Infotrust Ltd (ITS) Earnings Call Transcript & Summary

Good afternoon, everyone, and welcome to this investor webinar for Spirit Technology Solutions Limited. My name is Gabriella. I'm from Automic Group. And joining me this afternoon, Spirit's MD, Julian Challingsworth; CFO, Paul Miller; and InfoTrust CEO, Simon McKay. Good afternoon, gentlemen. Just a reminder that this webinar is being recorded today and following the formal presentation, there will be the opportunity for Q&A. [Operator Instructions] Okay. Over to you, Julian.

Thanks, Gabriella. So thank you, everybody, for joining us today. There's been a lot of news over the last day and investor presentation, just in process of being loaded up onto the ASX portal so you'll have access to this presentation as soon as that's available. Today, we wanted to walk through the FY '24 results, and then importantly, get into an acquisition and an equity raise that we've announced to the market today. As Gabriella mentioned, I'm the Managing Director Paul is the CFO and Simon McKay leads the cybersecurity team, InfoTrust within the cybersecurity business. Just going through today, we definitely won't be going through all of these slides. And we'll talk to primarily the executive summary, the acquisition of Forensic IT, which we've announced this morning the associated funding and equity raise details, and then take any questions that people would like to go through. So for FY '24, [ it ] was a challenging year for the group. We've been going through a significant restructure of the managed services businesses. The managed service business has been a problem child over the last 18, 24 months. It was a combination of 10 acquisitions that came together. That really wasn't well integrated and wasn't performing as a team. So over the period, we have restructured that. The positive news is in June of '24, we got it to a breakeven position. So it will -- it has a result of shrinking the profit, not become a drag on the team. I think that's really key as it sets us up going into FY '25, that we are seeing positive growth in that, albeit from a low base. Highlights, some of the key numbers there. Revenue was consistent, albeit sort of post some divestment of noncore assets. And the underlying EBITDA, significantly down from the previous year. Two fundamental reasons for that: Primarily, our communication and collaboration team were impacted by a soft SME marketplace, and their underlying EBITDA was approximately $3.5 million off where we expected it to be. And there were delays in the managed service restructuring program where we weren't able to exit staff as quickly as we thought. It's quite an expensive process, the restructure program. Certainly, a number of redundancy costs and the delays with those costs meant that we had a higher labor cost throughout the year. Albeit by the end of the year, those redundancies were in place. And you can see, with the announcement we made in June, that we were back to a breakeven position. We're very comfortable. We re-signed a lot of the major clients that we wanted to keep. We had offboarded a lot of the unprofitable customers that we had through the journey. And we've reshaped the go-to-market and strategy for that team so that there is a clear product stack and clear market for them to go into. Positive news in the year, a very successful acquisition with InfoTrust coming in. We had a very solid cybersecurity business based out of Queensland that ran a security operations center, weren't as strong as we would like to be in Sydney and Melbourne. And the acquisition of InfoTrust and when with Simon and his leadership team coming in has created a very strong cybersecurity core of the business to go forward. So I think we've grown the team by 100%, and I'll talk to, later, some of the growth. So cybersecurity, between FY '23 and FY '25 has gone from 26% of the business to 52% of the forecast for FY '25. Really, cybersecurity is at the core of the business and everything we do forward. It's helping us reposition our managed service practices into secure managed services. And we were delighted that in June, we signed the largest contract in Spirit's history, which was a 60% cybersecurity, 40% managed services contract, which -- it gives us confidence that the strategy of bringing those 2 teams together with the leadership capability that InfoTrust has brought in is really setting us up very well to move into FY '25, where we continue to see strong demand for cybersecurity services. The other parts of the business, I think, have seen a disruptive marketplace, with clients delaying expenditure on IT services, delaying expenditure on the communication services, but we have not seen that slowdown within the cybersecurity. It is still top of mind for every customer that