Telco provider Inabox Group fell 45 per cent on Thursday after issuing a profit warning following the loss of several customers from its Hostworks division.

Inabox (ASX:IAB) reported a $6.8 million fall in revenue from cloud provider Hostworks — one of its newest acquisitions.

“At the time of announcing the acquisition, Inabox estimated that Hostworks would contribute in excess of $21.8m in revenue, $3.5m EBITDA and $1.2m of Net Profit after Tax for FY18,” Inabox said.

Instead, Inabox now expects Hostworks to deliver $15m revenue and “negligible” EBITDA, or earnings before interest, tax, depreciation and amortisation.

“This will have a significant negative impact on Inabox’s financial performance for the year,” the company said.

It now expects to make a first half loss in 2018, and says it’s likely to book an impairment charge.

Swinging into action

Chief executive Damian Kay told Stockhead he had found out about the customers leaving on Friday and had quickly moved to review the business.

“These customers have grown up with Hostworks, but they’re now large companies and have large IT teams that can do things themselves. We are replacing these customers, we have signed new contracts, but in terms of revenue it’s a timing issue,” he said.

The problem was that with Hostworks’ fixed costs of rent, labour, power and maintenance contracts, any revenue hit is heavily reflected on the bottom line.

“But the reverse is that any revenue movement upwards also makes as big an impact the other way,” he said.

To repair the full business Inabox plans to keep focusing on its high-margin areas such as managed voice, hosted cloud, and managed IT, and cross-sell the Hostworks business as an SME cloud product, “Cloudinabox’.

The cost reduction program is still expected to save them more than $2 million a year.