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Model N (MODN) Rides on Revitas Buyout and Customer Wins

Zacks Equity Research

On Sep 25, we issued an updated research report on Model N MODN, a provider of cloud-based revenue management software.

Model N is benefiting from a growing customer base, transition to cloud-based applications and synergies from the Revitas acquisition. This was evident from the  third-quarter 2017 results.

Adjusted loss of 14 cents per share was narrower than the year-ago quarter loss of 16 dents. The figure was also better than the Zacks Consensus Estimate of a loss of 18 cents per share. Revenues of $34.2 million increased 22.7% year over year.

Model N expects fourth-quarter GAAP revenues to come in the range of $34.6-$35.1 million. 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.

Shares of Model N have gained 65.6% year to date, significantly outperforming the 19% rally of the industry.

Key Growth Drivers

We believe that Model N is significantly benefiting from the acquisition of Revitas. In third-quarter 2017, Revitas contributed approximately $6 million to SaaS and Maintenance revenues and approximately $2 million to the company’s license and implementation revenues.

Following the Revitas acquisition, the company has been able to expand its product suite and in turn its customer base. Also, frequent contract wins from existing and new customers have boosted the company’s top line.

Model N, Inc. Revenue (TTM)

Model N, Inc. Revenue (TTM) | Model N, Inc. Quote

During the last reported quarter, its customer base witnessed the addition of ICU Medical, a Medtech company; a high-tech company called Diodes and Ampleon, a radio frequency (RF) power provider. Moreover, a significant number of systems became operational in the third quarter, including Smith & Nephew, Edwards Lifesciences EW, J&J Japan, Stryker SYK and Shire.

Notably, the company has eliminated duplicated general & administrative and sales & marketing costs as well as redundant products outside the life sciences vertical post the acquisition. The initiative is well reflected in its cost structure and drove its bottom line.

Zacks Rank and Key Pick

Model N currently has a Zacks Rank #2 (Buy).

A better-ranked stock in the broader technology sector is Applied Materials, Inc. AMAT, 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 Applied Materials is projected to be 17.1%.

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