A month has gone by since the last earnings report for Model N (MODN Quick QuoteMODN - Free Report) . Shares have lost about 0.3% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Model N due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important catalysts.

Model N Q4 Earnings and Revenues Surpass Estimates

Model N reported fourth-quarter fiscal 2019 non-GAAP earnings of 12 cents per share, which surpassed the Zacks Consensus Estimate of 8 cents. The figure also improved from 6 cents reported in the year-ago quarter.

Revenues came in at $36.6 million, marginally ahead of Zacks Consensus Estimate of $36 million. The figure was also higher than management’s guided range of $35.5 million to $35.9 million. However, the top line was flat on a year-over-year basis.

Notably, Model N had adopted ASC 606 from first-quarter fiscal 2019.

The company is making steady progress in its transformation to a Software-as-a-Service (SaaS) based model.

Quarter in Detail

Model N has been reporting earnings results under two business lines — Subscription and Professional Services.

In fourth-quarter fiscal 2019, Subscription revenues of almost $27.4 million improved 7.5% year over year.

Professional Services revenues declined 18.2% on a year-over-year basis to $9.2 million, primarily owing to “legacy on-premise implementations.”

Operating Details

Non-GAAP gross margin (adjusted for deferred revenues) contracted 110 bps from the year-ago-figure to 61.7%. Non-GAAP subscription gross margin during the reported quarter came in at 54.8% compared with 46.9% reported in the year-ago quarter.

Adjusted EBITDA during the came in at $5.1 million compared with $2.5 million reported in the year-ago quarter.

Non-GAAP operating margin (as a percentage of revenues before deferred revenue adjustment) expanded 770 bps to 13.2%.

Balance Sheet & Cash Flow

Model N exited the fourth quarter with cash and cash equivalents of $60.8 million compared with $58.5 million reported in the previous quarter.

As of Sep 30, 2019, the company had total debt (including current portion) of almost $44.3 million, compared with $49.1 million reported in the previous quarter.

For 12 months ended Sep 30, 2019, net cash generated by operating activities came in at $10.5 million.

Guidance

The company anticipates fiscal first-quarter 2020 GAAP revenues to come in between $37 million and $37.4 million. Subscription for the first quarter is anticipated in the range of $27.6-$28 million.

Non-GAAP net income is anticipated in the range of 5 cents to 7 cents per share for the first quarter. Adjusted EBITDA is anticipated in the range of $3.2 million to $3.6 million.

For fiscal 2020, Model N expects GAAP revenues to be in the range of $152 million to $155 million. Subscription for the fiscal 2020 is projected in the range of $113-$115 million.

Non-GAAP earnings are expected in the range of 22-31 cents per share. Adjusted EBITDA is projected in the range of $12 million to $15 million.

How Have Estimates Been Moving Since Then?

Fresh estimates followed an upward path over the past two months. The consensus estimate has shifted -120% due to these changes.

VGM Scores

At this time, Model N has a great Growth Score of A, though it is lagging a lot on the Momentum Score front with a C. However, the stock was allocated a grade of F on the value side, putting it in the bottom 20% quintile for this investment strategy.

Overall, the stock has an aggregate VGM Score of D. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Model N has a Zacks Rank #5 (Strong Sell). We expect a below average return from the stock in the next few months.