we talk to. So strengthening our position in cybersecurity is core to the strategy going forward. Another significant highlight there was building the book of recurring revenue, which now sits at just over $70 million. So that's revenue where contracts have been signed, and the revenue will unwind into the statements over the next number of years. And key -- one of the key issues that I mentioned earlier with the next-gen communication sector having a slowdown in half 1. We saw a significant uplift in half 2 and the -- and Q4 for that business unit started to return to its normal run rate. We've seen continued pipeline, built, continued opportunities in July and positive momentum going into the year. So all going well, then the -- I think, the troubles we've had with a softer market for the communication and collaboration team behind us, and we're starting to see a return to more normal trading activity in that segment. I think the segment seemed to be particularly sensitive to the interest rate rises. And with those seem to have peaked, that segment is now investing again into collaboration tools. There's still a strong emphasis from better communications for the work-from-home environment, and that team really helps enable those capabilities for organizations. As a consequence of the restructure finishing, the cost-out programs that's got managed services back together and the strongest growth that we're seeing in cybersecurity, we had put out initial guidance of $9.5 million to $10.5 million, a significant uplift from the $1.7 million achieved in FY '24. But as a part of the bolt-on acquisition that we have announced today, we'll be raising that guidance again by just over $1.5 million. Slide 24, revenue is broadly in line with the previous year. This represented some organic growth, a lot of extensions of contracts, but also some revenue was divested through the process and some unprofitable accounts were exited. And there were a number of accounts that were lost churn, negative churn because we would have kept them as a consequence of the restructure. But through Q4, we resigned our key to -- within our top 5 customers. The ones that were coming up for renewal, they were re-signed. So really positive momentum around the organization and its ability to now stem the churn. And with the combined offer and the capabilities of the cyber team, we're supporting the managed services team and being able to have a very mature conversation around security risk and the ways to prevent breaches. We're seeing a lot of confidence in the managed services customer base for us to uplift. And secondly, with the acquisition of InfoTrust, it brought in 450 new customers that have had a very positive experience working with InfoTrust, but that now gives us an opportunity to take the core managed services that we provide into that customer cohort. And that is really our priority for half 1 and -- is to go and sit down with those customers and expand the range of services that InfoTrust had been selling into them into our current portfolio of managed services. So you can see, their revenue quite consistent, a delta of just over $1 million. Underlying EBITDA, a more significant swing there from 5 -- just over $5 million to $1.7 million, primarily, as I touched on, driven by that shortfall in the communications sector and the delay in the restructure program. Cybersecurity, look, you see a significant uplift in the wins that they've been having. Queensland-based opportunities delivered us the largest contract that we've had, a multiyear contract with a contract value of $8 million. Larger sales, quarter received with just over $19 million in new contracts signed. And I think importantly, for FY '25, really, the integration has gone very well. The historic Intalock brand has been successfully rebranded to InfoTrust and a really significant amount of work by the team has gone into integrating that into one unit. In the past, I think Spirit have been quite [ poured ] its integration programs and the investments we made in FY '24 in core platforms and some new leadership team across the business has enabled us to really execute the integration of that very well. I think there's still a little bit more work to be done out to September, but we think by September, the core of the integration will be successfully achieved. I think I've touched on some of the key highlights with managed services. It's a slow build in managed services. But importantly, we don't see that as the historic cash drain that it has been. It's certainly taken up a lot of management's time working through the restructure on that process. And we're very pleased to be able to say that's behind us. And as a consequence, we are able to successfully take that business unit to market. Communications?

