Atturra Limited (ATA) Earnings Call Transcript & Summary

Thank you, everyone, for joining us today. I'm Stephen Kowal, the Chief Executive Officer of Atturra. Also joining me today is Herb To, the Chief Financial Officer, and you'll hear from him a little bit later. It's important you take the information in this presentation in conjunction with the accounts we released earlier today to the ASX. Today, I'll be presenting our first half 2026 results, which I acknowledge are disappointing. Consistent with our advice for market in December, Atturra's results for the half year had a material one-off negative impact in relation to a project. I will highlight the profit impact only affects the first half. In the second half, all there is a revenue impact, there is no impact on profit. Fortunately, the Atturra business model is flexible enough to absorb the impact of the lost revenue and deliver against our guidance for the second half. I also understand that an impact like this [indiscernible] confidence in the management team and myself. We take this seriously and have put in place processes to ensure it is a one-off. It is important that you review the presentation pack understanding the disclosure on this page. This slide shows the agenda. I'll cover the results summary and go into a business overview. I'll then hand to Herb to take us through the financial performance. Then I'll take you through strengths and capabilities and outlook statement, and we have an opportunity for Q&A at the end. So let me start with a snapshot. Atturra is an end-to-end advisory and IT solutions provider with a focus on helping our clients transform their businesses. For the first half, revenue was up 28% to $181 million. This growth is reflected in the continued increase in headcount across the company, where we now have over 1,300 staff, of which over 350 are security cleared. It is, however, anticipated that with the productivity benefits from AI that the headcount growth will slow over the next few years compared to the rate of revenue growth. Unfortunately, our strong revenue growth was not reflected in our underlying EBITDA results, primarily because of a large contract dispute that Atturra announced to market in December last year, without which we otherwise were on path to reach guidance. As a result, our underlying EBITDA was down 46% to $7.3 million PCP. In terms of cash, we ended the half with in excess of $58 million in the bank. Herb will provide more details on our cash flow later in this presentation. Our percentage of predictable revenue is largely the same as previously with a slight decrease in other revenue due to the growth in our data and ERP businesses, which are not classified as recurring revenue and the movement of some clients from the recurring to long-term revenue category as they are in the last year of their contracts. Before we jump into details, I want to do a quick business overview and cover off our near-term priorities, which are consistent with those stated at the end of FY '25. Firstly, a focus on Atturra's proprietary solutions. In accordance with our strategy, Atturra continued to invest in growing our offering portfolio. Over the previous 6 months, we have developed significant traction in our 2 lead products, ACP, in particular, Boomi ACP and also Scholarion, our school management system. In addition, Atturra has built out several ERP data accelerators, which not only provide Atturra competitive advantage in projects, but also can be monetized post project to help clients manage their environments. The second area of focus is the expansion in managed services. As indicated in our prior results, Atturra will continue to expand its managed services business and see it as a strong foundation to providing consistent and predictable recurring revenue. In the first half, we acquired Blue Connections, which significantly boosted our end-user computing capabilities, allowing Atturra to combine our end-user compute and device businesses. The third focus area is sales expansion. Atturra has executed upon our strategy of setting up a larger deal and central sales team with a focus on the larger longer-term sales. In the second half of FY '26, additional sales investment will be made in several focus areas. These areas that can deliver above-market growth, in particular, AI, cyber, cloud and data. The fourth area is AI and data. 6 months ago, Atturra highlighted rising demand for both our AI and data-related businesses, and this is now accelerating. As I will discuss shortly, AI has gone from one of several initiatives to a core focus, and we are taking an AI-first approach. This is both internally and externally. This slide covers the Atturra's business strategy. Although our vision remains unchanged to be Australia's leading advisory and IT solution provider, we strategically have made some changes around simplifying the business, focusing on EPS growth and being AI first. For this half and into FY '27, we are going to strongly focus on our existing industry experience and actively focus on how we can better monetize our strong position within our data capability. We are the largest specialized data integration company in Australia. As also mentioned, there is a focus on improving our earnings per share and the need for continuous focus on operational performance. We are implementing a new continuous benchmarking process around our core operational areas. As a result, I've appointed a full-time director to focus on business improvement and measurement. As I touched on earlier, Atturra is taking an AI-first approach. Although this transition really started in earnest back in September 2025, Atturra has seen significant benefits in early AI adoption, primarily operational stabilization and resourcing. As part of this focus, we have externally recruited 2 dedicated executives to drive our transformation. One of these executives is focused on internal process adoption and change, while the other is focused on our external go-to-market activities. This additional leadership supported by other 270 AI data experts means that Atturra should be able to disproportionately benefit from the current AI-driven market disruptions. There is significant information in the market around the growth of AI. One example is Grandview's research, which is showing that the Australian market is more than doubling. However, given all the discussion on productivity, Atturra would share a [indiscernible] quote, a quote from AI itself, which thinks with all the current discussions about ROI and productivity, humans are not looking at things correctly and are not -- they do not have in place the correct metrics. This is interesting. This is actually from Moltbook, a social media platform for AI agents only. Yes, that means no humans. Clearly, design is an experiment for fun where you can add your agentic AI agent in and watch it tap and make things up with other AI agents. Yes, the chat to the side is an AI agent's response to another AI agent question. The world is changing quickly. AI is now everywhere. And yes, in many parts, it is way overhyped. But in one way or another, it will change everything we touch. And for a company that has data at our heart, there's a massive opportunity because there is one rule which still holds true, and that is garbage in means garbage out. So in order to grow Atturra, not only do we need the technical capabilities, but we need to support these changes with an increased focus on sales investment. In particular, you will see a significantly increased focus around the areas that we see significant growth opportunities, those being AI, cyber, cloud and data. I'll now hand to Herb to take you through our financial results.

