ELMO Software (ASX:ELO) share price higher after reporting more stellar growth

ELMO was on form again during the first half…

| More on:
a happy investor with a wide smile points to a graph that shows an upward trending share price

Image source: Getty Images

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Key points

  • ELMO delivered more strong growth during the first half
  • Operating leverage is emerging and underpinned a swing to an operating profit
  • Recently upgraded guidance has been reaffirmed

The ELMO Software Ltd (ASX: ELO) share price is pushing higher following the release of its half year results.

At the time of writing, the cloud-based HR and payroll software company's shares are up over 3% to $4.02.

ELMO share price higher after delivering more strong growth

  • Annualised recurring revenue (ARR) up 35% since the end of June to $98.3 million
  • Revenue up 41% over the prior corresponding period to $43.1 million
  • Cash receipts up 63% to $56.0 million
  • Positive EBITDA of $0.3 million, up $0.9 million year on year
  • Cash balance of $58.4 million at the end of December
  • Reiterated recently upgraded FY 2022 ARR guidance of $107 million to $113 million

What happened during the first half?

For the six months ended 31 December, ELMO grew its ARR to $98.3 million. Management advised that this reflects strong trading conditions due to the increased adoption of cloud-software solutions by businesses to manage remote or hybrid workforces.

This led to ELMO's midmarket business continuing to grow strongly. At the end up the period, its customers reached 3,281 and its segment ARR was up 31.4% over the prior corresponding period to $38 million. And while the midmarket gross margin softened to 84.2%, its churn levels improved to 9.3%. This translates into a net dollar retention of 103%.

ELMO's small business solution, Breathe, grew rapidly and reported 10,232 customers and annualised ARR growth of 41%. Positively, management revealed that Breathe's gross profit margin remains high at 89.4% and its ARR churn improved to 10%. This translates to a net dollar retention of 101%.

But perhaps the biggest positive is the operating leverage the company is achieving. This reflects its strong revenue growth and a reduction in key spend ratios across the business which has driven the positive EBITDA and reduced operating monthly cash burn by 36% year on year.

Management commentary

ELMO's CEO, Danny Lessem, was pleased with the company's solid half.

He said: "The ELMO Group has experienced strong growth in the first half of FY22. We are continuing to experience increased demand as more organisations adopt cloud-based technology to manage disparate workforces. The COVID-19 pandemic has accelerated the move to hybrid working which has in turn increased adoption by businesses of cloud-based systems to manage their people, allowing us to upgrade our guidance [on 1 February]."

"We launched two new modules to market in the half that respond to the changing nature of the workplace environment; COVIDSecure and Experiences. Our UK acquisitions are performing exceptionally well and provide a solid foundation to increase our market share in the region. We are on the cusp of surpassing the $100 million in ARR milestone and have solid momentum to continue this growth going into the second half of FY22."

I was fortunate to have the opportunity to chat with Mr Lessem following the results release. They key takeaway from that chat is that demand for ELMO's software is continuing to grow due to the hybrid working shift, which is only really getting started.

The CEO also highlighted that ELMO has high gross margins and a very large addressable market, which positions it to become a highly profitable company at scale.

Mr Lessem also notes that its cash balance of $58.4 million is expected to comfortably see ELMO through to breakeven in the not so distant future.

Outlook

Management has reiterated its recently upgraded FY 2022 guidance. It continues to forecast ARR of $107 million to $113 million (28% and 35% growth).

The company also expects positive EBITDA of $1.5 million to $6.5 million for the year.

Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. owns and has recommended Elmo Software. The Motley Fool Australia owns and 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.

More on Earnings Results

Two happy excited friends in euphoria mood after winning in a bet with a smartphone in hand.
Earnings Results

ASX 200 stock jumps 10% on strong FY24 results

How did this KFC restaurant operator perform in FY 2024?

Read more »

A male investor wearing a white shirt and blue suit jacket sits at his desk looking at his laptop with his hands to his chin, waiting in anticipation.
Consumer Staples & Discretionary Shares

Guess which ASX 200 stock just slashed its final dividend by 23%

This retailer had a tough time during the 12 months. Here's how it performed.

Read more »

Man jumps for joy in front of a background of a rising stocks graphic.
Earnings Results

Catapult shines: 20% sales growth propels ASX tech stock to new 52-week high

A strong annual result from this tech player has caught investor attention.

Read more »

A man in his 30s holds his laptop and operates it with his other hand as he has a look of pleasant surprise on his face as though he is learning something new or finding hidden value in something on the screen.
Earnings Results

Xero share price leaps 8% on staggering earnings upheaval

A major turnaround in profitability is sending investors into a frenzy over Xero shares today.

Read more »

a construction worker sits pensively at his desk with his arm propping up his chin as he looks at his laptop computer while wearing a hard hat and visibility vest in a bunker style construction shed.
Materials Shares

Which ASX 200 stock just plunged 12% despite record full-year earnings?

It looks like an impressive report card but UBS doesn't like the FY25 guidance.

Read more »

A man sits thoughtfully on the couch with a laptop on his lap.
Earnings Results

ASX 200 tech stock lifts off on another record-setting half-year profit

Investors are bidding up the ASX 200 tech company following its half-year results.

Read more »

increasing rural asx share price represented by happy looking sheep
Earnings Results

Why is this ASX All Ords stock staying strong as profits crash 76%

How is this company's share price marching higher after mowing down more than three-quarters of its profits compared to a…

Read more »

Two men sit side by side on a couch with video game controls in their hands and expressive looks on their faces as they react to the action in front of them in a home setting.
Earnings Results

Guess which ASX 200 stock is surging 11% on an 'outstanding' result

This ASX gaming giant just posted a 17% jump in profits, and its shareholders are basking in the glory.

Read more »