Yes, Julian. I was just going to step in. As you say, within the Communications segment, we signed a multiyear extension with Cisco, which is another 4 to 5 years in terms of that agreement, and that's going to deliver both margin and operating cost improvements. Cisco is investing in that business to help grow that business, and we're going to start to see the -- put those positive investments flowing through into our FY '25 numbers.

I think that investment's enabled us to create the Spirit Business Center dealer program, where we're taking out the capabilities of that team through a dealer program, which is expanding our footprint of, really, people who are selling those services through the dealer program and the better margins that we're able to achieve through the contract that Paul's had mentioned has enabled us to protect our margins even on those indirect sales through the dealer channel, so really helping us achieve additional scale and growth within that team. So moving into FY '25 key growth pillars. We're seeing a lot of cross-sell and upsell, especially between the cyber team and the managed services team. The communication team, in July, recorded $100,000 in TCV of managed services. It's the first time that we're really focused on being able to take managed service product offers into the SME market space, and we're starting to see positive signs that, that's being well received in their marketplace. The communications team opened in Western Australia, opened beachhead. We are looking to expand their capabilities into South Australia and Northern Queensland, because with the experience of opening geographies and being direct into the SMA community has been positive in Melbourne, and in the Gold Coast. So we'll be looking to expand that program over FY '25. Again, we've touched on the dealership program. We're targeting 4,000 new customers over a multiyear period and bringing on 100 dealers. These dealers are typically small MSPs or some of the historic print companies that have dealt with the SME marketplace that are looking for new products. The products that we have can be quite complex for new people to install. It's quite a detailed relationship with Cisco. Cisco probably aren't seen as the easiest partner for small organizations to work with, so we've really simplified that process and enabling small new partners to come on board and be able to leverage the rates we achieve with Cisco and leverage the experience that the communication team has built up onboarding sort of over 6,500 customers that, that team supports. Within the cyber business unit, a lot of emphasis, going to take the capabilities of the security operations team and the SOC services. SOC services is a 24/7 monitoring of organizations, businesses so that the team is looking for and evading threats before they become an issue for customers. And that's an area where the historic InfoTrust team didn't have an in-house capability to do that. The combined organization now brings those key services together, and we're able to take those into the InfoTrust customer base at a very competitive price point. And we'll see strong focus on inorganic growth, security, sustainability, scalable. You would have seen the legislation past recent -- this week in parliament that there is going to be more emphasis on sustainability and Level 3 reporting. For us, we're really supporting organizations with the software and the tools that they will need to be able to do this work. We're not competing into the market of advisory and how to do it, but as the enabling software and tools that enables you to record, measure, control those costs and present them through your supply chain. One of the observations that we've spoken about is the bridge between underlying EBITDA at the end of FY '24 across to FY '25 updated guidance. It's quite a big step-up as we come out of the restructuring program. So we've provided a clear half of how we see that happening. You can see the 2 biggest contributors to the change is a step-up in cybersecurity EBITDA, $4.1 million step-up year-on-year, $4.9 million improvement in the managed services. That is predominantly -- $4.4 million of that relates to reducing the loss that managed services incurred in FY '24. So the biggest chunk there is achieved. We've got it to break even. So that is well progressed. You can then see some improvement in collaboration, some additional corporate costs as we grow and grow through some of these programs and acquisitions. And then on Block 5 and 6, you'll see within the control period, a forensic IT comes in and the synergies from Forensic IT is the final steps in the bridge there from the guidance of $1.7 million. Initially, it had been 10%. Today, we're stepping that up to 11.8%. So the key point -- key takeaways here, revenue guidance is slightly up. Forensic IT is a bolt-on, very strong addition to our capabilities, and I'll talk about that in a bit more detail in a second. Revenue guidance steps up in a small amount, around $4 million from the current position. Profitability steps up, again, as I mentioned, about $1.3 million there. So I think quite a reasonable turnaround from the position where we finished FY '24, reflective of the work that the team has put into streamlining the business, offboarding unprofitable customers, really simplifying our go-to-market and knowing what we do well and being in a position to execute against that. Key to those '24 results was the integration of InfoTrust. Some of these points I've touched on. I'll throw to Simon for a second just to talk about InfoTrust and the bringing together of the businesses and how that has provided a really solid foundation for us to go into FY '25 with security at the core of what we're doing as an organization.

