Enhanced disclosures will also be required to give financial statement users the ability to assess the amount, timing and uncertainty of cash flows arising from leases. The guidance will require modified retrospective application at the beginning of October 1, 2019 for the Company, with optional practical expedients, but permits adoption in an earlier period. The Company is currently evaluating the impact this standard will have on its consolidated financial statements.

In March 2016, FASB issued ASU 2016-09, Compensation – Stock Compensation (Topic 718), which simplifies several aspects of the accounting for share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities, and classification on the statement of cash flows. For public companies, the guidance is effective for financial statements issued for annual periods beginning after December 15, 2016 and interim periods within those annual periods. Early adoption is permitted for all companies in any interim or annual period. Forfeitures can be estimated, as required today, or recognized when they occur. Estimates of forfeitures will still be required in certain circumstances, such as at the time of modification of an award or issuance of a replacement award in a business combination. The Company adopted this guidance in the first quarter of fiscal year 2018 and has elected to continue to estimate its forfeiture rate. In the year of adoption, the ASU requires that the cumulative effect adjustment be recorded to retained earnings. Due to a full valuation allowance, there is no cumulative effect adjustment to record and the adoption of this guidance had no material impact on the Company’s consolidated financial statements.

In August 2016, the FASB issued ASU 2016-15, Statement of Cash Flow (Topic 230), amended the existing accounting standards for the statement of cash flows. The amendments provide guidance on how companies present and classify certain cash receipts and cash payments in the statement of cash flows. The guidance becomes effective for the Company at the beginning of its first quarter of fiscal 2019. Early adoption is permitted, including adoption in an interim period. The Company is currently evaluating the impact this standard will have on its consolidated financial statements, but does not believe this will have material impact on its consolidated financial statements.

In November 2016, the FASB issued ASU 2016-18, Restricted Cash (Topic 230), clarifying the classification and presentation of restricted cash in the statement of cash flows. The standard requires that restricted cash and restricted cash equivalents are included in the cash and cash equivalent balance in the statement of cash flows. Further, reconciliation between the balance sheet and statement of cash flows is required when the balance sheet includes more than one line item for cash, cash equivalents, restricted cash, and restricted cash equivalents. Therefore, transfers between these balances should no longer be presented as a cash flow activity. The guidance becomes effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2017, with

early adoption permitted. The Company does not plan to early adopt, and accordingly the Company will adopt the new standard effective October 1, 2018. The Company is currently evaluating the impact this standard will have on its consolidated financial statements.

In January 2017, the FASB issued ASU 2017-01, Business Combination (Topic 805): clarifying the definition of a business. The amendments in this guidance change the definition of a business to assist with evaluating when a set of transferred assets and activities is a business. The guidance becomes effective for the Company at the beginning of its first quarter of fiscal 2019. Early adoption is permitted. The Company is currently evaluating the impact of this standard, but does not believe this will have material impact on its consolidated financial statements.

In January 2017, the FASB issued ASU 2017-04, Intangibles—Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment. This new accounting standard update simplifies the measurement of goodwill by eliminating the Step two impairment test. Step two measures a goodwill impairment loss by comparing the implied fair value of goodwill with the carrying amount of that goodwill. The new guidance requires a comparison of the Company’s fair value of with carrying amount and the Company is required to recognize an impairment charge for the amount by which the carrying amount exceeds the fair value. Additionally, we should consider income tax effects from any tax deductible goodwill on the carrying amount when measuring the goodwill impairment loss, if applicable. The new guidance becomes effective for goodwill impairment tests in fiscal years beginning after December 15, 2019, though early adoption is permitted. The Company is currently evaluating the impact this standard will have on its consolidated financial statements.

In May 2017, the FASB issued ASU 2017-09, Compensation-Stock Compensation (Topic 718): providing clarification on when modification accounting should be used for changes to the terms or conditions of a share-based payment award. This ASU does not change the accounting for modifications but clarifies that modification accounting guidance should only be applied if there is a change to the value, vesting conditions or award classification and would not be required if the changes are considered non-substantive. The amendments of this ASU are effective for reporting periods beginning after December 15, 2017, with early adoption permitted. The Company is currently evaluating the impact of this standard, but does not believe this will have material impact on its consolidated financial statements.

On January 5, 2017, the Company completed the acquisition of 100% of the equity interests of Sapphire Stripe Holdings, Inc., the parent company of Revitas, Inc. (“Revitas”). Pursuant to the Agreement and Plan of Merger (“Merger Agreement”), the Company paid approximately $52.8 million in cash and issued to the sellers two $5.0 million promissory notes, one which will mature 18 months after the closing and the other which will mature 36 months after the closing. The Company acquired Revitas to, among other things, expand the Company’s revenue management solutions for customers.

