NEW YORK (TheStreet) -- A tweak to Model N's MODN sales leadership is all it's taking to bring investors back into the revenue management solutions provider for the life sciences and technology industries.
After plunging more than 42% over the past year, the company is picking up volume again, watching its shares claw their way back up, having gained more than 13.5% over the past 30 days.
New hire Christopher Larsen is now Model N's chief sales officer. Despite having been at the company only since October 2013, his more than two decades of senior executive level experience in the enterprise software market is already making a difference for the company.
For the full year, the company narrowed its revenue range outlook to $76 million to $80 million from the prior guidance of $72 million to $80 million. Last month's earnings report showed that for the quarter, Model N reported results of $21.6 million in revenue and loss per share of three cents, which was above Deutsche Bank's and the street's guidance of 12 cents loss per share on revenue of $21.3 million.
As Deutsche Bank research analyst Nandan Amladi pointed out right Model N's first-quarter results, "operational sales discipline seems to be improving." Amladi reiterated his "buy" recommendation on the stock and raised his price target on the shares to $18 from $12, implying a 50% upside on expectations of improved business performance following the Larsen hiring move. Model N says it will continue to add new hires to its sales team throughout this year.
Amladi's $18 price target move is based on an enterprise-value-to-sales ratio multiple of 4.1x, which is a premium to the group median of 3.1x given its leadership position, versus the stock at about 1.9x today.
Model N's fast-moving improvements to its sales division comes at a critical time when the revenue management market for life sciences and technology companies is still in its early stages and ripe for the taking.
"Overall, the company has significant growth potential ahead of it, but execution will be key," Amladi wrote in a client note.
Model N's CEO Zack Rinat and CFO Sujan Jain recently spoke with TheStreet about Model N's competitive strategies:
Tse: Zack and Sujan, Model N's swift actions to rectify your sales execution issues seem to be making a difference.
Rinat: Absolutely. We had sales execution challenges in the later part of our previous fiscal year and we took immediate action to solve them.
Chris came to us with a strong background. He was an early member of the SAP (SAP) team in North America and then he rose to the position of the president of SAP North America. He also held the position of head of worldwide field operations for Tibco (TIBX) and for Progress Software (PRGS).
He's very competent and very capable as a sales executive and he came to the company at the beginning of our first quarter. And as you saw from our earnings results, he made a nice impact on the business. We had a very strong and also very balanced results for the quarter in both of our verticals across different geographies and across the strategic initiatives for the company. So the challenges were first, sales execution and then, how we worked to fix them. I'll let Sujan talk about the net loss.
Jain: a couple of things. One, as Zack mentioned, we had a good Q1. The other thing that we saw was good progress on deals that we had in the funnel. So one of the things we guided to the street was that in 2015 revenue growth will be higher than in 2014.
In terms of net loss, if you look at the history of the company, before we went public, we had a lot of funding since 2003. So we have been very capital efficient as a company. We operated for 10 years where we acquired two companies with our own cash. And in 2013 we had a $9 million EBITDA. So one of the focuses of the company was how do we come back to growth and we looked at the initiatives that we had to take. So, there are four initiatives that we have implemented in the company.
We said we were going to invest in it -- and that was the message we gave to the market in September, that we would burn about $20 million to $24 million in cash in 2014. And we've updated that guidance. Given that we are now changing our revenue guidance further upward and will have a better growth margin, we are now looking at a cash burn of $17 million to $20 million. And just to give you an idea, we have a $100 million of reserves in cash, so we definitely believe the cash we have on our books is more than sufficient for us to turn the company back on growth and grow it historically as we have been growing it before.
Tse: So, the revenue management market for life sciences and tech is really right now in the nascent stages. How's Model N expanding its footprint there?
Rinat: So as you know, our company is focused on two main verticals. The first one is life sciences and it has four sub-verticals: pharmaceuticals, generic drug manufacturers, biotech and medical devices. And then the technology sector is divided into semiconductors, devices, software and what are considered to be general technologies. When you look at these two verticals, right now they're focused on the need to manage growth and revenues on a global basis. And we're dealing with 50,000 global buyers that are trying to procure products through very sophisticated procurement techniques anywhere on the globe to optimize the devices they need to manage these very sophisticated global revenues and pricing.