Yes. Thanks, Julian. So the InfoTrust business now really is integrated quickly with InfoTrust -- with Intalock, I think, largely driven by the natural synergistic values of the 2 organizations. As Julian said, while there was some crossover in terms of capability and go-to-market, there are a lot of complementary services that didn't exist within either business. So by bringing the 2 organizations together, we've been able to quickly rebrand and go to market with a much broader offering to customers, which means we are now nearly 700 customers just in the cyber sector. We could go back to them and cross-sell each other's products and services quite quickly. The messaging on both sides has been really well received by vendors, by customers and the market generally. And I think the quality of the reputation of both businesses was strong enough that it gives us a really good opportunity now to scale into a lot of newly acquired businesses, which is really a focus for us going into '25 and '26. InfoTrust was always a more heavily new logo-focused acquirer of customers. And I think it's fair to say, Intalock tended to play more in the enterprise space and work within that customer base. So again, some of the initiatives that we've switched towards is heavy focus on acquiring new logos, which -- the model we were already executing on an outside. And we know that once we get a customer on board, it gives us the opportunity to sell a lot more and do a lot more with them. With the acquisition, that gives us even more opportunity now as well. New areas that are popping up in cyber are a real focus for us. So we're going to see changes to privacy acts and governance and regulatory requirements across different industries and from government. We play heavily in that space. So being able to help organizations go on that journey and then implement an uplift on those strategies is a really core focus. It's very profitable business for us, but it gives us the opportunity to scale out across all of the areas that we deliver. So a lot of opportunity there, and we've already seen a fast start to this financial year and expect that to continue.

I think some of the key elements that we saw in the sort of diligence of the acquisition and has proven itself out, the InfoTrust acquisition gross margins were significantly higher than Intalock, typically sitting around 29% for product sales versus the Intalock business at 13%, 14%, so double the margins. And this is really down to the sales capability and the engineering service wrap up and the way that -- and the methodology InfoTrust uses to deliver and work with their customer over the life of the contract. That process has been immediately kicked off as Simon and the team have come in. So over FY '25, a key synergy goal for us is to uplift those tails that -- and renewals that Intalock would have made to the higher gross margin generating process. The other key synergy driver for us is in the security operations center. It's really taking that capability into the new customer base and getting more volume into the SOC. It's a high-cost environment in terms of you've got to have a core team to run it and the more volume that you can get through the security operations center, the more efficient that becomes, the more margin that you can drive. And we're really seeing with the number of public breaches, organizations are really starting to think, "We need a security operations center to protect us. It isn't something that we can leave to internal staff, our staff for sort of 7 to 7. We need that coverage 24/7, 7 days a week to provide a level of certainty that we're protecting ours and our customer information." Lot of work. There were high-value key partners. We had very similar partners across the business. Immediate consequences of bringing the business together was an uplift in our relationship with those partners, which means greater gross margin opportunities and increased investment from those partners into joint marketing with us, and we're seeing that through a number of those partners lifted there on the left. A snapshot, a good mix of clients. Certainly, InfoTrust brought in 450 customers, but they brought in a much better cross-section of customers than we've had in the past. Typically, the Intalock team had very much enterprise customers. All customers that you would know by name, sort of 2,000 seats and out to 35,000 seats, which meant there was really very limited opportunity for us to sell our other services into that customer base, because they weren't appropriate to be shared, different skill levels, expectations, buying cycles. The number of InfoTrust customers that we now have that overlap with the core capabilities of managed services is much higher. And it really, for the first time going into FY '25, there's an ability to sell joined-up services to that customer base and leverage both sides of the business. So a very positive effect there.

Can I just add a bit to that as well, Julian. The other side to bring in 2 smaller cyber practices together is -- you have a lot more scale and depth. So this has given us the ability to really focus on building out pure cyber managed services or annuity focused internally delivered service offerings that will renew year-on-year, and we've seen that from the InfoTrust history that those internal service lines are a lot more profitable and also give us the ability to scale at a lower cost, because we brought the more senior people into the business. So the only thing we do now will help us to increase profitability across those service lines.

