Delayed projects see RXP Services downgrade earnings by millions

The adjusted range sees the company drop its revenue forecast by up to $5 million from its previously stated guidance

The delayed start and ramp-up of a number of major client projects in the second half of the financial year and the deferral of associated digital product sales has seen digital services consultancy RXP Services (ASX:RXP) downgrade its full-year revenue results by millions.

The publicly-listed company, which counts Amazon Web Services (AWS), Adobe, CA Technologies and Alteryx among its vendor partners, told shareholders on 17 May that its 2018 full financial year revenue is expected to be in the range of $145 million to $146 million.

The adjusted range sees the company drop its revenue forecast by up to $5 million from its previously stated guidance of around $150 million in revenue for the year.

At the same time, the company warned shareholders that its underlying earnings before interest, tax, depreciation and amortisation (EBITDA) would likely be within the range of $15.8 million to $16.1 million for the full-year. The company’s previously stated underlying EBITDA margin was around 13.3 per cent, equating to around $19.95 million.

The company said that margin pressure and decline in revenue associated with its traditional business has impacted more than anticipated in the second half of the 2018 financial year.

However, the company also flagged the continued uptake of its digital services, which continues to grow and is expected to strengthen over the next year.

“The margin pressure on our traditional business has taken us longer to stabilise than planned and, whilst we have been successful in minimising the impact on revenue, this has adversely impacted earnings,” RXP Services CEO and managing director Ross Fielding said. “Profit has also been impacted by the delayed start to a number of important digital projects and associated product sales.

“While we are disappointed with the performance over the last 12 months, the company remains committed to a transition in work mix that ensures we can take advantage of the digital evolution occurring across all businesses.

“We recognise the need to address and make changes to the cost base of our traditional business as we transition the work mix. Also, with our digital work growing, we will be focused on improving our ability to forecast this type of work and make better resource allocation decisions,” he said.

In October last year, RXP Services unveiled plans to open a new office in Melbourne, designed to accomodate its subsidiary, The Works.

The move came after the national solutions provider reported $140.5 million revenue for the 2017 financial year, or 11 per cent growth compared to $127.1 million revenue in 2016.