1. In the Q3/25 CMG did delete the target for low dd rev. growth. In Q2/25 and before this was the target and written down in the reports. What is your oppinion on that?
2. Are you also confused that for adj EBITDA calc they exclude sbc. In my view this is critical because they increase adj. EBITDA margins this way. One metric they want to achieve is adj. EBITDA margin of 40% or more...
My understanding is that all the "old" incentives compensation plans PSU & RSU Plan; International Employees PSU & RSU Plan; Stock Option Plan; SARs Plan.will be gone soon.
Only Annual Incentive Plan, CMG Bonus Matrix as well as Corporate Bonus Matrix will be aplicable in the future, What do you think about that?
I'm looking foreward for your feedback and than you very much again.
These are great detailed comments Oleg, glad you know your stuff and understand the company. Here is my thinking and I would love to hear back what your thoughts.
#1) That is a great catch. Perhaps a good question to their IR team. I don't love seeing the changing metrics, but also I would say the CEO did emphasize the priority on higher quality (recurring) revenue, political climate, onboarding acquisitions, etc. I would say that the CEO speaks on FCF/share growth, which is great, but not actually seeing this grow, which is concerning. Personally, I would love to see 10% organic growth as a bar, but not sure how realistic that is. Currently though, I think the sentiment is that the biz will not grow much organically at all, which sets up the investment for low downside risk.
#2) They describe using "Adjusted metrics" only for supplemental purposes, and that is how I would think about them. Nothing wrong inherently and commonly used, but important to understand the underlying pieces underneath. SBC/Income =18% and SBC/Rev = 7%, seem to be in line, if not slightly conservative for a software biz. I would love for it to be lower and am tracking, but this is a high margin software biz so this seems in line to me.
#3) This is one of my major thesis points is the change of incentives to be focused on long term value creation and mirror closely how Constellation Software's culture is arranged. It can't be overemphasized at just how powerful aligning management's incentives with that of shareholders can be. At CS, in general senior executives are required to invest 75% of their after-tax bonuses into common shares, which are held in escrow for a minimum average period of four years, which has maximized LT value creation.
Hi PC, sorry for the late reply. I've had a bussy weeks lately...
#1) I will contact the IR team, because I would like to have a target for the overall rev. growth or a clear communication that the comp will not give a guidance. Pos is that the CEO is still talking about dd rev growth.
My long term plan to watch is the combined growth of BHV and Sharp.
Bluware should grow their recurring rev. at least at a 30 to 40% clip from a base of 6mil the next 2-3 years.
Sharp should grow their recurring rev. at least at a 40 to 50% clip from a base of 7mil the next 2-3 years.
This was the plan from management and also the reason for the two acquisitions.
#2) I would like to have an even more simple structure and more detailed informations regarding:
- Why 117% achievement CMG Bonus Matrix
- 147% achievement Corporate Bonus Matrix
And what are the targets for 2025 in before.
Do you know where to get those targets?
#3) I hope that sometime in the future they will adapt the CSU SBC structure more and more. Learn from the best so to say.
What are your assumtions für EBITDA for the next 5 to 10 years?
What two to three metrics are for you the most important?
Do you know the unit economics for CMG? Unfortunately I have no clue for that. --> Thus this is a bet on the jockey.
Oleg, thanks again for your insightful comments as you are no doubt a better investor than me with your level of detail.
#1) - Please let me know what the IR team relays back to you regarding the growth of the recent acquisitions. I am excited for how they will advance their technological expertise, but also would urge patience as to the pace of integration as this is a new playbook with a well established, yet older, company.
#2) - Perhaps this would be a good question as well to the IR team. For me, this is an area where I really trust the CSU influence on the incentive structure and that it will be well aligned with long term shareholders. Mark Miller became chair in 2022, so these new incentives should start to be fully put in place.
#3) - Mainly, I see downside protection from the stock's valuation. I don't think revenue growth of 10% with EBITDA margins of 40% is unrealistic at all. Also, watching rate of progress into carbon capture and storage space. Plus, tack on another acquisition or two by end of year.
Overall, I am finding some problems underneath the surface, but still a high quality software company with recurring revenue and Constellation influence. It is interesting to me that Constellation & spinoffs (higher quality) are being bid up, while CMG can't seem to find any traction. Will see how next year plays out though!
Thanks for referencing my investment memo in your post and linking to it! One thing I would tweak slightly for wording, is the reverse DCF model I shared is my estimate of what the market is pricing in, but it's not my valuation model. My actual valuation model for what I think the business is worth based on the unit economics is in my investment memo. Great post and good luck with this portfolio holding!
Thanks SW for the clarification, I will edit that to make that clearer. Enjoy all of your investment research. This drawdown has me somewhat confused, but the business should make for an interesting follow for years to come.
Dear Poor Charlie,
thank you for the write up!
I'm also a shareholder of CMG.
1. In the Q3/25 CMG did delete the target for low dd rev. growth. In Q2/25 and before this was the target and written down in the reports. What is your oppinion on that?
2. Are you also confused that for adj EBITDA calc they exclude sbc. In my view this is critical because they increase adj. EBITDA margins this way. One metric they want to achieve is adj. EBITDA margin of 40% or more...
