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Model N (MODN) Tops Q2 Earnings & Revenue Estimates, Ups View

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Model N, Inc. MODN reported second-quarter fiscal 2021 non-GAAP earnings of 4 cents per share, which surpassed the Zacks Consensus Estimate of loss of 5 cents. However, the bottom line declined 43% year over year.

Revenues were $48.2 million, which beat the Zacks Consensus Estimate by 3.8% and increased 21% year over year.

Robust adoption of the company’s revenue management solutions drove fiscal second-quarter top line. Model N’s Revenue Cloud aids organizations with enhanced efficiency, visibility and transparency in reporting.

Model N, Inc. Price, Consensus and EPS Surprise

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

Model N, Inc. price-consensus-eps-surprise-chart | Model N, Inc. Quote

The acquisition of Deloitte’s Business Services unit also added $6.5 million to the top line.

In the past year, shares of Model N have gained 12.3% compared with the industry’s surge of 41.8%.

Quarter Details & Business Highlights

Model N reports earnings under two business lines — Subscription and Professional Services.

In second-quarter fiscal 2021, Subscription revenues (74.6% of total fiscal second-quarter revenues) were $35.9 million, up 24% year over year.

Professional Services revenues (25.4%) increased 12% on a year-over-year basis to $12.3 million.

The company is making steady progress in its transformation to a Software-as-a-Service (SaaS) based model, which is driving the top line. Model N announced that Novartis moved forward with their plans to transition to Model Revenue Cloud for Life Sciences in the quarter under review.

In the fiscal second quarter, European division of a global biotech company went live with Model N’s solutions, including global pricing management and international reference pricing solutions.

In the high-tech vertical, Targus selected Model N Revenue Cloud for High Tech. Targus is engaged in designing innovative mobile computing accessories.

Operating Details

Non-GAAP gross margin contracted 500 basis points (bps) from the year-ago quarter’s figure to 57% mainly due to negative impact from buyout of Deloitte’s Business Services unit.

Non-GAAP subscription gross margin contracted 600 bps from the prior-year quarter’s levels to 66%. Non-GAAP Professional services gross margin contracted 600 bps from the year-ago quarter’s figure to 29%.

Adjusted EBITDA during the quarter was $3.2 million, down 0.2% year over year.

Non-GAAP operating income was $3 million, in line with the year-ago quarter’s levels. Non-GAAP operating margin (as a percentage of total revenues) contracted 130 bps to 6.3%.

Balance Sheet

As of Mar 31, 2021, Model N had cash and cash equivalents of $148.3 million compared with $143.5 million as of Dec 31, 2020.

As of Mar 31, 2021, the company had long-term debt of $119.2 million compared with $116.8 million reported as of Dec 31, 2020.

In the quarter under review, net cash provided by operating activities was $3.4 million compared with $0.2 million of net cash used in operating activities in the prior quarter.

Free cash flow was $2.9 million for the fiscal second quarter compared with free cash outflow of $0.6 million in the previous quarter.

Guidance in Detail

The company anticipates fiscal third-quarter 2021 total revenues between $48.5 million and $49 million. The Zacks Consensus Estimate for revenues is pegged at $47.8 million.

For third-quarter fiscal 2021, subscription revenues are projected in the range of $35.5-$36 million.

Adjusted EBITDA is expected between $2 million and $2.5 million. Non-GAAP income from operations is expected in the range of $1.8-$2.3 million.

Non-GAAP earnings per share is anticipated in the range of 1-2 cents per share.

For fiscal 2021, Model N raised its guidance. The company now expects total revenues in the range of $189-$190 million compared with the previous guidance of $184-$186 million.

Non-GAAP earnings are expected to be 21-24 cents per share versus earlier guidance of 10-15 cents per share.

Fiscal 2021 subscription revenues are forecast in the range of $139-$140 million compared with the previous guidance of $136- $138 million.

Non-GAAP operating income is expected in the range of $13.7-$14.7 million compared with earlier projected range of $9.5 -$11.5 million. Adjusted EBITDA is now projected in the band of $14.5-15.5 million compared with previous guidance of $10-12 million.

Zacks Rank & Stocks to Consider

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

Some top-ranked stocks in the broader technology sector are Agilent Technologies A, Pure Storage PSTG and NVIDIA NVDA. All the stocks carry a Zacks Rank #2 (Buy). You can see the complete list of today's Zacks #1 Rank (Strong Buy) stocks here.

Agilent scheduled to report quarterly results on May 25, while NVIDIA and Pure Storage are slated to announce results on May 26.

Long-term earnings growth rate of Agilent, Pure Storage and NVIDIA is pegged at 9%, 52.2% and 15.1%, respectively.

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