Company Interview / Spirit Technology Solutions secures $9M funding

In the recently released results, Julian Challingsworth of Spirit Technology Solutions (ASX:ST1), acknowledges that the standout performance in their operations was the Cyber Security team which continues to grow from strength to strength. Despite revenue remaining flat due to the divestment of ISP and a slight restructure in the managed services team, Julian expresses satisfaction in the breakeven position achieved after two years of cost cutting and focus on returning the business unit to profitability. Alongside this, Spirit Technology Solutions successfully secured $9.1 million in a funding round from institutional investors.

Spirit Technology's cyber security capabilities have expanded with the acquisition of Forensic IT. Julian asserts that the addition of their incident response and digital forensics services will complement other parts of Spirit's cyber business. Through offering integral support post-cyber breach, the collaboration with Forensic IT is expected to enhance Spirit Technology's customer experience. Another acquisition pivotal to Spirit's growing portfolio is InfoTrust, which solidified their presence in Sydney and Melbourne markets, allowing for an expanded customer base.

Looking to the future, while Spirit Technology Solutions is diverse, cyber security remains their primary focus. With security at the core of product development and market strategy, Julian anticipates consistent organic and inorganic growth in the cyber space. Despite a somewhat stunted share price post-Covid, Julian is confident that recent acquisitions, resolution of debt issues and a strong balance sheet will instill investor confidence and facilitate strong organic growth. Julian sees the new funding round and upcoming strategy in the next couple of years as key factors that will turn around the company's fortunes.

Full unedited transcript:

0:46

Well, last week, digital workplace provider Spirit Technology Solutions narrowed its losses by more than 7% from FY 23, hitting more than 10 million, while revenue came in at $126 million. And today, spirit completed a funding round securing $9.1 million from institutional investors. The Republic offer funds are earmarked to support the company's recent acquisition of forensic IT. Let's get some further details. Spirit Technologies managing director Jillian Killingsworth joining us now. Julian, welcome to Osiris. Thanks for joining us. Let's first talk about your results. Uh, revenue flat on the year, your net loss narrowed. Um, how would you describe the result?

1:28

I think the result is clearly the outcome of a restructure program that we've been through. So revenue is flat, but not take. You know, if you carve out that we divested, uh, our ISP during the year and that removed about 5 million, um, revenue still flat. But the key contributor to, uh, the lower than expected results was the restructure of the managed services team. Um, and we're really pleased that we got that to a breakeven position after two years of cost cutting, uh, and focusing on getting that business unit back to profitability. Um, our communication team, a little bit flat as a result of the slowdown in the small business market, was probably 2.5 million under the PCP. But the standout for us is a cyber security team that continues to grow, go from strength to strength. Uh, we're seeing, you know, significant demand building, uh, in cyber and for all of our customers when they're talking about technology, often the first question and the

2:28

most important question for them is around security and how we protect our environment. Well, on that point, in fact, you've expanded your cyber security capabilities by picking up forensic it. What does that bring to the company? Uh, forensic. It's a very highly regarded digital forensics and incident response. So in the digital forensics space, they support law enforcement and legal organizations, uh, help prepare matters. Court cases, documents to take uh organizations or incidents to court and support legal action. And the incident response site is really supporting organizations respond to a cyber breach. The the team in FY 24 did 180 plus incidents. So they're very highly regarded in this space. Um, And what we find is it will be very complementary to the other parts of our cyber business. Um, from what we've seen historically, when an organisation has a cyber breach, we really want to support them, get through it. It's a traumatic

3:28

experience, but as soon as they're through it, often the first questions are how do we avoid this happening again? So so that will feed into our core business and enable us to work with those organizations that have been through that traumatic experience of a breach, manage a potential ransomware attack, or, you know, a criminal attack on their business and help them, uh, ensure it doesn't happen again.

3:51

So I gather you've also picked up info trust this year. What does that bring you?

3:56

So info trust brought, uh, really added to our security operations centre in Brisbane. Uh, historically, the cyber team had been very Brisbane centric. Um, it was founded out of a business called interlock, based in Brisbane, where we, uh, ran our 24 over seven security operations centre. Info trust then brought us much more capability in GRC, um, And product engineering and really help grow our customer base. Uh, in Sydney and Melbourne, where historically we hadn't been as strong as Brisbane. So it lifted our staff up to around 100, 110 in the cyber place, um, and took our customer base, which now reigns from the large corporates, 30,000 seats and up, um, right into the mid-sized market, gives us 650 customers across our cyber business. And for the spirit group, uh, cyber will now be 52% of revenue in FY 25. So really, over the last two years, we've managed

4:56

to reposition the organisation into our strongest growing area, um, and within managed services, prevent the losses that we've been having there. So given that new strategy there or that reorganisation, if you like, particularly with the focus on cyber security, is that where you're seeing the growth? What do you see as the future for your business then particularly, I guess when you're fairly diversified in the group, you're in telco cloud services, managing it and the like.

5:23

So I see them all coming together with security at the thread. Our clients really ask us if, even if they're looking at a cloud project or they're looking at a networking project, how is this contributing to uplifting my security posture? So for us, we're going to continue to grow organically and inorganically in the cyber space. But we've redefined all of our product and our go to market in those other areas to be have security at the core. So organizations who value security, especially those in our critical infrastructure or those who hold significant amounts of personal identifiable information, who are really focused in this area. They're saying every technology service we buy, we would like it to contribute to better security outcomes. And that's what we spent the last 12 months doing, rebuilding some of those products so that they are very well preconfigured and roll out and really support an organization's uplift in security posture.

6:24

Julian, we're just having a look at your share price there. Never really recovered since Covid. What's it going to take to turn that around and bring some investor confidence back. I think I think this race will go a long way to help. It's brought on some new institutions. It's brought on some people that are looking at the the next two years and the strategy that we're doing. So the institutional element raised 9.1. Um, there's another $1,111 million to come in the second half of the year. Now, um, that'll fund the acquisition. That will get our balance sheet right in shape, which is, you know, I think we've had a debt overhang on the business over the last period, and it's, um, it's been a challenge for the share price. It's held it back. That's resolved. We've had two quality acquisitions that, um, are well integrated, um, and forensic. It will will come in. Um, our troubled part of the business has stopped losing money. So I think we're really at that. We've got to the start line after a couple of years, hard work, um, of redefining who would

7:24

be jettisoning the the difficult or the poor parts of the business, acquiring some quality assets that align with the strategy. Um, and now with a balance sheet that will let us to focus on strong organic growth.