ST1 - Spirit Technology Solutions

[Dona Ferentes]

Record growth in Q2 21 & H1 21 across all key financial indicators (unaudited):
• Total revenue for the half was $42.7M, up 243% year on year (YoY).
• Total revenue for the quarter was $27.1M, up 338% year on year (YoY) and 73% on Q1 21.
• Q2 21 recurring revenue up 116% YoY to $11.5M and S&P** revenue up 1,768% YoY to $15.6M.
• H1 21 Underlying EBITDA* in the range of $4.1M $4.4M (H1 20 was $1.6M).
• Positive Operating Cashflow for H1 FY21 of $4.3M.
• Healthy balance sheet with $23.3M of cash and available debt as of 31 December 2020.
• Acquisition integrations ahead of schedule.

 

[Dona Ferentes]

The company today announced its intention to divest its consumer infrastructure assets.

Spirit’s consumer division provides high-speed internet to thousands of residential customers, primarily in large apartment buildings across Melbourne, Brisbane and Gold Coast. The consumer network and infrastructure assets are in 97 buildings, with access to over ~18,300 possible connections. Spirit has built a dedicated switched ethernet network in these buildings to deliver end-user speeds of up to 1 gigabit, providing a robust connection that any mixed copper model is unable to compete with - at highly competitive pricing. High profile buildings include Eureka Tower, Freshwater Place, Yarra’s Edge complex, Central Equities cluster – Southbank Melbourne and Queensland’s largest residential building Southport Central. The divestment is in line with Spirit’s shift to focus on the business market, from SME to large enterprise. The Consumer assets now account for a small amount of Spirit’s revenue compared to its B2B portfolio of assets.

“As Spirit has evolved to a large integrated IT and telecommunications provider, it is in line with our strategy to divest the consumer assets, which are no longer core to our strategy. Proceeds from the divestment will be used to continue to acquire high growth assets across cyber security, cloud and IT services, which are in high demand within our B2B customer base,” “These assets are unique, given the limited competitors servicing these types of residential buildings nationally. We see this divestment returning a material sum of capital to our balance sheet. Additionally, we’ve already had strong interest with several parties enquiring about acquiring these infrastructure and customer assets.” said Sol Lukatsky, Managing Director.

another twist on the consolidation likely to occur in the Tier 2 telco/ ICT space.

 

[Dona Ferentes]

in a Trading halt in relation to a material acquisition and a capital raising

Interesting ... pushed or shoved?

If they are selling the Consumer Infrastructure assets (mainly apartment block fibre), and now a bigger fish comes along, what's the story? A must do acquisition SME or large enterprise, too juicy to refuse, or finding it hard to sell the Retail side.

I did notice, as an aside, Spirit spent a lot of money getting involved (sponsoring, ensuring high speed access) with The Block. Would it be fair to say that was unspectacular as a promotion, seeing they are quitting that sector?

 

[Dona Ferentes]

Spirit Technology Solutions is readying a $24 million capital raise to buy telecommunications equipment outfit Nexgen, which is two businesses, one called Nexgen and the other name Business Telecom, and sells a range of data, security and voice products, like phone systems and conferencing units.

The company was forecast to generate between $7.2 million and $7.6 million earnings before interest, tax, depreciation and amortisation in fiscal 2021, and the purchase price implied a 6.5 times earnings multiple.

It is understood the purchase would double Spirit’s customer base to more than 10,500 small and medium enterprises.

Spirit would fund the deals using a mix of 70 per cent cash, from the capital raising and debt facility from CBA, and 30 per cent scrip, which would come with a vendor performance earn out.

 

[Dona Ferentes]

Spirit has brought out the rationale for the Nexgen acquisition. Market tends to agree, and ST1 is up 7% today

The acquisition brings over five thousand new clients, and one hundred new sales people to Spirit to drive organic growth, complementary products, scale and will generate an additional $36.0M in revenue with 80% of this as recurring revenue

The synergies look to come from Nexgen success in their systems, of gaining AND retaining clients successfully, with cross selling an attraction, of Nexgen now able to introduce a number of additional complementary products from Spirit including; Microsoft Teams calling products, Sell Internet/ Data products from Spirit X Platform, IT services, including Microsoft suite and cloud storage solutions, and IT peripherals

 

[Dona Ferentes]

Accounting firm BDO is carrying out a formal sales process for Sprint's legacy consumer infrastructure business, which provides high-speed internet for thousands of residential customers in apartment buildings in Melbourne, Brisbane and the Gold Coast.

A result is expected by the end of August. CEO Sol Lukatsky says the market will determine the sales price, but notes that at least 20 parties have expressed interest in the difficult-to-replicate assets.

The market for those consumer infrastructure plays is really hot, he says. The market will dictate the best price and we will take the best price.

Lukatsky says as many of Spirit's and Nexgen's customers have only one service, there's a big opportunity to increase this to two to three offerings. Cross selling efforts will be bolstered when Nexgen starts selling Spirit's IT and cyber security products later this year.

Lukatsky says Spirit "would have gone backwards" if it had remained an internet only business, given the tumbling cost of data and the difficulty of competing with the government subsidised NBN.

 

[So_Cynical]

Spirit Tech seems to be doing well, trading at close to a 36 week low but in general just long term cycling, business wise now focused on B2B with a comprehensive range of products/services to sell/cross sell, operationally profitable, seems to have reached critical mass and ready to really get going and build revenue.

 

[Dona Ferentes]

tough sector, the ICT world. The players seem to be always running, just to stand still. ST1 up a few percent on the half yearly:

And there are a lot of them, playing in the same space. Most have recent performance like this, of late.

