Model N: Hold Rating Amid Mixed Performance and Potential Merger Uncertainties

Robert W. Baird analyst Joseph Vruwink maintained a Hold rating on Model N (MODN – Research Report) on May 8 and set a price target of $30.00.

Joseph Vruwink has given his Hold rating due to a combination of factors surrounding Model N’s recent performance and prospects. The second fiscal quarter of 2024 showed a 4% year-over-year revenue increase, which was slightly higher than expected, and an improvement in EBITDA margins. However, the company’s SaaS Annual Recurring Revenue (ARR) growth was below Vruwink’s projections, which could be a cause for concern regarding the company’s future growth trajectory. Additionally, the retention rate had decreased significantly when compared to the previous year, potentially signaling challenges in customer loyalty or market competitiveness.

The backdrop to these results is a potential merger, with Vista Equity Partners showing interest in acquiring Model N. Historical interest from several parties throughout 2022 and 2023 culminated with Vista’s non-binding offer, while other interested parties stepped back, citing concerns over Model N’s future growth potential. Furthermore, the company’s financial plans through 2029 indicate a steady revenue compound annual growth rate (CAGR) and a significant margin improvement. However, these projections are subject to market validation, and the revised forecasts presented to potential buyers suggest a more conservative outlook than previously communicated. This context of operational performance combined with the strategic implications of the merger discussions has led Vruwink to maintain a Neutral stance on the stock.

Vruwink covers the Technology sector, focusing on stocks such as Autodesk, Cadence Design, and PTC. According to TipRanks, Vruwink has an average return of 8.7% and a 61.06% success rate on recommended stocks.

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Model N (MODN) Company Description:

Model N, Inc. engages in the provision of revenue management cloud solutions for the life science and technology industries. It solutions include two complementary suites of software applications: Revenue Management Enterprise and Revenue Management Intelligence. The Revenue Management Enterprise suite serves as the system of record for and automates the execution of revenue management processes such as pricing, contracting and incentive & rebate management. The Revenue Management Intelligence suite provides analytical insights to define and optimize revenue management strategies. Each of these suites consists of a number of applications, which can be purchased together or as separate stand-alone applications. The company was founded by Yarden Malka, Zack Rinat and Ali Tore on December 14, 1999 and is headquartered in San Mateo, CA.