Highlights  

• Cash flow negative (-2.23m), an improvement on Q3 (-2.9m). This was mainly due to increased cash receipts – up 29% QoQ – and a small reduction to costs.
• Cash on hand 5.4m. 
• Contracted ARR growth for FY22 at 7.9m. It went backwards in Q4 (was 7.75m in Q3).  

As @Rapstar indicated a few months ago, management promised a reduction in costs. Advertising almost halved to 366k and staff costs decreased from 2.1m to 1.82m. Despite this, R&D spending increased (from 1.07 to 1.27m) and advertising/business costs increased 200k. In short, costs decreased, but not a great deal.

The business noted that they increased prices for existing customers. 23 customers were ‘added’ in Q4, but reported customer numbers only increased from 304 to 320. Customer churn might be attributed to the business increasing pricing. This is an area to watch though – if IHR don’t lose too many customers over the next 3-6 months it would suggest at least some level of pricing power.  

Another concern is ARR, which decreased slightly in Q4. Yes, slow quarters happen, but another one would raise some alarm bells. On a more positive note, Q4 saw contracted subscribers increase from 64k to 71k – one metric very much moving in the right direction.  

Holders beware – with 5.4m left in cash the business is staring down the barrel of a capital raise, unless they can secure a loan. They have enough funding to last them 3 quarters, at most (that is being generous).  

Disc: not held  

@PinchOfSalt, agreed.

I didn't want to post a straw due to me previously being pretty bearish on IHR, despite liking the company. I don't want to come across like a consistent negative nancy every time they announce results/updates -- but your straw has baited me!

Ignore the noise and pretty graphs for a second - the cash flow statement makes me run for the hills:

When compared to Q2, we have seen a decent increase in receipts from customers of 179k. This is offset by increasing marketing (-174k), increasing R&D costs (-50k - although i dont think this is an issue) and increasing staff costs (-196k). There is no evidence of scaling here -- their continued global expansion is impressive but I want to see improvements to the cash flow statement before even thinking about investing.

Burning 3m a quarter is not sustainable in this environment. At this rate, they have around two quarters left of cash so they a capital raise can't be far away. I wouldn't be surprised if they raise in the next quarter to be completely honest, otherwise they risk causing a declining share price as investors start to smell it coming.

Highlights/snapshot

• ARR increase to 5.67m, up 90% YoY.
• Customer cash receipts increase to 2.37m, up 119% YoY.
• Three consecutive quarters of record organic growth.
• Two other revenue figures – implementation and global – included in the snapshot. *Red flag number one*
• Operating loss 4.6m, well up on H1 FY21’s 3.03m.
• 10.8m cash on hand
• Revenue per headcount up 27% YoY – see graphic below.

There is no denying that the company is achieving impressive revenue growth, the result of an increase in subscribers on platform and enterprise customer wins. Pleasingly, churn is very low – somewhat validating the company’s offering. The below demonstrates what portion of IHR’s ARR comes from enterprise customers, in comparison to mid-market and small customers:

Interestingly churn was reported at 0% for enterprise. This suggests that, once adopted, IHR is sticky and obviously useful for enterprise. This also supports the view that IHR should really be targeting these big enterprises to best support its growth.

The reason I like IHR is due to their tailwinds post-pandemic. We are already seeing a shift in businesses needing to support more flexible and remote working arrangements, in addition to a more digitalized workforce (systems and people). IHR seeks to optimize HR admin costs, increase engagement and wellbeing, increase productivity through streamline and subsequently reduce turnover as a result. Provided we continue to see steady growth and low churn, this is a business I want to keep a close eye on as they continue to develop and grow.

I have one big issue though: costs. As it stands, the business is throwing cash at achieving this growth. Yes, there is a good case to suggest this is necessary, particularly in the development/growth phase they are in. But current investors will be the ones to pay for that, likely through dilution and a down-trending share price. Revenue increases have come at the expense of higher employee payments/benefits for a year now:

To delve into the loss figure a little, it consists of employee benefits (3.6m), admin expenses (nearly 1m) and marketing (nearly 1m), with D&A at 1m. To achieve a revenue increase of 119%, supplier and employee costs increased by 118%.

This suggests they are not scaling as well as I would have hoped. This is a big problem for a) dilution and b) the short/medium term outlook for these sorts of plays, which remain unfavourable. With 10m in the bank, IHR is staring down the barrel of a capital raise, likely within the next 12 months. They absolutely screwed retail investors with the last one, so many likely wont be too happy with this. I am also concerned that, to continue growing, IHR will have to continue to inject more funds into business operations (staff and marketing) to ensure revenue increases – ie justifying the high growth play that it is. I think this has a lot of similarities with Whispir (WSP) at the moment.

And like WSP, it remains on the watchlist, where I envisage it will remain for the next year. What I will be monitoring going forward is IHR's ability to continue to achieve revenue growth without costs increasing. Even better, if they manage to achieve ongoing growth with costs actually reducing, then we might be onto something.

Disc: not held