And what does the combined offer represent for customers? Really, this is how we see the key service offers that we're taking to those customers. And I won't go into each one. These slides are up now on the ASX, and we're happy to take any questions sort of from anybody either after this presentation or directly to talk about it. Key one to note there is, in cyber resilience and risk assessment, this is where we have added capability through the acquisition of Forensic IT. So something that is very core to offering end-to-end service and something where forensic IT did very well that very few organizations are able to do. So we're really pleased to have them coming into the fold. Let me jump into that. So we've acquired Forensic IT. We've signed the share purchase agreement today and announce this. Forensic IT is a digital forensics and incident response team. A smaller business, sort of $3.5 million in turnover, but very profitable. They're $1.45 million a year. They deliver digital forensics and incident response. Digital forensics is really supporting law enforcement and law firms are their primary customers in helping prepare matters to take to court either civil or criminal proceedings by analyzing what's going on. So that team can be up early in the morning, working with the police to attend raids and confiscating hard drives and mobile phones to analyze them and compile the evidence to support legal matters. And then the other side of the business is incident response. So a typical case study is an organization realizes it's had an incident. It brings its insurance company to talk about it. The insurance company recommends Forensic IT. And the team can immediately start, work with the client to help them remove the threat from their organization and recover from that position. In FY '24, they did over 180 incidents, supporting organizations, sort of get the problem, the threat actors out of their environment and recover their business so that it can operate. This is really important for us because, a, when clients have a breach, it's a very stressful time. And as a leading security firm, we want to be the people that are involved in helping them remove that stress. And secondly, when an organization had a breach, often once it's resolved and the dust has settled, the first thing they ask for is how did it happen and how do we prevent that from happening again. And the "How do we prevent that from happening again," is all the capabilities that exist within the InfoTrust business, whether it's consulting, strategic cyber consulting, GRC, governance, risk and compliance, helping them adopt standards, uplift their product architecture or the monitoring, the 24/7 SOC provides. It's absolutely core to what InfoTrust does. It is preventing them from having a second breach. And we know from experience that when you've had a breach, it's top of management. It's top of the Board's mind to say why did that happen and how do we prevent that happening again. So having this capability in here enables us to have a seat at the table for those initial conversations and really partner with them and say, look, you don't want that to happen again. We can provide you capability to prevent a second breach. Then in the same -- if there -- a lot of the digital forensics, it's not just around criminal behavior, but it can be around civil matters where insider threat or where a staff member is alleged to have taken IP, customer lists, had some inappropriate behavior within the organization. We can support and -- the resolution of that through civil or criminal proceeds, providing expert witnesses, providing all the statutory declarations around what we have found on the electronic devices. So very specialized capability, very profitable. We're really looking forward. There's a lot of cultural overlap within the teams, very -- a lot of pride in the work that they undertake, a sense that it's very meaningful. We're preventing criminal behavior either a ransomware attack or an insider threat attack, both sides very comfortable about coming together.

And just picking up on that 180 incidents that you referred to. So they -- post rectifying the situation, they -- that's an opportunity that they didn't have to grow that revenue base. But as you're saying, now InfoTrust can step in on those services at the back end to pick that up. I think that's the key point to know about that forward revenue synergy, so to speak.

So just to add to that, so we've -- InfoTrust -- or I've worked with Forensic IT for a number of years now. So we get some of those leads at the moment, but it's a handful and then they'll work with other partners to do that work. So being able to capitalize on all of that work now across their 180 per year breaches that they get involved with is a huge opportunity for us to go in and continue to work with those customers. And then from an integration perspective, we see that as fairly lightweight given the smaller team, the working relationship we've got. So the integration, again, should be fairly straightforward, and we should be able to go to market and hit the ground running very quickly.

