In morning trade the ELMO Software Ltd (ASX: ELO) share price is pushing higher on Wednesday.
At the time of writing the cloud-based HR & Payroll software provider's shares are up almost 2% to $5.45.
Why is the ELMO Software share price pushing higher?
This morning ELMO Software released a business update in response to the changing macroeconomic environment.
According to the release, as a result of the disruption to the everyday operations of Australian and New Zealand businesses by the COVID-19 outbreak, the company expects the deferral of purchasing decisions by prospective and existing customers.
In light of this, management does not believe the company will achieve the guidance it announced with its half year results last month.
That guidance was for annual recurring revenue (ARR) in the range of $62.5 million to $64.5 million, revenue of $53.3 million to $55.3 million, and EBITDA of -$1 million to -$3 million. Its ARR guidance represented growth of 36% to 40% on FY 2019's ARR of $46 million
ELMO expects its ARR to be impacted but has not provided revised guidance for it. This is because it is still unknown when businesses will recommence their normal procurement cycles. Management intends to provide guidance on this metric when customers return to normal procurement cycles.
It has, however, been able to provide guidance for revenue and EBITDA. It expects revenue for FY 2020 to be in the range of $50 million to $52 million and EBITDA in the range of -$4 million to -$6 million.
Capital position.
The company also provided an update on its capital position, which is exceptionally strong. At the end of February ELMO had a cash balance of $71 million and no debt on its balance sheet.
Management notes that it "operates on a Software as a Service business model which has a high level of recurrent subscription revenue from the existing customer base. The combination of a strong cash balance and predictable recurring revenues ensures ELMO is well placed in the current macro environment and can continue to selectively invest in growth."
Outlook.
Whilst the coronavirus outbreak is impacting its business in the short term, management sees positives in this disruption.
It said: "As a response to the disruption to businesses caused by the requirement for widespread remote working, in the medium term we expect an acceleration in the adoption of cloud-based technology."
"Cloud-based platforms reduce the risk to business operations and enable effective remote based working. As one of the leading providers of cloud-based HR software in ANZ, ELMO will be well placed to benefit from this accelerated digital transformation," it concluded.
