ELMO Software (ASX:ELO) share price drops lower despite strong Q1 growth

The ELMO Software Ltd (ASX:ELO) share price dropping lower on Tuesday after releasing its first quarter update for FY 2020…

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The ELMO Software Ltd (ASX: ELO) share price is under pressure on Tuesday despite delivering strong growth in the first quarter.

At the time of writing, the ELMO share price is down almost 2% to $5.60.

How did ELMO perform in the first quarter?

For the three months ended 30 September, the cloud-based HR and payroll software provider reported record cash receipts of $15.6 million. This was a 29.8% increase on the prior corresponding period.

This latest quarter brought its rolling 12-month cash receipts to a record of $61.1 million, up 30.4% on the prior corresponding period.

The company’s, Chief Financial Officer, James Haslam, was pleased with the quarter.

He commented: “ELMO continues its growth journey. Cash receipts for the 12-months to 30 September 2020 totalled $61.1 million, representing growth of 30.4% on the 12-month period to 30 September 2019. This is a new 12-month record for ELMO.”

At the end of the quarter ELMO was well capitalised and held a cash balance of $130.4 million.

However, since then, it has announced the acquisition of Breathe for an initial payment of 18 million pounds (A$32.4 million) using a combination of cash and scrip.

Breathe is a fast growing, scalable, self-service HR platform, based in the UK.

Management notes that the acquisition provides it with entry into the small business market in Australia, New Zealand, and the UK. It also meaningfully expands ELMO’s UK footprint, with more than 6,700 customers in that market.

Breathe’s annual recurring revenue (ARR) as of 31 August was 3.6 million pounds (A$6.5 million) and has been growing over 30% annually. Revenue is 100% subscription-based and recurring in nature.

ELMO intends to launch Breathe into the Australian and New Zealand markets, and will cross-sell existing ELMO HR modules into its large customer base.

What about the rest of FY 2021?

Management advised that its focus remains on delivering organic growth supplemented with strategic acquisitions.

It also notes that the company remains well positioned to capitalise on tailwinds in the adoption of cloud-based business tools, including HR technology.

In respect to guidance, it has reaffirmed its recently upgraded FY 2021 guidance of ARR of $72.5 million to $78.5 million, revenue of $61 million to $66 million, and EBITDA of -$3.5 million to -$7.5 million.

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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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