In connection with Revitas acquisition, the Company funded, in part, the cash portion of the purchase price with a five year term loan in the aggregate amount of $50.0 million. See Note 5, “Debt”, for additional information.

The total purchase price for Revitas was approximately $61.5 million, which was comprised of $52.8 million in cash and the fair value of the promissory note of $8.6 million, see Note 5, “Debt”, for additional details. The allocation of the purchase price is based on valuations derived from estimated fair value assessments and assumptions used by the Company. As of the acquisition date, the final allocation of the purchase price is as follows:

	Fair Value (in thousands)
Cash and cash equivalents	$	5,067
Accounts receivable		6,184
Prepaid expenses		1,067
Other current assets		47
Property, plant and equipment		1,506
Intangible assets		39,100
Goodwill		32,344
Other assets		25
Total assets acquired		85,340

Accounts payable		(1,352	)
Accrued employee compensation		(3,983	)
Accrued liabilities		(1,410	)
Deferred revenue liability		(12,856	)
Other liabilities		(4,256	)
Total liabilities assumed		(23,857	)
Net acquired assets	$	61,483

The following table presents certain information on the acquired identifiable assets:

The purchase accounting allocation resulted in an ascribed value to the acquired intangible assets of $39.1 million and goodwill of $32.3 million. The key factors attributable to the creation of goodwill by the transaction are synergies in skill-sets, return on future technology and customer development.

We do not expect the goodwill recognized as a part of the acquisition to be deductible for income tax purposes. See Note 4, “Goodwill” for additional information.

The results of operations for Revitas and the estimated fair values of the assets acquired and liabilities assumed have been included in the Company’s consolidated financial statements since the respective dates of acquisition.

The unaudited pro forma combined consolidated financial information is presented for illustrative purpose only and is not necessarily indicative of the result of operations that would have actually been reported had the acquisitions occurred on the above dates, nor is it necessarily indicative of the future results of operations of the combined company. The unaudited pro forma combined consolidated financial information reflects certain adjustments, such as amortization, interest expense, deferred tax valuation allowance and transaction related costs.

The following unaudited pro forma combined consolidated financial information has been prepared by the Company using the acquisition method of accounting to give effect to the Revitas acquisition as if it had occurred on October 1, 2015. The following table sets forth the unaudited pro forma consolidated combined results of operations:

Components of property and equipment, and intangible assets consisted of the following:

	As of			As of
	March 31,			September 30,
	2018			2017
	(in thousands)
Computer software and equipment	$	10,137		$	10,274
Furniture and fixtures		1,250			1,284
Leasehold improvements		1,403			1,466
Software development costs		9,416			9,416
Total property and equipment		22,206			22,440
Less: Accumulated depreciation and amortization		(19,163	)		(17,829	)
Total property and equipment, net	$	3,043		$	4,611

Depreciation expense totaled $0.8 million and $1.0 million for the three months ended March 31, 2018 and 2017, respectively; and $1.6 million and $1.7 million for the six months March 31, 2018 and 2017, respectively.

	Estimated	As of March 31, 2018
	Useful Life	Gross Carrying		Accumulated			Net Carrying
	(in Years)	Amount		Amortization			Amount
		(in thousands)
Intangible Assets:
Developed technology	5-6	$	12,083	$	(5,496	)	$	6,587
Backlog	5		280		(245	)		35
Customer relationships	3-10		36,599		(5,863	)		30,736
Trade name	1		260		(260	)		—
Total		$	49,222	$	(11,864	)	$	37,358

	Estimated	As of September 30, 2017
	Useful Life	Gross Carrying		Accumulated			Net Carrying
	(in Years)	Amount		Amortization			Amount
		(in thousands)
Intangible Assets:
Developed technology	5-6	$	12,083	$	(4,545	)	$	7,538
Backlog	5		280		(215	)		65
Non-competition agreement	3		100		(100	)		—
Customer relationships	3-10		36,599		(4,084	)		32,515
Trade name	1		260		(222	)		38
Total		$	49,322	$	(9,166	)	$	40,156

The Company recorded amortization expense related to the acquired intangible assets of $1.4 million and $1.4 million for the three months ended March 31, 2018 and 2017, respectively; and $2.8 million and $1.8 million for the six month ended March 31, 2018 and 2017, respectively.

Estimated future amortization expense for the intangible assets as of March 31, 2018 is as follows (in thousands):

The changes in the carrying amount of goodwill for the six months ended March 31, 2018 consisted of the following (in thousands):

As a result of the acquisition of Revitas in the second quarter of fiscal 2017, the Company recognized goodwill of $32.3 million. See Note 2, “Business Combination”, for additional details.

