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Why Is Model N (MODN) Up 0.5% Since Last Earnings Report?

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A month has gone by since the last earnings report for Model N (MODN - Free Report) . Shares have added about 0.5% in that time frame, underperforming the S&P 500.

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

Model N Q3 Earnings and Revenues Surpass Estimates

Model N, Inc. reported third-quarter fiscal 2020 non-GAAP earnings of 15 cents per share, which surpassed the Zacks Consensus Estimate by 150%. The bottom line also improved 150% year over year.

Revenues were $41.3 million, which beat the Zacks Consensus Estimate by 4.4% and increased 19% year over year. The figure was also higher than the guided range of $39.4-$39.8 million.

Robust adoption of the company’s revenue cloud platform drove the top line. Notably, a leading medtech company selected Model N’s Global Tender Management solution to accelerate its tendering process in 14 countries.

Moreover, the company is making steady progress in its transformation to a Software-as-a-Service (SaaS) based model, which is driving top-line growth.

Quarter in Detail

Model N reports earnings under two business lines — Subscription and Professional Services.

In third-quarter fiscal 2020, Subscription revenues were $29.3 million, up 10% year over year. This was driven by strong go-to-market execution and new logo additions.

Professional Services revenues increased 47.6% on a year-over-year basis to $11.9 million.

Operating Details

Non-GAAP gross margin expanded 560 basis points (bps) from the year-ago-figure to 64%.

Adjusted EBITDA during the quarter was $6.4 million, up 93.5%year over year.

Non-GAAP operating income was $6.2 million, up 106.5% year over year. Non-GAAP operating margin (as a percentage of total revenues) expanded 640 bps to 15%.

Balance Sheet & Cash Flow

As of Jun 30, 2020, Model N had cash and cash equivalents of $192.4 million compared with $61.3 million as of Mar 31, 2020.

As of Jun 30, 2020, the company had total debt (including current portion) of $112.2 million, compared with $39.4 million reported as of Mar 31, 2020.

Net cash flow from operating activities was $7.2 million for the first nine month-period ended Jun 30, 2020, compared with $4.8 million in the prior-year period. Free cash flow was reported at $7 million for the nine month-period of fiscal year 2020, compared with free cash flow of $4.6 million in the prior-year period.

Guidance

The company anticipates fiscal fourth-quarter 2020 total revenues between $40.1 million and $40.5 million.

Subscription revenues are projected in the range of $29-$29.4 million.

Non-GAAP net income is anticipated in the range of 7-9 cents per share.

Adjusted EBITDA is expected between $4.6 million and $5 million.

For fiscal 2020, Model N now expects total revenues in the range of $159.7-$160.1 million compared with prior guided range of $154-$156 million.

Fiscal 2020 subscription revenues are now forecast in the range of $115.5-$115.9 million compared with $114-$115 million.

Non-GAAP earnings are now expected in the range of 41-43 cents per share compared with the prior guided range of 28-31 cents.

Adjusted EBITDA is now projected in the band of $19-19.4 million, compared with the prior guided range of $14-$15 million.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed an upward trend in estimates review. The consensus estimate has shifted 55% due to these changes.

VGM Scores

Currently, Model N has a great Growth Score of A, a grade with the same score on the momentum front. 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 C. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been trending upward for the stock, and the magnitude of these revisions looks promising. It comes with little surprise Model N has a Zacks Rank #2 (Buy). We expect an above average return from the stock in the next few months.


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