3. Have you studied the management information circular (proxy statement from canada): https://www.sedarplus.ca/csa-party/viewInstance/resource.html?node=W2806&drmKey=d468f870042e2b36&drr=ss4fbef1a03d1a643c7d2c7e519738a4f59082681ddd9c1a5df1283f68266b50eda0534f369c891ed9184ae1e4accab34dux&id=0c11f8b7998bcd965161a37698dbeeb3b26bcb216aca3e80
My understanding is that all the "old" incentives compensation plans PSU & RSU Plan; International Employees PSU & RSU Plan; Stock Option Plan; SARs Plan.will be gone soon.
Only Annual Incentive Plan, CMG Bonus Matrix as well as Corporate Bonus Matrix will be aplicable in the future, What do you think about that?
I'm looking foreward for your feedback and than you very much again.
Kind Regards,
Oleg
These are great detailed comments Oleg, glad you know your stuff and understand the company. Here is my thinking and I would love to hear back what your thoughts.
#1) That is a great catch. Perhaps a good question to their IR team. I don't love seeing the changing metrics, but also I would say the CEO did emphasize the priority on higher quality (recurring) revenue, political climate, onboarding acquisitions, etc. I would say that the CEO speaks on FCF/share growth, which is great, but not actually seeing this grow, which is concerning. Personally, I would love to see 10% organic growth as a bar, but not sure how realistic that is. Currently though, I think the sentiment is that the biz will not grow much organically at all, which sets up the investment for low downside risk.
#2) They describe using "Adjusted metrics" only for supplemental purposes, and that is how I would think about them. Nothing wrong inherently and commonly used, but important to understand the underlying pieces underneath. SBC/Income =18% and SBC/Rev = 7%, seem to be in line, if not slightly conservative for a software biz. I would love for it to be lower and am tracking, but this is a high margin software biz so this seems in line to me.
#3) This is one of my major thesis points is the change of incentives to be focused on long term value creation and mirror closely how Constellation Software's culture is arranged. It can't be overemphasized at just how powerful aligning management's incentives with that of shareholders can be. At CS, in general senior executives are required to invest 75% of their after-tax bonuses into common shares, which are held in escrow for a minimum average period of four years, which has maximized LT value creation.
Cheers!
Hi PC, sorry for the late reply. I've had a bussy weeks lately...
#1) I will contact the IR team, because I would like to have a target for the overall rev. growth or a clear communication that the comp will not give a guidance. Pos is that the CEO is still talking about dd rev growth.
My long term plan to watch is the combined growth of BHV and Sharp.
Bluware should grow their recurring rev. at least at a 30 to 40% clip from a base of 6mil the next 2-3 years.
Sharp should grow their recurring rev. at least at a 40 to 50% clip from a base of 7mil the next 2-3 years.
This was the plan from management and also the reason for the two acquisitions.
#2) I would like to have an even more simple structure and more detailed informations regarding:
- Why 117% achievement CMG Bonus Matrix
- 147% achievement Corporate Bonus Matrix
And what are the targets for 2025 in before.
Do you know where to get those targets?
#3) I hope that sometime in the future they will adapt the CSU SBC structure more and more. Learn from the best so to say.
What are your assumtions für EBITDA for the next 5 to 10 years?
What two to three metrics are for you the most important?
Do you know the unit economics for CMG? Unfortunately I have no clue for that. --> Thus this is a bet on the jockey.
Here is my targer the two segments:
EBITDA R&P Seismic
2025 43,2 5,1
2026 47,2 7,3
2027 51,6 8,4
2028 56,4 9,6
2029 61,7 11,1
2030 67,4 12,8
2031 73,8 14,8
2032 80,7 17,2
2033 88,3 19,9
2034 96,7 23,0
2035 105,8 26,7
Kind Regards
Oleg
Oleg, thanks again for your insightful comments as you are no doubt a better investor than me with your level of detail.
#1) - Please let me know what the IR team relays back to you regarding the growth of the recent acquisitions. I am excited for how they will advance their technological expertise, but also would urge patience as to the pace of integration as this is a new playbook with a well established, yet older, company.
#2) - Perhaps this would be a good question as well to the IR team. For me, this is an area where I really trust the CSU influence on the incentive structure and that it will be well aligned with long term shareholders. Mark Miller became chair in 2022, so these new incentives should start to be fully put in place.
#3) - Mainly, I see downside protection from the stock's valuation. I don't think revenue growth of 10% with EBITDA margins of 40% is unrealistic at all. Also, watching rate of progress into carbon capture and storage space. Plus, tack on another acquisition or two by end of year.
Overall, I am finding some problems underneath the surface, but still a high quality software company with recurring revenue and Constellation influence. It is interesting to me that Constellation & spinoffs (higher quality) are being bid up, while CMG can't seem to find any traction. Will see how next year plays out though!
Thanks for referencing my investment memo in your post and linking to it! One thing I would tweak slightly for wording, is the reverse DCF model I shared is my estimate of what the market is pricing in, but it's not my valuation model. My actual valuation model for what I think the business is worth based on the unit economics is in my investment memo. Great post and good luck with this portfolio holding!
Thanks SW for the clarification, I will edit that to make that clearer. Enjoy all of your investment research. This drawdown has me somewhat confused, but the business should make for an interesting follow for years to come.