Schrole Group Ltd - Accelerating Growth in Q3, Cash Receipts up 24% on Pcp
Schrole Group Ltd (ASX:SCL) is an Australian software company focused on providing technology solutions to the international education and training sector. Schrole HR has a suite of five established and emerging human resources Software-as-a-Service (SaaS) offerings including its core product, Schrole Connect, a SaaS-based staff recruitment platform. Schrole Group has reported a 24% improvement in Q3 CY22 cash receipts to $1.46m and almost 60% reduction in operating cash outflows, compared with the previous corresponding period. As with recent quarterly results, the benefit of ending the uneconomic relationship with International School Services (ISS) was evident with lower Q3 cash outflow on production manufacturing costs. The operating cash outflow for the period was a loss of $0.31m, compared with a cash loss of $0.73m in Q3 CY21. We have made no changes to our forecasts following this result. Our DCF-derived base-case valuation remains unchanged at $1.15/share.
Business model
Schrole generates revenues from both transactional services and the sale of subscription licences to its proprietary software modules, which are designed to provide a sophisticated recruitment, onboarding and training platform for highly skilled staff within the international schools segment. SCL develops its software in-house, which enables more efficient development of the platform and new features while allowing for third-party integrations. In combination with SCL’s strategy of active client engagement, and the conservative nature of decision-making processes inherent within the international schools segment (SCL’s core customer base), the business has a clear competitive edge and highly defensible market position. We believe SCL has a considerable revenue growth opportunity within and across existing clients, driven by management’s targeted expansion in contract value per customer from ~$10kpa at present to ~$30kpa as schools take up more Schrole modules.
Q3 demonstrates SCL is tracking to our CY22 forecasts
Schrole Group has reported a ~60% year-on-year reduction in operating cash outflows to $0.31m in Q3 CY22 driven by a 24% increase in cash receipts to $1.46m and relatively steady cash payments year on year. The result demonstrated that the company is moving closer to cash breakeven and was the company’s fifth consecutive quarter of lower cash loss. Employee costs for the quarter were essentially flat, year on year while product manufacturing costs declined 12.2%, reflecting the ongoing benefit of the decision to exit the ISS relationship. Year to date, the company has invested an additional $0.57m in its sales team, in response to the shift to a direct sales model. The increase in head count, which we noted at the half-year, should translate into increased sales over the coming 12 months. Admin and other costs increased 25%, or $0.1m, to $0.5m for the quarter. SCL ended the quarter with $2.64m cash in hand, down from $3.26m in Q2 but up on the $2.35m reported in Q3 CY21. The company is now moving into its seasonally strongest quarter, noting that it expected to accelerate this momentum in the final quarter of the financial year, which underpins our confidence that Schrole is tracking to our CY22 forecasts. We have made no changes to our forecasts following this result.
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- Schrole Group Ltd - Accelerating Growth in Q3, Cash Receipts up 24% on Pcp26 Oct 2022