My last review of Cematrix was six months ago, after their 2025 annuals - an upgraded review to 3.75 stars. In that article, I referred to their past twelve months as a one year heater. If you go further back to my March 2025 What’s Wolf Watching where I called out a Buy Zone, the stock is currently up 215%.
I have a busy upcoming weekend on the golf course, so let’s skip the typical preamble bullshit and see what Cematrix has been up to over the past two quarters.
Balance Sheet:
As I have just come to expect over the past couple of years, CEMX sports a very solid balance sheet. They have a current ratio of 5.4 that consists of $16.2M in cash, $13.5M in receivables and $1M of other short term assets over top of less than $6M in liability commitments over the next twelve months. Their cash position alone covers those liabilities alone by a factor of more than 2.7 so liquidity looks excellent.
$2.5M of the company receivables are within holdbacks. As for the remainder, it does look much cleaner than it did six months ago with greater than 90 days shrinking from 19% to 6%. Their terms are 30-90 days and they don’t distinguish which are overdue, so while their table above is good disclosure, it’s not perfect. I have beaten them up a little bit in past reviews so it’s important to note the improvements here.
In terms of long term liabilities they have a small equipment loan under $1M and $1.6M in deferred liabilities to the tax man.
Very good shape overall.
Cash Flow:
Through six months, Cematrix has been an operationally cash flow producing beast compared to last year, generating $5.7M in OCF vs burning $875k at the same point last year. Receivables spiked in the quarter due to their great sales performance which makes their Q2 OCF of $1.1M look soft compared to their first quarter of $4.6M. I’ve yet to look at their P&L but I can already tell it’s going to look great based on this.
Very little occurring within investing and financing activities YTD, but the company has repurchased a small amount of stock and made minor investments of under $450k, and reduced that equipment loan by $324k YTD.
Overall CEMX has improved their cash position by 36% from the start of the year.
Share Capital:
149.4M shares outstanding, 275k less shares outstanding from the start of their fiscal year
690k shares repurchased through their NCIB YTD
8.2M warrants WERE outstanding as of their quarter end, but were set to expire two days ago. 7.3M were well out of the money at 60 cents with 880k of broker warrants at 51 cents. Hard to imagine any of these were exercised.
5.3M options, all ITM between 18.5 and 43 cents. The company does not list an expiry table and I’m too lazy to go digging for one.
3.1M RSU’s
Minor insider ownership of 3.5% with 3% held by institutions (per Yahoo Finance)
Insiders have been allergic to buying in the open market
Income Statement:
After a decent quarter in Q1 on the top line when Cematrix posted a 10% increase over last year, the company went deep to straight away center field with an $18.7M revenue quarter, 76% above what they did in the comparable period.
Those revenues did come at the expense of some margin however, losing nearly 400 basis points to last year coming in at 35% vs 38.9%. Therefore on 76% more business, they generated 59% more gross profit dollars.
What Cematrix lost in margin, they made up for in operational leverage, actually spending 5% less in expenses - very impressive when you generate that large of a revenue gain. That leverage extends to their YTD totals as well.
At the bottom, they generated $3.5M in net income for the quarter, 18.6% of revenue and 161% better than last year.
On a YTD basis through six months:
Revenue of $26M, up 51%
450 basis points of erosion in gross margin - 27.8% vs 32.3%
Gross profit dollars up 30%
7% reduction in operational spend
Net income op $2.3M vs $425k
Since I’ve discussed their margin erosion, it’s important to note the company’s rationale from their MD&A:
Summary:
While the stock gained a penny yesterday after releasing these earnings the night before, the volume certainly looked a little muted compared to previous earnings periods.
Were investors not entertained?
The company had a record second quarter and a record first half. It was also their best single quarter the company had since Q3 of 2023.
When I put CEMX in a Buy Zone sixteen months ago, their market cap was around $26M. That now sits at $78M. Have they plateaued or is there more upside?
Backlog is down 9% from the beginning of the year and 12% from their previous quarter end so that could explain some of the markets rather uninspiring response on what were excellent numbers. In addition, the company is also up against much stronger numbers in the back half of the year and this piece of commentary within the MD&A suggests they will not have a repeat significant increase in Q3 as they did here. That would also be a QoQ sequential decline - that is never going to get retail investors juices flowing, even in a lumpy revenue business like this.
The CEO was also a little non committal on the great operating expense leverage they have gained, and whether or not that would continue. You can find the whole transcript of their earnings call here.
They currently trade at a 13.2 P/E at 8x cash flow and 6.7 EV/EBITDA numbers. So with the company projecting flat Q3 revenue, my conclusion is the company is pretty close to fair value - therefore Cematrix remains more of a hold than in a buy zone situation.
Insiders could step up to the plate more often and put their money where their mouths are, that’s for sure.
Maintaining the 3.75 score.
Disclaimer:
My intent is for my reviews to be a bolt on to due diligence that you have already completed. I receive dozens of review requests a week, therefore my own DD may be great or none whatsoever. Unless otherwise stated or implied, my opinions are on the financial performance of the company based on their most recent filings. I conduct these reviews to assist other retail investors whose research skills are limited when it comes to reviewing financial statements. I do not accept compensation of any kind from companies I review.
Wolf FINS Reviews are intended to be informational and are based on personal opinion. They are not intended to be financial advice, and all readers are encouraged to perform their own due diligence prior to their investment decisions, including discussions with their investment advisor.