Elmo Software (ELO.ASX) released an update with their Q1 results a few weeks ago. From their release:

Key Highlights

ELMO business update

• ARR of $111 million with organic growth of 25.4% pcp
• Annualised Recurring Revenue (‘ARR’) closed at $111.0 million, an increase of 25.4% pcp
• 1Q23 Revenue of $27.4 million, up 32.3% pcp
• 1Q23 EBITDA of $2.0 million from $0.7 million pcp
• Year to date cash receipts of $32.9 million, up 18.7% pcp
• Underlying cash burn has reduced to $1.2 million per month
• $43.4 million cash balance at 30 September 2022

The figures released appear to be going in the right direction however I think they don’t necessarily show the full picture. Cash burn has decreased to $1.2m (from -$1.8m)per month which means an outflow of around $3.6m for the quarter but Cash Receipts have increased by $5.2m indicating that cash expenses have actually increased again.

ELO don’t report a 4C report anymore but just doing some simple calculating, cash expenses appear to be around $36.5m ($32.9m+$3.6m. Not including their “non recurring items”). This is up from under $34m in the last few quarters.

Whilst it is good to see an good increase in cash receipts, they need more prudent expense management if they want to aim at cash flow breakeven in the current FY.

I guess here in lies the opportunity for K1 who have tabled a bid for $4.85 per share and the board have recommended share holders to accept the bid. K1 would probably be able to gut out all the excess spending and turn ELO into a cash generating business. From a shareholders point of view it’s probably a little disappointing that this will occur under private ownership with no benefit for some holders who will likely be underwater should the takeover proceed.

Full Announcement here

Disc: Held IRL and on Strawman. Will likely sell closer to the takeover going through

Sorry just getting around to posting some straws on announcements from last week..

Elmo Software responded to media speculation relating to potential takeover offers. From their announcement:

ELMO confirms that it has received approaches expressing interest in acquiring the Company from various parties, including Accel-KKR. The Company is in discussions with selected parties in the context of maximising shareholder value.

No agreement has been reached in relation to any transaction, and there is no certainty that any proposal received will result in a binding offer or that any such offer would be recommended to shareholders.

Full announcement here

This news comes 4 months after they reported to have received a bid for control of the company at $6.10 per share (rumoured to have been from Accel-KKR).

Interesting that PE have come snooping around looking at several tech shares whilst share prices are depressed. I personally feel that ELO have the potential to be a solid cash generator in the future and is starting to look like they are scaling well after being a large cash burner in the past. However, I also think current management don't necessarily have shareholders interest as a priority given the large amount of share-based payments (doubled since FY21).

Disc: Held IRL and on Strawman.

Elmo Software released an update on their FY22 results. From their release:

• Annualised Recurring Revenue (‘ARR’) of $108.2 million, up 29% compared to 30 June 2021
• Revenue of $91.4 million, up 32% pcp
• Cash receipts of $116.9 million, up 46% pcp
• Underlying EBITDA of $7.1 million, up $6.5 million pcp  
• $47.9 million cash balance
• ARR guidance for FY23 $134‐$140 million, organic growth of 24% to 29%
• Operating cash flow breakeven forecast for FY23

They also gave guidance for FY23:

I think overall this is a good step in the right direction for ELMO which has long been known as a company which has bolted on acquisitions to fund its a growth and thus has burnt cash at an alarming rate.

Overall operating cash outflow came in at $17.4m which meant that Q4 operating expenses was around $32.7m (see my previous straw for their info on previous operating cash expenses). This is a good start for a business which is targeting operating cash breakeven in FY23.

Q4 is historically their strongest quarter and so I expect cash flow to still be negative in the next few quarters but management have said that the "Investment phase" of the business has been completed and they are now leveraging their existing customers to continue their growth trajectory. I interpret this as meaning there should be less bolt on acquisitions in the near term.

If ELMO can reach cash flow breakeven in the coming year without having to raise ($47.9m in the bank should be plenty barring any acquisitions) then we may start to see some scale benefits in the coming years.

Currently trading at around 2x fwd revenue.

