Software Firm’s Q2 FY23 Results Reflect Healthy Growth

Source: Amr Ezzat   (11/28/22)

This company serving the oil and gas industry grew revenue 14% over the last 12 months and is expected to continue the trend, noted an Echelon Capital Markets report.

Computer Modelling Group Ltd. (CMG:TSX; CMDXF:OTC), which develops and licenses simulation software for the oil and gas industry, posted Q2 FY23 results that beat Echelon Capital Markets and the Street’s projections, reported analyst Amr Ezzat in a November 10, 2022 research note.

After the Canadian tech firm released its quarterly results, Echelon increased some of its FY23 and FY24 estimates on the company to reflect the stronger growth in the annuity/maintenance (A&M) software licenses segment.

These changes boosted Echelon’s target price on Computer Modelling to CA$6.25 per share, up from CA$5.50. In comparison, the software firm’s current price is about CA$5.35 per share.

“The high-quality beat is characterized by recurring revenues growing at 14% year over year (YOY),” Echelon’s Ezzat highlighted. “The strong pick-up in growth is not a one-off.”

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Ezzat pointed out that two factors should help Computer Modelling maintain its current growth momentum. One is new CEO Pramod Jain, likely requiring a more concerted effort going forward to increase revenues organically and organically.

The second is “the strong macroeconomic backdrop with higher oil prices.” Echelon rates the software firm Buy.

“The high-quality beat is characterized by recurring revenues growing at 14% year over year (YOY),” Echelon’s Ezzat highlighted. “The strong pick-up in growth is not a one-off.”

Proof of Growth

Computer Modelling’s A&M sales in all geographic locales accounted for about 80% of its total sales during Q2 FY23. At US$14.8 million (US$14.8M), A&M sales exceeded Echelon’s US$13.8M forecast and were 12% higher YOY. Standout regions were the U.S., where sales during the quarter increased by 20%, and the Eastern Hemisphere, where they grew by 15%.

Computer Modelling’s total Q2 FY23 sales were US$18.1M, a 13.4% increase over last year’s. The amount also surpassed Echelon and the Street’s forecasts of US$16.4M and US$16.6M, respectively.

Perpetual license sales amounted to $0.8M, better than Echelon’s US$0.4M estimate but worse YOY, by 7.8%. The professional services segment fared better, with US$2.5M in sales, up 32.9% YOY and better than Echelon’s US$2.2M projection.

Deferred revenues increased 13.8% YOY to US$24.2M and 4.1% quarter over quarter.

Adjusted Q2 FY23 EBITDA was US$8.8M (for a 48.8% margin), beating Echelon and the Street’s estimates of US$7M and US$7.3M, respectively. EBITDA included US$2.3M in charges for restructuring, but most of those changes should be done now, Ezzat noted. Total operating expenses were US$10.2M, 5.5% higher than last year’s US$9.7M.

Earnings per share were US$0.05, between Echelon’s US$0.04 and consensus’ US$0.06 forecasts.

Free cash flow was US$5.7M, up from Q2 FY22’s US$2.1M. The last 12 months of free cash flow amounted to US$25.9M, which exceeds the company’s US$16.1M dividend outlay.

At Q2 FY23’s end, Computer Modelling had US$56.9M in cash and no debt.

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Disclosures For Echelon Wealth Partners Inc., Computer Modelling Group, November 10, 2022

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ANALYST CERTIFICATION

Company: Computer Modelling Group| CMG:TSX

I, Amr Ezzat, hereby certify that the views expressed in this report accurately reflect my personal views about the subject securities or issuers. I also certify that I have not, am not, and will not receive, directly or indirectly, compensation in exchange for expressing the specific recommendations or views in this report.