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Why Is Model N (MODN) Down 10% Since Last Earnings Report?

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It has been about a month since the last earnings report for Model N (MODN - Free Report) . Shares have lost about 10% 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 its most recent earnings report in order to get a better handle on the important catalysts.

Model N Outpaces Q3 Earnings and Revenue Estimates

Model N, Inc. reported strong third-quarter fiscal 2022 results with both the bottom line and top-line beating the respective Zacks Consensus Estimate driven by the successful transition to a SAAS platform as part of its transformation to a cloud company.

Quarter Details

Non-GAAP earnings were 23 cents per share, which surpassed the Zacks Consensus Estimate of 15 cents. The bottom line increased 43.8% from 16 cents reported in the prior-year quarter on top-line growth.

Revenues were $56.1 million, which beat the Zacks Consensus Estimate of $55 million and increased 10.1% from $51 million reported in the prior-year quarter as the company successfully transitioned its customers onto its SaaS platform.
Model N strengthened its foothold in the quarter by closing three large SaaS transitions and continued to witness strong contributions from subscription booking across its portfolio.

Subscription revenues (72.2% of total revenues) were $ 40.6 million, up 10% year over year from $36.9 million.

Professional Services revenues (27.8%) increased 10.5% to $15.6 million from $14.1 million reported in the prior-year quarter.

Operating Details

Non-GAAP gross margin expanded 150 basis points (bps) from the year-ago quarter’s figure to 61.7%.

Non-GAAP subscription gross margin increased 80 bps from the prior-year quarter’s levels to 68.5%. Non-GAAP professional services gross margin expanded 340 bps to 44%.

Adjusted EBITDA was $10 million, up 36.2% year over year. Non-GAAP operating income was $9.8 million, up 36.8%.

Cash Flow & Liquidity

For the first nine months of fiscal 2022, Model N generated $17.3 million from operating activities compared with $9.7 million in the prior-year period. As of Jun 30, 2022, the company had $184.5 million in cash and cash equivalents with $132.5 million of long-term debt.

Guidance

The company anticipates fourth-quarter fiscal 2022 total revenues between $56 million and $56.5 million. Subscription revenues are projected in the range of $41.5-$42 million. Adjusted EBITDA is expected to be between $8 million and $8.5 million. Non-GAAP operating income is expected in the range of $7.7-$8.2 million. Non-GAAP earnings per share are anticipated in the band of 18-20 cents per share.

For fiscal 2022, Model N expects total revenues in the band of $217-$217.5 million. Subscription revenues are estimated in the range of $158.4-$158.9 million. Adjusted EBITDA is projected within $31.9-$32.4 million. Non-GAAP operating income is expected in the range of $30.9-$31.4 million. Non-GAAP earnings are expected to be 70-72 cents per share.

How Have Estimates Been Moving Since Then?

It turns out, estimates revision have trended upward during the past month.

The consensus estimate has shifted 50% due to these changes.

VGM Scores

At this time, Model N has a strong Growth Score of A, though it is lagging a lot on the Momentum Score front with a D. 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 B. 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.

Performance of an Industry Player

Model N is part of the Zacks Internet - Software industry. Over the past month, DoubleVerify Holdings (DV - Free Report) , a stock from the same industry, has gained 1.5%. The company reported its results for the quarter ended June 2022 more than a month ago.

DoubleVerify reported revenues of $109.81 million in the last reported quarter, representing a year-over-year change of +43.5%. EPS of $0.06 for the same period compares with $0.02 a year ago.

DoubleVerify is expected to post earnings of $0.05 per share for the current quarter, representing no change from the year-ago quarter. Over the last 30 days, the Zacks Consensus Estimate remained unchanged.

The overall direction and magnitude of estimate revisions translate into a Zacks Rank #3 (Hold) for DoubleVerify. Also, the stock has a VGM Score of D.


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