Why is the Nitro share price crashing 29% on Tuesday?

Nitro shares are being hammered on Tuesday…

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Key points

  • The Nitro share price is crashing on Tuesday
  • This is despite the release of a quarterly update which revealed strong growth during the second quarter and first half
  • Management's guidance appears to have spooked investors

The Nitro Software Ltd (ASX: NTO) share price is having a day to forget on Tuesday.

In morning trade, the document productivity software company's shares are down a disappointing 29% to $1.16.

Why is the Nitro share price crashing?

Investors have been selling down the Nitro share price following the release of the company's second quarter and first half update.

Although that update revealed yet another strong quarter of growth, it was management's commentary on the second half that sent investors to the exits.

According to the release, for the 12 months ending 31 December, Nitro now expects to report annual recurring revenue (ARR) of US$57 million to US$60 million. This represents year on year growth of 24% to 30%.

As a comparison, the company was previously guiding to ARR of US$64 million to US$68 million, which would have been year on year growth of 39% to 47%.

That's despite the company reporting stellar first half FY 2022 ARR growth of 52% year on year to US$51.5 million this morning. This indicates an expectation for a sharp slowdown in growth during the second half, which appears to have spooked investors.

The good news

Despite what the Nitro share price performance would indicate, it wasn't all bad news.

Firstly, Nitro has trimmed its operating EBITDA loss guidance. Instead of US$15 million to US$18 million, it now expects a loss of US$10 million to US$13 million.

In addition, instead of moving "toward a cash flow breakeven profile" in the second half of FY 2023, it now expects to be cash flow breakeven at that point.

It also finished the first half of FY 2022 in a strong financial position, with cash of US$35.2 million and no debts. This should provide it with more than sufficient cash to reach its breakeven point.

What's happening at Nitro?

Management revealed that its revised guidance reflects its decision to balance its pursuit of ARR growth while accelerating its cash flow breakeven goals.

Nitro's co-founder and chief executive officer, Sam Chandler, explained:

Given the current environment, Nitro is carefully balancing its pursuit of ARR growth with extracting greater efficiencies from existing resources and protecting our strong cash position. We are also focused on accelerating our return to cash flow breakeven.

While in the near term these operating strategies will lower Nitro's ARR growth, they will underpin a significantly reduced Operating EBITDA Loss in FY2022. With our revenue guidance unchanged, we firmly believe this is the correct financial profile for today's macroeconomic and market conditions.

Chandler also reminded investors of the massive market opportunity that the company has to grow into in the coming decades.

We are committed to generating positive cash flow for the second half of 2023. While there are currently many uncertainties in the world, Nitro has a multi-billion-dollar market opportunity that will play out over the years and decades ahead, and our confidence in the scale of that opportunity is unchanged.

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. has no position in any of the stocks mentioned. The Motley Fool Australia has recommended Nitro Software Limited. 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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