Thank you, Stephen. Hello, everyone. My name is Herb To. I'm Chief Financial Officer for Atturra. I'll be presenting some more detail around the company's financial results for the 6 months ended 31 December 2025. The first slide here highlights the key profit and loss results. It compares our 6-month performance up to 31 December 2025 with the 6-month period ended 31 December 2024. As Stephen has highlighted, we achieved 28% revenue growth on revenue of $180.6 million. [ Plenty ] of the business has remained stable with a gross margin percentage of 32% with a real dollar increase of 27% on PCP. EBIT has declined by 10% on PCP. This has been primarily driven by office expenditure in the first half of FY '26, some of which is nonrecurring, including provision for doubtful account of certain WIP revenue for work performed to date which is nonrecurring, $2 million in organizational restructuring costs which is nonrecurring, $1.5 million in integration costs which is nonrecurring and incremental IT services costs for acquisitions integration, which is ongoing. We've highlighted underlying EBITDA as an important measure of the company's performance. To understand our underlying EBITDA, we exclude nonrecurring expenses and revenue. In FY '26, we've added back share-based payments, M&A-related transaction and retention costs, acquisition-related integration costs and organizational restructuring costs. For the comparable period in FY '25, we added back share-based payments, gain on bargain purchase, M&A-related transaction and retention costs, acquisition-related integration costs and capital raising costs. The underlying EBITDA results of the business has declined to $7.3 million from PCP, which is consistent with the reconciling items in the EBIT variation just highlighted previously. The next slide details underlying NPATA or adjusted NPAT, which adds back client relationship intangible amortization and acquired software amortization. Underlying NPATA also adds back specific nonrecurring items after adjusting for the impact of tax. This metric provides the underlying profitability of the group, excluding the amortization and non-underlying items. The underlying NPATA of the business of $2.1 million has decreased by $6.3 million on PCP. The next slide is a summary balance sheet. It compares balances at the end of the current 6 months with balances at 30 June 2025, the end of FY '25. The company continues to maintain a strong balance sheet position. Our cash balance was $58.6 million, a decrease of 36% or $33 million from 6 months ago. This has been driven primarily by our continued investments in our subsidiaries and our share buyback programs. We have net tangible assets of $16.6 million and working capital of $37.9 million. This cash flow slide is a summary of the sources and applications of funds that is the cash flow of the business. It compares cash flow from the current period to the 6 months ended 31 December 2024. As mentioned, our cash position has reduced by $33 million from $91.6 million to $58.6 million. Overall inflows and outflows in the period include operational cash outflow of $13.4 million, a movement of $15.8 million to PCP. Seasonality and timing factors affect operational cash flow and tend to be slightly volatile and may show large movements from period to period. For this period, the timing of cash flow movements on PCP include timing of the payroll for the last cycle of the pay period of $5.6 million, increase in inventory of $3.1 million, restructuring costs of $2 million, an incremental tax payment in the period of $1.6 million, deposits held by Computershare for our treasury share purchase programs of $1.5 million. Cash outflows also include $17.4 million in investments in subsidiaries. This is comprised of subsidiaries acquired in FY '26 of $12.1 million, plus earn-out payments made to previously acquired subsidiaries of $5.3 million. This compares with the investment in subsidiaries made in FY '24 of $35.4 million. In the current period, cash inflows include $8.3 million drawdown of our loan facility to fund our activity in that period. Now I'll hand back to Stephen, and we'll be pleased to answer any questions in the Q&A later on in the session.

