The Gentrack Group Ltd (ASX: GTK) share price will be on watch on Monday after providing a further update on its expectations for FY 2020.
What is happening?
Last week the essential software provider's shares fell heavily after it warned that trading conditions remained very tough.
This meant that Gentrack's guidance for a broadly flat result in FY 2020 was in danger of being downgraded materially. Which is especially disappointing given how many times the company downgraded its guidance in FY 2019.
After a series of downgrades, Gentrack ultimately posted a 20% decline in EBITDA to NZ$24.8 million for the 12 months ended September 30. This was significantly lower than its original target of 15% growth in EBITDA.
What about FY 2020?
This morning Gentrack advised that it is experiencing difficult conditions in its utility markets. It advised that in the UK and Australia regulatory price caps on electricity, combined with competitive market conditions, have led to reductions and deferrals of IT investment. This has impacted Gentrack's sales pipeline to a greater degree than previously expected.
It is also transitioning from an upfront license model to a recurring SaaS model. This means that initial contract revenues are declining and being replaced by more predictable contracted recurring payments.
As a result, management expects its revenue for FY 2020 to decrease significantly and for EBITDA to be in the range of NZ$8 million and $12 million. This represents a sizeable 51.6% to 68% decline on the prior corresponding period.
In light of its poor performance, management advised that it is intending to reduce its costs base. It is targeting savings of NZ$8 million on a full year basis, of which approximately $4 million will benefit the current year.
A further update on its guidance will be provided at its annual general meeting on February 26.
