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Model N (MODN) Beats Q1 Earnings Estimates on Higher Revenues

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Model N, Inc. (MODN - Free Report) reported strong first-quarter fiscal 2023 results, with both the bottom and top lines beating the respective Zacks Consensus Estimate driven by the successful transition to a SAAS platform as part of its transformation to a cloud company. With a healthy contribution from all of its growth levers, the company expects this momentum to continue in the impending quarters. 

Quarter Details

The company recorded a GAAP loss of $4.1 million or a loss of 11 cents per share compared with a loss of $6.3 million or a loss of 17 cents per share in the prior-year quarter. The narrower loss in the quarter, despite higher operating expenses, was primarily attributable to top-line growth. Non-GAAP earnings were 23 cents per share, which surpassed the Zacks Consensus Estimate by a penny.

Model N, Inc. Price, Consensus and EPS Surprise

Model N, Inc. Price, Consensus and EPS Surprise

Model N, Inc. price-consensus-eps-surprise-chart | Model N, Inc. Quote

Revenues improved to $59.2 million from $51.5 million and surpassed the consensus estimate of $58 million as the company successfully transitioned its customers onto its SaaS platform. Model N strengthened its foothold in the quarter by closing a significant SaaS transition, signed multiple new logos and renewals and continued to witness solid contributions from subscription booking across its portfolio.

Operating Details

Subscription revenues (74.7% of total quarterly revenues) were $44.2 million, up 16% year over year, while Professional Services revenues (25.3%) increased 10.4% to $14.9 million.

Non-GAAP gross margin expanded 70 basis points (bps) from the year-ago quarter’s figure to 61%. While the non-GAAP subscription gross margin was 69.3%, that for professional services was 36.2%. Adjusted EBITDA was $9.1 million, up 26.4% year over year. Non-GAAP operating income was $8.9 million, up 27.1%.

Cash Flow & Liquidity

In the first three months of fiscal 2023, Model N utilized $18.3 million for operating activities compared with $9.7 million of cash utilization a year ago. As of Dec 31, 2022, the company had $175.2 million in cash and cash equivalents with $169.4 million of long-term debt.


The company anticipates total revenues for second-quarter fiscal 2023 between $59 million and $60 million. Subscription revenues are projected in the range of $43.5-$44 million. Adjusted EBITDA is expected to be between $6 million and $7 million. Non-GAAP operating income is expected within $5.8-$6.8 million, while non-GAAP earnings per share are anticipated in the band of 15-18 cents per share.

For fiscal 2023, Model N raised total revenue expectations in the band of $242-$245 million, up from $241-$244 million projected earlier. Subscription revenues are estimated in the range of $179-$181 million, up from prior expectations of $178-$180 million. Adjusted EBITDA is projected within $37-$40 million. Non-GAAP operating income is expected within $36-$39 million. Non-GAAP earnings are expected to be 90-97 cents per share.

Zacks Rank & Stocks to Consider

Model N currently has a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Arista Networks, Inc. (ANET - Free Report) , carrying a Zacks Rank #2 (Buy), is likely to benefit from the strong momentum and diversification across its top verticals and product lines. The company has a software-driven, data-centric approach to help customers build their cloud architecture and enhance their cloud experience. Arista has a long-term earnings growth expectation of 17.5% and delivered an earnings surprise of 12.7%, on average, in the trailing four quarters.

It holds a leadership position in 100-gigabit Ethernet switching share in port for the high-speed datacenter segment. Arista is increasingly gaining market traction in 200- and 400-gig high-performance switching products and remains well-positioned for healthy growth in data-driven cloud networking business with proactive platforms and predictive operations.

Motorola Solutions, Inc. (MSI - Free Report) carries a Zacks Rank #2. It has a long-term earnings growth expectation of 9% and delivered an earnings surprise of 6.6%, on average, in the trailing four quarters.

As a leading provider of mission-critical communication products and services worldwide, Motorola has ensured a steady revenue stream from this niche market. The communications equipment maker intends to boost its position in the public safety domain by entering into strategic alliances with other players in the ecosystem.

Comtech Telecommunications Corp. (CMTL - Free Report) , carrying a Zacks Rank #2, is another key pick. Headquartered in Melville, NY, the company is a leading global provider of next-generation 911 emergency systems and secure wireless communications technologies to commercial and government customers.    

Comtech’s key satellite earth station modems incorporate forward error correction and bandwidth compression technologies, which enable its customers to optimize their satellite networks by either reducing their satellite transponder lease costs or increasing data throughput. It holds leadership positions in the market for high-throughput modems used in cellular backhaul.

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