Thank you, Herb. In August 2025, Atturra disclosed some of its new proprietary offerings that was launched in the market, and I wanted to provide a brief update on each of these. Firstly, Scholarion. It's a cutting-edge student information system built in-house on Microsoft D365. When complete in mid-2026, Scholarion in total will be 12 modules, which can be used as an entire integrated system or just selected modules as required. At the end of FY '25, we had sold 2 licenses to early adopters and had a target to have 6 schools signed by the end of FY '26. I'm pleased to say we've already hit the 6 schools targeted, yes, pre-release. More exciting is that in reality, we have shot passed the initial target because the most recent signing is Haileybury College. And it's not only Australia's largest independent school, but the deal covers multiple campuses and not just the Melbourne campus. Our core modules are still scheduled for June 2026. However, together with our clients, we're doing a major change to our core finance module, switching from the original plan of Business Central to that of Dynamics. This change is now due in December 2026. Atturra plans on increasing its investment in the product business in FY '26 and '27 to support this growth. For Scholarion, Atturra is targeting 20 schools for FY '27, an aggressive target given the sales cycle for a school is 12 to 18 months and that our official launch of the solution is only scheduled for 30th of June 2026, this year. The next major Atturra system is the Atturra Cloud platform. I'm very excited about the possibilities of our Atturra Cloud platform. This is not another private cloud, but the overarching branding for a set of hosted solutions. I called out that in FY '25, we did $30 million and expect a strong double-digit growth in FY '26. We are well on track to achieving that with the current forecast. We're expecting about 30% growth PCP for the full year in our cloud business. A combination of both our cloud and IP business is our Boomi ACP solution, which is a fully managed and monitored [indiscernible] solution. You may recall, we launched this solution in the market formally in September 2024 with 2 early adopters of clients. I'm very excited about the long-term prospect of this solution. By the end of FY '25, we had 35 clients. And at the end of the first half FY '26, I'm pleased to say that we have grown this to 52 clients. Our objective is to have organic ACP growth of a client every week by the end of FY '26. I would like to briefly cover acquisitions and integration. The Atturra strategy is continuing to have both an organic and inorganic component. And as part of this, Atturra will continue to seek appropriate acquisition targets. Depending on pricing, high priority targets will be those that increase our managed services footprint or aligned to our focus areas in AI, cyber, cloud and data. The only other area, which I mentioned FY '25, is Atturra is organically growing its ServiceNow practice, and we may look at accelerating our growth through an acquisition in this technology, albeit it is a lower priority. It is important to cover acquisition and integration as Atturra does invest a significant amount fully integrating all our acquisitions. Following the acquisition of a business, Atturra's focus is on keeping the people and specializations in place while progressively bringing in Atturra culture and operating processes. It is one of the key reasons that our acquisition process involves a close review of the cultures to ensure these aligned. This also ensures we do not lose the secret sauce that made the company we are acquiring, successful. Atturra, as mentioned before, however, does believe in full system integration, and this is to drive long-term synergies. And this done ensures we have consistent systems and processes that are scalable over time. This slide shows the progress we are making with the acquisitions that we made in the second half of FY '25 and the one acquisition we made so far in FY '26, that being Blue Connections. This is focused on expanding our managed services footprint. The rebranding of Blue Connections is well underway. However, because some of the complexities in the combination of both Atturra and Blue Connections warehousing capabilities and related systems, their CRM and ERP system integration is not scheduled until FY '27. Let's go to our outlook. Consistent with our guidance for the full year, Atturra is forecasting revenue in the range of $364 million to $374 million and underlying EBITDA in the range of $30 million to $31 million. This results in a second half underlying EBITDA of roughly $23 million to $24 million. The majority of the negative results in FY '26 are the result of an adverse contract termination. And as a result, Atturra has changed our internal processes to minimize future risk around our WIP. Despite the poor first half, Atturra is well positioned to continue growing, both because of its strong market position, but also because of its leadership in the data domain. Firstly, we have rotated to an AI-first approach, supported by over 270 data experts, and we are rapidly upskilling many of our workforce. Secondly, we will continue to invest and develop our solutions and IP. We see the opportunity to continue to expand the Scholarion offering and also to continue to expand our ECP offerings. Finally, we will focus on simplifying our operations and a focus on EPS. We will also bring additional sales resource in the area that we see above-market growth, in particular, AI, cyber, cloud and data. As I mentioned previously, I can reiterate our guidance for the full year. Atturra is forecasting revenue in the range of $364 million to $374 million and underlying EBITDA in the range of $30 million to $31 million. I'm very confident of Atturra's positioning as we look into FY '27 with a renewed focus on profitability and sales. I'm now happy to move to Q&A.

