Release Date: February 25, 2025
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Spirit Technology Solutions Ltd (ASX:ST1, Financial) reported a significant year-on-year improvement in revenue, increasing from $43.7 million to $50.3 million.
- The company's cyber revenue nearly doubled to $14 million, driven by a cyber-first strategy and significant investments in cyber capabilities.
- The managed services segment showed a robust turnaround, moving from a loss of $2.5 million to a slightly positive result.
- The acquisition of Forensic IT, although small in revenue, is strategically significant for generating work and pipeline for two of the three divisions.
- The company is expanding its market footprint, particularly in Western Australia and South Australia, contributing to revenue growth.
Negative Points
- The adoption of the agent model for accounting has resulted in a reported revenue decrease from $72 million to $50 million.
- Managed services experienced a decrease in revenue due to offboarding unprofitable customers and some unintended losses.
- There are cost pressures in the communication and collaboration segment, particularly in staffing call centers.
- The company is still incurring transformation and restructuring costs, which are expected to continue until the end of FY25.
- The seasonality in the cybersecurity business, with a significant reliance on Q4, poses a challenge in maintaining consistent revenue throughout the year.
Q & A Highlights
Q: Could you please expand on the reasons for the 40/60 first half, second half seasonality that you expect in cyber?
A: The seasonality is driven by budget cycles and the compounding effect of multi-year deals. Customers often sign up in Q4 to get better pricing, leading to a buildup of recurring revenue that renews in Q4 each year. This results in a larger Q4, with the pattern repeating annually.
Q: Can you please talk to the cross-sell opportunities that forensic IT is offering to other parts of the business?
A: Forensic IT provides an entry point to market through incident response services. After a breach, InfoTrust can enhance security controls and strategy, while Spirit can assist with infrastructure recovery. This creates revenue opportunities across both sides, accelerating new customer acquisition and building strategic relationships.
Q: What are the revenue synergy opportunities for both forensic IT and InfoTrust, and also the cost synergies from both acquisitions?
A: Forensic IT's engagements are relatively small, but they provide access to security-focused customers. A recent example generated $1.5 million in work for the business. Cost synergies include leveraging expertise across teams to increase order value and improve product quality, allowing for higher pricing without increasing the cost base.
Q: How scalable is the cyber business now? Do you have the systems and processes in place to seamlessly integrate acquisitions?
A: Significant investments have been made in systems like Microsoft Dynamics and ServiceNow to ensure scalability. The focus has been on building a strong onshore leadership team and utilizing offshore resources in Manila for cost-effective growth. This setup allows for seamless integration of acquisitions and improved profitability.
Q: Could you provide any color as to what you feel the gaps are and what you're looking at in terms of future acquisitions?
A: Future acquisitions will align with the cyber-first strategy, focusing on areas like security architecture and critical infrastructure. The aim is to avoid overpriced acquisitions or those that create internal conflict. The focus is on strategic alignment, quick integration, and minimal disruption to maintain outward market focus.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