Great. Couple of -- the 2 key people that are in the business at the moment are very motivated to join. We've sort of incentivized them through ESOP program and incentive payments over 2 years. So they will receive a significant portion of our employee share option program that will vest 50% in 2 years, 50% in 3 years alongside some cash incentives to be employed on the third year anniversary. So a couple of -- I think investors always worry about key personal risk within the business, and we've been very conscious, a, to meet with them significantly to make sure we all feel we're culturally aligned; but also to put various significant incentives for them to drive increased performance and be part of the team. The placement offer, I'll get to that in a second. Okay. So as part of the acquisition, we've kicked off a fully underwritten $20 million equity raise. $18 million of that will be through an [indiscernible], $2 million of that to a placement. It's underwritten by UCP, sub underwritten by 263 Finance, which is Shan Kanji's entity, who is a significant shareholder at the moment, currently a 34% shareholder who is participating and each of the Spirit directors who hold shares' supportive and is intending to exercise entitlements through this offer process. Overview of Spirit and again, some of these slides are here for follow-up and for people to read post. So I will jump into a bit more detail, so we can talk about Forensics IT. The 2 key people joining there Brendan McCreesh and Jordan Hunt joined 12, 15 years' experience, experience in law enforcement, experience in incident response, again, very motivated to stay within the team, very motivated to be part of a bigger team. I think that's the capabilities of the SOC and the pen testing. Skills are very complementary and I think that -- they say the opportunity to work within a bigger team, which isn't so big that it's a global multinational or a team that's going to change all the policies and procedures and really disrupt their working experience, they saw as a great opportunity for their own growth. One of the challenges -- and we always look at the process of what would it cost to build our business versus buy it. And the key barrier to entry to building have been the insurance company in the law firm panels, which weren't open and the reputation of the leadership team and the staff within that organization. So bringing them on board in a very motivated way to drive success and work collaboratively with the team was a huge opportunity for us and that underpinned the Board's decision to support the acquisition. Yes. I think I've touched on a couple of these. So as a consequence, where has this taken us? So over the last 2 years, 2-year journey, you can see managed services has shrunk. We've divested some assets in there. We've been really focused on off-boarding unprofitable revenue. But the core message, cybersecurity, as a percentage of what we do as an organization, has doubled over the period. It's grown from 26% to 52%, and it will continue to be at the core of our thinking and market activity going forward. There's no reason at all, I think, for any -- or anybody thinks that cybersecurity is going to soften. If anything, we're seeing more breaches and more companies become more aware and more conscious of what they need to invest to stay safe. I think historically, we've seen a lot of early investment from enterprise organizations who had the budgets to do and make significant investments early. That's now flowing down into the mid-market, where they're becoming more aware of needing to defend themselves, protect their customers' information, protect their business reputation and cyber is becoming more of a spend item for all organizations.

And just to add to that, Julian, whilst there's always the reputation side and the hope that the businesses are going to spend to protect themselves, regulatory changes are underway now and more government -- privacy act changes in October will start to force businesses to have to spend more in these areas to protect assets and data and information. So whilst we have seen the enterprises spend historically in the mid-market, that spend will extend down into the SMB and the smaller business market as well, which has always been a core part of the InfoTrust customer base. So again, we couldn't be better prepared for that change and then being able to wrap around those customers and really make sure we're able to gain more of that investment and build a strategic partnership regardless of the size of those businesses.

And I think if we talk to the competitive landscape, where there's really only 2 or 3 players that we regularly see and they are going through a number of changes, so I think CyberCX is no doubt the largest organization in our industry, but being -- going through a huge transformation is publicly on the market, is potentially disrupted as a consequence of that. And we're seeing a lot of customer churn from some of the sort of Tesserent/CyberCX, and we see that as an opportunity for us to pick up great staff and new customers in that space. Touched on that. There's a lot on this slide. I think I'll probably leave that to everybody to read and ask direct questions, but we have published the details of the equity raise, funding and key terms. If I can come to application of funds, really, you can see the key breakdown there. Completion and consideration, the transaction value, the enterprise value for Forensic IT was $7.6 million, which was 5.2x there, $1.45 million in underlying EBITDA. It's 80% cash, 20% script. With the cash consideration being $5.2 million and $800,000 deferred over 2 payments over 12 months. Associated diligence and transaction costs with that raise on the $20 million fees. We have some deferred consideration from the InfoTrust acquisition that needs to be paid that takes $4.5 million. And then a real focus on those -- the Cyber segment and the communications segment to scale up and grab hold of the opportunities that are in front of them and then a boost to working capital. I think through the last 12 months, we've been undercapitalized and that's evidenced in the balance sheet, and we really wanted to, for once and all, address that problem and bring everything into order, have a strong balance sheet going into FY '24, so we can make positive decisions that are driving future earnings. I'll leave the client table. I think, one of the key questions that's called out has always been around net debt and the organization's current debt covenants. Paul, do you want to just quickly talk to the balance sheet and where we see that post raise?