[Operator Instructions] We will take a written question from Jules from Shaw and Partners.

Stephen, there is a big focus on AI this reporting season and investors are trying to work out if companies are beneficiaries or likely to be disrupted. Could you talk to how you see the impact across consulting and data migration services? Presumably, efficiencies will drive down the cost and time of projects. Do you see that as a headwind to revenue growth? Or does it allow ATA to do more? And how are your budgets likely to support this?

Yes, I'll address that one. Look, it's a good question. And obviously, we're hearing a lot about is it disruptive or beneficial. And I think the 100% honest answer is it's a bit of both. You've got to continuously internally disrupt yourself, and we're in that process as are many other companies. It is an opportunity for growth, but obviously, what we do and how we do, it is going to change a lot and is starting to change. Coding is probably the easiest example. Coding now is probably on a career path. Productivity is up 30%, 40%, 50%, probably 100%, 200%, 300%. So theoretically, you'd think that's a reduction in work going forward. What we're seeing in practice is actually probably the opposite of that. I think what's happening is that people have just got higher expectations of what they can get and how they can get it done. Where we're seeing the biggest advantage Atturra has -- there's a lot of people who provide some of those services, but having a deep industry knowledge and that data practice, and that's why I say garbage in, garbage out, is a big opportunity for us. So we see, especially in the commercial space, companies are going to spend more and more and more on technology disruption going forward. I don't kind of run into any companies to say they're going to spend less [indiscernible]. So from that perspective, clients' budgets are going up. Expectation is going up. And I think especially in the SMB market, competition from start-ups is increasing. But in the upper SMB and enterprise markets, the thing that's more important is security experience in that. So we're not really seeing the disruption there. But we are forcing internally to obviously invest a lot and make sure that we're keeping up. The pace of change internally is so much higher than we've ever seen. We used to -- in reality, we had to change kind of every 12, 18 months and it's almost like we've got to review operational processes every 6 to 8 weeks now. So it's quite insane time. But if you don't do that, you don't keep up. But in summary, I think it's a huge upside, especially in the short to medium term as people deal with AI and implement AI and work out how to look after their data and do it securely.

