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Based in Redwood City, CA, Model N (NYSE:MODN) scheduled an $88 million IPO with a market cap of $289 million at a price range mid-point of $13.50 for Wednesday, March 20, 2013.

S-1 filed March 7, 2013.

Manager, Joint Managers: J.P. Morgan; Deutsche Bank Securities
Co Managers: Stifel; Pacific Crest Securities; Piper Jaffray; Raymond James

SUMMARY

  • MODN believes it is a pioneer in the field of revenue management solutions for life sciences, where it is a major player. Revenue management, however, is not a new area and by 2001 was heavily used in a number of industries.
  • MODN is going after other verticals but is encountering competition from such major software firms such as Oracle (NYSE:ORCL) and SAP.

Financial summary,

  • Good revenue growth
  • Cloud segment is growing faster then on-premise software licenses
  • Gross profits growing at a smaller rate of growth than revenue
  • Losing money, not uncommon in a cloud-based business
Valuation Ratios

IPO Mrkt

Price /

Price /

Price /

Price /

% offered

Annualizing Dec '12 qtr

Cap (MM)

Sales

Earnings

BookValue

TangibleBV

in IPO

Model N

$289

3.3

-55.6

4.7

4.9

30%

Glossary

RECOMMENDATION
Buy MODN on the IPO.

BUSINESS
MODN provides revenue management solutions for the life science and technology industries, and MODN believes that it is a pioneer in this market.

MODN solutions enable our customers to maximize revenues and reduce revenue compliance risk by transforming their revenue lifecycle from a series of tactical, disjointed operations into a strategic end-to-end process.

MODN's customers use application suites to manage mission-critical functions, such as pricing, contracting, incentives and rebates.

MODN's application suites are built on a modern, web-based platform that can be deployed both on-premise or through the cloud.

On-premise solutions are typically purchased as perpetual licenses and cloud-based solutions are purchased on a subscription basis

In January 2012, MODN acquired LeapFrogRx, a provider of cloud-based analytics solutions for the pharmaceutical industry, to enhance our analytics capabilities

REVENUE MANAGEMENT IS NOT NEW
Inventory control & spot pricing to maximize revenue. By 2000, virtually all major airlines, hotel firms, cruise lines and rental car firms had implemented Revenue Management Systems to predict customer demand and optimize available price.

REVENUE MANAGEMENT ENTERPRISE SUITE
85% of revenue. In the fiscal year ended September 30, 2012 and in the three months ended December 31, 2012, revenues from this suite constituted more than 85% of MODN's total revenues for each respective period.

MODN's Revenue Management Intelligence suite provides analytical insights to define and optimize revenue management strategies.

LIFE SCIENCE & TECH MARKET
According to Gartner, Inc., a research firm, in 2011, life science and technology companies spent a combined $17.3 billion on software, consulting services and internal information technology (IT) personnel dedicated to sales support, marketing and finance.

International Data Corporation (IDC), a research firm, reported in its Health Insights 2009 report that a lack of centralized and automated solutions for managing the revenue lifecycle resulted in over $11 billion per year in lost revenue for companies in the life science industry alone.

CUSTOMERS
A representative list of customers based on total revenues for the fiscal year ended September 30, 2012 includes life science customers Abbott Laboratories, Amgen Inc., Boston Scientific Corporation, Bristol-Meyers Squibb Company, Johnson & Johnson and Merck & Co. Inc., and technology customers Dell Inc., Nokia Corporation, STMicroelectronics N.V. and VMware, Inc.

CUSTOMER RETENTION - 95% renewal rate
MODN's renewal rates for maintenance and support were excess of 95% during fiscal years ended September 30, 2010, 2011 and 2012.

BOOKINGS
MODN's bookings grew 34% year-over-year to $101.3 million for the fiscal year ended September 30, 2012, but will be recognized as revenue over varying implementation periods.

This bookings amount includes bookings from LeapFrogRx, which was acquired in January 2012. LeapFrogRx's bookings totaled $9.1 million during fiscal year 2012.

CUSTOMER CONCENTRATION
During the fiscal year ended September 30, 2012, two customers, Merck & Co., Inc. and Amgen Inc., accounted for 14% and 10% of total revenues, respectively.

During the fiscal years ended September 30, 2010 and 2011, one customer accounted for 15% of total revenues each year.

Two different customers also accounted for 13% and 12% of total revenues for each of the fiscal years ended September 30, 2010 and 2011, respectively.

MODN's most significant customers in any given period generally vary from period to period due to the timing of implementation and related revenue recognition over those periods of larger projects.

SALES & MARKETING
MODN's sales and marketing team primarily targets large and mid-sized organizations worldwide through a direct sales force.

MODN has historically focused its sales efforts in the United States, but believes markets outside of the United States offer a significant opportunity for growth.

INTELLECTUAL PROPERTY
MODN relies upon a combination of copyright, trade secret, trademark and, to a lesser extent, patent laws, and also relies on contractual restrictions, such as confidentiality agreements and licenses, to establish and protect proprietary rights. As of December 31, 2012, MODN had two U.S. patent applications and no issued patents.

COMPETITION
Common horizontal applications that customers attempt to configure for this purpose in the life science and technology industries include large integrated systems vendors like SAP AG and Oracle Corporation.

MODN also encounters competition from small independent companies, which compete on the basis of price, unique product features or functions and custom developments.

Companies with large investments in ERP or CRM applications, which do not typically provide revenue management capabilities, may extend these horizontal applications with customizations or point solution applications in order to address one or a small set of revenue management sub processes or drivers.

Specific competitor offerings include

(1) Oracle
Magic Quadrant for Integrated Revenue and Customer Management

Oracle Communications Billing and Revenue Management

(2) SAP
Innovative Billing and Revenue Management from SAP Accelerates Order-to-Cash Processes

(3) McKesson

(4) JDA Pricing and Revenue Management

(5) Erricson, telecom

5% STOCKHOLDERS, PRE-IPO
Non-management
Accel-KKR Company LLC, 12%
Accel Partners, 12%
Meritech Capital Partners, 15%

USE OF PROCEEDS
MODN expects to net $72 million from its IPO.

Proceeds are allocated for working capital and general corporate purposes.

Disclaimer: This MODN IPO report is based on a reading and analysis of MODN's S-1 filing which can be found here and a separate, independent analysis by IPOdesktop.com. There are no unattributed direct quotes in this article.

Source: IPO Preview: Model N