Model N (MODN) To Report Q2 Earnings: What's In The Cards?

Model N Inc. (NYSE:MODN) is scheduled to report second-quarter fiscal 2018 earnings on May 8.

In the first quarter, Model N had delivered adjusted earnings of 3 cents per share against the year-ago quarter’s loss of 15 cents per share. The figure also compared favorably with the Zacks Consensus Estimate of a loss of 5 cents per share.

Model N surpassed the Zacks Consensus Estimate in the trailing four quarters with an average positive earnings surprise of 53.24%.

Model N delivered first-quarter fiscal 2018 revenues of $39.1 million which surged 39% on a year-over-year basis and beat the Zacks Consensus Estimate of $37 million. The figure also surpassed the guided range of $37 million to $37.5 million.

Let’s see how things are shaping up for this announcement.

Outlook and Zacks Estimates

Model N anticipates non-GAAP net loss in the range of 3-5 cents per share for the second quarter. The Zacks Consensus Estimate for the quarter is pegged at a loss of 4 cents per share, in line with the mid-point of the guided range.

The company expects fiscal second-quarter 2018 GAAP revenues to come in the range of $38-$38.5 million. The Zacks Consensus Estimate is pegged at $38.3 million, in line with the guided range, translating to year-over-year growth of 15.21%.

Notably, Model N’s shares have returned 9.5% year to date, substantially outperforming the industry’s rally of 5.7%.

Strengthening Revenue Cloud: Key Catalyst

Model N’s Revenue Cloud offering for med-tech, pharma, semiconductor, manufacturing and high tech companies remains a positive.

During the quarter, Model N introduced Revenue Management platform to enhance digital reinvention experience. The company also launched Model N CPQ (Configure, Price and Quote), Model N Channel Cloud and Revenue Cloud for High Tech suites.

The new solutions will ensure that customers smoothly transform business digitally and realize business goals by keeping their functioning updated. It will help Model N to retain as well as expand its clientele, going forward.

Model N’s growth prospects in the life sciences & high technology is bright owing to increasing ineffectiveness of legacy systems. The company’s solutions provide higher Return on Investment (“ROI”) as well as plug gaps in the end-to-end revenue management process that legacy systems fail to do. This improves top-line growth of the companies, consequently bolstering adoption of Model N’s solutions.

Other Factors to Consider

The integration of Revitas, completed during fiscal 2017, has expanded Model N’s product suite and customer base.

SaaS & Maintenance revenues of $32.3 million grew 43% year over year in the last quarter. The company continues to make steady progress in its transformation to a 100% Software-as-a-Service (SaaS) based model. This move will boost the top line, going forward. However, the transformation is likely keep the bottom line under pressure, while considering the second-quarter performance.

In the first quarter the company won several deals in high tech and life sciences including the likes of DexCom, Amgen (NASDAQ:AMGN), Tiro, CSL, Intel (NASDAQ:INTC) and Seagate (NASDAQ:STX) . This bodes well for Model N’s top-line growth.

However, increasing competition from well-established players like salesforce.com and Workday remains a headwind. Increasing expenditure to develop products is likely to hurt margins at least in the near-term.

What Does the Zacks Model Unveil?

Our proven model shows that a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

The Sell-rated stocks (4 or 5) are best avoided, especially when the company is seeing negative estimate revisions.

Model N has a Zacks Rank #3 and Earnings ESP of 0.00%, which makes surprise prediction difficult.

Stock with Favorable Combination

Microchip (NASDAQ:MCHP) , from the broader technology sector, is a stock you may want to consider as our proven model shows that it has the right combination of elements to post an earnings beat this quarter.

Microchip has an Earnings ESP of +0.15% and a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.

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