The ELMO Software Ltd (ASX: ELO) share price is on watch today after the HR tech company announced its FY22 first quarter update.
ELMO’s FY22 Q1
ELMO said that group annual recurring revenue (ARR) grew to $88.5 million. That was an increase of 61% year on year. This included 35% organic growth. The ‘non-organic’ part of the growth came from its Breathe acquisition
in the UK. That’s the business service services smaller businesses than the core ELMO software, which is focused on the ‘mid-market’.
ARR is hopefully a sign of future revenue. In the first quarter of FY22, ELMO generated actual revenue of $20.7 million, an increase of 52%.
ELMO’s cash receipts went up by 78% to $27.7 million for the quarter. It ended with a cash balance of $75.7 million.
Mid-market (ELMO)
ELMO said that its mid-market ARR grew 43% year on year to $78.4 million. Organic growth was 28%. Management highlighted that the company is returning to pre-COVID growth rates.
The company said that organic growth is being driven through securing new customers coupled with cross-selling to existing customers.
During the quarter, the ELMO mid-market solution was officially launched in the UK.
Small business market (Breathe)
Management also said that ARR in the small business segment is growing rapidly, with 55% growth. This growth is being driven by new customers and cross-selling of new modules introduced since the acquisition.
New products
New modules can be an important way to make ELMO more valuable to customers, and potentially generate more revenue from that client.
During the quarter, ELMO released two new modules over the quarter – Experiences and COVIDsecure. Experience aims to enhance employee engagement within an organisation. The COVIDsecure module enables businesses to record, monitor and report on their employees’ COVID vaccination and test status, assisting businesses to reopen safely.
Summary thoughts on ELMO and the share price
Considering how quickly ELMO continues to grow, it seems nicely valued with a market capitalisation of around $424 million, compared to ARR of $88.5 million.
Management said that the company has strong momentum going into the second quarter of FY22. The environment where more businesses are going to cloud-based solutions, as well as more employees working flexibly (like at home), creates a tailwind for ELMO.
As far as ASX growth shares go, I think ELMO is worth watching.
