Readytech (ASX:RDY) share price slides despite strong growth

The Readytech (ASX:RDY) share price is dropping lower today after the company announced its first-half results. We take a closer look.

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Readytech Holdings Ltd (ASX: RDY) shares are dropping today after the company released its FY21 first-half report and investor presentation. At the time of writing, the Readytech share price is slumping 4.48% to $1.92.

Readytech share price fails to ignite

Reporting strong growth in key metrics has not stopped the Readytech share price from sliding lower today along with a wider market sell-off. The software-as-a-service (SaaS) education and workforce technology solutions provider reported that it is on track to achieve its FY21 guidance.

Over the first half of FY21, Readytech saw its revenue grow 13.4% to $21.8 million. The increase was driven by a combination of new customer wins and cross-selling to existing customers. Pleasingly, recurring revenue grew 15.6%, comprising 89% of total revenue. According to Readytech, this indicates the movement of customers looking to replace legacy technology with the company’s next-generation cloud-based platform.

The Readytech share price is on the slide after the tech company also reported on its continued investment in future growth. This was seen as operating expenses grew by 24.2% to $13.6 million. Sales and marketing costs also increased as the push for market share increased. On this front, these costs now make up 9.6% of revenue. The company’s spend on R&D came in at $11.8 million.

Management comments

Readytech CEO Marc Washbourne welcomed the results, saying:

Our continued top line growth reflects the team’s focus on winning higher value customers and upselling existing customers into new feature sets. On the back of this positive revenue outcome, we have been able to reinvest back in the business as planned, both in terms of people and technological innovation, which will underpin future growth.

Open Office acquisition

As stated, a key part of the company’s growth strategy is to explore and enter new verticals through acquisitions.

In line with this strategy, Readytech has committed to acquiring government SaaS provider, Open Office. It will pay $54 million upfront with an additional $26 million being paid based on performance.

It should be noted that the takeover is still subject to shareholder approval. This vote will take place at an extraordinary general meeting on 19 March.

What now?

Readytech generated operating cash flow of $7.2 million during the period. As such, the company retains a net cash balance of $33.2 million post the capital raising associated with the proposed Open Office acquisition.

Regarding the company’s earnings guidance, management is confident that demand for its software will remain high in the period ahead, commenting:

Positive outlook and strong momentum in 1H FY21 allows ReadyTech to reaffirm the previously provided earnings guidance. ReadyTech expects FY21 revenue growth rate in the mid-teens, with EBITDA margin in the range of 37%-39%, excluding the Open Office transaction.

Readytech share price snapshot

The Readytech share price is trading flat when compared to this time 12 months ago. Readytech shares fell as low as 96 cents in March 2020 and have since surged by nearly 100%. However, the Readytech share price is still trading nearly 12% below its 52-week high of $2.18. 

Based on the current share price, Readytech commands a market capitalisation of around $187 million.

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Daniel Ewing has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. owns shares of Readytech Holdings Ltd. The Motley Fool Australia has recommended Readytech Holdings Ltd. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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