Model N Is Soaring To A Record High

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Model N (NYSE: MODN) is a leading player in the revenue management market that is focused on the Life Sciences vertical. Amid the current pandemic, Life Sciences companies are in great demand and as a result business has been good for Model N as well.

Model N’s Financials

Model N’s Q2 revenues grew 15% to $40 million, beating analyst estimate of $39.54 million. GAAP net loss was $(4.6) million, up 22%. Non-GAAP net income was $2.6 million or $0.07 per share, beating analyst estimates of $0.06 per share.

By segment, Subscription revenues grew 12% to $29 million. This growth was partially offset by a natural decline in its maintenance subscription contracts due to SaaS transitions, which resulted in revenue of $10.3 million, a decrease of 13% compared to $11.8 million a year ago. Professional services grew 23% to $11 million.

Cash and cash equivalents as of March 31, 2020 totaled $61.3 million. The company repaid $5 million of debt in early January. With this payment, it has repaid fully the seller’s note associated with the Revitas acquisition and only a portion of the term loan with Wells Fargo remains.

Towards the end of Q2, Model N had one new logo deal slip out of the quarter and one renewal did not occur until the very last day. These agreements impacted its accounts receivable and deferred revenue balance at the end of Q2 by approximately $3 million.

For the third quarter, the company expects revenue of $39.4-$39.8 million and non GAAP net income of $0.05-$0.07 per share. For the full year 2020, it expects revenue of $154-$156 million and non GAAP net income of $0.28-$0.31 per share.

Model N’s Customer Traction and New Offerings

Model N continues to see very strong support and pipeline growth for SaaS transitions in its customer base. During the quarter, a major win in the Life Sciences segment was a mid-market company called Seqirus, which is focused on influenza vaccines. Sequira is seeing a dramatic increase in demand for their offerings and their projects and is implementing Model N’s Revenue Management product to meet the demand.

Other wins include the U.S. branch of a large, Asia-based multinational pharmaceutical company, the specialty brands division of a leading global biopharmaceutical company, and a top 30 pharmaceutical company. 

While the mid-market life science segment has shown strong growth, Model N has also seen the High Tech pipeline grow over the last couple of quarters and expects to gain traction in the next couple of years. It has added sales teams focused on the top end of the market and its customers in the segment include AMD, Western Digital, and Qualcomm.

Model N has improved the cycle time for SaaS transitions. It now has a proprietary services methodology called Model N Express, which is a collection of templates, best practices, and automated testing. With this, it can get a customer live on Provider and they start seeing value within 20 to 22 weeks. Model N conducted a major go live at Novartis where its teams worked 100% remotely. It is also doing a similar project at Pfizer.

In response to the current environment, Model N has rolled out a package of sales tools and offers designed to help its customers and drive loyalty. The sales tools include things like flexible payments and escalating deal structures. It has made its online training library available to all customers to ensure that they are getting maximum value from their current investment.

I had interviewed Model N’s founder and former CEO Zack Rinat way back in 2007 before it went public. Zack was also a part of the founding team of NetDynamics, which went on to be acquired by Sun. Zack had founded Model N in 1999 and was the CEO till 2018. The company now has a new CEO Jason Blessing who was formerly the CEO of Plex Systems. For a company that has been around for a long time, their growth has been slow and the new CEO has his task cut out.

It had raised funding of $37 million from investors including Accel, Accel KKR, and Meritech Capital Partners. It went public in March 2013 and raised $104.5 million at a valuation of $200 million and a list price of $15.50 each. Its stock is currently trading at $38.21 with a market capitalization of $1.3 billion. It hit a life-time high of $38.73 last week. It hit a 52-week low of $15 in March.

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