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Model N (MODN) Up 0.4% Since Last Earnings Report: Can It Continue?

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It has been about a month since the last earnings report for Model N (MODN - Free Report) . Shares have added about 0.4% 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 the most recent earnings report in order to get a better handle on the important drivers.

Model N Beats on Q3 Earnings & Revenues, Ups 2021 View

Model N reported third-quarter fiscal 2021 non-GAAP earnings of 16 cents per share, which surpassed the Zacks Consensus Estimate by 700% and increased 6.7% year over year.

Revenues were $51.03 million, which beat the Zacks Consensus Estimate by 4.74% and increased 24% year over year.

Robust adoption of the company’s revenue management solutions drove fiscal third-quarter top line. Model N’s Revenue Cloud aids organizations with enhanced efficiency, visibility and transparency in reporting.

Business Services, which were acquired from Deloitte, contributed $6.0 million in total revenues to the third quarter of fiscal 2021 results.

Quarter Details & Business Highlights

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

In third-quarter fiscal 2021, Subscription revenues (72.3% of total fiscal third-quarter revenues) were $36.9 million, up 25.8% year over year.

Professional Services revenues (27.7%) increased 18.6% on a year-over-year basis to $14.1 million.

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

In the fiscal third quarter, Model N announced the availability of a new Deal Management solution as part of the Model N Revenue Cloud for Life Sciences. Deal Management connects field sales professionals with operations teams to support the execution and management of the order-to-cash process.

On May 18, 2021, Model N rolled out its Life Sciences Spring 2021 release, which includes functionalities to enhance pricing accuracy and timeliness. The new features will assist healthcare providers to smoothly align with their various hospital group affiliations.

On the same day, Model N rolled out its High-Tech Spring 2021 release. which will aid clients with functionalities like enhanced pricing decisions by deploying innovative technologies like machine learning (ML) and artificial intelligence (AI).

Operating Details

Non-GAAP gross margin contracted 400 basis points (bps) from the year-ago quarter’s figure to 60%.

Non-GAAP subscription gross margin contracted 600 bps from the prior-year quarter’s levels to 68%. Non-GAAP Professional services gross margin expanded 80 bps from the year-ago quarter’s figure to 40.6%.

Adjusted EBITDA during the quarter was $7.4 million, up 16% year over year.

Non-GAAP operating income was $7.16 million, up 15.7% year over year. Non-GAAP operating margin (as a percentage of total revenues) contracted 100 bps to 14%.

Balance Sheet

As of Jun 30, 2021, Model N had cash and cash equivalents of $153.8 million compared with $148.3 million as of Mar 31, 2021.

As of Jun 30, 2021, the company had long-term debt of $121.7 million compared with $119.2 million reported as of Mar 31, 2021.

In the quarter under review, net cash provided by operating activities was $9.4 million compared with $3.4 million of net cash provided by operating activities in the prior quarter.

Free cash flow was $6.4 million for the fiscal third quarter compared with free cash flow of $2.9 million in the previous quarter.

Guidance in Detail

The company anticipates fiscal fourth-quarter 2021 total revenues between $50.5 million and $51 million. The Zacks Consensus Estimate for revenues is pegged at $49.66 million.

Subscription revenues are projected in the range of $37-$37.5 million. Adjusted EBITDA is expected between $5 million and $5.5 million. Non-GAAP income from operations is expected in the range of $4.8-$5.3 million.

Non-GAAP earnings per share are anticipated in the range of 9-11 cents per share.

For fiscal 2021, Model N raised its guidance. The company now expects total revenues in the range of $192.5-$193 million compared with the previous guidance of $189-$190 million.

Non-GAAP earnings are expected to be 45-47 cents per share versus the earlier guidance of 21-24 cents per share.

Fiscal 2021 subscription revenues are forecast in the range of $141.3-$141.8 million compared with the previous guidance of $139-$140 million.

Non-GAAP operating income is expected in the range of $22.3-$22.8 million compared with the earlier projected range of $13.7-$14.7 million. Adjusted EBITDA is now projected in the band of $23.1-23.6 million compared with the previous guidance of $14.5-15.5 million.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed an upward trend in fresh estimates. The consensus estimate has shifted 30.3% due to these changes.

VGM Scores

At this time, Model N has a subpar Growth Score of D, a grade with the same score on the momentum front. Following the exact same course, the stock was allocated a grade of D on the value side, putting it in the bottom 40% 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

Estimates have been trending upward for the stock, and the magnitude of these revisions looks promising. Notably, Model N has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.


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