In connection with the Revitas acquisition, on January 5, 2017, the Company entered into a Financing Agreement (Financing Agreement) by and among the Company, the Subsidiaries, as guarantors, Crystal Financial SPV, LLC and TC Lending, LLC (collectively, the “Lenders”), as administrative agent for the lenders, sole lead arranger, and collateral agent for the Lenders, pursuant to which the Lenders have extended term loan to the Company in an aggregate principle amount of $50.0 million.

The term loan made pursuant to the Financing Agreement will bear interest at a rate of either (i) the Base Rate (as defined in the Financing Agreement) plus 9.25% or (ii) the LIBOR Rate (as defined in the Financing Agreement) plus 8.25%, as selected by the Company. The term loan matures on January 5, 2022. For the quarter ending March 31, 2018, the Company selected LIBOR Rate plus 8.25%. The Company must repay 0.625% of the aggregate principal amount of the term loans on the last business day of each fiscal quarter, beginning with the fiscal quarter ending March 31, 2019. The Company may voluntarily prepay the terms loans, subject to a 3% premium during the first 24 months and 1% premium after 24 months and prior to 36 months. Certain mandatory prepayments are required upon the sale of certain assets, the receipt of certain insurance or condemnation proceeds or extraordinary receipts, the

issuance of certain securities or debt, the occurrence of excess cash flows and the occurrence of certain restrictions on the business of the combined company or certain divestitures.

The Financing Agreement requires the Company and the subsidiaries to maintain certain financial covenants, including achieving certain levels of revenue from specified sources, as outlined in the agreement, and maintaining cash and cash-equivalents of $20.0 million net of accounts payable in excess of $0.5 million 90 days overdue. The Financing Agreement also contains certain non-financial covenants, including restricting our ability to dispose of assets, changing our organizational documents or amending our material agreements in a manner adverse to the lender, changing a method of accounting, merging with or acquiring other entities, incurring other indebtedness and making certain investments.

The Company was in compliance with all of the covenants described in the Financing Agreements as of March 31, 2018.

The subsidiary guarantors have jointly and severally guaranteed the payment in full of all obligations under the Financing Agreement. The Company and the subsidiary guarantors’ obligations under the Financing Agreement are secured by substantially all of their assets and a pledge of certain of the Company and the subsidiaries’ stock.

Also, in connection with the Revitas acquisition, the Company incurred $10.0 million in debt in the form of two promissory notes with the sellers, one which will mature on July 5, 2018 and the other which will mature on January 5, 2020. These promissory notes bear interest at the rate of 3% per annum, and are subject to a right of set-off as partial security for the indemnification obligations of target’s stockholders under the Merger Agreement. These promissory notes are subordinate to the term loan. The fair value of the promissory notes of $8.6 million was determined based on a discounted future cash flow at 9.96% interest rate, which represents an arm’s length interest rate.

As of March 31, 2018, the term loan and promissory notes consisted of the following:

The Company incurred approximately $0.8 million in transaction costs in connection with the term loan in fiscal year 2017. These costs are included as part of the Company’s debt. The effective interest rate for the term loan is 10.6%, the 18 month promissory note is 9.74% and the 36 month promissory note is 9.89%.

The future scheduled principal payments for the term loan and promissory notes as of March 31, 2018 were as follows (in thousands):

The financial instruments of the Company consist primarily of cash and cash equivalents, accounts receivable, accounts payable, debt and certain accrued liabilities. The Company regularly reviews its financial instruments portfolio to identify and evaluate such instruments that have indications of possible impairment. 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.

Fair value is defined as the exchange price that would be received for an asset or an exit price paid to transfer a liability in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Valuation techniques used to measure fair value must maximize the use of observable inputs and minimize the use of unobservable inputs. The current accounting guidance for fair value instruments defines a three-level valuation hierarchy for disclosures as follows:

Level 1—Unadjusted quoted prices in active markets for identical assets or liabilities;

Level 2—Input other than quoted prices included in Level 1 that are observable, unadjusted quoted prices in markets that are not active, or other inputs for similar assets and liabilities that are observable or can be corroborated by observable market data; and

Level 3—Unobservable inputs that are supported by little or no market activity, which requires the Company to develop its own models and involves some level of management estimation and judgment.

The Company’s Level 1 assets consist of cash equivalent. These instruments are classified within Level 1 of the fair value hierarchy because they are valued based on quoted market prices in active markets.

