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Why is Model N (MODN) Up 4.8% Since Its Last Earnings Report?

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It has been about a month since the last earnings report for Model N, Inc. MODN. Shares have added about 4.8% in that time frame.

Will the recent positive trend continue leading up to its next earnings release, or is MODN due for a pullback? 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.

Recent Earnings

Model N reported second-quarter fiscal 2018 earnings of 2 cents per share against the year-ago quarter’s loss of 25 cents per share. The Zacks Consensus Estimate was pegged at a loss of 4 cents per share.

Revenues of $39.2 million increased 17.9% year over year and beat the Zacks Consensus Estimate of $38 million. The figure also surpassed the guided range of $38 million to $38.5 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 $32.9 million grew 21.1% year over year. Model N is accelerating its transition of revenue management to cloud and is on track to shift its business to a 100% SaaS and Maintenance revenue model.

License & Implementation revenues of $6.2 million increased 3.9% on a year-over-year basis. The company no longer sells on-premise perpetual licenses. Management expects this revenue line to continue to decline through fiscal 2018 due to backlog burn off and transition of customers to cloud.

To further aid growth, the company made considerable efforts in its go to market strategy. 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.

Non-GAAP gross profit increased to $23.2 million from $20.4 million recorded in the year-ago quarter. Non-GAAP margin surged 59%, up from 57.8% reported in the year-ago-quarter.

Adjusted EBITDA was $3 million compared with ($4.4) million in the year-ago quarter. Non-GAAP income from operations was $2.2 million against year-ago loss of $5.3 million. The improved results reflect strong synergies from the Revitas acquisition.

Balance Sheet

Model N exited the quarter with cash and cash equivalent balance of $55.2 million, down from $48.3 million reported in the previous quarter. The company had long-term debt of $52.5 million.

Cash flow from operations was $4.7 million. This includes payment of corporate bonuses, interest payments on notes associated with acquisition of Revitas and sales commission for the last quarter.

Guidance

Model N expects fiscal third-quarter 2018 GAAP revenues to be in the range of $39 million to $39.5 million.

Non-GAAP net loss is likely to be between 9 cents and 11 cents per share for the third quarter.

Adjusted EBITDA is anticipated to be in the range of $2 million to $2.5 million.

For fiscal 2018, Model N raised revenues guidance. The company now expects GAAP revenues, after deferred revenue adjustment, to be in the range of $152-$154 million (previous guidance $149-$151 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 5-7 cents.

Adjusted EBITDA is expected to be in the range of $9 million to $10 million.

Free cash flow is expected to increase approximately $10 million in fiscal 2018 from 2017.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in fresh estimates. There have been two revisions lower for the current quarter.

Model N, Inc. Price and Consensus

 

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

VGM Scores

At this time, MODN has a strong Growth Score of A, though it is lagging a bit on the momentum front with a B. However, the stock was allocated a grade of F on the value side, putting it in the fifth quintile for this investment strategy.

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

Our style scores indicate that the stock is more suitable for growth investors than momentum investors.

Outlook

Estimates have been broadly trending downward for the stock and the magnitude of these revisions indicates a downward shift. Interestingly, MODN has a Zacks Rank #2 (Buy). We expect an above average return from the stock in the next few months.


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