Model N

MODN · NYSE

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MODN analyst rating

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The case for and against

Updated Jun 26, 2024

Bull case

Model N is experiencing robust growth, with total revenue expansion of 10.0% Y/Y, driven by increases in professional services revenue and subscription revenue. The company is 85% through its transition to a SaaS subscription model, which is expected to create cross-selling opportunities that could lead to a doubling of revenue within five years. In addition, there is potential for margin improvement due to the shift to the SaaS model, increased visibility in the business, and consistent execution over the past 9 quarters, along with demand trends in its core Life Science and High Tech verticals.

Bear case

Model N is facing a compression in its gross margin, declining from 62.3% to 61.9% year over year while the subscription gross margins also experienced a decrease. The company's growth seems sluggish with a disappointing 7% growth in their subscription revenue and a 6% compound annual growth rate in billings from CY22-CY24, which is lower than consensus estimates. Along with these factors, Model N's financials also showed a decrease in leverage leading to earnings before interest, taxes, depreciation, and amortization (EBITDA) that was lower than expectations, along with outperformance in top line being offset by lower than expected deferred revenue and billings.

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