It has been about a month since the last earnings report for Model N (MODN - Free Report) . Shares have added about 4.6% in that time frame, outperforming 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's Q1 Results Benefit from Expanding Customer Base
Model N, Inc delivered first-quarter fiscal 2019 non-GAAP earnings of 3 cents per share beating the Zacks Consensus Estimate by a couple of cents. However, the figure remained flat with the year-ago figure.
Revenues came in at $35.1 million, outpacing the Zacks Consensus Estimate of $34 million. The figure was also higher than management’s guided range of $34 million to $34.4 million. However, revenues declined 10.2% from the year-ago quarter.
Notably, Model N adopted ASC 606 from first-quarter fiscal 2019.
Management noted that the company is making steady progress in its transformation to a Software-as-a-Service (SaaS) based model.
Quarter in Detail
Model N reported first-quarter results under two business lines, namely, Subscription and Professional Services. Notably, the company previously reported under two domains —SaaS & Maintenance and License & Implementation.
Subscription revenues of almost $25.2 million grew 5.7% year over year. Notably, Model N is accelerating its transition of revenue management to cloud. In fact, the company’s majority of Cloud products run on Amazon Web Services (“AWS”) as part of its ongoing cloud optimization initiative.
This has enabled the company to aid almost 60% of its customers to go live on one or more of its cloud products.
Model N is enabling Nevro, Gilead, Allegro Microsystems, Edwards Life Sciences, Ipsen and Shionogi, among others in their digital transition.
Professional Services revenues declined 35.1% on a year-over-year basis to $9.9 million, primarily owing to “backlog burn off”.
Model N made significant efforts in its go to market strategy in order to improve growth. The company is leaving no stone unturned to enable customers’ transition to cloud from an on-premise infrastructure.
Additionally, Model N’s growth prospects in the life sciences & high technology are bright due to increasing redundancy of legacy systems. The company’s solutions provide higher Return on Investment (“ROI”) as well as plug gaps in the end-to-end revenue management process that legacy systems fail to do.
Non-GAAP gross profit declined 16.7% from the year ago quarter to $19.9 million. Non-GAAP margin (adjusted for deferred revenues) contracted 350 basis points (bps) from the year-ago-figure to 56.8%.
Adjusted EBITDA inched up 1.4% year over year to $2.9 million. Non-GAAP income from operations advanced 20.3% year over year to $2.5 million in the first quarter. Non-GAAP operating margin (as a percentage of revenues before deferred revenue adjustment) expanded 180 bps to 7%.
Balance Sheet & Cash Flow
Model N exited the reported quarter with cash and cash equivalent balance of $52.2 million compared with $56.7 million reported in the previous quarter. As of Dec 31, 2018, the company had total debt (including current portion) of $53.6 million compared with $53.7 million reported in the previous quarter.
Net cash used in operating activities came in at $4.3 million in fiscal year ended Dec 31, 2018 compared with approximately $9.7 million used in fiscal 2017.
The company expects fiscal second-quarter 2019 GAAP revenues to come in the range of $34.3 million to $34.7 million.
Non-GAAP loss is anticipated to be between (5 cents) and (3 cents) per share for the second quarter.
Adjusted EBITDA is anticipated to be in the range of $0.3 million to $0.7 million.
For fiscal 2019, management reiterated the guidance. Model N continues to expect GAAP revenues to be in the range of $138 million to $142 million.
Non-GAAP earnings are expected to be in the range of 5-17 cents per share.
Adjusted EBITDA is projected to be in the range of $8.5 million to $12.5 million.
How Have Estimates Been Moving Since Then?
Analysts were quiet during the last two month period as none of them issued any earnings estimate revisions. The consensus estimate has shifted -45.46% due to these changes.
At this time, Model N has an average Growth Score of C, though it is lagging a lot on the Momentum Score front with an F. Following the exact same course, 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 F. If you aren't focused on one strategy, this score is the one you should be interested in.
Model N has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.