Nitro Software share price plunges 7% amid $25 million loss

Shares in the software as a service provider are in the red today after the company announced its 1H 2022 results.

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Key points

  • The Nitro Software share price is trading 7% lower after the company reported a significant loss in earnings
  • Despite this, revenues remained strong and the company continues to attract high-quality clients
  • The business guided for breakeven profitability in the second half of next year

The Nitro Software Ltd (ASX: NTO) share price has taken a hit today amid the company releasing its half-year results for the first half of FY2022.

Shares of the document solutions software as a service (SaaS) startup are currently trading for $1.12 each, down 7.05% on Friday's closing price.

Let's go over the highlights of the company's results for the half year ending 30 June 2022.

What did Nitro Software report?

Nitro reported higher operating expenses during the reporting period. Research and development (R&D) accounted for the largest increase, growing 58% yoy.

The company also recorded a significant depreciation and amortisation (D&A) line item. This figure jumped 265% yoy to $US3.3 million ($AU4.81 million), affecting Nitro's net loss.

On the positive side, the company reported a strong compound annual growth rate (CAGR) for its ARR and subscription revenue. They grew 54% and 60% respectively from June 2020 to June 2022. Another win for the company was its high-quality earnings, with 67% of revenue coming from Fortune 500 companies.

What else happened?

Nitro Software has accelerated its transition to subscription revenue since FY2017 for its business sales channel. Subscription revenue increased to 90% in 1H2022, up from just 14% in FY2017.

The company also landed a couple of marquee clients in the first half of 2022, including a US insurer that gave the platform an additional 10,000 users. Another client in the Fortune 100 index purchased 9,000 Nitro PDF licenses in 2017.

What did management say?

Nitro Software co-founder and CEO Sam Chandler said:

Although the first half did not meet all our expectations for performance, it was still a period of growth in which ending ARR grew by 52% and scaled to over US$51 million after more than doubling in the two years to June 30. Subscription revenue also grew fast, increasing 55% year-on-year. But macroeconomic conditions have been challenging, and sales cycles lengthened towards the end of the period. As a result, we revised our plan for the second half including restructuring our Go-to-Market organisation for improved performance and efficiency, reducing costs by US$5 million, and accelerating the pathway to cash flow positive.

What's next?

The e-signing global spend is set to grow at a CAGR of 9% over the next decade and 44% through to 2025. This will be buoyed by growth in signing for high-value transactions as consumers elevate their needs for a trusted solution, the company said.

Nitro Software intends to be cash flow positive by 2H2023. As for guidance, the company expects to make a US$10-$13 million ($AU14.57-18.94 million) loss for the remaining year, with ARR falling in the range of US$57-60 million ($AU83.05-87.43 million).

Nitro Software share price snapshot

The Nitro Software share price is down 54% year to date. Its losses are far greater than the broader market's with the S&P/ASX 200 Index (ASX: XJO) down roughly 7% over the same period.

The company's current market capitalisation is around $276 million.

Motley Fool contributor Matthew Farley 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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