Well that announcement explains a lot and in my opinion is pretty good overall.
Telstra have had a well-publicised major restructure which has directly affected Cirralto’s business model, given the TLS department Cirralto were dealing with/contracted to has been disbanded.
While this created a big negative impact for Cirralto last quarter, it is also a situation that is outside of the company’s control and apparently not anything to do with the quality of the services or demand for the company’s modernisation solution.
The important thing is how the company is dealing with this curve ball. In contracting Classic Funding to replace Telstra in the company’s business model, it appears there is some short-term pain, but a potentially much more profitable business model moving forward.
The IT modernisation solution being supplied by Cirralto to its customers involves Software, Hardware, Financing and POS merchant facilities. With Telstra, Cirralto made revenue only on the software side of this model. Under the restructured business model, it looks like CRO will benefit from direct engagement with the customer on not just the software, but hardware and financing as well.
The downside is obviously that revenue for the modernisation jobs done or started last quarter via Telstra have to be reversed back to the customers and then re-billed under the new business model in this quarter.
The company appears to be flagging that the upshot of this will be a shocker of a last quarter revenue-wise for FY18, but a boost to the numbers for the first quarter of FY19 (with additional revenue streams from hardware and financing).
They flagged it in an ASX announcement late last year, but if the company can consummate the deal with the Swedish Payments company and supply their own POS merchant facilities (as opposed to 3rd party POS) as part of their modernisation solution, then I think CRO will be well set for some decent upside. I posted about this in January.
The main thing for me through all of this Telstra triggered restructure: is the company’s service offering and business model working, robust and scalable. On that front, I am reassured by this last announcement.
I think we had all been hoping for some good numbers last quarter. It appears we will not get this as the timeline has been drawn out yet again by circumstances outside of the company’s control, but they have dealt with it and the business case is still strong and getting stronger.
They flagged that they are expecting the monthly run rate for implementation of their modernisation solution to get up to 75 sites a month. It would be good to know what the average revenue stream (upfront and recurring) is for these implementations. I think previously they had flagged $5k upfront for each implementation + recurring revenues, but that was based on software only. If they can get a multiple of this revenue figure per site implementation based on supply of finance, hardware and merchant facilities then I see a bright future and have been topping up at these levels for a longer term hold.
CRO Price at posting:
4.4¢ Sentiment: Buy Disclosure: Held
