Shareholders of ASX tech company ELMO Software Ltd (ASX:ELO) have had to endure their fair share of volatility over the last 18 months. After soaring to a high of over $8 pre-COVID, the ELMO share price plunged more than 50% lower during the March crash last year.
Shares in the payroll software company rebounded just as quickly, and by early May were back up close to $8 again. However, they again underperformed over the second half of the year, and – despite a brief rally in December and January – they have now slid all the way back down to just $5.22.
What has driven the volatility in the ELMO share price?
It’s hard to separate ELMO’s yo-yoing share price in March and April of last year from broader investor uncertainty around the trajectory of the COVID-19 pandemic. However, share price dilution may have precipitated the decline seen later in the year.
In response to the market headwinds faced during the early stages of the pandemic, ELMO – like many ASX companies – sought to raise precautionary capital through equity raises and private placements. In May, the company announced that it was planning to raise $70 million through an institutional placement, and a further $20 million through a share purchase plan offered to existing shareholders.
However, because shares offered under these capital raisings are often available at a discount, they generally put downward pressure on a company’s share price. And this may have been what happened to the ELMO share price after it dropped from its May high.
It also probably didn’t help that ELMO only delivered at the bottom end of its revenue guidance range in FY20. The company had previously stated it expected full-year revenues of between $50 million and $52 million – but managed to only just scrape across the line with $50.1 million.
More recent results
ELMO’s first-half FY21 results were more encouraging. Total revenues came in at $30.6 million for the half, an increase of almost 30% over first-half FY20. Annualised recurring revenue was $74.2 million, an uplift of 43%, while earnings before interest, tax, depreciation and amortisation expenses (EBITDA) was close to breakeven at -$0.8 million.
The company has been putting the capital raised last year to good use, making several strategic acquisitions over recent months.
In October, ELMO acquired UK-based HR platform Breathe. The acquisition further expands ELMO’s footprint in the UK, and also gives it access to the small business market. Breathe had been growing quickly, with annualised recurring revenues already approaching $6.5 million.
In December, ELMO continued to accelerate its UK expansion by acquiring expense management platform Webexpenses. ELMO claimed Webexpenses has complimentary technology to ELMO’s existing product suite, and provides ample cross-selling opportunities and other synergies.
In the company’s first-half FY21 results, it reaffirmed its outlook for full-year revenues of between $65 million and $71 million, including the revenues from the newly acquired Breathe and Webexpenses platforms. It also stated that it expected EBITDA in the range of -$2.4 million and -$7.4 million.
Shareholders will surely be hoping that ELMO can deliver towards the top end of those guidance ranges this year and reduce some of the volatility in the company’s share price.
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Rhys Brock owns shares of Elmo Software. 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. 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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