Whislt that does make sense, I actually think that is why the second half is stronger. I've just updated my old calcs to actually check the profit splits between the halves for each of the last 4 years. EVERY YEAR has seen the second half (June half) of the year having higher profit.
From FY11 through to FY14, the second half has generally been 60% of the full year profit (at a normalised EBITDA basis). At a Profit before tax level the second half has been even higher (because the option expensing happens in the first half.
I've made some broad assumptions around the level of R&D claim they will make in the first half for this year (based on their past history). I've also made an estimate of what I think they will expense for the options (the expense isn't cash so I normalise it out, and I've normally estimated it within about 10-15% in the past). I've also made an assumption about the depreciation and amortisation, which is a bit harder to estimate.
So the GOOD NEWS is I think normalised EBITDA will be a bit over $1m for the half year, and the full year EBITDA is likely to be greater than $2m (assuming both halves are the same). The December 2013 half had normalised EBITDA of about $500k, so the EBITDA has doubled since last year. We are now starting to see the margins approaching what we should be expecting for scale, etc. for a tech software company. Ongoing investment in R&D and product development still remains high as well.
Other reasons why they may say the second half won't be as strong:
- they have assumed no R&D claim so are being conservative
- they plan on significantly investing in sales & marketing for PaySchool or others, etc.
My view is that 2nd half (June half) is stronger because schools switch systems on at the start of the school year and they don't pay anything at the end of the prior year. I assume they also do a budget based on the school calendar year, so if during the year MGM pitches the product to them, they often don't have the budget available until the following year. Come Jan/Feb, they have the money, have the time to use the system for a full year so that is when they put it in.
Regards
Marv
DISCLOSURE: I hold plenty of MWR.
MWR Price at posting:
$1.35 Sentiment: Buy Disclosure: Held
