Systems integrator and managed services provider Maintel has given three reasons why it has had to revise its profit expectations.
It has just released a trading update stating that it had expected to recover the reduction in gross margin in the first half of this financial year, but “it is now evident that this will not happen”, and then outlined three reasons for the revision.
The first centred on the acquisition of Azzurri Communications in May 2016. This deal arrived with two large legacy contracts that were due to wind down over the trading period up to the end of first-half 2018.
“Both of these contracts generated higher gross margins than the group’s average contracts”, said the firm.
“Both contracts have migrated away more quickly than expected and, as a result, less revenue than originally anticipated will be generated from these customers throughout the second half of full-year 2017 and the first half of 2018.”
The second reason was that managed services and technology performance has “been adversely impacted” by delays to customer installations following the Avaya Chapter 11 process.
“The impact has been greater than expected due to prolonged delays in the resolution of the process.
The bankruptcy court approved Avaya’s reorganisation on 28 November, enabling Avaya to exit Chapter 11 by the end of 2017.
“Regarding Avaya, the group is pleased to report that ordering activity started to recover in November which will positively impact Q1 2018”, Maintel said.
The third reason concerned the integration of Intrinsic Technology, which is “going well”, with all of the Intrinsic systems migrated onto one system on 1 December.
“The revenue contribution is in line with our expectations at the time of the acquisition although the gross margins achieved have been lower than anticipated,” the firm stated.
Maintel now forecasts that it will have adjusted EBITDA in the range of £12.5 to £13 million. That still represents a 12 to 18 percent increase on the £11 million adjusted profit before tax posted last year after the acquisition of Azzurri Communications pushed revenue up 114 percent to £108 million.
Analysts are expected a full-year dividend to grow 10 percent year on year in line with existing guidance.
Managed service provider Maintel has been doing rather well since it wrote a cheque for Azzurri.
According to the company’s latest results, the firm has seen its numbers swell thanks to the on going contribution from the acquisitions of Azzurri and is looking forward to gains in the second half as the benefits of the Intrinsic deal start to filter through.
Last year saw Maintel reporting revenues up by 114 per cent to £108.3 million with pre-tax profits also going up by a healthy 52 per cent to £11.1 million with recurring revenue hitting 73 per cent.
The firm is on track to hit similar revenue growth with H1 delivering a 68 per cent increase from the same period last year, to £63.8 million from £38.1 million with gross profit up by 50 per cent to £19.6 million
Maintel is now one of the largest communications integrators in the UK, with combined revenues of around £150 million and a staff of around 700. The first half has included more integration of the Azzurri business and more uptake of the cloud services that the channel player has developed in-house.
The firm has invested in its own ICON cloud platform, which has helped it grow by 55 per cent.
Maintel acquired Intrinsic for £5.25 million at the start of August which gave the firm access to Cisco gold partner status, the Avaya Edge Diamond level and a strong background in network security and unified comms. The £48.5 million deal for Azzurri was hatched out in April 2016.
Maintel has written a cheque for £5.25 million to buy Intrinsic in a deal which appears surprisingly good.
Maintel said buying Intrinsic will create a £160 million company and it appears to have been a bargain, even if the two companies will find integration a little difficult.
In a filing posted to the AIM stock exchange, Maintel said that for the 12 months ending May 2017 Intrinsic reported an adjusted loss before tax of around £550,000.
In its most recent filing on Companies House, Intrinsic reported revenue of £48 million for the extended 18 month period ending 31 May 2016, but Buxton said that the business is not currently trading at this level.
Intrinsic’s Merseyside office is set to remain open for the foreseeable future and its London staff will be moved into Maintel’s nearby Blackfriars office. The Intrinsic name, meanwhile, is set to be retired at the beginning of Maintel’s financial year on 1 January 2018.
Intrinsic has had a pretty unhappy life of late. It has undergone as series of management changes since it was the subject of a management buyout in 2011.
From a technology point of view, the main draw for Maintel was Intrinsic’s Cisco Gold status which it has not had in its portfolio.