Elmo Software share price leaps 8% following quarter of ‘strong growth’

What were the key drivers for ELMO’s quarterly performance?

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Key points

  • ELMO shares rocket 7.95% to $3.26 
  • The company reported an outstanding quarter of growth across all key metrics, with ARR at a record $101.2 million 
  • Management reaffirmed its upgraded guidance for FY22 following the robust third quarter performance 

The ELMO Software Ltd (ASX: ELO) share price is on the move during Wednesday morning.

This follows the company’s latest business update to the ASX.

At the time of writing, the cloud-based human resources and software solution provider’s shares are up 7.95% to $3.26.

ELMO shares accelerate on positive trading update

Investors are driving the ELMO share price higher after digesting the company’s robust performance for the third quarter of FY22.

For the three months ending 31 March 2022, ELMO reported annualised recurring revenue (ARR) of a record $101.2 million. This reflects a 33% increase on the prior corresponding period ($76.2 million).

ELMO highlighted that its mid-market segment reached $89.9 million, a 31% improvement on Q3 FY21. The growth is being driven through securing new customers and the cross sell of modules to existing customers.

Furthermore, the small business market continued to expand, achieving $11.3 million in ARR. This represents a lift of 47% through the past 12 months. The result is being underpinned by the onboarding of new customers and the cross sell of new modules introduced since the acquisition.

In addition, revenue for the most recent quarter surged to $67.4 million, up 37% compared to Q3 FY21 ($49.3 million).

EBITDA made a turnaround of positive $2 million, a swing of $3.2 million from the negative $1.2 million declared in the prior comparable period.

Year to date cash receipts stood at $84.3 million, which is 53% higher since this time last year. It also matches the quarterly record set in Q2 FY22.

Management noted it had $51.4 million in cash at the end of the March 2022 quarter.

The group reaffirmed its FY22 upgraded guidance listed below:

  • ARR – $107 million to $113 million (28% to 35% year-on-year growth)
  • Revenue – $91 million to $96 million (32% to 39% year-on-year growth)
  • EBITDA – $1.5 million to $6.5 million

What did management say?

ELMO CEO and co-founder, Danny Lessem hailed the result, saying:

ELMO continues to experience strong growth as small and medium sized businesses adopt cloud-based solutions to manage an increasingly flexible or hybrid workforce. ARR grew 33% in Q3 and I am pleased we are tracking toward the top end of our guidance range which is also translating to the pleasing level of EBITDA.

…Finally, we have strong momentum coming into Q4, which is historically our strongest quarter. We expect ARR growth to continue at the high levels we are experiencing. We also continue to leverage our cost base as we expect to cross the cash flow breakeven point in the second half of FY23.

ELMO share price snapshot

The ELMO share price has lost almost 42% over the past year and is down more than 27% year to date. The company’s shares hit a 52-week low of $3 yesterday, before rebounding on today’s positive update.

On valuation metrics, ELMO presides a market capitalisation of about $293.78 million.

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