Inabox Group Limited (ASX:IAB) CEO & Managing Director Damian Kay discusses the company's 1H18 results, the impact of its Hostworks business and new growth and profitability initiatives.Jessica Amir: Hi, I'm Jessica Amir for the Finance News Network. Joining me from Interbox Group is its CEO and managing director, Damien Kay. Damien, welcome back.
Damian Kay: Thank you very much.
Jessica Amir: So for investors new to the company, just give us a quick recap.
Damian Kay: You know, we started the business more than 10 years ago and today, you know, we're more than 12 locations. We turn over more than $100 million a year in annualised revenue, and we do that across three channels, selling managed IT, managed telco, and managed cloud through those channels.
Jessica Amir: Now to your first half 2018 results, just give us the highlights, starting with finances.
Damian Kay: There's no denying it was a disappointing result. You know, in November we identified a small number of customers in the Hostworks, from the Hostworks acquisition. We're rationalising their spend with the Hostworks business, which was unexpected. As a result, EBITDA the underlying EBITDA, was roughly in line with a comparable period. In a way, it's a credible result given that we had also sold HCS and we managed to replace that revenue and profit. But overall, being a flat result is fairly disappointing.
From a net profit after tax point of view, they were impacted due to that Hostworks situation that I mentioned. You know, we wrote down some of the value of that investment to the tune of around $1.3 million. And also due to what happened in November, the redundancy costs that followed through those cost saving initiatives.
So overall, a disappointing result. We now move forward from there.
Jessica Amir: And what were the operational highlights?
Damian Kay: The Hostworks situation has really overshadowed a lot of good things and a lot of positive things that are happening within the business. In December, we signed a landmark agreement with Telstra Wholesale to provide white labelled enablement services to their customers. We've put on a record number of wholesale customers in that channel, including $4 million annualised revenue of existing business that we're migrating during the second half. The enablement channel continues to perform strongly with growth of 80% as SOOs start to come onto that platform and those investments that we've made there as well.
We've extended our credit facilities and our debt funding with the Commonwealth Bank for the next three years, to 2020, and we continue to trade within our covenants.
Jessica Amir: And can you give us an update on the Hostworks business?
Damian Kay: The focus for the last couple of months has obviously been to settle the teams, you know, post changes that we made in December. And those cost saving initiatives, which included obviously a number of staff leaving the business, and also stabilising the revenue base. We've now done that and our focus now is truly on growth and we've managed to sign a few new customers onto the Hostworks platform. And also one of the big initiatives that we were doing was to simplify the cloud product and so that we can actually sell that. It's called Cloud in a Box. We can now sell a very simplified cloud product through our existing channels. And that is a big focus, and that is now in a proof of concept stage as well.
Jessica Amir: And earlier you mentioned growth, and I just like to hone in on that, talking about growth and profitability. What really is the breakup between one-offs and ongoing revenues?
Damian Kay: Look, the business is very, very strong in recurring revenues, and it continues to be a focus for the business, including the Hostworks business that we acquired. We've got 81% of our revenues are recurring compared to project worked and hardware that we sell to some of our customers, which only represents 19% of the business.
Jessica Amir: So what areas are growing the fastest?
Damian Kay: There's no denying that the enabled business and the wholesale business is powering on. You know, we continue to put a record number of customers into the wholesale business, including three new customers that have existing spend with other carriers. And we'll be migrating those customers over in the second half of FY18. And the enabled business, of course, we continue to grow that business with revenues over 80% and a number of large brands, national brands, in the pipeline and currently working through that to on-board those customers as well.
Jessica Amir: So last question now, what's your outlook for the second half of this financial year?
Damian Kay: The second half of FY18 would be roughly in line with the first half underlying result. That's as a result of us continuing to replace the lost revenue and margin from the HCS business as well as obviously stabilising the Hostworks business. Our focus really is on continued growth and organic growth as we bring our new customers in the enablement channel, continue to realize the gains of the customers coming on in the wholesale channel, and we continue to focus purely on organic growth, organic growth, and organic growth.
Jessica Amir: Well Damien Kay, thank you so much for the update.
Damian Kay: Thank you very much, Jessica.
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