The second aspect of this is distributing the products to global distribution channels. They want to align their processes with the direction of the channels and align the direct and the indirect sales organization. And those are a critical component of where we go to market. We're looking at the technology cycles right now, and the technology that is getting obsolete, and moving to a new, integrated technology. We're looking at how they can do everything in the most cost-effective manner and ensuring that they do revenue management with the ability to collaborate across all the functions of the organization with one platform, with one source of true, strong analytical capabilities.
And lastly, facing a continuing regulatory environment with a lot of demands from governments and regulations to adhere to -- it's true for both verticals, but it's particularly true for life sciences. For example, pharmaceutical companies in the U.S. need to file with the government every month relative to government programs and secondly need to adhere to a web of reference prices that is set by governments across the world to benchmark the healthcare systems.
So these are the trends that are guiding the industry and they create quite a demand for revenue management. Most companies right now are using Excel spreadsheets, homegrown systems and pieces of paper, and they simply cannot keep up with the changing world around them with go-to-market strategies, with the government regulations. And because of the success of Model N, the brands that have already implemented Model N, adopted our platforms -- I'm speaking about companies like J&J (JNJ), Merck (MRK), Amgen (AMGN), Boston Scientific (BSX), Apple (AAPL), AbbVie (ABBV), Dell, Nokia (NOK), STMicroelectronics (STM), Micron (MU), NXP (NXPI), Avago (AVGO), Gilead (GILD) and VMware (VMW) among many others -- it's going to take them to the next level.
So these are the drivers for our businesses, and I'll turn it to Sujan to talk about it from his vantage point.
Jain: When we talk about sales execution, it's been one of the best that we've ever seen. That's what's giving us more confidence looking at 2015, saying that 2015 will be a growth year for us given how much progress we've made and the deals that we have in the funnel.
Tse: Can you highlight some of these new deals for us, along with your new products?
Rinat: Absolutely. We have a very different range of deals. There's no one size for these, we have different prices for different targets of the market. We won a number of new deals during the quarter. We struck deals with Stryker (SYK), semiconductor company CSR, Alexion (ALXN), AstraZeneca (AZN) and more.
If you look at the some of the new releases that we have, we have a new product in the life sciences, that we call Global Price Management. This is a product the enables life sciences companies to manage their prices on kind of a global basis. It's a product that we started to sell about a year ago and it is able to align customers like Amgen, Gilead, AbbVie, and AstraZeneca on this solution. And again, the need for this product stems from the need of these companies to manage prices on a global basis.
In addition to this, we have the new version of the revenue management application suite for high tech. That's a new version of the software. It really enables our customers to manage their direct and their indirect businesses as well as to really apply analytical capabilities to optimize their revenues. The high-tech product is a product that's been in the market for 12 years and this is a new version.
So these are two of a couple of the new ones among our bigger product lines.
We're going to keep making investments in technology and in applications, showing that we are going to be ahead of the game in our industry. So we are very confident about our product, we are very confident about the impact we're making on our customers. For example, we had Gilead on a webinar that more than 400 people attended in the last quarter where they spoke about their success with global price management on the Model N platform.
Tse: What's your biggest concern about your competitors?
Rinat: Andrea, when you look at the competitive landscape, we are competing with three types of competitors: the first one is competing with the continuation of the current way of doing business, which is Excel spreadsheets, ongoing systems and pieces of paper, and the custom-made systems. And the second competition comes from the large ERP vendors such as SAP.
And then the third type of competitor comes from either industry specialists or companies that are solving parts of the revenue management lifecycle. Model N differentiates itself because we have an end-to-end platform that includes both execution and analytics. We manage the entire lifecycle of revenue management and our solution is domain specific. We're really targeted on solving the deepest domain challenges that companies face in these two verticals, and both the very sophisticated algorithms and the best practices that are unique to the industry. And that's why we've been so successful in these two verticals.
Jain: So Andrea, as Zack mentioned, in terms of the way I look at it is the main competition is for companies not to do anything. It's more like they have been using spreadsheets, using pieces of paper, they have been using homegrown systems. So that's the main competition we face in terms of working with the customers. We don't lose transactions.
Most of the transactions we have in our pipeline is more about how you work with the users and give them comfort in terms of improving the implementation of solutions.
Rinat: I will say that revenue management is a big opportunity. It's definitely a big opportunity, and on the two verticals that we are approaching in life sciences and technology, we are focused on the needs of these companies. We are in a leadership position in both industries and we believe that we've had a good start for the fiscal year with the execution that we had and we are very focused on continuing to execute well.