Xref (ASX:XF1) share price slides 5% despite surge in gross sales

The reference checking company's shares are lower today.

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Key points

  • Xref released its half-yearly earnings results today 
  • It was a period of growth for the company, marked by a jump in earnings – investors' haven't been impressed, however, sending shares into the red
  • In the last 12 months, the Xref share price has almost doubled but it is down 15% this year to date.

The Xref Limited (ASX: XF1) share price is in the red today after the company released its interim report and financial results for the half-year ended 31 December 2021.

At the time of writing, the Xref share price is trading 5% in the red at 57 cents.

Xref share price tanks amid earnings growth

Key takeouts from the reference check company's earnings results today include:

  • Gross Sales – a record first half period of upfront sales of $10 million, up 95% from $5.1 million in H1 FY21
  • Cash receipts from sales of $10.3 million, up 65% from $6.2 million the same time last year
  • Record first-half revenue result of $8.9 million, up 73% from $5.1 million year on year
  • Net loss for the half year of $0.03 million – significant 98% reduction from $1.98 million in H1 FY21
  • Operating cash surplus of $2.3 million compared to an operating cash deficit of $500,000 last year
  • Cash balance of $10.4 million at 31 December 2021, compared to $8.1 million at 30 June 2021.

What happened this period for Xref?

Xref notes that its growth pattern continued throughout the half. It says, traditionally, this period has the lowest sales due to "seasonal fluctuations in the Australian recruitment industry following the financial year-end, and the summer holiday season in the Northern Hemisphere".

Nevertheless, the company achieved record first-half revenue of $8.9 million, an impressive jump of 73% compared to the same period last year.

Throughout the pandemic, Xref says it has also been successful in gradually reducing reliance on its traditional sales team by increasing the digital acquisition of new clients.

"Xref has improved all marketing metrics relating to effectiveness and lead generation with the continual optimisation of channels and marketing investment," the company said.

"Invoice value, client size, initial adoption and sales cycle periods have all improved as we continue to execute our digital marketing strategy and 3,200 leads were captured during H1 FY22 resulting in a 124% increase in lead flow over the same period in the previous year."

As such, the group almost broke even at the bottom line, backed by an operating cash surplus of $2.3 million that was well ahead of a deficit of $500,000 this time last year.

Management commentary

Speaking on the announcement, Xref's CEO and co-founder Lee-Martin Seymour said:

As a marketing led, data-driven organisation, Xref continues to execute a data-driven multi-channel marketing strategy generating an increased number of inbound leads. B2B buyers are becoming increasingly reliant on reviews as a source of truth when considering a sofware purchase. Xref's online brand presence continues to be strong and successful on platforms such as G2, Capterra and Google My Business.

On G2's review platform, Xref repeatedly ranks among the best SaaS [software as a service] in the reference check category, including Top 10 in ANZ. The most recent winter report saw Xref win seven badges for leadership, usability and relationships, ranking number one in usability.

What's on the horizon for Xref?

The company says the staged release of its enhanced platform, including its Xref Pulse Surveys and Xref Marketplace, will continue throughout FY22.

These new services are set to "dramatically increase Xref's global addressable market", according to the company.

"In particular, this strategy is expected to grow Xref's share of the North America market via channel partners, wholesale and self-serve subscription sales."

Xref reckons that geographic expansion will also reduce seasonality in overall usage moving forward. Along with the "growing demand for additional pre-employment survey and checking services via the Xref Platform and connected Marketplace, Xref expects it will be able maintain its achievement of a net profit after tax [NPAT] for FY22 along with cash flow profitability", it concluded.

Xref share price snapshot

In the last 12 months, the Xref share price has surged around 98% but it is down more than 15% this year to date.

During the past month of trading, shares have collapsed 19% and Xref is thus trailing the broad index's return this year.

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Motley Fool contributor Zach Bristow has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. owns and has recommended Xref Limited. The Motley Fool Australia has recommended Xref Limited. 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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