ReadyTech (RDY) $3.26

The student and workforce management software company announced half-year results yesterday with a strong first 6 months overshadowed by some softer outlook comments, seeing the stock close at 6-month lows on the day. We had a chance to speak to the management team following the result yesterday, and we remain confident in the position following the update.

On to the result. Revenue up 14.7% to $54.7m which was largely in line with expectations. Growth was driven by +17% subscription revenue, which signals a more sticky customer base, plus net revenue retention came in at 103%. The underlying EBITDA of $17.4m was also in line with expectations, implying a 31.8% margin. Cash EBITDA margins did improve on better operating earnings and working capital, which shows operating leverage is coming through.

Revenue growth guidance was reduced from mid-teens to low double digits, implying a small downgrade to consensus at the top line. ReadyTech pointed to a lengthening sales cycle as as customers push out decisions on software updates as a result of budget uncertainty. Underlying EBITDA margin guidance was left unchanged at 34-35%. This implies strong cost control despite lower-than-expected revenue growth in the second half. However, it also means a significant bump up from the 31.8% seen in the first 6 months. Management gave good colour around the nature of some of the 2H revenue with some topline income earned at 100% margin.

Medium-term guidance was also adjusted, the company is now looking for Revenue of greater than $170m by FY27 (vs prior target of >$160m by FY26). Overall, the outlook remains largely positive, if not slightly pushed out. We see value in RDY trading on less than 20x EV/Cash EBITDA vs peers ~50x. They are getting validation of the product from customers, as well as third-party providers, including IT solutions provider Atturra (ATA), which was very bullish on their prospects with ReadyTech’s workforce stack it offers to customers.