 

[Dona Ferentes]

Highlights:
- Reported unaudited FY23 Revenue of $127M and underlying EBITDA of $5.2 million in line with updated guidance
- Launch of several new high-growth market offers:
o Managed Services cyber security defence and workplace productivity offer for SME customers, to be sold into the existing SME customer base of 7,000+ customers
o Cyber managed security solution delivered from new Security Operating Centre enables Spirit’s expansion into the growing higher value defence industry supply chain
o Additional new cyber contracts signed from a number of new and renewing ASX 100 customers in the last 3 months
o Development of Spirit’s Sustainable business enhanced with new high-growth AI offers targeting a number of the Group’s customers

Spirit Technology Solutions provides the following trading update.

The Group is pleased to report that preliminary unaudited FY2312 Revenue of $127 million (FY22 $135 million) and Underlying EBITDA is $5.2 million (FY22 $7.2 million), in line with the updated guidance provided in May 2023.

... somehow the 15 per cent lift today is lost, if looking at longer term



(NH)

 

[Dona Ferentes]

tough sector, the ICT world. The players seem to be always running, just to stand still.

1. No.
2. N/A.
3. The Company is aware of a single buyer which appears to have acquired a significant portion of shares, which in the Company’s view appears to be the main reason for the movement in price and volume.
The Company also notes that in accordance with its announced strategy it continues to evaluate andconduct due diligence on potential acquisition targets. Those due diligence exercises are at varying stages and may or may not result in binding terms being agreed for those potential targets in the future. The Company will advise the market accordingly if such acquisitions are agreed.
4. It is confirmed that the Company is in compliance with the listing rules, and in particular Listing Rule 3.1.

 

[Dona Ferentes]

pivot (cont.)

Trading Halt. 5.9c

Spirit Technologies will pay just under $35 million to acquire InfoTrust, which was founded in 2014 and provides services like secure cloud access and penetration testing to businesses.

Sources said InfoTrust is profitable, and would boost Spirit’s geographical footprint as well as margins. The deal would make cybersecurity Spirit’s biggest division, ahead of managed IT Services.

The purchase is being financed by a circa $16 million placement to its largest shareholder 263 Finance Pty, an entity related to businessman Shan Kanji (best known for chairing the board of listed IT managed services business Atturra Group).

He debuted as a substantial shareholder at Spirit in December and had secured a 19.74 per cent stake as well as a board seat by January 31. The latest placement is expected to push Kanji to the 30 per cent mark, and would require shareholder approval.

 

[Dona Ferentes]

InfoTrust provides a range of cyber security services including strategy, solution design, implementation, and support via its CISO Services Retainer, which allows customers to leverage an entire cyber security team. The Company has grown rapidly since establishment in 2014 and now services a range of leading corporates.

InfoTrust is headed by co-founder and Chief Executive Officer Simon McKay, a well-regarded cyber security market expert with over 10 years’ experience in the sector, including roles with leading multinational software company, Symantec (now Gen Digital Inc.). InfoTrust’s co-founders Simon McKay and Dane Meah will join Spirit’s Board following completion of the Acquisition.

Headquartered in Sydney, InfoTrust also has offices in Melbourne, Brisbane and Manila.

- Scales Spirit’s Cyber Security division to become the largest revenue contributor in the Company (and one of the larger cyber businesses in Australia), providing a foundation to make security services the core of the Company's products and solutions.
- Combined Cyber Security group revenue will be $65M making Spirit a major player in the cyber security market.
- Supported by strong structural tailwinds with rapidly growing demand as cyber security needs continue to evolve and become increasingly complex.

 

[Dona Ferentes]

so, bouncing along the bottom? all in all, pretty skinny
.
Trading update as Spirit achieves strongest Q4 in its history with $42M in contract wins and renewals

Strong sales finish in a turnaround year lays the foundations for FY25 growth
- Cyber Security has a record June and Q4 FY24
o Intalock achieved a record $7M3 in revenue in June up 55% on the prior corresponding period and full year revenue of $42m up 24% on the pcp
o Intalock had the largest ever TCV2
sales quarter with $19.4M sold
o Infotrust achieved its target acquisition EBITDA of $4.4M for FY24
- Communication and Collaboration rebounds with best June sales of $5.4m in TCV2
- Managed Services achieves first positive uEBITDA in June after a two-year restructuring program
- Spirit reports preliminary unaudited Group revenue to exceed $125m and preliminary unaudited Group uEBITDA
to exceed $1.6m
- Spirit set for growth in FY25 following the strong finish to FY24 with pipeline of opportunities set to grow
- Total annual recurring revenue now in excess of $70m per annum.

 

[Dona Ferentes]

up 15 per cent ... but a long long way off where it was.

Guidance for FY25
Following a strong finish to FY24 and with a growing pipeline of business opportunities, Spirit is confident that its strategy of selling combined Cyber Security, Managed Services and Collaboration platforms will support continued growth in FY25 and beyond.

With a refined focus and an optimised structure now in place, the Company
expects to improve its profitability and deliver uEBITDA of between $9.5 million and $10.5 million and revenue of between $150 million and $160 million in FY25. Spirit reported unaudited FY24 Group revenue to exceed $125m and unaudited Group uEBITDA to exceed $1.6m.

This guidance reflects Spirit achieving its record sales quarter in Q4 FY24 with $42 million in contract wins and renewals. Spirit’s total annual recurring revenue now exceeds $70 million.