Spirit Completes Acquisition of Nexgen Group

Spirit Technology Solutions (ASX.ST1) is pleased to announce that it has completed the acquisition of the Nexgen Group (comprising the Nexgen and Business Telecom businesses). The Nexgen acquisition brings over five thousand new clients, and one hundred new sales people to Spirit to drive organic growth, complementary products, scale and is expected to generate $36.0M in combined revenue with 80% of this as recurring revenue.

Highlights:

•  Over 5,500 Data & Voice business customers with 4,000 being contracted or recurring (80%)
•  Average contract term is 4.5 years with no customer concentration.
•  +100 sales team members instantly join Spirit to sell the existing Nexgen products and cross sell Spirit’s Internet, Cloud, Voice, Mobiles and Cyber Security.
•  Nexgen is tracking to a forecast FY21 EBITDA in the range of $7.2M - $7.6M, the implied multiple is 6.5x with the completion payment (including a deferred component of $10M) capped at $50M excluding any agreed Milestone Incentives available based on performance target for FY22 and FY23

Disc: I hold

Spirit announces intention to divest consumer infrastructure assets

Spirit’s consumer division provides high-speed internet to thousands of residential customers, primarily in large apartment buildings across Melbourne, Brisbane and Gold Coast.

The consumer network and infrastructure assets are in 97 buildings, with access to over ~18,300 possible connections. Spirit has built a dedicated switched ethernet network in these buildings to deliver end-user speeds of up to 1 gigabit, providing a robust connection that any mixed copper model is unable to compete with - at highly competitive pricing. High profile buildings include Eureka Tower, Freshwater Place, Yarra’s Edge complex, Central Equities cluster – Southbank Melbourne and Queensland’s largest residential building Southport Central.

The divestment is in line with Spirit’s shift to focus on the business market, from SME to large enterprise. The Consumer assets now account for a small amount of Spirit’s revenue compared to its B2B portfolio of assets.

“As Spirit has evolved to a large integrated IT and telecommunications provider, it is in line with our strategy to divest the consumer assets, which are no longer core to our strategy. Proceeds from the divestment will be used to continue to acquire high growth assets across cyber security, cloud and IT services, which are in high demand within our B2B customer base,”

“These assets are unique, given the limited competitors servicing these types of residential buildings nationally. We see this divestment returning a material sum of capital to our balance sheet. Additionally, we’ve already had strong interest with several parties enquiring about acquiring these infrastructure and customer assets.” said Sol Lukatsky, Managing Director.

The Company has appointed Tony Schiavello, Partner from BDO Melbourne’s M&A team to conduct a formal sale process.

The divestment will have no impact on existing customers and will see a seamless transfer to the new acquirers. The divestment process will run through Q3-Q4 FY21.

- ENDS –

DISC: I hold

This might have been foreshadowed in the ASX notice on 23/3/21 when they said

"Revenue mix continues to reflect shift towards medium & corporate market with higher value contracts."

Spirit Delivers Profitable H1 21 & Record Revenue Strong performance across all key financial metrics (reviewed):

•  Record H1 21 with Revenue and Other Income of $44.0M, up 253% on H1 20.
•  NPAT up 169% year on year to $508K, compared to loss of $740K in H1 20.
•  H1 21 Underlying EBITDA* $4.4M, upper end of guided range (H1 20 was $1.6M).
•  Positive Operating Cashflow for H1 21 of $4.3M.
•  Healthy balance sheet with $23.3M of cash and available debt as of 31 December 2020.
•  Average deal size increasing with major contract wins across corporate; education and health illustrating the strength of the Spirit offering and leverage of cross-sell opportunities

DISC: I hold

Spirit achieves record growth in H1 21 & Q2 21 across all financial and customer KPI’s

Record growth in Q2 21 & H1 21 across all key financial indicators (unaudited):

• Total revenue for the half was $42.7M, up 243% year on year (YoY).

• Total revenue for the quarter was $27.1M, up 338% year on year (YoY) and 73% on Q1 21.

• Q2 21 recurring revenue up 116% YoY to $11.5M and S&P** revenue up 1,768% YoY to $15.6M.

• H1 21 Underlying EBITDA* in the range of $4.1M - $4.4M (H1 20 was $1.6M).

• Positive Operating Cashflow for H1 21 of $4.3M.

• Significant demand with Total Contract Value (TCV) sales up 303% YoY to $14.1M, with pending installations at $15.1M and IT Services & Technology Sales at $6.6M as of 31 December 2020.

• Organic sales growth continues with several large contract wins across Corporate, Education and Health verticals.

• Healthy balance sheet with $23.3M of cash and available debt as of 31 December 2020.

• Acquisition integrations ahead of schedule.

Disc: I hold