Yes. I think -- thanks, Julian. I think as sort of Julian's indicated, we have been undercapitalized in one sense. We have a facility with the CBA, which is at $28 million. Moving forward, that amortizes at $85,000 a month. We have -- as Julian indicated, we have a vendor loan on the balance sheet and deferred consideration. So part of the application of funds is obviously to repay that vendor loan of $3 million and a portion of the deferred consideration. But the -- of the $11.5 million, about $7 million of that is current and the rest is noncurrent. So there's a phased amortization of that deferred consideration over the next 18 months in a structured manner. So post the raise at 30 June, we had just shy of $9 million cash on the balance sheet. As Julian indicated, we're raising to fund the FIT acquisition, which is $5.2 million. And then obviously, post the equity raise and the transaction cost, that delivers into the balance sheet, $18.5 million to then apply to the $5.2 million. And look, purely on a pro forma basis of the 30 June balance sheet, that shows a net debt of $20 million. And if you then reference that back to the FY '25 updated guidance at $11.8 million, that gives you a rough ratio, at this point in time, of 1.72%. Now that doesn't fully take into account the application of working capital and how we move through that. So I imagine as we sort of progress that debt-to-equity ratio, we'll sit around that 2% to 2.3%, mark over the next 6 months and then slightly drift backwards in time to that 1.7% range. But it tends to give a view of where we are, at this point, in time. We also have convertible notes on the balance sheet, so that's at about $4.9 million. Those convertible notes have an exercise price at $0.045 within the next 18-month window. And if they also convert within the 12 months of the initial raise, they get an option. So look, we anticipate that those convertible notes, in the majority, will convert. We've already had a couple of conversions. And as Julian said, we've also -- part of the raise is obviously to help us apply to improving our working capital.

So I might leave it there. I'm conscious of time. We're 45 minutes in and open to questions.

[Operator Instructions] Julian, I'd like to start off with one question. So in terms of Forensic IT, what is the overlap in terms of clients? And as a result of the acquisition, are there any gaps in terms of Spirit's cybersecurity offering?

From -- I'll take the first part and Simon can talk to the second part. We don't see any overlap in clients. Where there are some slight sort of overlap is more in the partners that have used them. So as Simon mentioned that InfoTrust had used them before. A number of -- a couple of cyber firms have also used them in the past. So there's a little overlap in who refers work to them. Now we've factored in the fact there might be a risk that one of those firms may say, okay, well, given they're now part of the Spirit family and aligned with InfoTrust, they may not continue to use them. But no, none of those [ firm ] represent more than sort of 4 or 5 of the incidents that they do of more than 180. So I don't think we see that as a material problem or a material risk to the sustainability of the earnings of Forensic IT. And the upside for us being able to be next to work off the back and to sell incident response retainers now that we really have this depth of capability in the team, more than offsets that identified risk. Simon, capabilities.

Yes, look, absolutely. I think there's always gaps in new capabilities, right? That's sort of fair to say. We've always positioned ourselves as a very specialized strategic cyber practice by design. We don't want to be really broad, low-margin, transactional. The value for our customers is the fact that we do go really deep in terms of expertise. So if we put someone in front of you, they come with years of experience. They're highly certified. That gives us the ability for that customer to have a really good experience and then say, "Well, what else do you do?" And we get to do more with them. So we've always respected that. The benefit of jumping in with Intalock and now acquiring FIT is those divisions, whilst being profitable in their own right, means we can go in and expand that -- those service lines within those customers. So even within our own customer base, the amount of white space that we've got, just with the Intalock-InfoTrust merger has barely been touched. We're still only 3 or 4 months in. So huge opportunity to grow. And then with the addition of Forensic IT, that is a really profitable service line that we can scale in. That is recurring revenue and gives us the opportunity to grow them probably a lot quicker than they would have done on their own. I've got 16 sellers working for me and that's growing. So Forensic IT built their business off the back of really good referrals and reputation, not a really strong marketing at sales strategy. So again, the ability to bring that into our engine, which is more sales and growth focused gives us an opportunity to really accelerate that now. In terms of some of the gaps, that's probably where we look at either to Julian's point, whether we build or whether we acquire, and fortunate enough to have been around for nearly 20 years now and have a lot of relationships, understanding some of the areas that we want to grow or move into, and we'll start to factor that in as we build out our strategy moving forward.

