TechMarketView5 Nov 2019 10:50
Castleton H1: highs and lows
Georgina O'Toole, 09:29, 05 November 2019
Castleton Technology logoThe highlights and lowlights of Castleton Technology’s H1 were previewed in the company’s trading update last month – see Castleton H1 behind expectations. Having spoke to management this morning, we have a clearer understanding of what’s gone on behind the numbers.
As expected, revenues decreased by 10% to £11.6m, with organic revenues declining by 13%. But within that, recurring revenues increased from £7.0m to £7.6m, comprising 66% of total revenues (vs. 55% in the comparable quarter a year ago). Reported revenues represented a significant reduction on previous expectations: £2.6m lower on hardware, and £1.6m lower on professional services. Profitability and cash conversion were also negatively impacted.
During the period, hardware revenues were impacted by a handful of clients abandoning their hardware refresh and to, instead, opt for cloud technology. In one example, Castleton had previously earnt £500-600K in hardware sales in a year and, though it won the replacement cloud delivery contract, that new-look contract is worth £1m over four years… in other words, a c50% decline in in-year revenues. Of course, this is also the reason for the welcome increase in recurring revenues.
Meanwhile, in professional services, Castleton started the year with a strong backlog of project work and good visibility. However, as it entered Q2, several clients decided to spend some time embedding their already-purchased solutions before embarking on new project work; it seems that the older generation of tenants utilising Castleton’s digital repairs system have needed a little more hand-holding to get to grips with the technology than had been expected. The result for Castleton was too many consultants on the bench; the company as now restructured to reduce the number of billable consultants.
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