Inabox posts $1.6M net loss after acquisition write-down

Inabox posts $1.6M net loss after acquisition write-down

The company was negatively impacted by its recent acquisition, Hostworks

Inabox CEO, Damian Kay

Inabox CEO, Damian Kay

Inabox Group (ASX:IAB) has reported a net loss after tax (NPAT) of $1.6 million for the six months ending December 2017, a 434 per cent year-on-year fall from the same period the previous year.

At the same time, the company’s earnings before interest, tax, depreciation and amortisation (EBITDA) saw a 70 per cent year-on-year tumble for the period, to $700,000.

It should be noted, however, that the publicly-listed managed telco, IT and cloud provider reported a 23.6 per cent surge to $52.9 million during the period.

The fall in earnings and after-tax profit comes after the company revealed in November last year that its Hostworks cloud solutions business, which it acquired in February, would have a negative impact on the group’s financial performance in the 2018 financial year.

The company said at the time that, even though “good progress had been made integrating Hostworks operation and staff” a further review showed that Hostworks would not contribute material earnings in the current financial year.

According to Inabox, this was mainly due to three enterprise clients giving notice to move their services away and a small number of enterprise clients rationalising their services.

The half-yearly result was also negatively impacted by redundancy costs of $400,000 and an increase in amortisation and depreciation expense of $800,000, relating to recent acquisitions.

Inabox Group said in December last year it planned to cut its 300-strong employee headcount by around 10 per cent in a bid to ease company costs after the hit from poor performance within its Hostworks business.

In its half-yearly financials, published on 23 February, the company told shareholders that its $1.6 million after-tax net loss included an impairment charge of $1.1 million against intangible assets relating to Hostworks’ customer contracts and $200,000 relating to the rationalisation of the Anittel brand.

However, the company told investors it has a number of cost reduction initiatives in place to mitigate the loss. It has, for example, reviewed and impaired the entire $1.1 million balance of intangible assets relating to customer contracts and relationships acquired from Hostworks, meaning no further write-downs of this asset will take place.

It claims to have also stabilised Hostworks’ revenues, and signed a number of new clients that have the potential to grow into substantial long-term contracts.

And it is also working to leverage Hostworks’ cloud capabilities and infrastructure to develop new cloud-based products, which are expected to deliver revenue growth in FY19.

Also, helping the company turn around its bottom line going forward is an agreement signed with Telstra Wholesale for enablement services which is expected to provide significant growth opportunity from FY19.

Additionally, the company flagged new, higher-margin cloud and communications products and services to launch in the second half of the 2018 financial year.

Moreover, Inabox said it signed new agreements with three established retail service providers that are expected to migrate in the second half of FY18.

Deals should add over $4 million in annualised revenue to the Inabox Group’s indirect business, the company said.

“This will largely replace revenue lost in FY17 when the company terminated a number of unprofitable reseller agreements,” it said.

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