Shares of Glasgow-based secure cloud services firm Iomart Group plc fell as much as 20% on Friday after it published a trading update for the year ending March 31, 2025, revealing “an acceleration in customer churn in the self-managed infrastructure base, which includes a long tail of smaller customers, along with lower renewal levels in private cloud managed services.”
Iomart said: “Given the fixed cost nature of our data centers and network infrastructure, these faster than anticipated shifts in revenue have an amplified impact on profit contribution.”
The firm also said: ” …the accelerated shift in revenue mix towards higher growth, lower margin services results in the board now expecting adjusted EBITDA at approximately 10% below current market expectations.”
Iomart shares are down about 66% for the past 12 months.
Iomart reported: “The acquisition of Atech on 1 October 2024 marked a significant milestone in the Group’s ambition to be the leading secure cloud services provider in the UK, strengthening our Microsoft credentials, managed security services and global delivery capabilities.
“Since completion, trading at Atech has been strong, at both the revenue and profit level, and aligned with our expectations at the time of the acquisition. Atech is also contributing positively to our Group’s objective to pivot our product portfolio and capabilities into the faster growing areas of the cloud sector.
“Within the existing core iomart business, order bookings remain strong, demonstrating that strategic investments in the product portfolio and go-to-market approach are delivering results.
“However, recent trading has seen an acceleration in customer churn in the self-managed infrastructure base, which includes a long tail of smaller customers, along with lower renewal levels in private cloud managed services.
“Given the fixed cost nature of our data centers and network infrastructure, these faster than anticipated shifts in revenue have an amplified impact on profit contribution.
“With growth in newer offerings offsetting legacy business declines, the Board continues to anticipate revenue for the year ending 31 March 2025 to be broadly in line with market expectations.
“However, the accelerated shift in revenue mix towards higher growth, lower margin services results in the Board now expecting adjusted EBITDA at approximately 10% below current market expectations.
“The Group’s depreciation, amortisation and interest charges are predictable, meaning these impacts will similarly flow through to Adjusted EBIT and Adjusted PBT. The Board expects net debt levels at 31 March 2025 to broadly align with current market expectations …”
Iomart CEO Lucy Dimes said: “We have seen continued positive new order bookings across both the iomart and Atech offerings and are starting to see the power of the combined business flow through.
“However, transformation takes time, and churn within legacy offerings continues to present a headwind.
“We will continue to optimise our cost structure, while pivoting the portfolio to higher growth segments, and are confident that we have the right team and offerings to achieve our bold ambitions.”