Full announcement here

Full presentation here

Disc: Held IRL and on Strawman

Q3 Business Update:

Elmo Software released a business update today. From their release:

• Annualised Recurring Revenue (‘ARR’) closed at a record $101.2 million, an increase of 33% pcp
• Revenue of $67.4 million, up 37% pcp
• EBITDA of positive $2.0 million, up $3.2 million pcp, from negative $1.2 million
• Year to date cash receipts of $84.3 million, up 53% pcp
• $51.4 million cash balance
• Release of two new modules: Hybrid Work and Wellbeing
• FY22 upgraded guidance re-affirmed

Market seems to feel positive towards the update with shares up on early morning trade. I am personally not overly impressed and found this chart particularly interesting.

Cash receipts for the 1HFY22 were $56m which means Q3 came in at around $28.3m. However the cash expenses were still at $34.6 which although they have stated is stable means that they are still burning ~$7m a quarter. This is reflected in their cash balance which has decreased from $58.4m to $51.4m.

Management also stated that Q4 is their strongest quarter, and from their above chart is seems like their cash receipts from Q4 FY21 was $24.7m ($109m - $84.3m). So If I assume that their growth form Q4 is the same as for the first 3 quarters of FY22 (53%) then Q4 cash receipts should come in at around $37m. This means if they can maintain their expense control we MAY see a cash flow breakeven Q4 (which is what they have stated in their update today). I would see this as a minimum for me to hold conviction in this business.

EDIT: Sorry, re-read the announcement and they have stated cash flow breakeven will occur in 2H of FY23.

Disc: Held IRL and on Strawman.

ELMO Software released their 1H FY22 results today. Per their release:

• Annualised Recurring Revenue (‘ARR’) of $98.3 million, up 35% compared to 30 June 2021
• Revenue of $43.1 million, up 41% pcp
• Cash receipts of $56.0 million, up 63% pcp
• EBITDA of $0.3 million up $0.9 million pcp
• $58.4 million cash balance
• ARR guidance for FY22 upgraded on 1 February to $107.0-$113.0 million

Nothing too surprising given they updated the market not too long ago.

Pleasingly, cash flows from operations was positive ($3.7m) which is a good sign as cash generation was always an issue with ELMO.

Profitability is still a while away due to their large investments in acquisitions but EBITDA is positive and they are guiding for EBIDTA of $1.5m-$6.5m for the full year (not sure why there is such a big range) which would mean 2H is expected to be strong.

Disc: Held IRL and on Strawman

EDIT: Looked through the presentation as compared to their Financial Statements and not sure why they have stated Operational cash flow of -$10.9m but in the cash flow statement it has +$3.7m. I'll have another read through or maybe someone could guide me as to the reason for the difference?

ELMO Software H1 FY22 Business Update

• ARR = $98.3m up 35% this half
• Revenue = $43.1m up 41% this half
• EBIDTA = $0.3m
• Cash Receipts = $56m
• Cash on hand = $58.4 (Was $81.9 at start of half)

Updated Guidance:

• ARR = $107-113m (Was $105-111m)
• Revenue = $91-96m (Was $90.5-95.5m)
• EBIDTA = $1.5-6.5m (Was $1-6m)

Personal Thoughts:

Whilst it was pleasing to see impressive growth in ARR and Revenue as well as positive EBIDTA. Cash burn is still high with operative cash outflow of $10.9m for the half, although this has reduced from around $13.2m in the previous half.

My original thesis for purchasing was that it seemed to be growing software company on the verge of becoming EBIDTA positive which seems to be coming along. Valuations also did not seem stretched compared to other companies on the market. However the large amount of cash burn may suggest that they may need to come to the market for further funding to continue on their growth trajectory. This was always a risk with ELMO with their growth by acquisition strategy.

As this remains a relatively small part of my portfolio I am happy to hold and see how this plays out.

Disc: Held IRL and on Strawman.

Elmo Software released a market update this morning and there has been a subsequent uplift in the SP.

This is just copied from their release:

Key Highlights

• Annualised Recurring Revenue (‘ARR’) of $88.5 million, up 61% pcp
• Organic ARR growth of 35% pcp
• Revenue of $20.7 million, up 52% pcp
• Cash receipts of $27.7 million, up 78% pcp
• $75.7 million cash balance
• Release of two new modules: Experiences and COVIDsecure

Good to see some organic growth in the business following quite a few acquisitions of late.

Still need to be convinced that their ongoing cash burn will slowly turn and their uptick in cash receipts is a good sign

Personally thought it was a bit oversold after the full year results.

Valued at under 6x P/S and P/ARR.

DISC: Held IRL and on Strawman