Why the Integrated Research (ASX:IRI) share price is dropping lower

The Integrated Research Limited (ASX: IRI) share price is on the slide on Wednesday.

In morning trade the performance management software company’s shares are down 2% to $3.63.

Why is the Integrated Research share price dropping lower?

Investors have been selling the company’s shares today following the release of its annual general meeting presentation.

At the event, management provided investors with a summary of its performance in FY 2020, an update on current trading conditions, and its expectations for the future.

In respect to the former, Integrated Research was a positive performer in FY 2020 and delivered solid top and bottom line growth.

Revenue came in 10% higher to $110.9 million and profit after tax also rose 10% to $24.1 million. This allowed the Integrated Research board to maintain its dividend at 7.25 cents per share at a time when many companies were either cancelling or deferring dividends.

Management notes that this result was driven by 15% growth in licence sales to $72.1 million and a solid performance from its professional services business.

Trading update.

Unfortunately, Integrated Research’s CFO, Peter Adams, revealed that the company’s positive form hasn’t continued in FY 2021.

He commented: “Our revenues for the first four months of FY21 are behind the prior corresponding period. With the ongoing global uncertainty around Covid and the election in the US, we are seeing our typical sales cycle lengthen and some customers deferring purchasing decisions.”

In addition to this, the company is facing meaningful foreign exchange headwinds.

Mr Adams explained: “With over 95% of IR’s revenues derived outside of Australia, the volatility of currency exchange rates can significantly impact our results. For example, a one cent movement in the AUD/US exchange rate can affect revenue by over one million dollars on an annualised basis. Year to date currency trends represent a headwind.”

In light of the above, the chief financial officer has warned that “there is some risk that both revenue and profit for the first half may be below the prior corresponding period.”

Long term outlook.

While FY 2021 may be a tough year for Integrated Research, management remains positive on the longer term.

Mr Adams said: “Beyond this we have a positive outlook. The recent release of new SaaS products is a key driver to future growth. We anticipate that SaaS bookings will build progressively over the remainder of FY21 and will lead to meaningful revenue contributions in FY22 and beyond.”

“These new solutions come at a time when where we see market trends moving in our favour. This includes the increase in remote working and the increase in cashless transactions,” he concluded.

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James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of Integrated Research Limited. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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