Inabox's acquisition of Hostworks will severely impact revenue

Inabox has revealed that a poor performance from Hostworks, the managed cloud hosting business it acquired earlier this year, will have a significant negative impact on its overall financial performance.

The company acquired Hostworks in February this year for up to $7 million, including $5 million upfront, in an effort to speed up Inabox's expansion into cloud services and provide additional cross-selling opportunities to managed IT and wholesale customers.

Inabox initially expected Hostworks to contribute $21.8 million in revenue and $3.5 million in earnings in the 2018 financial year.

However, Inabox said today that the current outlook for Hostworks was "extremely disappointing", and was likely to contribute just $15 million in revenue and provide negligible earnings.

The issues were pinned on a small number of enterprise customers rationalising their services, and another three enterprise customers that moved their services away.

Inabox said it would take measures to better align its costs, including a "cost-reduction program" expected to save $2 million, as well as focus on high-margin revenue businesses. Inabox said it would likely record a non-cash impairment charge as well.

Inabox said it expected Hostworks would contribute meaningful earnings in FY19.

"While we are encouraged by strong performance and prospects for our other business units, it is very disappointing that the performance of Hostworks has been so significantly impacted for FY18," Inabox chief executive Damian Kay said.

"We remain highly confident that Hostworks will prove to be a valuable addition to Inabox and our clients and that it will generate significant value in the years ahead. In the meantime, however, we intend to focus on structuring our business to improve profitability and to ensure we move into the second half of FY18 in a much stronger position."

The company now expects revenue for the first half of FY18 in excess of $50 million with earnings in excess of $2 million, but anticipates recording a net loss.

Inabox reported flat revenue of $90 million in FY17, as well as $1.5 million in restructuring costs related to Hostworks, as well as the $1.5 million acquisition of Logic Communications in March.