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Why Is Model N (MODN) Down 3.2% Since Last Earnings Report?

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A month has gone by since the last earnings report for Model N (MODN - Free Report) . Shares have lost about 3.2% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Model N due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important catalysts.

Model N reported third-quarter fiscal 2018 loss of 7 cents per share narrower than the year-ago quarter’s loss of 14 cents per share. The figure was also lower than the Zacks Consensus Estimate of a loss of 9 cents per share.

Revenues of $39.6 million increased 15.7% year over year and marginally beat the Zacks Consensus Estimate of $39 million. The figure also surpassed the guided range of $39-$39.5 million.

Management noted that successful integration of Revitas was a major driving force and helped the company deliver greater value to its investors. It has also made steady progress in its transformation to a 100% Software-as-a-Service (SaaS) based model.

Quarter in Detail

Model N has two reportable segments namely License & Implementation and SaaS & Maintenance.

SaaS & Maintenance revenues of $35.6 million grew 24.9% year over year. Model N is accelerating its transition of revenue management to cloud and is on track to shift business to a 100% SaaS and Maintenance revenue model.

License & Implementation revenues of $3.9 million decreased 30.1% on a year-over-year basis. The company no longer sells on-premise perpetual licenses. Management expects this revenue line to continue to decline in fourth quarter due to backlog burn off and transition of customers to cloud.

The company made significant efforts in its go to market strategy in order to further growth. Management is optimistic about its Revenue Cloud offering for med-tech, pharma and high tech companies. To name one AstraZeneca subscribed to Revenue Cloud for Pharma for their U.S. business.

Model N’s Global Price Management solution was selected by Gedeon Richter, a notable global pharmaceutical company. The company has also aided Novartis, Swedish Orphan Biovitrum (Sobi), Takeda, and Sandoz, among other companies, to conclude implementation projects.

The company’s Revenue Management platform aimed at enhancing digital reinvention experience bodes well. The company has also introduced Model N CPQ (Configure, Price and Quote), Model N Channel Cloud and Revenue Cloud for High Tech suites.

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.

Non-GAAP gross profit increased to $24.3 million from $21.4 million recorded in the year-ago quarter. Non-GAAP margin surged to 62%, up from 60% reported in the year-ago-quarter.

Adjusted EBITDA was $3.1 million compared with ($1.5) million in the year-ago quarter. Non-GAAP income from operations was $2.5 million against year-ago loss of $2.4 million.

Balance Sheet

Model N exited the quarter with cash and cash equivalent balance of $57.6 million, up from $55.2 million reported in the previous quarter. The company had total debt (long-term plus current portion) of $58.8 million.

Net cash used in operating activities came in at was $0.165 million during the nine months ended Jun 30, 2018.

Guidance

Model N expects fiscal fourth-quarter 2018 GAAP revenues to be in the range of $35.2-$35.7 million.

Non-GAAP net loss is likely to be between 1 cent and 3 cents per share for the fourth quarter.

Adjusted EBITDA is anticipated to be in the range of $1.2 million to $1.7 million.

For fiscal 2018, Model N raised revenues guidance. The company now expects GAAP revenues to be in the range of $153.1-$153.6 million (previous guidance $152-$154 million).

License and implementation revenues are expected to be approximately $1.5 million. SaaS and maintenance revenues are anticipated to be between 86% and 88% of total revenues.

Non-GAAP loss per share is expected to be in the range of 3-5 cents (previously 5-7 cents).

Adjusted EBITDA is now projected to be in the range of $10.2-$10.7 million (previously $9 million to $10 million).

 

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed an upward trend in fresh estimates.

VGM Scores

Currently, Model N has a nice Growth Score of B, though it is lagging a lot on the Momentum Score front with an F. Following the exact same course, the stock was allocated a grade of F on the value side, putting it in the lowest quintile for this investment strategy.

Overall, the stock has an aggregate VGM Score of D. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been trending upward for the stock, and the magnitude of this revision looks promising. Notably, Model N has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.




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