Copperleaf Technologies Inc CPLFF

RBC

[retiredcf]

Their upside scenario target is $13.00. GLTA

August 4, 2023

Copperleaf Technologies Inc Q2/23 Results: Set up for success

Outperform

TSX: CPLF; CAD 6.55

Price Target CAD 8.00

Our view: Q2 subscription revenue growth of 23% Y/Y and ARR growth of 26% Y/Y remained strong, although revenue was down as a result of slower services and perpetual license revenue, which we view as more volatile and less relevant than ARR. Copperleaf is continuing to execute in a challenged market environment, but we believe it now has the operational framework and sales resources needed to execute on continued growth despite client resource constraints. Maintain Outperform.

Key points:

• Revenue/EBITDA miss. Revenue decreased 10% Y/Y to $18.5MM, below RBC at $19.3MM and consensus at $20.3MM. Relative to RBC, the miss was driven by lower professional services revenue ($6.7MM vs. RBC at $7.5MM) and lower perpetual license revenue ($0.1MM vs. RBC at $0.3MM), which we view as less relevant as compared to subscription revenue. Perpetual license revenue was down 97% Y/Y given a tough comp of large perpetual license deals signed in Q2/22 ($4.0MM).

• Subscription revenue and ARR growth remained strong. Copperleaf grew subscription revenue by 23% Y/Y in Q2 to $11.7MM, above RBC at $11.6MM and below consensus at $12.0MM. ARR, which should be the primary metric investors focus on, was $51.2MM, in-line with consensus and above RBC at $49.3MM. ARR grew 26% Y/Y and 4% Q/Q, compared to 29% Y/Y growth in Q1/FY23 and 26% Y/Y growth in Q2/FY22.

• SAP partnership now up and running. Copperleaf's SAP partnership is now operational and live on the SAP store. Copperleaf’s local teams in each of its regions are engaged locally with their SAP counterparts, and are already planning joint pursuits on targeted accounts, with a few joint proposals already submitted to clients. Copperleaf noted that its pipeline is starting to expand as a result, and it is leveraging SAP’s broader brand recognition and global footprint.

• Demand environment remains tough. Copperleaf noted that the demand environment remains difficult, with trends seen over the past year continuing today. While Copperleaf feels that it is now executing better under more difficult conditions, it noted that delayed RFPs, enhanced client signup requirements, and client resource constraints are continuing to dampen the near-term growth potential. In the longer term, Copperleaf remains confident that secular tailwinds of ESG disclosure requirements and increased regulatory scrutiny will drive significant long-term revenue growth (we forecast a 28% FY22-24 ARR CAGR).

• Maintaining Outperform. Our Outperform thesis reflects our view that Copperleaf’s valuation doesn’t reflect a sticky customer base, a large and unpenetrated market opportunity, and attractive unit economics and growth profile. We believe that CPLF should trade closer to peers as the company grows in scale, reduces quarterly uncertainty and volatility, and announces new verticals wins. Our price target is based on 5.0x CY24E EV/Sales, compared to Canadian SaaS peers at 4.5x and data analytics, planning, and optimization peers at 7.5x.