Source : a rich life (28/4/23)DUG Technology Ltd (ASX: DUG)DUG...

Source : a rich life (28/4/23)

DUG Technology Ltd (ASX: DUG)

DUG Technology specialises in high-performance computing (HPC) software and hardware solutions to enable clients to leverage large and complex data sets. This could include equipping oil and gas companies with tools to interpret reams of data or assisting research departments in universities to achieve groundbreaking discoveries. However, not all of DUG’s revenue is recurring, with plenty of project based work involved.

DUG Technology recorded its highest quarterly cash receipts and free cash flow of US$15.5 million and US$4.2 million for the March 2023 quarter. The business is showing possible signs of hitting an inflection point as depicted below.

Management noted the current quarter included US$7.5 million in new projects for the Asia-Pacific region, which appeared to be a nice surprise given its historically lower activity levels compared to the US and UK. Perhaps the growing focus on artificial intelligence and machine learning may be driving this demand. Recently, the Principal and CEO of Singapore Polytechnic Mr Soh Wai Wah noted the need for HPC to, “pave the way for more game-changing scientific, technological, industrial, and societal innovations in the future”.

As Claude highlighted in his introduction to DUG Technology about 3 months ago, the business remains heavily services-orientated, and recurring revenue is yet to show signs of consistent growth. That said, the DUG Technology share price is up more than 20% in the last quarter, so shareholders would have been well rewarded for looking past this potential drawback.

Despite the lack of recurring revenue, DUG Technology appears to be really hitting its stride in services. Not only is it producing strong growth in revenue but is also showing signs of profitable growth. Staff are the biggest operational cost, which continues to fall as a percentage of cash receipts.

Since the restructuring of the services business stream in November 2021, management has executed quite well. The most prominent aspect of the restructure was management’s focus on reducing support staff through improvements in software efficiency and functionality, which appears to have streamlined workflows. DUG Technology management also switched its focus from smaller and more complex projects to larger, more compute-intensive projects.

DUG Technology cofounder and managing director Matthew Lamont appears to be showing strong signs of a level 5 leader and founder and this set of results has prompted me to take a deeper look into the business.