Your first question comes from the line of Jason Yan from Barrenjoey.

Can you guys hear me all right?

Yes, we can.

Yes, we can.

Just 2 questions for me on behalf of Josh. Firstly, could you talk about some of your internal AI use to drive efficiencies and your thoughts on potential impacts of charge-out rates with customers as well as upside or downside risks to profitability?

Yes. Look, it's a good question. And I'll give you our view and it probably changes on a daily basis. So internally, the first things we did was actually more around sales marketing, market intelligence and automating that. And then in our infrastructure business, in particular, a lot more advanced sort of ticket handling and self-healing capability. And that's just -- you've got to do it to stay competitive because I think it's just -- it's going to get more and more expectations. So theoretically, you'd think that would be business going down. We're not seeing that because demands are going up at the same time. But that's internally. The other one that we did, which is a real experiment for us, we actually created 14 Agentic agents as we're starting up a new line of business, a ServiceNow to be transparent. And we actually used those Agentic agents to do the market intelligence, a lot of the market prospecting, even some of the high-level architecture and design. So what would have taken a long time and a significant overhead to start up a new practice, we did with a team of 4 people instead of a team of probably 10. So that's a huge opportunity to enter a new market. But obviously, that means there's other companies that have huge opportunities to enter market. So they are the biggest ones. We've got some other ones that are kind of more common, and I'd almost call it ML around invoice matching and PO matching and error detection. But the big changes for us are that marketing, help, self-healing and ticket management. So that was the first part. And I think you had the second part of Josh's question.

Yes, that was very helpful. So second one for me is we see data called AI, which is the key strength for Atturra. How should we think about the opportunities for your data practice as companies prepare businesses for AI use cases?

Yes. I think our key strength -- so we're AI first. I think our key strength is our data practice, and we're pushing hard to make AI our key strength. We're seeing huge demand into the data practice now as people start looking at the use of AI and they worked out the first thing they're going to get under control. Actually, the second thing they get under control. The first thing they get under control is policy, privacy and there's a whole of actually really good consulting work that we're getting there. But the second bit is in the data structures and how you manage and control that both within an organization, what goes in and out. So we're seeing big demand. We did see historically lots of conversations around that. The difference that we're seeing now is they're no longer conversations. They're actually projects activities and pieces of work. So it's gone from a theoretical chat to people are actively doing it. And I think in particularly FY '27 and FY '28, it's going to be full on and it's going to be managing your team and resources. They're definitely not going to be a shortage of jobs in that space as people are talking about. There's a lot of work to be done.

Your next question comes from the line of Jonathon Higgins from United Capital Partners -- Unified Capital Partners.

Look, obviously, a lot to digest in terms of this and obviously, a lot also going on in your business through the period and into the future. Maybe just a couple for me. Just firstly, just on cloud. You've, at times, called out cloud and the sovereign capability, both in terms of your consultants, but also on the cloud side of things. There's a bit of emphasis coming through, I think, with some of the AI compute. Can you sort of give us an idea around your exposure there and potentially also just remind us what that may be, first of all?

