Cirrus Networks expects hit from labour, supply chain issues despite strong H2

Managed services provider Cirrus Networks is expecting to take a hit to its revenue for the 2022 financial year due to supply chain and labour issues, despite a strong showing in the second half.

In an ASX trading update, Cirrus said it expects revenue of $104 million in the year ended 30 June 2022, a 2 percent decline year over year. H2 revenue was $59.6 million for the period, a 13.5 percent increase from the same period in the previous year.

The company called the second half growth “an excellent result” after maintaining momentum from Q2 after a “disappointing” Q1, which was driven by internal and external headwinds, including “a distracting and costly failed low-ball hostile takeover attempt”, referring to the takeover bid by Webcentral last year.

The increase also comes despite having a backlog, or customer orders contracted but not delivered or recognised, of worth $12.1 million, up $7.2 million or 147 percent year over year, due to supply chains still being impacted by the COVID-19 pandemic.

“It is very pleasing to report this FY22 result after the disappointing first half driven by significant internal and external headwinds, including a distracting and costly failed low-ball hostile takeover attempt,” Cirrus managing director Chris McLaughlin said.

“The speed and success of the business restructure decisions executed during October met our expectations and has driven the strong second half result, with improved revenue and margins on a significantly lower annualised overhead cost run rate.”

“Through the restructure the business has been re-energised, and I want to recognise and thank the wonderful Cirrus staff across all our locations who have embraced the changes and continue to be recognised for their technical expertise, innovative approach and uninterrupted focus to deliver great client outcomes.”

Following the Webcentral takeover bid, Cirrus restructured its business to reduce overhead and simplify the organisational structure, including the appointment of McLaughlin last year and a board refresh. The company said the changes had an immediate positive effect, citing improved revenue, margins and “significant” reduction in the overhead run rate from Q1 to Q2.

The revenue growth was contributed to its client base, with government (federal, state and local) representing 66 percent of FY22 revenues and Tier-1 major Australian resources companies representing 16 percent.

Services revenue also grew 17 percent to $30.9 million from $26.4 million in FY2021, with Cirrus citing a 31 percent increase in managed services annuity revenue, including a contract win with Geoscience Australia.

Professional services revenue was up $1.9 million or 27 percent in H2 from the same period last year, delivering $9 million.

“A real positive was the growth in services revenue and in particular the higher margin annuity based managed services which improved 31 percent year on year. This together with the Icon Water win and ongoing opportunities being qualified and tendered demonstrates Cirrus’ evolution into a market leading and innovative national IT managed service provider of choice,” McLaughlin added.

“The success in the second half and significant ongoing momentum, coupled with a solid debt free balance sheet and $9.6 million of cash, puts the business in the strongest position it has ever been going into a new financial year and provides confidence to deliver continued improvement in FY23 earnings.”