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Why this small cap ASX tech share crashed 44% lower today

The ARQ Group Ltd (ASX: ARQ) share price has continued its shocking run and has crashed lower again on Tuesday.

The online solutions provider’s shares are down 44% to 30 cents in early trade. This means the ARQ share price is now down a bitterly disappointing 85% since the start of the year.

Why did the ARQ share price crash lower today?

This morning ARQ announced that it would be making a change to its full year guidance following a severe deterioration in trading conditions for its Enterprise division.

In addition to this, the company revealed that it has appointed Macquarie Group Ltd (ASX: MQG) subsidiary, Macquarie Capital, to undertake a strategic review in order to explore all avenues for shareholder value creation.

In respect to its guidance, management had previously provided group underlying EBITDA guidance of $27 million to $30.5 million in FY 2019.

However, due to market conditions softening materially for its Enterprise division, management has realised that its revenue growth targets for the second half of 2019 will not be achieved. Furthermore, cost reduction initiatives will be insufficient to offset the revenue shortfall.  

In light of this, management has downgraded its group underlying EBITDA guidance to be in the range of $16.8 million to $19.3 million.

Management explained: “The guidance provided in June 2019 anticipated growth from existing and new accounts and unfortunately this is tracking below expectations. In addition, a number of existing customers are reviewing their expenditure, during which time they are pausing existing work or deferring the commencement of new work. These headwinds coincide with an increasing focus on costs across a range of sectors including banking and finance, aviation and telecommunications.”   

In respect to its strategic review, the company advised that it has “received informal and preliminary approaches from parties interested in discussing value creating opportunities relating to both the Enterprise division and the SMB division.”

As a result, Macquarie Capital has been appointed to undertake a strategic review, exploring all avenues for maximising shareholder value.

Finally, the company’s CEO, Martin Mercer, has agreed to leave the business in a transitioned and orderly process. Mr Mercer has resigned as a director of the company effective immediately and the search for a new CEO is underway.

In the meantime, Tristan Sternson has been appointed as Interim CEO whilst the search is in process.

Should you buy the dip?

Things just seem to go from bad to worse for ARQ. And whilst the company may have hit rock bottom now, I intend to stay clear of its shares until there is a sustained improvement in its performance.

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James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. owns shares of Serko Ltd. The Motley Fool Australia owns shares of and has recommended Macquarie Group Limited. The Motley Fool Australia has recommended Serko Ltd and Straker Translations. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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