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Model N (MODN) to Post Q1 Earnings: What's in the Offing?

Zacks Equity Research

Model N Inc. MODN is scheduled to report first-quarter fiscal 2018 earnings on Feb 6. Notably, the stock beat the Zacks Consensus Estimate in the trailing four quarters with an average positive earnings surprise of 18.68%. Last quarter, the company delivered a positive earnings surprise of 33.33%.

Last quarter, Model N reported adjusted loss of 6 cents per share, narrower than the year-ago quarter loss of 28 cents per share. The figure was also narrower than the Zacks Consensus Estimate of a loss of 9 cents per share.

Revenues of $35.6 million increased 25% year over year and beat the Zacks Consensus Estimate of $35 million. The figure also surpassed the guided range of $34.6-$35.1 million.

Expect What?

Model N expects fiscal first-quarter 2018 GAAP revenues to come in the range of $37-$37.5 million. Non-GAAP net loss is likely to be between 5 cents and 7 cents per share for the first quarter.

The Zacks Consensus Estimate for the quarter is pegged at a loss of 6 cents per share, reflecting a year-over-year decrease of 60%. Further, Zacks Consensus Estimate for revenues is pegged at $37.3 million, up roughly 32.98% from the year-ago quarter.

Model N’s shares have returned 60.7% year over year, substantially outperforming the 31.4% rally of the industry.

Let’s see how things are shaping up for this announcement.

Key Catalysts to Impact Q1 Results

Management noted that the integration of Revitas was completed successfully during fiscal 2017. The Revitas acquisition has expanded Model N’s product suite and customer base. Revitas contributed approximately $3.6 million to SaaS and Maintenance revenues as well as approximately $1.6 million to the company’s license and implementation revenues.

SaaS & Maintenance revenues of $29.6 million grew 32% year over year in the last quarter. The company has also made steady progress in its transformation to a 100% Software-as-a-Service (SaaS) based model.

The company’s Revenue Cloud offering for med-tech, pharma and high tech companies remains a positive. It also added Nexperia, a semiconductor manufacturer to its client base. The company will use Revenue Cloud for the management of direct and channel revenues.

Model N’s growth prospects in the life sciences & high technology is bright owing to increasing ineffectiveness 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. This improves top-line growth of the companies, consequently bolstering adoption of Model N’s solutions.

Additionally, Seagate Technology PLC STX, a prominent data storage provider, rolled out the Phase 1 Revenue Cloud for high tech. This bodes well for Model N.

However, increasing competition from well-established players like salesforce.com and Workday remains a headwind.

What Zacks Model Says

According to the Zacks model, a company with a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) has a good chance of beating estimates if it also has a positive Earnings ESP. The sell-rated stocks (Zacks Rank #4 or 5) are best avoided. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Model Ncarries a Zacks Rank #3 and its Earnings ESP is +0.00%.

Stocks With Favorable Combination

Here are a couple of companies which, as per our model, have the right combination of elements to post an earnings beat this quarter:

NVIDIA Corporation NVDA, with an Earnings ESP of +4.71% and a Zacks Rank of 2. You can see the complete list of today’s Zacks #1 Rank stocks here.

Square, Inc. SQ, with an Earnings ESP of +1.84% and a Zacks Rank of 2.

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