Esker — Record Q2 bookings; FY24 outlook maintained

Esker (PAR: ALESK)

Last close As at 17/07/2024

EUR194.30

8.70 (4.69%)

Market capitalisation

EUR1,125m

More on this equity

Research: TMT

Esker — Record Q2 bookings; FY24 outlook maintained

Esker reported Q224 year-on-year constant currency (cc) revenue growth of 14% and bookings annual recurring revenue (ARR) cc growth of 65%. Bookings more than doubled in the Americas, helped by a large upsell to an existing customer, and had double-digit growth in every other region. On the back of the strong order intake year-to-date, management confirmed that its expectations for FY24 were unchanged. We have made small upgrades to our forecasts to reflect the strong Q2 performance.

Katherine Thompson

Written by

Katherine Thompson

Director

TMT

Esker

Record Q2 orders; FY24 outlook maintained

H124 revenue update

Software and comp services

18 July 2024

Price

€185.6

Market cap

€1,031m

$1.08/€

Net cash (€m) at end H124

46.9

Shares in issue

5.9m

Free float

78%

Code

ALESK

Primary exchange

Euronext Growth Paris

Secondary exchange

OTCQX

Share price performance

%

1m

3m

12m

Abs

9.2

6.2

37.8

Rel (local)

9.0

11.7

33.6

52-week high/low

€201.8

€111.7

Business description

Esker provides end-to-end SaaS-based document automation solutions supporting order-to-cash and procure-to-pay processes. In FY23, the business generated 53% of revenues from Europe, 41% from North America and the remainder from Asia and Australia.

Next events

H124 results

September 2024

Analyst

Katherine Thompson

+44 (0)20 3077 5700

Esker is a research client of Edison Investment Research Limited

Esker reported Q224 year-on-year constant currency (cc) revenue growth of 14% and bookings annual recurring revenue (ARR) cc growth of 65%. Bookings more than doubled in the Americas, helped by a large upsell to an existing customer, and had double-digit growth in every other region. On the back of the strong order intake year-to-date, management confirmed that its expectations for FY24 were unchanged. We have made small upgrades to our forecasts to reflect the strong Q2 performance.

Year end

Revenue (€m)

PBT*
(€m)

EPS*
(€)

DPS
(€)

P/E
(x)

Yield
(%)

12/22

159.0

23.4

3.04

0.75

61.0

0.4

12/23

178.6

19.8

2.48

0.65

74.9

0.4

12/24e

201.5

26.7

3.29

0.83

56.3

0.4

12/25e

228.8

32.2

3.91

1.00

47.4

0.5

Note: *PBT and EPS (fully diluted) are normalised, excluding amortisation of acquired intangibles, exceptional items and share-based payments.

H124 revenue +13% y-o-y, orders +50% y-o-y

Revenue and bookings growth accelerated in Q224, at 14% and 65% respectively in cc, resulting in H124 revenue growth of 13% and bookings growth of 50%. SaaS revenue increased 13% in Q224 and H124; SaaS subscription fees grew 30% in H124 offset by a 1% decline in SaaS transaction fees, reflecting the increased weighting of subscription fees in more recent contracts as well as the weaker economic environment. Implementation services revenue grew 28% in Q224 and 25% in H124 as the teams were fully utilised implementing recently won contracts, and there is a backlog of contracts that will support continued growth in H2.

FY24 outlook maintained; forecasts upgraded

Management confirmed that it continues to expect cc organic revenue growth of 12–14% and a 12–13% operating margin in FY24. We have slightly increased our revenue and operating profit forecasts, expecting 12.9% revenue growth and a 12.3% operating margin, driving EPS upgrades of 3.0% in FY24 and 0.8% in FY25.

Valuation: Reflects successful SaaS business model

Based on EV/sales and P/E ratios, the stock continues to trade at a premium to French software peers (CY P/E c 22x). We believe this is due to Esker’s high level of recurring revenue, history of and potential for double-digit profitable growth and its strong balance sheet. Esker trades broadly in line with the average of its US SaaS peer group (CY P/E c 54x), which has similar growth and margin prospects. Potential triggers for upgrades include improving traffic volumes, successful implementation of recent contract wins, evidence of margin growth and continued strength in new business wins. With net cash of €46.9m at the end of H124, the company is wellfunded to make bolt-on acquisitions or buy back shares.

