ELMO Software Ltd (ASX: ELO) has released encouraging results for the half-year (HY21). Is ELMO worthy of being a long-term ASX growth share?
ELMO provides Software-as-a-Service (SaaS), cloud-based human resources and payroll solutions. These solutions enable organisations to efficiently manage HR and payroll-related processes including recruitment, performance management, learning and development, and workplace rostering etc.
Growth story continues to evolve
ELMO revenue
ELMO posted strong numbers on the revenue side of the business, in particular Annualised Recurring Revenue (ARR). ARR is the expected annual revenue to be received from a customer for the provision of products and services.
ELMO’s ARR grew 42.8% relative to the prior corresponding period, HY20 (PCP) to reach $74.2 million. This jump was a result of both organic growth and acquisitions.
In terms of statutory revenue, the amount recorded in ELMO’s financial statements, it rose by 29.3% PCP to $30.6 million.
ELMO growth strategy
It appears the company continues to execute its growth strategy, acquiring Breathe, a UK-based small business platform that services the small business market (<50 employees) and the mid-market (50 to 2,000 employees).
This acquisition expanded ELMO’s segment exposure, bringing in 2,892 mid-market customers and 7,146 small business customers.
Recently, ELMO acquired Webexpenses, a high growth cloud-based expense management solution based in the UK.
Management outlook
ELMO CEO and Co-Founder Danny Lessem remains focused on its growth strategy as he said, “ELMO’s growth journey continued in 1H21 as we delivered on our stated growth strategy. Our growth strategy is underpinned by three pillars: segment expansion, module expansion and geographic expansion.”
As illustrated above, ELMO continues to accelerate its expansion across the UK. In relation to Danny’s reference to module expansion, this is about offering new modules to customers to strengthen its product offering.
My takeaway
ELMO seems to be hitting all the right notes with respect to revenue but how about expenses? Like most SaaS companies, ELMO remains unprofitable as it focuses on expanding its global footprint to gain market share.
Naturally, sales and marketing and research and development expenses will be a byproduct of this strategy. ELMO possesses a strong war chest of capital, with $71.3 million cash on hand, and a new $34.5 million debt facility.
ELMO is well-positioned to execute its growth strategy and continues to show signs of becoming a leader in its space.
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