It has been about a month since the last earnings report for Model N . Shares have lost about 1% 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 Q3 Earnings Beat Estimates on Higher Revenues

Model N delivered impressive third-quarter fiscal 2023 results, with the bottom and the top line beating the respective Zacks Consensus Estimate. The San Mateo, CA-based company recorded higher revenues year over year, driven by solid momentum in the Subscription business induced by rising demand for cloud-based solutions and growth in Professional Services. SaaS ARR (annual recurring revenue) increased 28% year over year.

Net Income

The company recorded a net income of $2.8 million or 7 cents per share against a loss of $6.2 million or a loss of 17 cents per share in the prior-year quarter. The significant improvement in earnings was primarily attributable to top-line growth.

Non-GAAP net income rose to $13.6 million or 35 cents per share from $8.5 million or 23 cents per share in the prior-year quarter. The bottom line comprehensively beat the Zacks Consensus Estimate of 24 cents.

Revenues

Quarterly revenues stood at $63.7 million, up from $56.2 million reported in the prior-year quarter. The 13.3% year-over-year improvement can be attributed to healthy net sales growth in all the business verticals. The top line beat the Zacks Consensus Estimate of $62 million.

Revenues from Subscriptions increased to $45.8 million, up from $40.6 million in the year-ago quarter. Increase in SaaS revenues, induced by the growing adoption of the company’s cloud solutions, supported net sales in this segment. However, this positive trend was partially reversed by declining maintenance revenues. SaaS net dollar retention increased to 126% from 123% year over year. Professional Services revenues were $17.9 million, up from $15.6 million a year ago owing to high utilization rates and strong demand for mission-critical, high-ROI solutions.

Other Details

Total operating expenses reported in the quarter were relatively flat at $33.5 million. Non-GAAP gross margin was 61.5%, almost in line with the prior-year quarter’s figure.

Adjusted EBITDA was $13.5 million, up from $10 million in the prior-year quarter. Non-GAAP operating income was $13.3 million, up from $9.8 million.

Cash Flow & Liquidity

In the first nine months of fiscal 2023, Model N generated $23.5 million from operating activities compared with $17.3 million of cash generation in the year-ago period. As of Jun 30, 2023, the company had $299.6 million in cash and cash equivalents with $279.9 million of long-term debt.

Outlook

For fourth-quarter fiscal 2023, the company expects total revenues between $61.6 million and $62.6 million. Subscription revenues are projected in the range of $45.6-$46.1 million. Adjusted EBITDA is expected to be between $11 million and $12 million. Non-GAAP operating income is expected within $10.8-$11.8 million, while non-GAAP earnings per share are estimated in the band of 28-31 cents.

For fiscal 2023, owing to solid quarterly performance, management raised total revenue expectations in the band of $247.1-$248.1 million, up from $244-$246 million projected earlier. Subscription revenues are estimated in the range of $180.5-$181 million. Adjusted EBITDA is projected within $42.9-$43.9 million, up from $39-$41 million expected earlier. Non-GAAP operating income is expected within $41.8-$42.8 million, up from $37-$39 million, while non-GAAP earnings are expected to be $1.08-$1.10 per share, up from prior projections of 94-99 cents.

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 316.67% 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 lowest 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 #1 (Strong Buy). We expect an above average return from the stock in the next few months.

Performance of an Industry Player

Model N belongs to the Zacks Internet - Software industry. Another stock from the same industry, Paycom Software (PAYC Quick QuotePAYC - Free Report) , has gained 2.2% over the past month. More than a month has passed since the company reported results for the quarter ended June 2023.

Paycom reported revenues of $401.14 million in the last reported quarter, representing a year-over-year change of +26.6%. EPS of $1.62 for the same period compares with $1.26 a year ago.

For the current quarter, Paycom is expected to post earnings of $1.62 per share, indicating a change of +27.6% from the year-ago quarter. The Zacks Consensus Estimate has changed -0.1% over the last 30 days.

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