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Model N (MODN) Q2 Loss Narrower than Expected, Guides Well

Model N, Inc. MODN reported second-quarter 2017 adjusted loss of 25 cents per share, which was wider than the year-ago quarter’s loss of 21 cents.

However, including stock-based compensation, a loss of 34 cents per share was narrower than the Zacks Consensus Estimate of a loss of 35 cents.

Revenues of $33.3 million increased 27.6% year over year but missed the Zacks Consensus Estimate of $34 million.

Model N, Inc. Price, Consensus and EPS Surprise

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

 

Shares were up 5.96% to close at $12.45 on May 9. Notably, Model N has outperformed the Zacks categorized Internet - Software industry on a year-to-date basis. While Model N returned 40.7%, the industry gained 13.5%.

Quarter in Detail

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

License & Implementation revenues (18% of total revenues) of $6 million grew 24.4% on a year-over-year basis. SaaS & Maintenance revenues (82% of total revenues) of $27.2 million grew 28.4% year over year.

The reported results showed that Model N remains on track to shift its business model to a 100% SaaS and Maintenance revenue model.

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

Johnson & Johnson JNJ signed the second part of a major deal to implement revenue cloud in its pharmaceutical business. Teva, Pfizer PFE and Novartis, among others, also signed new subscriptions for their U.S. business.

Model N added Otsuka as a customer during the quarter. The company now has over top 25 pharmaceutical companies as customers.

Recently, Intel INTC – Model N’s long-time customer – bought a subscription for the company’s revenue cloud for High Tech.

Adjusted gross profit increased 58.9% year over year to $20 million while margin increased to 60.2% from 48.3%. Gross margin benefited from higher percentage of SaaS & Maintenance revenues.

Adjusted EBITDA was ($4.4) million compared with ($4.5) million in the year-ago quarter.

Adjusted operating expenses increased 52.5% year over year to $32.2 million. As a percentage of revenues, operating expenses increased to 96.9% from 81.1% in the year-ago quarter.

Adjusted operating loss was $7.9 million compared with a loss of $8.2 million in the year-ago quarter.

Balance Sheet

Model N exited the quarter with cash and cash equivalent balance of $53.6 million, up from $52.4 million at the end of first-quarter 2017. During the quarter, the company used $5.4 million of cash toward operational activities compared with $9 million in the previous quarter.

Guidance

Model N provided guidance for the third quarter of fiscal 2017. It expects third-quarter revenues to come in the range of $33.5 million to $33.8 million.

Management expects non-GAAP gross margin (excluding stock-based compensation) to continue at or be near the 58% range that the company achieved in the second quarter.

Non-GAAP operating loss is projected to be between $3 million and $3.5 million. Non-GAAP net loss is likely to be between 17 cents and 19 cents per share for the third quarter.

Cost savings synergies from the Revitas acquisition is now expected to be toward the top-end of management’s guided range of $11-13 million.

Management remains confident in reported profitable adjusted EBITDA in the fourth quarter of fiscal 2017.

For fiscal 2017, revenues before the purchase accounting adjustment are expected to be in the range of $134.5-135.1 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 operation is expected to be in the range of $14 million to $14.5 million, better than the previous guidance of a loss of $16 million.

Non-GAAP net loss is expected to be in the range of 68-66 cents per share for the fiscal year.

Zacks Rank

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

You can see the complete list of today’s Zacks #1 Rank stocks here.

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