ReadyTech Holdings Limited (ASX: RDY) is one ASX Small Cap Stock that is indicating towards its revenue growth accelerating with an underlying EBITDA margin of 34% to 35%.
ReadyTech Holdings Limited in its annual financial results for the fiscal year 2024, concluding on 30 June 2024, reported a total revenue increase of 10.2%, reaching $113.8 million for FY24, compared to $103.3 million in FY23.
RDY is considered among Growth Potential Stocks as it is primarily driven by a 13.1% rise in subscription and license revenue. However, revenue from implementation, training, and other services saw a decline of 3.1%, attributed to delays in several significant enterprise contracts that were postponed from the second half of FY24 to FY25, alongside a strategic shift towards more efficient, standardized implementations. Subscription revenue constituted 83.8% of the total revenue.
During FY24, ReadyTech secured 22 new significant enterprise contracts, with an annualized deal value of $12.5 million, resulting in a 25% increase in average revenue per new customer, which reached a record $119.1k. The company achieved a net revenue retention rate of 104%, indicating robust customer loyalty, minimal churn, an increased share of wallet, and advancements in transitioning IT Vision customers to cloud solutions.
Total expenses rose by 9.6%, which was lower than the revenue growth rate, amounting to $75.0 million. This increase was mitigated by operational efficiencies and initial productivity gains from AI integration in software development and other critical areas.
Underlying EBITDA grew by 11.5% to $38.8 million, maintaining a margin within the expected range at 34.1% (up from 33.7% in FY23). The underlying cash EBITDA margin improved by 150 basis points to 17.8%, with expectations for further enhancement towards a medium-term goal of exceeding 20%.
The company’s cash flow remained robust, supported by ongoing growth in recurring revenue streams. Cash flow from operating activities reached $40.3 million in FY24, an increase of $7.1 million compared to the previous corresponding period, resulting in a cash flow conversion rate of 103.7%.
As of 30 June 2024, ReadyTech maintained a solid financial position, with $29.9 million in available funds and a net leverage ratio of 0.5x, reinforcing the strength of its balance sheet to facilitate strategic growth initiatives.
The company sustains a prioritized emphasis and persistently directs significant investments towards Research and Development (R&D), which constituted a notable 30% of ReadyTech’s revenues in FY24. Concurrently, its initiatives in Sales and Marketing are anticipated to enable the company to uphold its double-digit growth rate, which is projected to further accelerate in FY25. Additionally, the company aims to achieve a medium-term revenue target of $170 million by FY27, with an expected EBITDA margin exceeding 20%. The R&D initiatives are expected to be instrumental in reaching these objectives, particularly with the forthcoming introduction of the 'Ask AI' policy and process agent, which is anticipated to enhance customer engagement and experiences in the short term.
ReadyTech exhibits a Robust Growth besides a remarkably stable growth trajectory, having achieved a revenue increase from $39 million in 2020 to an impressive $113 million in 2024. This represents nearly a threefold growth over the past five years. The company's objectives for continued financial expansion remain attractive for enhancing shareholder value and appear attainable, particularly in light of its extensive project pipeline and advancing technological capabilities, notably through the enhanced integration of artificial intelligence. Additionally, the consistent flow of contracts underscores the company's strengthening market position. Furthermore, ReadyTech’s entry into the Higher Education sector is poised to facilitate a significant financial breakthrough in the future, given the significant addressable market of approximately $240 million.
Source: Company’s Report
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