‘Mistakes cost us dearly’ Isentia boss admits, but business on the right track
Isentia CEO John Croll has admitted the company could have handled the acquisition of King Content last year in a better way after a shock slump in revenue for the division saw 26% carved from the company’s share price last week.
John Croll admits the company has paid a price for failing to see a revenue gap emerging
Speaking with Mumbrella, Croll said that a restructure of the content division and the realignment of the sales teams would result in an improved revenue outlook for the division in the coming year.
And the company is also poised to announce a new CEO within weeks after King Content founder Craig Hodges was elevated to the role of chairman ahead of him completing his earn-out next year.
Croll said that while the stock was punished last Thursday when the King Content revenue shortfall was revealed, before recouping some of the loss on subsequent days, he did not agree with speculation that Isentia had paid over the mark for the business.
“I don’t accept that,” Croll said.
“We paid 60% up front and then we have got two earn-outs to come forward on that business. We have paid one earn out and we have got the second earn-out at the end of FY17 on EBITDA, so there is no doubt at all we are going to be paying well less than the $48m that was the headline number because of where the EBITDA performance number will be for this year.
King Content founder Craig Hodges has been elevated to the role of chairman ahead of completing his earn-out next year
“If we hadn’t done the earn-out structure and paid that up-front, obviously, it would have been way too much on where it is now but I think, actually, the structure we put forward made sure that we are not paying too much.”
Croll predicts that the content unit will be one of the three pillars of Isentia, moving forward, alongside its SaaS and insights business. But he said that the company had not adequately identified a gap in revenue that was approaching.
“What probably happened inside the last four months was there were some decisions taken inside King Content around the resourcing of new sales teams and the account management that were taken, in my view, premature to the proper transition across to the Isentia team and that has created a period where we didn’t have a strong revenue pipeline coming into the business,” he said.
He said the old structure of the content business was around campaigns and so when campaigns ended, revenue stopped.
“When someone turned the campaign off the revenue went quickly from $100,000 or more per month to zero for those sorts of clients and that’s what created a temporary revenue problem for us,” he said.
“What we see in the new structure is a much better blend between the Isentia account management teams and the new business teams across Asia Pacific.
“We are already seeing better revenue in November.”
With Hodges planning to leave the business in June 2017, Croll said it was better to have him in the chairman role so the new CEO would have time to get to know the company while Hodges was still there.
He said that the incoming CEO would be a mix of good industry experience from content marketing and content platforms, but would also have a longer term strategic outlook for the business.
“We are looking for someone with stronger general leadership skills. Craig was very much the entrepreneur and understood where the industry was going and has that founder. It allows us to build a much more repeatable business.
“Now we need someone who can lead the business on to the next layer of growth in a public environment.
“For me there were some mistakes made over a couple of months which cost us dearly but this person will be running a very important part of the growth strategy for Isentia and will have a strong play in how some of our products integrate across the whole group.”
He also admitted that Hodge’s earn-out could have been a year longer which would have given Isentia more options and time as it integrated the business.
“I’m still very confident around the communicate platform integrated into the rest of the Isentia suite will be a point of difference that no one else has in the marketplace,” he said.
“Being able to measure on the fly both earned media and owned and shared media I think is going to give us a really strong piece and I’m very confident about what we have got there.
“I think the strategy piece of King Content is again a point of difference where not many agencies have that strength around the strategy peice, so they are the two things I feel really strongly about.
“Where we are sitting it (King Content) was about 7% contribution to our EBITDA line last year and the King Content business had a fantastic year in FY16 going from about a pro-forma $15m to $22m and getting a really good margin for that business.”
After collapsing from $3.25 last week Isentia shares have settled trading in $2.45 to $2.50 range.
Got so suckered
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According to page 20 in Isentia’s FY15 results presentation and King Content announcement, Isentia paid 60% upfront (not 6% as the above article states). 60% of $48m is $28.8m in upfront payment. See following link: http://www.asx.com.au/asxpdf/2.....ch419d.pdf
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Nice try by the CEO, but with the CEO going and revenue losing momentum, its a bit hard to argue you paid fairly for it.
King Content better turn around quick smart or it will be a weight on isentia’s back for a long time
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Hi ASX,
It was 60 not 6%, that was a slip of the keyboard but amended now.
Cheers,
Alex – editor, Mumbrella
At least they’re fronting up and explaining the situation.
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Attention all King Content customers – “getting a really good margin for that business.”
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@Trying – they are obliged to, they are a public company.
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So the emperor has no clothes
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