ELMO Software Ltd (ASX: ELO), the high flying small cap tech company has reaffirmed its upgraded FY 2018 guidance in its quarterly update today with acquisitions boosting the company's performance for the quarter.
The company announced that:
- Pro forma SAAS revenue for the year is expected to be $30 million, up 89% compared to FY 2017
- EBITDA for the year of $6 million is expected, which is 368% higher than FY 2017
- Cash receipts of $7 million for the last quarter are 46% higher than the prior corresponding period
While the above figures include the acquisitions of Sky Payroll and Pivot Software, growth investors will still be excited by Elmo for the following reasons.
- Founder led. Co-founder Danny Lessem owns a significant portion of the company and his interest are likely to be aligned with shareholder interests.
- Scalable business model. The company's cloud based HR and payroll software can be replicated to more clients at a lower marginal cost which drives up profit margins.
- Strong growth. The company has achieved strong organic growth which has been supported by the bolt on acquisitions of Sky Payroll and Pivot Software
Risks
Despite the strong growth, there are some risks to investing into Elmo. One risk is that the market tends to build in expectations of further growth into the share price which can result in the share price dropping when those expectations are not met.
One mitigating factor is that Elmo has very little debt and significant amounts of cash to back up its operations.
Foolish takeaway
I think Elmo would be a good addition to a diversified growth portfolio along with SEEK Limited (ASX: SEK), Xero Limited (ASX: XRO) and Bravura Solutions Ltd (ASX: BVS).
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