Q224 revenue update

Exhibit 1 summarises Esker’s revenue and bookings performance in Q224 and H124. We note that management has disclosed the split of SaaS revenue between subscription and transaction fees for the first time.

Exhibit 1: Q224 and H124 revenue and bookings

€m

Q224

Q223

y-o-y reported

y-o-y constant currency

H124

H123

y-o-y reported

y-o-y constant currency

Revenue

SaaS subscriptions

22.1

16.7

32%

32%

42.1

32.4

30%

30%

SaaS transactions

19.9

20.4

-3%

-3%

39.6

40.1

-1%

-1%

Total SaaS

42.0

37.2

13%

13%

81.7

72.5

13%

13%

Implementation services

9.0

7.0

29%

28%

16.7

13.4

25%

25%

Legacy products

0.5

0.9

-44%

-47%

0.9

2.0

-55%

-55%

Total revenue

51.5

45.1

14%

14%

99.3

87.9

13%

13%

ARR bookings

7.3

4.6

59%

65%

13.1

8.7

50%

50%

Source: Esker

Esker reported 14% y-o-y growth in revenue in Q224 (also 14% in cc) with 13% growth for H124 (reported and cc). SaaS revenue growth was 13% for Q224 and H124, with subscription revenue showing substantial growth partially offset by declines in SaaS transaction-based revenue. Older SaaS contracts were constructed to include a monthly subscription fee and fees for transactions processed on the Esker platform, with each contributing roughly equal revenue over the life of the contract (typically three to five years). In recent years, the company has been shifting the structure of contracts in favour of subscription revenue, which provides more certainty and is not subject to variation in customer volumes. The decline in transaction-based revenue was therefore due to a combination of economic weakness reducing volumes processed and the effect of the lower weighting of transaction fees in more recently implemented contracts. See Exhibit 2 for the trend in both types of SaaS revenue.

Exhibit 2: SaaS revenue by type

Source: Esker. Note: orange = subscription revenue, blue = transaction-based revenue.

Implementation services revenue grew 28% cc in Q224 and 25% in H124. Management noted that the professional services team is operating at full capacity with a backlog of projects for implementation, providing confidence that both implementation services revenue and SaaS subscription revenue should continue to show strong growth in H224. Compared to internal resources, Esker has access to double the resources through the use of implementation partners, which should help it to deliver new contracts on a timely basis. As expected, legacy products revenue declined and now makes up only 1% of group revenue.

Another record quarter for bookings

In Q224, Esker signed new business worth €7.6m in ARR, 65% higher y-o-y cc and its highest ever bookings intake. For H124, ARR bookings of €13.1m were 50% higher cc. As the bookings ARR only takes into account contracted subscription revenue, some of the increase will be due to the higher weighting of subscription revenue in new contracts, but we assume that the majority of the growth is due to higher customer demand. Exhibit 3 summarises the order intake by product. In Q224, on a geographic basis, the Americas saw bookings growth of 116%, Europe 52%, Asia-Pacific 37% and France 18%. Management noted that it had signed a large contract in the US worth €0.9m – this was with an existing customer that already used Accounts Payable automation and had decided to automate the Accounts Receivable process too. In France, the recent political turmoil has resulted in longer sales cycles, delaying some orders. The SaaS deal pipeline stood at €198m at the end of H124, 9% higher than a year ago and roughly flat year-to-date, reflecting new deals entering the pipeline being offset by deals won in H1.

Exhibit 3: Bookings trends

Source: Esker

New Source-to-Pay functionality supports ESG data collection

We had previously written that Esker was developing new functionality to help customers meet their ESG requirements. In July, the company announced that this functionality was now available in its Source-to-Pay suite. This includes:

Ethical sourcing: Esker Sourcing by Market Dojo helps companies to identify suppliers aligned with their sustainability objectives via calls for tenders, requests for information or pre-qualification questionnaires that incorporate weighted bid scoring, which considers sustainability criteria alongside pricing factors.

Supplier evaluation and selection: Esker Supplier Management supports the creation of supplier ESG questionnaires, the monitoring of third-party indicators for ESG scores and reporting on diversity criteria.

Green purchasing: Esker Procurement catalogues include the CO2 impact of products.

Greenhouse gas emissions dashboards: Esker Accounts Payable extracts Scope 2 carbon emission metrics from utility bills and calculates Scope 1 and 3 emissions from various data sources.