Yes. So our cloud, we ended FY '25 about $30 million. We said we're going to do double-digit growth, and you're going to see higher than that. Is there exposure there? I suppose we have -- our cloud environment is a combination of hyperscalers and non-hyperscalers, and we have things like GP as a Service. So we actually see that as a strong growth opportunity. And look, I'll give you one client-related example. So it's not like not to [indiscernible] saying they are confidential. iTronics is a good example. We put AI solutions around all the camera feeds across multiple sites for monitoring and security. I mean you all are seeing TV where someone sits and watches all those screens or [indiscernible] system too many false alerts. We put effectively AI across that to kind of give all the inference information to that organization to work out when something is going wrong at one of the sites they wanted. So not only with the IO project, we actually now provide that inference as a service. We're actually using our [indiscernible] and cloud to actually do that processing. So with all AI stuff coming down, depending on the company and the use case and the data requirements, it's a huge opportunity for cloud, and that's just one really simple example to see of some of the stuff that's driving into our cloud business.

Understand. I appreciate the context. Two more from me, if I may. Just on -- just the cash flows, I think you've called out just sort of an inventory build in one of the new acquisitions there. Maybe just provide us a little bit of color and also just that sort of unwound or unwinding this period?

Jon, I think I'll take that one. So with regards to cash flow, there's -- the increase in inventory does make up a component of it. That will be unwound in the subsequent periods, the cash flow step-up from the acquisition of Blue Connections because they are rather inventory-heavy business compared to us, but we didn't get the benefit of their full year of revenue -- sorry, their full period of revenue inflow that inventory clearing out. So it is a one-off nonrecurring event in the half. A larger part of the cash outflow in the half probably pertains around the last -- believe it, the last payroll cycle in the period where in the 6 months previous, we had the payroll leave the cash -- our cash reserves after the year-end -- the period cutoff, whereas in this period, it was -- it left our cash reserves just before the period cutoff. So as a result, it resulted in optically a cash outflow in the period as opposed to a higher reserve for the period comparable.

Understand. And just lastly, just on the second half. So you've reiterated the guidance for the second half, which provides obviously a pretty strong step-up. That's what we typically also see out of your business. Can you describe sort of the margin profile? Are we expecting gross margins to step up alongside just the leverage on the cost base? What do we sort of need to do for the year?

There's a few things that affected that. So obviously, you're right, we always have a better second half. We obviously had an issue in the first half. So a kind of reversion to normal. You will see a bit of margin expansion delivering that, and that's just so we're delivering that kind of second half number that our investors would have expected had our normal first second half split. So there's a bit of margin expansion, a bit of cost control in that. As we roll in FY '27, you will go back to our normal ratios and have quite a strong first half next year and a stronger second half.

[Operator Instructions] And your next question comes from the line of Richard Harrisberg from Canaccord Genuity.

Well done for hitting your updated guidance despite the unfortunate lost contracts. I just had a quick question on that. Maybe you could just give us a little bit of color. Was that a customer that was relatively new to Atturra? Was it more of a long-term customer? And did they -- what was sort of the reason that they terminated that contract early?

Yes. So it's been an unusual one. And to be quite frank, that's why we used very careful [indiscernible] our announcement last year. So yes, it was a new client. And yes, they didn't really -- in our opinion, obviously being careful with my word, it is -- they really follow the right processes or procedures, and there was no real cause from our point of view. They just decided to stop the activity and not pay. Historically, we had run up too much WIP, which obviously is saying we made sure we changed our processes on. But yes, it has no real impact going on. It was a new client. Yes, it's a really unusual one. I've not seen it in 30 years.

I appreciate that color. And maybe just turning as well. It's really exciting seeing some of the IP and proprietary offerings coming through and starting to add incrementally to your guys' growth. Just on the traditional business, what are you seeing in terms of public sector and defense budgets and demand outlook? Has that started to turn around as well into the medium term?

In the medium term, I think defense spending is going to increase definitely. From our point of view, it's bottom of market, but it may be bottom of market for a while. What we're seeing out of the government is cost cutting and that continuing. We're putting all our focused effort on growth outside of those core areas while maintaining a core team in there to deliver what we see is probably a pretty flat period over the next 1, 2, maybe even 3 years.

Currently, there are no further questions on the phone. I'd like to hand back.

Great. Look, thanks, everyone, for joining us today, and I look forward to a very positive next update for the full year results. Thank you.