Topicus.Com Inc V.TOI

RBC

[retiredcf]

At this point, they don't actually cover TOI (hence the not-rated). GLTA

February 7, 2023

Constellation Software Inc. 
Read-through from Topicus’s Q4 results

TSX: CSU | CAD 2,370.01 | Outperform | Price Target CAD 2,600.00

Sentiment: Neutral

Topicus (TSX-V: TOI, not rated) reported Q4 revenue above our estimates on stronger organic growth. Constellation consolidates 100% of Topicus’s financials into its results. Consensus estimates are not available for Topicus, so we compare Topicus’s actual results against the estimates for Topicus in our Constellation model. Topicus’s Q4 revenue was €264MM (27% Y/Y), above our estimate of €247MM. The upside reflects organic growth at 6% Y/Y Q4, up from +3% Q3 and above the 3% in our model. On higher revenue, Topicus’s Q4 adj. EBITDA of €71MM (7% Y/Y, 15% Q/Q) was above our estimate of €67MM. Adj. EBITDA margins were flat Q/Q at 27.0% and in line with our estimate for 27.0%, though declined 500 bps Y/Y on higher staffing, travel, advertising, and contingent consideration.

Q4 M&A better than our M&A tracker, Q1 off to a strong start. Topicus deployed €12.7MM capital on acquisitions in Q4 (€10.5MM cash, €2.9MM deferred payments, net of €0.6MM acquired cash). Q4 M&A was above the €4MM in our M&A tracker, though below the €45MM in our model. Following Q4, Topicus has deployed €26MM on acquisitions in Q1 to date, which compares against €40MM in our Topicus model for all of Q1.

Neutral read-through to Constellation. The 300bps Q/Q improvement in Topicus’s organic growth is incrementally positive for Constellation; however, Topicus only equates to 14% of our Q4 revenue estimate for Constellation and Constellation’s organic growth tends to be more stable quarter to quarter than Topicus. Additionally, Topicus’s margins were flat Q/Q, which is consistent with our estimate for Constellation’s margins to be flat Q/Q at 26.9% after adjusting for Allscripts and a $30MM increase in contingent consideration in Q3.