Esker’s Q1 revenue update confirmed that despite a small reduction in documents processed due to the COVID-19 disruption, revenues grew 17% y-o-y, with cloud-related revenues up 21% y-o-y. Management maintained its outlook for c 10% revenue growth in FY20 and highlighted that the crisis is bringing into focus the benefits of automating back-office processes. We maintain our forecasts, which were recently revised to take account of COVID-19 restrictions.
Q120 revenues of €28.2m were 17% higher y-o-y (16% in constant currency); cloud-based revenues grew 21% (constant currency) to make up 92% of Q1 revenues. As has been the trend for some time, legacy and on-premise revenues combined declined 22% y-o-y. Cloud revenues benefited from 30% y-o-y growth in the US (36% of cloud revenues) and 50% growth in Asia Pacific. While Consulting revenues were 27% higher y-o-y, the company noted that transaction-related revenues, which make up 45% of group revenues (ie documents processed), were affected by the COVID-19 restrictions – management estimates this reduced March growth by c 2.7pp.
With its FY19 results in March, Esker updated its guidance to take account of COVID-19 disruption. The company noted the value of signed projects plus those in the process of implementation represent more than four months of activity. Despite a lengthening of the sales cycle and potentially lower volumes processed through the platform (partially mitigated by the diverse customer base), the company continues to expect double-digit revenue growth for FY20, with profitability similar to FY19. This assumes Esker continues to invest for future growth.
The stock has rebounded 20% from the low of €82 in mid-March, ahead of the 15% growth in the Euronext Growth index over the same period. While the stock continues to trade at a premium to document automation software and French software peers on EV/sales and P/E multiples, it is trading more in line with US SaaS software companies, which likewise have high recurring revenues, high growth and web-based delivery.