Arq Group CEO leaves as enterprise business crumbles

Arq Group’s enterprise division could soon be up for sale following a marked deterioration in business that has seen chief executive Martin Mercer leave the company.

Upon lifting a trading halt this morning, Arq Group issued a trading update (pdf) revealing that softening market conditions meant the company won’t be able to reach its previous revenue growth forecast for the second half of 2019.

As a result, Arq Group expects just $1 – 2.5 million in underlying EBITDA from its enterprise division for the entire 2019 financial year, down from $12 - $14.5 million. Overall, predicted underlying EBITDA was also written down from $27 – 30.5 million to $16.8 - $19.3 million.

The previous guidance, issued in June 2019, was predicated on growth from existing and new accounts that hasn’t eventuated. The issue has been impacted by a number of existing customers reviewing their expenditure, pausing or deferring any existing work. Arq said the issues were compounded by an increased focus on costs across a range of its customer sectors.

Arq Group added that enterprise margins were affected by an overhead structure that’s not appropriate for the size of the business. Since June, however, Arq has removed $1.2 million in overhead costs and expects to remove another $1.1 million throughout the remainder of 2019.

Arq Group also mentioned in its trading update that it has tapped Macquarie Capital to undertake a strategic review of the company, which may culminate in selling the enterprise and SMB businesses. The SMB business is trading in line with previous forecasts with core underlying EBITDA of $9.7 - $10.7 million for 2019.

CEO Martin Mercer has also agreed to leave the business given a partial acquisition would leave Arq Group a “smaller, less complex business,” according to the company. Arq Group has commenced a search for a replacement, appointing Infoready founder and managing director Tristan Sternson as interim CEO. Arq Group, then known as Melbourne IT, acquired Infoready in April 2016.

“Over almost six years, Martin has led a major re-shaping of the company,” said Arq Group chairman Andrew Reitzer.

“We have grown from a team of approximately 250 people selling domains and hosting services to a team of approximately 750 people supporting businesses of all sizes in their digital transformation. On behalf of the board, I thank Martin for his leadership and wish him all the best.”

Arq Group's shares were trading at 54 cents at the time of writing, but sold for around $3.50 apiece in May 2018.