Late payment prediction and early payment plan: Esker Accounts Payable helps companies to anticipate and identify invoices at risk of late payment, to safeguard financial stability and support ethical business practices.

Outlook and changes to forecasts

Management maintained its FY24 guidance for cc revenue growth of 12–14% with an operating margin in the range of 12–13%, and confirmed that it would keep headcount growth to 5% for the year, with wage increases at the rate of inflation at the start of the year (c 3–4%). We have revised up our forecasts to reflect the stronger-than-expected performance of both revenue and bookings in Q224, driving small EPS upgrades.

Exhibit 4: Changes to forecasts

€m

FY24e old

FY24e new

change

y-o-y

FY25e old

FY25e new

change

y-o-y

Revenues

200.0

201.5

0.7%

12.9%

227.7

228.8

0.5%

13.6%

EBITDA

38.0

38.7

2.0%

30.9%

45.2

45.5

0.5%

17.3%

EBITDA margin

19.0%

19.2%

0.2%

2.6%

19.9%

19.9%

0.0%

0.6%

Normalised EBIT

24.2

25.0

3.2%

37.5%

30.5

30.7

0.8%

22.9%

Normalised EBIT margin

12.1%

12.4%

0.3%

2.2%

13.4%

13.4%

0.0%

1.0%

Reported EBIT

24.0

24.7

3.2%

38.1%

30.2

30.5

0.8%

23.1%

Reported EBIT margin

12.0%

12.3%

0.3%

2.2%

13.3%

13.3%

0.0%

1.0%

Normalised PBT

25.9

26.7

3.0%

34.6%

31.9

32.2

0.8%

20.8%

Normalised net income

19.7

20.3

3.0%

35.0%

24.3

24.5

0.8%

20.8%

Reported net income

19.5

20.1

3.0%

35.0%

24.1

24.3

0.8%

21.0%

Normalised diluted EPS (€)

3.20

3.29

3.0%

33.0%

3.89

3.91

0.8%

18.8%

Reported basic EPS (€)

3.27

3.37

3.0%

33.5%

3.98

4.01

0.8%

19.0%

Reported diluted EPS (€)

3.17

3.26

3.0%

33.0%

3.85

3.88

0.8%

19.0%

Net cash

51.7

52.0

0.5%

21.8%

63.4

63.9

0.8%

23.0%

DPS (€)

0.83

0.83

0.0%

27.7%

1.00

1.00

0.0%

20.5%

Source: Edison Investment Research

Exhibit 5: Financial summary

€'m

2019

2020

2021

2022

2023

2024e

2025e

Year end 31 December

French GAAP

French GAAP

French GAAP

French GAAP

French GAAP

French GAAP

French GAAP

PROFIT & LOSS

Revenue

 

 

104.2

112.3

133.6

159.0

178.6

201.5

228.8

EBITDA

 

 

20.1

21.9

25.7

31.8

29.6

38.7

45.5

Normalised Operating Profit

 

 

12.8

14.0

16.8

21.7

18.2

25.0

30.7

Amortisation of acquired intangibles

(0.4)

(0.4)

(0.3)

(0.3)

(0.3)

(0.3)

(0.3)

Exceptionals and other income

(0.1)

0.0

0.0

0.0

0.0

0.0

0.0

Operating Profit

12.4

13.6

16.6

21.4

17.9

24.7

30.5

Net Interest

0.3

(0.1)

0.2

0.3

0.6

0.7

0.5

Associates & joint ventures

0.5

0.5

1.0

1.5

1.1

1.0

1.0

Exceptionals

0.0

0.5

0.4

(0.3)

0.1

0.0

0.0

Profit Before Tax (norm)

 

 

13.6

14.5

18.0

23.4

19.8

26.7

32.2

Profit Before Tax (FRS 3)

 

 

13.1

14.5

18.2

22.9

19.6

26.4

31.9

Tax

(3.4)

(3.0)

(3.9)

(5.0)

(4.8)

(6.3)

(7.7)

Profit After Tax (norm)

10.1

11.5

14.2

18.3

15.0

20.3

24.5

Profit After Tax (FRS 3)

9.7

11.6

14.3

17.9

14.9

20.1

24.3

Ave. No. of Shares Outstanding (m)

