ModelN (MODN) Delivers in Q1 2020
ModelN recently reported first quarter fiscal 2020 results, and while the stock has been a little volatile since reporting, the punchline is that all appears on track. I attribute much of the stock’s retreat from a post-earnings rally to weakness in the broader software stock universe, and not to anything overly negative in ModelN’s report.
On the positive front, the company beat on both the top and bottom lines with revenue up 9.4% to $38.4 million (beating by $1.1 million) and adjusted EPS of $0.12 beating by $0.06. That revenue growth rate isn’t going to win any awards but remember this is a company in transition from the on-premise to the SaaS business model and that means temporary pressure on revenue since bigger up-front payments are spread out over quarters/years. Keep your eye on the prize – once completed the SaaS business model is superior.
Other positives included a 10% quarter-over-quarter increase in SaaS revenue, which is now 62% of software revenue, as compared to 58% in the previous quarter. This shows the transition underway, which was fueled in the quarter by two on-premise customers, Novo Nordisk and Biogen, that went live with their cloud solutions. Management said these migrations went as planned and all is good, which should help other customers that are on the fence jump onboard.
On the downside (sort of), management called for fiscal 2020 revenue of $154 to $156 million and adjusted EPS of $0.25 to $0.31. That guidance didn’t blow anybody away, but under the circumstances (SaaS transition) management should be giving guidance that is essentially guaranteed and leaving plenty of room to overdeliver. Keeping at buy. BUY