MODN - Model N sinks as Baird says 'several moving pieces' in weak 2024 outlook

2023-08-09 14:45:30 ET

Model N ( NYSE: MODN ) shares fell nearly 12% on Wednesday after the life science software company issued a weaker-than-expected outlook for 2024 that investment firm Baird said has "several moving pieces" to it.

Analyst Joe Vruwink, who has an outperform rating on Model N ( MODN ), said the weakness is likely due to a delayed closing in the final part of the software-as-a-service transition, as well as macro hitting software-enabled services and "accelerating" attrition of Maintenance and License revenue.

"This was a more complicated update than we expected and there will understandably be a focus on lower FY24 revenue assumptions," Vruwink, who lowered his price target to $35 from $40,  wrote in an investor note.

"After revisions, we still come away with EBITDA/FCF estimates that are largely unchanged given strong execution and as virtues of post-transition model begin to surface (e.g., F3Q23 EBITDA margins of 21% versus FY22 at [more than] 15%)."

In addition, Vruwink noted the broader spending environment was thought to have stabilized last quarter, but there is some deal scrutiny going on. However, customers that have completed their transitions to software-as-a-service, such as Amgen, are additional additional modules "quickly."

"Mitigating these developments are delayed closings of on-prem customers in the final SaaS transition cohort, factoring into slower SaaS growth in [fiscal 2024] than our prior assumptions," Vruwink added.

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