Model N (MODN) Announces Upbeat Preliminary Results for Q4

Model N (NYSE:MODN), Inc MODN recently reported preliminary fourth-quarter fiscal 2020 results, wherein the management stated that the company’s revenue and profitability metrics exceeded the previously announced guidance. The stock was up 1.7% to $36.22 following the announcement on Oct 8.

Model N’s transformation to a Software-as-a-Service (SaaS) based model is driving top-line growth along with strength in logo business and new client additions.

The upbeat preliminary results augur well for the upcoming earnings release, as it hints toward upward estimate revisions and plausible revenue beat. Markedly, Model N is scheduled to report fourth-quarter 2020 results on Nov 10, 2020.

Model N, Inc. Price and Consensus

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

Model N also announced that David Barter was stepping down as the chief financial officer to pursue new opportunities. The company noted that search was on for his replacement and in the interim, Barter will assist the company in advisory capacity for easy transition.

A Look at Previous Q4 Guidance

Management had earlier guided fiscal fourth-quarter 2020 total revenues between $40.1 million and $40.5 million compared with $36.6 million reported in fourth-quarter 2019.

Currently, the Zacks Consensus Estimate for the fourth quarter revenues is pegged at $40.4 million, indicating year over year growth of 10.4%.

In the third quarter of fiscal 2020, the company reported revenue of $41.3 million, which topped the Zacks Consensus Estimate by 4.4% and increased 19% year over year.

Further, Model N projected subscription revenues in the range of $29-$29.4 million and non-GAAP net income in the range of 7-9 cents per share for the fourth quarter of fiscal 2020.

The Zacks Consensus Estimate for EPS stands at 9 cents for the fiscal fourth quarter. Notably, the Zacks Consensus Estimate for earnings has remained unchanged for the past 60 days.

Adjusted EBITDA was forecast between $4.6 million and $5 million for the said quarter.

Momentum in Revenue Software Solutions to Drive Growth

Model N has significant growth opportunity in the revenue management market, especially in the high-tech and life sciences verticals, as enterprises continue to replace legacy processes that were error prone and expensive.

Model N’s revenue cloud offerings provide higher Return on Investment as well as close gaps in the end-to-end revenue management process where legacy systems fail.

Coronavirus crisis has expedited the digital transformation among businesses especially for companies engaged in life sciences vertical.

Markedly, the company has bagged client deals from pharma companies like Medtech Enterprise, Integra, Ipsen, and Seqirus along with SaaS transition deals from Gilead Sciences (NASDAQ:GILD), Mylan (NASDAQ:MYL), Biogen (NASDAQ:BIIB), Alcon (NYSE:ALC), Mallinckrodt (NYSE:MNK) Pharmaceuticals, and Novo Nordisk (NYSE:NVO).

Also, in the recent past, the company announced that AVX Electronics was fully powered by its revenue management cloud offerings after the latter completed the deployment of the Model N software across its international operations.

Increasing number of customer wins bodes well for the company’s top line growth in the long haul and instils investor confidence in the stock.

Further, Model N is focusing on generating most revenues from the cloud instead of on-premise that will increase recurring revenues. The company is making steady progress in its transformation to a SaaS based model, which is driving top-line growth.

Per a Gartner (NYSE:IT) Report, by 2022, public cloud services market is projected to hit $364.1 billion, up 50% from $242.7 billion in 2019. The SaaS market is expected to rally 38% to $140.6 billion by 2022 from 2019.

Further, worldwide revenue management system market is expected to witness a CAGR of 10.7% between 2021 and 2026 to reach $29.9 billion per Industry Research Report. Increasing demand for competitive pricing, and strict adherence to regulatory compliances are likely to drive demand for this market.

Both these opportunities bode well for Model N, which at present manages client revenues worth billions across 120 countries. It has also bagged deals from some of the biggest names in tech and pharma verticals like Microchip Technology MCHP, ON Semiconductor ON as well as Johnson & Johnson (NYSE:JNJ) and Novartis NVS.

Currently, Model N carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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