5.4

5.7

5.8

5.9

5.9

5.9

6.0

EPS - normalised (€)

 

 

1.86

2.03

2.42

3.11

2.55

3.41

4.04

EPS - normalised fully diluted (€)

 

 

1.79

1.99

2.37

3.04

2.48

3.29

3.91

EPS - (GAAP) (€)

 

 

1.80

2.04

2.44

3.04

2.53

3.37

4.01

Dividend per share (€)

0.33

0.50

0.60

0.75

0.65

0.83

1.00

Gross margin (%)

N/A

N/A

N/A

N/A

N/A

N/A

N/A

EBITDA Margin (%)

19.2

19.5

19.2

20.0

16.6

19.2

19.9

Normalised Operating Margin (%)

12.3

12.5

12.6

13.6

10.2

12.4

13.4

BALANCE SHEET

Fixed Assets

 

 

47.2

49.0

57.2

71.7

75.9

80.4

84.9

Intangible Assets

29.3

30.8

33.6

47.7

51.4

54.9

58.4

Tangible Assets

10.4

10.0

9.9

9.0

8.7

8.7

8.7

Other

7.4

8.2

13.7

15.0

15.9

16.9

17.9

Current Assets

 

 

52.0

72.9

71.5

90.7

96.4

109.8

126.9

Stocks

0.2

0.3

0.3

0.5

0.3

0.3

0.3

Debtors

30.0

31.4

35.5

46.2

46.2

52.4

59.6

Cash

21.4

40.4

35.0

42.9

48.8

56.0

65.9

Other

0.5

0.8

0.7

1.1

1.1

1.1

1.1

Current Liabilities

 

 

(34.3)

(50.2)

(45.9)

(45.6)

(49.8)

(52.7)

(56.3)

Creditors

(34.3)

(38.7)

(44.7)

(45.6)

(49.8)

(52.7)

(56.3)

Short-term borrowings

0.0

(11.5)

(1.2)

0.0

0.0

0.0

0.0

Long-term Liabilities

 

 

(8.3)

(6.3)

(2.5)

(18.1)

(14.2)

(12.2)

(10.2)

Long-term borrowings

(6.5)

(3.6)

0.0

(15.0)

(10.9)

(8.9)

(6.9)

Other long-term liabilities

(1.8)

(2.7)

(2.5)

(3.1)

(3.2)

(3.2)

(3.2)

Net Assets

 

 

56.6

65.4

80.4

98.6

108.4

125.3

145.4

CASH FLOW

Operating Cash Flow

 

 

20.3

24.4

28.8

22.9

36.4

36.5

42.9

Net Interest

0.4

(0.0)

0.3

0.2

0.4

0.7

0.5

Tax

(3.3)

(0.9)

(3.4)

(4.5)

(5.3)

(6.3)

(7.7)

Capex

(11.0)

(10.2)

(11.1)

(14.7)

(16.0)

(17.5)

(18.5)

Acquisitions/disposals

(0.5)

(0.5)

(5.9)

(7.5)

(1.1)

0.0

0.0

Financing

1.4

0.0

2.8

1.1

0.3

0.0

0.0

Dividends

(2.2)

(1.9)

(2.9)

(3.6)

(4.5)

(4.0)

(5.2)

Net Cash Flow

5.0

11.0

8.5

(6.0)

10.2

9.3

11.9

Opening net debt/(cash)

 

 

(16.6)

(21.0)

(30.3)

(38.6)

(32.6)

(42.7)

(52.0)

HP finance leases initiated

0.0

0.0

0.0

0.0

0.0

0.0

0.0

Other

(0.6)

(1.7)

(0.2)

(0.1)

(0.1)

0.0

0.0

Closing net debt/(cash)

 

 

(21.0)

(30.3)

(38.6)

(32.6)

(42.7)

(52.0)

(63.9)

Source: Esker, Edison Investment Research


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This report has been commissioned by Esker and prepared and issued by Edison, in consideration of a fee payable by Esker. Edison Investment Research standard fees are £60,000 pa for the production and broad dissemination of a detailed note (Outlook) following by regular (typically quarterly) update notes. Fees are paid upfront in cash without recourse. Edison may seek additional fees for the provision of roadshows and related IR services for the client but does not get remunerated for any investment banking services. We never take payment in stock, options or warrants for any of our services.

