ELMO Software share price on watch after delivering more strong growth in FY 2020

The ELMO Software Ltd (ASX:ELO) share price will be one to watch on Thursday after the software company delivered further strong growth in FY 2020…

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The ELMO Software Ltd (ASX: ELO) share price will be on watch on Thursday after the release of the cloud-based HR, payroll, and rostering software provider's full year results this morning.

How did ELMO perform in FY 2020?

For the 12 months ended 30 June 2020, ELMO's strong form continued and its delivered further strong growth in annualised recurring revenue (ARR), statutory revenue, cash receipts, and customer numbers.

The company reported ARR of $55.1 million and statutory revenue of $50.1 million for FY 2020. This represents a 19.7% and 25% increase, respectively, over the prior corresponding period. Also growing strongly were its cash receipts. They came in at $57.5 million for the year, up 27.6% on FY 2019's result.

Over the period the company's gross profit margin fell 1.3% to 85.3%. However, this was due to its investment in client services to support an enlarged and growing customer base.

Statutory earnings before interest, tax, depreciation, and amortisation (EBITDA) was a loss of $4.2 million. Management advised that this reflects its continued investment to support its longer term growth initiatives.

Despite this, the company finished the period in a very strong financial position. Thanks partly to its capital raising in May, ELMO had a cash balance of $139.9 million at the end of the period.

Management advised that this means it is well capitalised to continue investing in both organic growth and strategic acquisitions.

What were the drivers of its growth?

One of the key drivers of ELMO's growth was its increasing customer numbers. The company's customer base grew to 1,682 organisations over the year, an increase of 25.4%.

Also supporting its growth was an increase in average modules per customer from 2.4 to 2.7.

Pleasingly, management notes that customer concentration remains very low, with the largest customer representing less than 2% of ARR. Furthermore, the 10 largest customers account for less than 7% of its ARR.

Another positive is that ELMO's Customer Lifetime Value to Customer Acquisition (LTV:CAC) ratio remains high at 8.1. Management believes this underpins its continued investment thesis in growth.

ELMO's CEO and Co-Founder, Danny Lessem, was pleased with the company's performance in FY 2020.

He commented: "Despite some of the challenges associated with COVID-19, FY20 has been another year of robust growth for ELMO. Particularly at this time, businesses are recognising the benefits of cloud-based technologies to deliver flexible and innovative workplace solutions."

"ELMO's overall strategy remains unchanged: delivering organic growth supplemented with strategic acquisitions, continuing our growth trajectory into FY21 and beyond. We are well placed to capitalise on anticipated tailwinds in the adoption of cloud-based business tools, including HR-technology," he added.

FY 2021 outlook.

Management appears confident that another year of strong growth awaits the company in FY 2021.

It has provided guidance for ARR of $65 million to $70 million, which represents year on year growth of 18% to 27%.

It will be a similar story for revenue, with the company expecting this to be in the range of $57 million to $61 million. This is expected to be driven by strong organic growth, supplemented with selective acquisitions.

Once again, the company is expecting to post an operating loss as it focuses on its growth strategy. ELMO's EBITDA is expected to be -$4 million to -$7 million in FY 2021.

James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. owns shares of and recommends Elmo Software. The Motley Fool Australia has recommended Elmo Software. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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