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Model N (MODN) Q1 Loss Narrower than Expected, Guides Well

Model N, Inc.MODN started fiscal 2017 on a strong note reporting better-than-expected results for the first quarter. Although the company posted adjusted loss (including all one-time expenses but excluding stock based compensation) of 21 cents per share, it was narrower than the Zacks Consensus Estimate of a loss of 29 cents as well as the year-ago quarter's loss of 26 cents.

On a non-GAAP basis, Model N reported loss per share of 15 cents, which was better than the guided range of loss of 16 cents to 18 cents. Also, it was a penny lower than the year-ago quarter's loss of 16 cents. The year-over-year improvement in the bottom line was mainly driven by higher revenues and efficient cost management, which were partially offset by increased share count.

Model N, Inc. Price, Consensus and EPS Surprise

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

Quarter in Detail

The company's revenues of $28.1 million for the quarter not only increased 14.6% year over year but also came ahead of the guided range of $27.2 million to $27.7 million as well as the Zacks Consensus Estimate of $27 million.

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

In the first quarter, License and Implementation revenues of $5.4 million grew 18.9% on a year-over-year basis, whereas SaaS and Maintenance revenues of $22.6 million grew 13.6% year over year. License and Implementation constituted 19.3% of total revenue, whereas SaaS and Maintenance comprised the remaining 80.7%.

The company remains on track to shift its business model to a 100% SaaS and Maintenance revenue model.

Adjusted gross profit increased 18.5% year over year to $14.5 million while margin improved 170 basis points (bps) to 51.7%.

Although adjusted operating expenses increased 14.7% year over year to $23.2 million, but as a percentage of revenues it remained almost flat at 82.6%. Adjusted operating loss was $6.1 million compared with a loss of $6.9 million in the year-ago quarter.

Balance Sheet

Model N exited the quarter with cash and cash equivalent balance of $52.4 million, down from $66.1 million at the end of the previous quarter. Accounts receivable were $19.3 million, slightly down from $19.9 million at the end of fourth-quarter fiscal 2016. During the quarter, the company used $8.2 million of cash toward operational activities.

Guidance

Bouyed by better-than-expected first-quarter results and the recently completed acquisition of Revitas, Model N raised its fiscal 2017 revenue outlook and lowered its non-GAAP loss projection.

The company now forecasts revenues in a range of $130 million to $134 million, up from its previous guidance range of $105 million to $107 million. The revised revenue outlook is also significantly higher than the Zacks Consensus Estimate of $124 million. Non-GAAP loss is now projected to come between 66 cents and 69 cents, lower than its earlier projected loss range of 70 cents to 73 cents.

The company also provided strong guidance for the second quarter. Model N expects second-quarter revenues to come in a range of $33.5 million to $34 million, which is higher than the Zacks Consensus Estimate of $31.1 million. This takes into account GAAP revenues excluding the deferred revenue impact of the Revitas deal.

Non-GAAP operating loss is projected to be between $6 million and $6.5 million. Non-GAAP net loss per share is likely to be between 26 cents and 28 cents in the second quarter.

Revitas Acquisition Update

During the reported quarter, Model N announced the Revitas acquisition, which closed on Jan 5. The deal is expected to benefit Model N's shareholders as well as its customers. Revitas has been into the business of providing revenue management solutions for the pharmaceutical industry since 1989. The company's clientele includes the likes of GSK, Baxter and Eli Lilly, Pfizer PFE , Sanofi, Novartis NVS , Merck and others.

Apart from the pharmaceutical industry, Revitas also provides revenue management solutions to the hi-tech and industrial manufacturing industries. Siemens is one of its clients.

Moreover, growing demand for cloud, mobile, SaaS, social and big data is likely to positively impact Model N's revenues going ahead.

Our Take

Model N posted a narrower-than-expected loss and beat the Zacks Consensus Estimate on revenues, which is encouraging.

The Revitas deal also remains a positive for the company as it will help Model N to gain further traction in revenue management solutions for the pharmaceutical industry.

Moreover, the company's focus to shift to a 100% SaaS and Maintenance revenue model will likely have a positive impact on the bottom line going ahead.

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

Notably, Model N has underperformed the Zacks categorized Internet Software industry in the last year. While the industry gained 28.6%, Model N declined 7.4%.

A better-ranked stock in the broader technology space is MiX Telematics Limited sporting a Zacks Rank #1 (Strong Buy). You can see

A better-ranked stock in the broader technology space is MiX Telematics Limited MIXT sporting a Zacks Rank #1 (Strong Buy). You can see the complete list of today's Zacks #1 Rank stocks here.

Notably, the consensus estimate for Mix Telematics' next quarter has remained stable at 7 cents over the last 90 days.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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