Elmo share price surges after 32% revenue boost

Revenue up, net profit down, and cash flow expected to break-even soon. Investors react to the software company's mixed results.

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Key points

  • Elmo Software released its 2022 financial year results today
  • Revenue and EBITDA were all up but net loss also higher
  • Operating cash flow forecast to break even during financial year 2023

The Elmo Software Ltd (ASX: ELO) share price has climbed higher after it reported its full-year results and provided its outlook.

The ASX technology stock surged 5.6% to a $3 high in early trade on Wednesday and has since retreated to now trade at $2.95, up 3.8%.

What did the company report?

What else happened in FY22?

Aside from the launch of new modules for its software suite, the major corporate event for the human resources software provider was speculation that it was to be acquired.

In June, Elmo Software confirmed that it "conducted exploratory discussions" about a non-binding takeover proposal priced at $6.10 per share.

Those negotiations concluded without action, according to the Elmo board.

What did management say?

Elmo Software chief executive Danny Lessem said:

I'm extremely pleased with ELMO's FY22 results. Our group organic growth accelerated as small and medium sized businesses continue to adopt cloud-based solutions to manage an increasingly flexible or hybrid workforce.

We have seen an improvement in our operating metrics across both mid-market and small business segments. A reduction in churn and an improved GP margin resulted in a substantial increase in the lifetime value of our customer base to $1.1 billion. This is a 75% increase on FY21.

What's next?

Unlike many ASX companies this reporting season, Elmo Software has provided some guidance for the 2023 financial year:

  • Annualised recurring revenue to grow 24% to 29% ($134 million to $140 million)
  • Revenue to grow 25% to 31% ($114 million to $120 million)
  • EBITDA to approximately triple to a range of $20 million to $25 million
  • Operating cash flow to end up between negative $2 million and positive $2 million

According to Lessem, "increased operational efficiencies" from scale would see the business reach breakeven for operational cash flow during the current financial year.

"Our strong brand in the markets we operate, our many years of investment into our product and the increased adoption of people management software, have ensured that we have strong momentum going into FY23," he said.

"Despite the broader macroeconomic environment, this momentum is supported by our sales pipeline which underpins our FY23 guidance."

Elmo share price snapshot

Like most technology stocks, the Elmo share price has been on a wild ride in 2022.

From November to July, it lost more than 60%. It has since rallied to be 34.7% down year-to-date.

The market capitalisation sits at around $263 million.

Motley Fool contributor Tony Yoo has positions in Elmo Software. 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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