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Model N (MODN) Earnings and Revenues Beat Estimates in Q4

Zacks Equity Research

Model N, Inc. MODN reported fourth-quarter fiscal 2019 non-GAAP earnings of 12 cents per share, which surpassed the Zacks Consensus Estimate of 8 cents. The figure also improved from 6 cents reported in the year-ago quarter.

Revenues came in at $36.6 million, marginally ahead of Zacks Consensus Estimate of $36 million. The figure was also higher than management’s guided range of $35.5 million to $35.9 million. However, the top line were flat on a year-over-year basis.

Notably, Model N had adopted ASC 606 from first-quarter fiscal 2019.

The company is making steady progress in its transformation to a Software-as-a-Service (SaaS) based model.

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Coming to price performance, shares of Model N have returned 122.5% year to date, outperforming the industry’s rally of 13.8%.

Quarter in Detail

Model N has been reporting earnings results under two business lines — Subscription and Professional Services — from first-quarter fiscal 2019. Notably, the company previously reported under two domains — SaaS & Maintenance and License & Implementation.

In fourth-quarter fiscal 2019, Subscription revenues of almost $27.4 million improved 7.5% year over year.

Professional Services revenues declined 18.2% on a year-over-year basis to $9.2 million, primarily owing to “legacy on-premise implementations.”

Operating Details

Non-GAAP gross margin (adjusted for deferred revenues) contracted 110 bps from the year-ago-figure to 61.7%. Non-GAAP subscription gross margin during the reported quarter came in at 54.8% compared with 46.9% reported in the year-ago quarter.

Adjusted EBITDA during the came in at $5.1 million compared with $2.5 million reported in the year-ago quarter.

Non-GAAP operating margin (as a percentage of revenues before deferred revenue adjustment) expanded 770 bps to 13.2%.

Balance Sheet & Cash Flow

Model N exited the fourth quarter with cash and cash equivalents of $60.8 million compared with $58.5 million reported in the previous quarter.

As of Sep 30, 2019, the company had total debt (including current portion) of almost $44.3 million, up from $49.1 million reported in the previous quarter.

For 12 months ended Sep 30, 2019, net cash generated by operating activities came in at $10.5 million.

Guidance

The company anticipates fiscal first-quarter 2020 GAAP revenues to come in between $37 million and $37.4 million. Subscription for the first quarter is anticipated in the range of $27.6-$28 million. The Zacks Consensus Estimate for revenues is pegged at $36.6 million.

Non-GAAP net income is anticipated in the range of 5 cents to 7 cents per share for the first quarter. The Zacks Consensus Estimate for earnings is pegged at earnings of 6 cents.

Adjusted EBITDA is anticipated in the range of $3.2 million to $3.6 million.

For fiscal 2020, Model N expects GAAP revenues to be in the range of $152 million to $155 million. The Zacks Consensus Estimate for revenues is pegged at $152.8 million.

Subscription for the fiscal 2020 is projected in the range of $113-$115 million.

Non-GAAP earnings are expected in the range of 22-31 cents per share. The Zacks Consensus Estimate for earnings is currently pegged at 26 cents.

Adjusted EBITDA is projected in the range of $12 million to $15 million.

Zacks Rank & Key Picks

Currently, Model N carries a Zacks Rank #3 (Hold).

Some better-ranked stocks in the broader technology sector are Universal Display Corporation OLED, Fortinet, Inc. FTNT and Taiwan Semiconductor Manufacturing Company Ltd. TSM. Each of the stocks flaunt a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Long-term earnings growth rate for Universal Display, Fortinet and Taiwan Semiconductor is currently pegged at 30%, 14% and 10.4%, respectively.

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