Aconex Ltd (ASX: ACX) has shocked the market.
Aconex share price
What happened?
In an announcement to the ASX this morning, construction software provider Aconex provided its 2017 financial year outlook and trading update.
Shockingly, the company revised down its operating profit forecasts from between 62% and 84% growth to between 10% and 32% growth. Note here that Aconex has used Earnings Before Interest, Tax, Depreciation and Amortisation (EBITDA) as its measure of operating profit. You should also note that the figure excludes any acquisition and integration costs.
"Beware of geeks bearing formulas." – Warren Buffett
The company said lower than expected sales performance in the U.K. and Americas, together with a higher proportion of long-term contracts led to lower sales and revenue, respectively.
Pleasingly, the company said operating cash flow in the second quarter would be $3.9 million higher compared to the prior year (up from negative operating cash flow last year) at $2.5 million. Meanwhile, it would also balance profitability and long-term growth.
"We are pleased with our strong cash flow, particularly since the second quarter is seasonally low due to the payment of annual bonuses," Aconex CEO, Leigh Jasper, said. "Our performance reflects the unwinding of upfront invoicing, and we expect this trend to continue as collections align with revenue over the next two years."
Foolish Takeaway
Interestingly, Aconex's new Chief Financial Officer (CFO), Paul Koppelman, takes the reigns of Aconex today. I find it a little ironic and unsettling that a company specialising in software development with a higher proportion of long-term contracts had to downgrade 'profit' so much. Of course, a lot can change between October 26 2016 and 30 January 2017.
In my opinion (it's only one opinion), Aconex shares appear very expensive at today's prices. I'd steer well clear.
