Model N, Inc. (MODN - Free Report) delivered second-quarter fiscal 2019 non-GAAP earnings of 1 cent per share beating the Zacks Consensus Estimate by 4 cents. Notably, the Zacks Consensus Estimate was pegged at a loss of 3 cents. However, the figure declined by 50% from the year-ago earnings of 2 cents per share.
Revenues came in at $34.8 million, slightly ahead of Zacks Consensus Estimate of $34.6 million. The figure was also higher than management’s guided range of $34.3 million to $34.7 million. However, the top line declined 11.2% from the year-ago quarter.
Notably, Model N adopted ASC 606 from first-quarter fiscal 2019.
The company is making steady progress in its transformation to a Software-as-a-Service (SaaS) based model.
Coming to price performance, shares of Model N have returned 45.4% year to date, outperforming the industry’s rally of 28.4%.
Quarter in Detail
Model N is reported earnings results under two business lines, namely, Subscription and Professional Services, from first-quarter fiscal 2019. Notably, the company previously reported under two domains —SaaS & Maintenance and License & Implementation.
In second-quarter fiscal 2019, Subscription revenues of almost $25.9 million grew 8.1% year over year. Notably, Model N is accelerating its transition of revenue management to cloud.
This has enabled the company to aid more than 60% of its customers to go live on one or more of its cloud products.
Management is optimistic on successful transition of Gilead Sciences to a 100% SaaS model from a traditional on-premise model.
Professional Services revenues declined 41.5% on a year-over-year basis to $8.9 million, primarily owing to “legacy on-premise implementations.”
Operating Details
Non-GAAP gross profit declined 15.4% from the year ago quarter to $19.6 million. Non-GAAP gross margin (adjusted for deferred revenues) contracted 270 bps from the year-ago-figure to 56.3%.
Adjusted EBITDA declined 38.8% year over year to $1.8 million.
Total operating expenses of $22.8 million fell 6.3% on a year-over-year basis. As a percentage of total revenues, the figure expanded 340 bps year over year.
Non-GAAP income from operations declined almost 32% year over year to $1.5 million in the second quarter. Non-GAAP operating margin (as a percentage of revenues before deferred revenue adjustment) contracted 140 bps to 4.3%.
Balance Sheet & Cash Flow
Model N exited the second quarter with cash and cash equivalents of $54.1 million compared with $52.2 million reported in the previous quarter.
In the reported quarter, the company paid $4.8 million in debt. As of Mar 31, 2019, the company had total debt (including current portion) of almost $49 million, down from $53.6 million reported in the previous quarter.
For six-months ended Mar 31, 2019, net cash generated by operating activities and free cash flow came in at $0.5 million and $0.3 million, respectively. Notably, for six-months ended Mar 31, 2018, Model N used approximately $5 million net cash in operating activities and reported free cash flow of ($5.1million).
Guidance
The company anticipates fiscal third-quarter 2019 GAAP revenues to come in the range of $33.9 million to $34.3 million.
Non-GAAP net income is anticipated to be in between in line results to 2 cents per share for the third quarter. The Zacks Consensus Estimate is pegged at earnings of 4 cents.
Adjusted EBITDA is anticipated to be in the range of $1.8 million to $2.2 million.
For fiscal 2019, management revised guidance. Model N now expects GAAP revenues to be in the range of $138.5 million to $142.5 million, inching up slightly from the prior guided range of $138-$142 million. Adoption of ASC 606 is anticipated to reduce overall fiscal 2019 revenues by 7.2 million.
Non-GAAP earnings are expected to be in the range of 10-17 cents per share, compared with previously guided 5-17 cents. The Zacks Consensus Estimate is currently pegged at 11 cents.
Adjusted EBITDA is now projected to be in the range of $9.5 million to $12.5 million, compared with earlier predicted range of $8.5-$12.5 million.
Conclusion
Model N made significant efforts in its go to market strategy in order to improve growth. The company is leaving no stone unturned to enable customers’ transition to cloud from an on-premise infrastructure.
Additionally, Model N’s growth prospects in the life sciences & high technology are bright due to increasing redundancy of legacy systems. The company’s solutions provide higher Return on Investment (ROI) as well as plug gaps in the end-to-end revenue management process that legacy systems fail to do.
Moreover, per IDC estimates, approximately 90% of the surveyed biotech and pharma companies intend to implement cloud-based revenue management platform by 2020, is noteworthy in this regard.
However, increasing investments to enhance clod-based offerings with focus on High-Tech and Life Sciences customers is likely to limit margin expansion. Further, declining professional revenues and headwinds from ASC 606 adoption remain key concerns.
Zacks Rank & Key Picks
Currently, Model N carries a Zacks Rank #3 (Hold).
Some better-ranked stocks worth considering in the broader sector, include Cadence Design Systems (CDNS - Free Report) , ACI Worldwide, Inc. (ACIW - Free Report) and Avid Technology, Inc. , all sporting a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Long-term earnings growth rate for Cadence, ACI Worldwide and Avid is projected at 12%, 12% and 10%, respectively.
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Model N, Inc. (MODN - Free Report) delivered second-quarter fiscal 2019 non-GAAP earnings of 1 cent per share beating the Zacks Consensus Estimate by 4 cents. Notably, the Zacks Consensus Estimate was pegged at a loss of 3 cents. However, the figure declined by 50% from the year-ago earnings of 2 cents per share.
Revenues came in at $34.8 million, slightly ahead of Zacks Consensus Estimate of $34.6 million. The figure was also higher than management’s guided range of $34.3 million to $34.7 million. However, the top line declined 11.2% from the year-ago quarter.
