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Model N (MODN) Q3 Loss Narrower than Expected, Revenues Miss

Zacks Equity Research

Model N, Inc. MODN reported fiscal third-quarter 2017 adjusted loss of 14 cents per share, which was narrower than the year-ago quarter loss of 16 cents.

Including stock-based compensation, the company incurred loss of 23 cents per share, which was narrower than the Zacks Consensus Estimate of a loss of 27 cents.

Revenues of $34.2 million increased 22.7% year over year but missed the Zacks Consensus Estimate of $35 million.

Notably, Model N stock has rallied 43.5% year to date, substantially outperforming the 16.9% gain of the industry it belongs to.

Quarter in Detail

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

License & Implementation revenues (20% of total revenues) of $5.7 million grew 11.6% on a year-over-year basis. The company no longer sells on-premise perpetual licenses. Management expects this revenue line to continue to decline into fiscal 2018.

SaaS & Maintenance revenues (80% of total revenues) of $28.5 million grew 25.1% year over year. Model N is on track to shift its business to a 100% SaaS and Maintenance revenue model.

Revitas contributed approximately $6 million to SaaS and Maintenance revenues and approximately $2 million to the company’s license and implementation revenues.

Model N’s revenue management platform continues to attract prominent names from the life sciences and high tech field.

During the quarter, Ampleon, a radio frequency (RF) power provider, selected Model N revenue cloud services. A significant number of systems became operational in the third quarter, including Smith & Nephew, Edwards Lifesciences EW, J&J Japan, Stryker SYK and Shire.

ICU Medical, a Medtech company was added to the customer base during the quarter. A high-tech company called Diodes also adopted Model N’s revenue cloud model in the third quarter.

Model N, Inc. Price, Consensus and EPS Surprise

Model N, Inc. Price, Consensus and EPS Surprise | Model N, Inc. Quote

Adjusted gross profit increased 44% year over year to $21.4 million while margin increased to 59.6% from 53.3%. Gross margin benefited from higher percentage of SaaS & Maintenance revenues.

Adjusted EBITDA was ($1.1) million compared with ($3.2) million in the year-ago quarter. Adjusted operating loss was $2.4 million compared with the year-ago loss of $4.3 million.

The improved results reflect shrinking cost base post Revitas acquisition. Management stated that it has eliminated duplicated general & administrative and sales & marketing costs as well as redundant products outside the life sciences vertical post the acquisition.

Model N ended the quarter with annual expense synergy run rate of $13 million, which was in line with the high end of its expectations.

Balance Sheet

Model N exited the quarter with cash and cash equivalent balance of $51.8 million, up from $53.6 million at the end of second quarter fiscal 2017.


Model N provided guidance for the fourth quarter of fiscal 2017. It expects fourth-quarter GAAP revenues to come in the range of $34.6 million to $35.1 million.

Non-GAAP operating loss is projected to be between $0.5 million and $1 million. Non-GAAP net loss is likely to be between 8 cents and 9 cents per share for the fourth quarter.

For fiscal 2017, GAAP revenues, after deferred revenue adjustment, are expected to be in the range of $130.2-130.7 million. Management continues to expect annualized recurring revenue (ARR) to be between $46 million and $48 million. This represents 31% to 36% year-over-year growth.

Non-GAAP loss from operations is expected to be in the range of $12.5 million to $13 million, better than the previous guidance of a loss of $14 to $14.5 million.

Non-GAAP net loss is expected to be in the range of 62 cents to 63 cents per share for the fiscal year, narrower than the previous guided range of a loss of 68–66 cents per share.

Management still forecasts an ending cash balance $50 million to $52 million as of Sep 30, 2017. Model N now expects cash flow from operations to be breakeven or slightly positive in the fourth-quarter.

Model N expects EBITDA to be positive throughout fiscal 2018. Management expects to be cash flow positive from operations in the back half of 2018. The company also plans to payback a portion of its debt related to the Revitas acquisition in fiscal 2018.

Zacks Rank and Stocks to Consider

Currently, Model N has Zacks Rank #3 (Hold).

Better-ranked stocks in the broader technology sector include Alibaba Group BABA, which sports 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 Alibaba is projected at 28.97%.

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