The table below sets forth the Company’s cash equivalents as of March 31, 2018 and September 30, 2017, which are measured at fair value on a recurring basis by level within the fair value hierarchy. The assets are classified based on the lowest level of input that is significant to the fair value measurement.

	Level 1		Level 2		Level 3		Total
	(in thousands)
As of March 31, 2018:
Assets:
Cash equivalents:	$	46,586	$	—	$	—	$	46,586
Total	$	46,586	$	—	$	—	$	46,586
As of September 30, 2017:
Assets:
Cash equivalents:	$	47,754	$	—	$	—	$	47,754
Total	$	47,754	$	—	$	—	$	47,754

The Company’s cash equivalents as of March 31, 2018 and September 30, 2017 consisted of a money market funds with original maturity dates of less than three months from the date of their respective purchase. Cash equivalents are classified as Level 1. The fair value of the Company’s money market funds approximated amortized cost and, as such, there were no unrealized gains or losses on money market funds as of March 31, 2018 and September 30, 2017. The Company’s financial instruments not measured at fair value on a recurring basis include cash, accounts receivable, accounts payable and accrued liabilities, and are reflected in the financial statements at cost and approximates their fair value due to their short-term nature. The term loan carrying value is approximately fair value since the term loan bears interest at rates that fluctuate with the changes in the Base Rate or the Libor Rate as selected by the Company. The promissory notes carrying values approximate their fair value as of March 31, 2018.

As of March 31, 2018, 5.7 million shares were available for future stock awards under the Company’s equity plans and any additional releases resulting from an over-achievement relating to performance-based restricted stock units. There were no stock options granted during the three and six months ended March 31, 2018 and 2017, respectively.

The following table summarizes the stock option activity and related information under all equity plans:

						Weighted
				Weighted		Average
	Number of			Average		Remaining		Aggregate
	Shares			Exercised		Contract		Intrinsic
	(thousands)			Price		Term (in Years)		Value (in thousands)
Balance at September 30, 2017		453		$	7.71		3.53	$	3,281
Granted		—			—		—
Exercised		(151	)		8.52		—
Forfeited		—			—		—
Expired		(47	)		4.65		—
Balance at March 31, 2018		255		$	7.80		3.55	$	2,611
Options exercisable as of March 31, 2018		255		$	7.80		3.55	$	2,611
Options vested and expected to vest as of March 31, 2018		255		$	7.80		3.55	$	2,611

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

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

		Page

PART I. FINANCIAL INFORMATION

Item 1.	Financial Statements (Unaudited)	3

	Condensed Consolidated Balance Sheets as of March 31, 2018 and September 30, 2017	3

	Condensed Consolidated Statements of Operations for the Three and Six Months Ended March 31, 2018 and 2017	4

	Condensed Consolidated Statements of Comprehensive Loss for the Three and Six Months Ended March 31, 2018 and 2017	5

	Condensed Consolidated Statements of Cash Flows for the Six Months Ended March 31, 2018 and 2017	6

	Notes to Condensed Consolidated Financial Statements	7

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	20

Item 3.	Quantitative and Qualitative Disclosures about Market Risk	31

Item 4.	Controls and Procedures	32

PART II. OTHER INFORMATION

Item 1.	Legal Proceedings	33

Item 1A.	Risk Factors	33

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	54

Item 3.	Defaults Upon Senior Securities	54

Item 4.	Mine Safety Disclosures	54

Item 5.	Other Information	54

Item 6.	Exhibits	54

	Signatures	55

	Three Months Ended March 31,			Six Months Ended March 31,
	2017			2017
	(in thousands, except per share data)			(in thousands, except per share data)
Revenue	$	33,257		$	70,378
Net loss		(15,273	)		(26,183	)
Net loss per shares-basic and diluted	$	(0.54	)	$	(0.93	)

2018 (remaining 6 months)	$	2,761
2019		5,466
2020		4,751
2021		4,686
2022 and thereafter		19,694
Total future amortization	$	37,358

Intangible assets	Fair value (in thousands)		Estimated useful lives (years)		Weighted-average estimated useful lives (years)
Developed technology	$	6,770		6		6
Customer relationship	$	32,180	10		10
Trade name	$	150		1		1

Balance as at September 30, 2016	$	6,939
Add: Goodwill from acquisition of business		32,344
Balance as at September 30, 2017	$	39,283
Add: Goodwill from acquisition of business		—
Balance as at March 31, 2018	$	39,283

	Amount
	(in thousands)
Principal	$	60,000
Unamortized debt discount and issuance costs		(2,317	)
Net carrying amount	$	57,683

Fiscal Year
2018 (remaining 6 months)		5,000
2019		937
2020		6,250
2021		1,250
2022		46,563
Total	$	60,000

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