Notably, Model N adopted ASC 606 from first-quarter fiscal 2019.
The company is making steady progress in its transformation to a Software-as-a-Service (SaaS) based model.
Coming to price performance, shares of Model N have returned 45.4% year to date, outperforming the industry’s rally of 28.4%.
Quarter in Detail
Model N is reported earnings results under two business lines, namely, Subscription and Professional Services, from first-quarter fiscal 2019. Notably, the company previously reported under two domains —SaaS & Maintenance and License & Implementation.
In second-quarter fiscal 2019, Subscription revenues of almost $25.9 million grew 8.1% year over year. Notably, Model N is accelerating its transition of revenue management to cloud.
This has enabled the company to aid more than 60% of its customers to go live on one or more of its cloud products.
Management is optimistic on successful transition of Gilead Sciences to a 100% SaaS model from a traditional on-premise model.
Professional Services revenues declined 41.5% on a year-over-year basis to $8.9 million, primarily owing to “legacy on-premise implementations.”
Operating Details
Non-GAAP gross profit declined 15.4% from the year ago quarter to $19.6 million. Non-GAAP gross margin (adjusted for deferred revenues) contracted 270 bps from the year-ago-figure to 56.3%.
Adjusted EBITDA declined 38.8% year over year to $1.8 million.
Total operating expenses of $22.8 million fell 6.3% on a year-over-year basis. As a percentage of total revenues, the figure expanded 340 bps year over year.
Non-GAAP income from operations declined almost 32% year over year to $1.5 million in the second quarter. Non-GAAP operating margin (as a percentage of revenues before deferred revenue adjustment) contracted 140 bps to 4.3%.
Balance Sheet & Cash Flow
Model N exited the second quarter with cash and cash equivalents of $54.1 million compared with $52.2 million reported in the previous quarter.
In the reported quarter, the company paid $4.8 million in debt. As of Mar 31, 2019, the company had total debt (including current portion) of almost $49 million, down from $53.6 million reported in the previous quarter.
For six-months ended Mar 31, 2019, net cash generated by operating activities and free cash flow came in at $0.5 million and $0.3 million, respectively. Notably, for six-months ended Mar 31, 2018, Model N used approximately $5 million net cash in operating activities and reported free cash flow of ($5.1million).
Guidance
The company anticipates fiscal third-quarter 2019 GAAP revenues to come in the range of $33.9 million to $34.3 million.
Non-GAAP net income is anticipated to be in between in line results to 2 cents per share for the third quarter. The Zacks Consensus Estimate is pegged at earnings of 4 cents.
Adjusted EBITDA is anticipated to be in the range of $1.8 million to $2.2 million.
For fiscal 2019, management revised guidance. Model N now expects GAAP revenues to be in the range of $138.5 million to $142.5 million, inching up slightly from the prior guided range of $138-$142 million. Adoption of ASC 606 is anticipated to reduce overall fiscal 2019 revenues by 7.2 million.
Non-GAAP earnings are expected to be in the range of 10-17 cents per share, compared with previously guided 5-17 cents. The Zacks Consensus Estimate is currently pegged at 11 cents.
Adjusted EBITDA is now projected to be in the range of $9.5 million to $12.5 million, compared with earlier predicted range of $8.5-$12.5 million.
Conclusion
Model N made significant efforts in its go to market strategy in order to improve growth. The company is leaving no stone unturned to enable customers’ transition to cloud from an on-premise infrastructure.
Additionally, Model N’s growth prospects in the life sciences & high technology are bright due to increasing redundancy of legacy systems. The company’s solutions provide higher Return on Investment (ROI) as well as plug gaps in the end-to-end revenue management process that legacy systems fail to do.
Moreover, per IDC estimates, approximately 90% of the surveyed biotech and pharma companies intend to implement cloud-based revenue management platform by 2020, is noteworthy in this regard.
However, increasing investments to enhance clod-based offerings with focus on High-Tech and Life Sciences customers is likely to limit margin expansion. Further, declining professional revenues and headwinds from ASC 606 adoption remain key concerns.
Zacks Rank & Key Picks
Currently, Model N carries a Zacks Rank #3 (Hold).
Some better-ranked stocks worth considering in the broader sector, include Cadence Design Systems (CDNS - Free Report) , ACI Worldwide, Inc. (ACIW - Free Report) and Avid Technology, Inc. , all sporting a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Long-term earnings growth rate for Cadence, ACI Worldwide and Avid is projected at 12%, 12% and 10%, respectively.
This Could Be the Fastest Way to Grow Wealth in 2019
Research indicates one sector is poised to deliver a crop of the best-performing stocks you'll find anywhere in the market. Breaking news in this space frequently creates quick double- and triple-digit profit opportunities.
These companies are changing the world – and owning their stocks could transform your portfolio in 2019 and beyond. Recent trades from this sector have generated +98%, +119% and +164% gains in as little as 1 month.
Click here to see these breakthrough stocks now >>
Zacks Names "Single Best Pick to Double"
From thousands of stocks, 5 Zacks experts each have chosen their favorite to skyrocket +100% or more in months to come. From those 5, Director of Research Sheraz Mian hand-picks one to have the most explosive upside of all.
It’s a little-known chemical company that’s up 65% over last year, yet still dirt cheap. With unrelenting demand, soaring 2022 earnings estimates, and $1.5 billion for repurchasing shares, retail investors could jump in at any time.
This company could rival or surpass other recent Zacks’ Stocks Set to Double like Boston Beer Company which shot up +143.0% in little more than 9 months and NVIDIA which boomed +175.9% in one year.
Free: See Our Top Stock and 4 Runners Up >>
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