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General disclaimer and copyright

This report has been commissioned by Esker and prepared and issued by Edison, in consideration of a fee payable by Esker. Edison Investment Research standard fees are £60,000 pa for the production and broad dissemination of a detailed note (Outlook) following by regular (typically quarterly) update notes. Fees are paid upfront in cash without recourse. Edison may seek additional fees for the provision of roadshows and related IR services for the client but does not get remunerated for any investment banking services. We never take payment in stock, options or warrants for any of our services.

Accuracy of content: All information used in the publication of this report has been compiled from publicly available sources that are believed to be reliable, however we do not guarantee the accuracy or completeness of this report and have not sought for this information to be independently verified. Opinions contained in this report represent those of the research department of Edison at the time of publication. Forward-looking information or statements in this report contain information that is based on assumptions, forecasts of future results, estimates of amounts not yet determinable, and therefore involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of their subject matter to be materially different from current expectations.

Exclusion of Liability: To the fullest extent allowed by law, Edison shall not be liable for any direct, indirect or consequential losses, loss of profits, damages, costs or expenses incurred or suffered by you arising out or in connection with the access to, use of or reliance on any information contained on this note.

No personalised advice: The information that we provide should not be construed in any manner whatsoever as, personalised advice. Also, the information provided by us should not be construed by any subscriber or prospective subscriber as Edison’s solicitation to effect, or attempt to effect, any transaction in a security. The securities described in the report may not be eligible for sale in all jurisdictions or to certain categories of investors.

Investment in securities mentioned: Edison has a restrictive policy relating to personal dealing and conflicts of interest. Edison Group does not conduct any investment business and, accordingly, does not itself hold any positions in the securities mentioned in this report. However, the respective directors, officers, employees and contractors of Edison may have a position in any or related securities mentioned in this report, subject to Edison's policies on personal dealing and conflicts of interest.

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Edison Investment Research Pty Ltd (Edison AU) is the Australian subsidiary of Edison. Edison AU is a Corporate Authorised Representative (1252501) of Crown Wealth Group Pty Ltd who holds an Australian Financial Services Licence (Number: 494274). This research is issued in Australia by Edison AU and any access to it, is intended only for "wholesale clients" within the meaning of the Corporations Act 2001 of Australia. Any advice given by Edison AU is general advice only and does not take into account your personal circumstances, needs or objectives. You should, before acting on this advice, consider the appropriateness of the advice, having regard to your objectives, financial situation and needs. If our advice relates to the acquisition, or possible acquisition, of a particular financial product you should read any relevant Product Disclosure Statement or like instrument.

New Zealand

The research in this document is intended for New Zealand resident professional financial advisers or brokers (for use in their roles as financial advisers or brokers) and habitual investors who are “wholesale clients” for the purpose of the Financial Advisers Act 2008 (FAA) (as described in sections 5(c) (1)(a), (b) and (c) of the FAA). This is not a solicitation or inducement to buy, sell, subscribe, or underwrite any securities mentioned or in the topic of this document. For the purpose of the FAA, the content of this report is of a general nature, is intended as a source of general information only and is not intended to constitute a recommendation or opinion in relation to acquiring or disposing (including refraining from acquiring or disposing) of securities. The distribution of this document is not a “personalised service” and, to the extent that it contains any financial advice, is intended only as a “class service” provided by Edison within the meaning of the FAA (i.e. without taking into account the particular financial situation or goals of any person). As such, it should not be relied upon in making an investment decision.

United Kingdom

This document is prepared and provided by Edison for information purposes only and should not be construed as an offer or solicitation for investment in any securities mentioned or in the topic of this document. A marketing communication under FCA Rules, this document has not been prepared in accordance with the legal requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of the dissemination of investment research.

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United States

Edison relies upon the "publishers' exclusion" from the definition of investment adviser under Section 202(a)(11) of the Investment Advisers Act of 1940 and corresponding state securities laws. This report is a bona fide publication of general and regular circulation offering impersonal investment-related advice, not tailored to a specific investment portfolio or the needs of current and/or prospective subscribers. As such, Edison does not offer or provide personal advice and the research provided is for informational purposes only. No mention of a particular security in this report constitutes a recommendation to buy, sell or hold that or any security, or that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person.

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United Kingdom

London │ New York │ Frankfurt

20 Red Lion Street

London, WC1R 4PS

United Kingdom

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