Forum Topics ELMO - Can anyone explain the numbers?
mikebrisy
2 years ago

$ELO reported preliminary unaudited results last week (see straw by @BoredSaint ).

The report states: "Total operating cash outflow reduced to negative $17.4 million, a 34% improvement pcp" with a promise of “In addition, we continue to see increased operational efficiencies as we reap the benefits of scale. We expect to reach operational cashflow breakeven in FY23.”

Sounds good.

So, today I opened my model to see what I could update, as I am still watching $ELO given that it is maintaining decent organic growth. Lo and behold, OpCF ("Net Cash from Operating Activities") was $6.069m in 2020 and $6.502m in 2021. I thought I'd made a mistake in my model, so I looked at the Stat Accounts. Yep - no mistake.

So, I am struggling to see how a result of -$17.4m in 2022 is an improvement. Further, I can't see evidence of a trajectory that's moving things towards OpCF positive in 2023.

Did anyone attend the results webcast, and was this discussed at all? Is the reason that what they are calling OpCF is some underlying corrected number? Or am I missing something?

Maybe I just have to wait for the Stat Accounts in a few weeks. The reason I am still interested in $ELO is that revenues are getting material, passing $100m soon, organic revenue growth is continuing and Danny gave two important signals: 1) the investment phase is over, beyond improving existing modules and 2) they are going to focus effort on the modules that are resonating most strongly with customers.

If a) they really are turning the corner on invement cash burn, b) can maintain 25-40% organic revenue growth and c) start showing operating leverage, then they start to become interesting to me, and there is a chance to get back onboard at a **40% discount to my exit price.

Disc. Not held IRL or SM. On watch list.

(** I exited $ELO IRL on 28-6-21 as part of my review of "cash burners" ahead of the turning market, and also concern about ability to generate and sustain margins in what is a competitive SaaS space for HR solutions.)

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BoredSaint
2 years ago

I'm not sure exactly why some companies report like this, but I think the $17.4m in outflow figure includes some items which are in "Investing Activities".

This is from their FY21 results presentation, showing last years cash outflow was -$26.4m, so the change to -$17.4 is technically considered a positive result.

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As compared to the update last week:

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BoredSaint
2 years ago

This is also from their latest presentation:

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Probably explains the difference the Statutory accounts and the presentations.

I don't have a huge problem with this as long as they are consistent in how they report their figures going forward.

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Noddy74
2 years ago

This one has come up before with Elmo @mikebrisy - see post here. I think the answer is that for some reason they use the term operating cash flow when they're referring to free cash flow (or adjusted free cash flow). I can't fathom why they would do that given operating cash flow or 'cash flow from operating activities' has a statutory definition and is an audited number but they seem to do it repeatedly.

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BoredSaint
2 years ago

I think FCF is probably a better metric to use anyway even though this is not technically an audited number (correct me if I'm wrong)

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mikebrisy
2 years ago

Thanks @Noddy74 and @BoredSaint. It is poor practice, really. All well and good if you want to report numbers that you think better helps investors understand the ("underlying") business, but then it is good practice to provide a clear bridge between management numbers and statutory numbers. I'll wait for the annual report so I can see what's really going on. Still, $ELO remains of sufficient interest to stay on my watchlist.

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