Okay. Great. Another question. Can you provide more color on how managed services improved earnings by $4.9 million in FY '25 and how cyber adds $4.1 million to its earnings?

I think the majority of the managed service earnings improvement is reduced loss. So $4.5 million of that delta is [ coughed ] out programs that have been executed in FY '24. So the key delta there is the restructuring program that's been completed.

So if you go back to the waterfall chart, I might just help put it in context. If you look at our segment results for the 24, as we indicated, that made an underlying EBITDA loss of $4.5 million. So if you take the $4.5 million and we're saying in the waterfall, you're adding $4.9 million, see, we're implying that, that operation in FY '25 is going to do around the $300,000 mark. Now that's a very conservative assumption, but we don't want to overpromise that operation, at this point in time. But I think we're comfortable given that it's at that breakeven point that it will accelerate. I think Julian indicated upfront that some of the contract wins we've got in Q4 have come as a consequence of a combined package of cyber and managed services overlays on it. Now those contracts will start to -- and correct me, Julian, but those contracts will start to accelerate in H2 '25. So what we're showing is a very kind of constrained growth in '25 for managed services. And obviously, it was a business we want to outperform that significantly. And look, from the cyber point of view, we did $3.3 million in FY '24. Now that included that included 3 months' worth of the InfoTrust business that we acquired from 1 April. So the '25 number is, therefore, saying we're going to target that business at around $7.3 million. And that's obviously having the full year contribution of the InfoTrust business, an uplift in the existing business and the synergies that we referenced coming through. Julian, did you want to...

Just now on top of that is Forensic IT and the opportunities that come from that. So it was $4.1 million, primarily based on the full year control period as opposed to 1 quarter. But we're just seeing strong demand in there. And again, we would expect to -- we've had a strong start to the year, albeit we're only a couple of months in. But the activity we're seeing and the ability of the much larger sales team that Simon's leading is driving much more market activity in an area that is still very [ topical ] and is still getting a lot of investment from boards and leadership teams and organizations.

Yes. And then just my only last point is that bullet point 6 on the synergy, so that $300,000 is a small number, and that's just cost-related synergies. And obviously, there's revenue opportunities that we have addressed that we look forward to realizing.

All right. Thank you. Julian, can you provide us with any color in terms of Forensic IT's gross margins? Are they expected to be as big as those InfoTrust?

We can certainly provide information on the EBITDA margins at this stage. And you could see, from $3.5 million, they're doing $1.45 million. So EBITDA margin's around 41%. And we're not going to be overlaying a whole lot of the corporate costs. There's no real change in there. So we would expect to see that business to continue at those margins. Where we will see the opportunity and synergy revenues, which, to be conservative, we haven't added in yet until we start to get some track record. But we see the InfoTrust business realizing those synergies as they're going in post incident to do additional services. We've -- sort of in our modeling, we've assumed of 180, 40 may come to us for services post. And we've assumed, if they spend $50,000 with us, there's another $2 million of revenue and at the current margins, that's meaningful for the business. But again, we not super-keen on talking to revenue synergies until we get some track record on delivering them. And as we achieve those, we'll come back and sort of clarify what's been achieved. The cost out is very specific around reduced labor or overlap of labor, so we can make those changes immediately, and I have certainty of achieving my cost-out synergies.

Okay. Thank you. I'm cognizant that we are approaching 10:00. I might just give one last call for any additional Q&A. If not, Julian, I might hand over to you to close the call. But if anyone else has questions, please e-mail and myself or Julian directly.

So thank you, everyone, for your time. We appreciate, on a Friday afternoon, coming to the presentation and know we've only launched this, this morning. So if anybody does have any questions and wants to reach out to me, please contact Gabriella, e-mail me or talk to George at UCP, and he can set something up for us to jump on a call and go through in detail any more questions that you might have.

Okay. Thank you, everyone.

Thank you.

Thank you.