COSOL (ASX:COS) executives told investors the company’s first-half performance was “deeply unsatisfactory,” citing lower revenue, sharply reduced EBIT, and a pullback from the upward trajectory it had delivered since listing.
On the earnings call, management attributed the decline to a combination of contract roll-offs, a contract termination, lower utilization, and a weaker-than-expected sales pipeline. Chief executive Scott Gowen said the company has already made operational and commercial changes in response, and that early signs of stabilization are emerging in the second half, though work remains to restore growth and margins.
What drove the first-half decline
Chief financial officer Anthony Stokes added detail on the operational issues affecting profitability, particularly within the consulting services lines. He said the “bigger earnings impact” came from a AUD 1.4 million margin erosion tied to:
- Holding costs for consultants due to timing mismatches between projects ending and new work commencing, which Stokes said created an approximate AUD 1 million cost impact in the half; and
- Timing delays in right-sizing the Managed Services cost base after a contract loss reduced revenue.
Management also pointed to sector-specific demand changes. Stokes said Asset Management Services revenue declined 26% (to AUD 5.7 million), driven predominantly by softening demand in the coal sector, which weighed on earnings in that segment. He noted steadier demand in Western Australia and said the company has been active across markets and commodities including coal and gold.
New segment reporting and operational changes
Stokes said COSOL has changed how it reports the business, breaking it into three segments:
- Asset Management Services, described as operationally focused and lower margin, and serving as a key go-to-market channel, predominantly in mining;
- Data and Digital Consulting, which includes Managed Services and product and product-led services; and
- Advisory.
A notable management change announced on the call was the expansion of Stokes’ responsibilities. Gowen said Stokes has added the role of Chief Operating Officer, giving him direct oversight of operations. Gowen said this is intended to improve project visibility, increase hands-on margin protection, restore utilization, and accelerate integration of acquired businesses.
Gowen said he will personally take ownership of rebuilding sales capability and expanding the sales pipeline, calling that work “crucial” to COSOL’s growth objectives.
Stokes said the Managed Services cost base “has now been right-sized,” and the company is focused on growing revenue and optimizing the consultant base around the projects in front of it. He also said operating costs were controlled during the half, while the company increased operating costs in the U.S. business as part of prior sales and capability investments—an effort Stokes said resulted in two Managed Services contract wins during the half.
Those U.S. wins include “large implementation programs” and multi-year ongoing Managed Services contracts, Stokes said, and the programs only began late in the first half. Management expects them to underpin U.S. revenue in the second half.
Demand trends and growth focus areas
On the call, Stokes highlighted COSOL’s consulting revenue mix across transport, natural resources, and energy and water, and emphasized that each industry is supported by contracted Managed Services and product/product-led services revenue that provides baseline predictability.
He said growth in transport and infrastructure revenue reflects the acquisition of Toustone and COSOL’s stated focus on that vertical. In response to an analyst question about pipeline “news flow,” Gowen pointed to multiple engagements in transportation and infrastructure, describing them as typically long-term opportunities aligned to capital investment and infrastructure expansion in Australia. He also said similar activity is appearing in the U.S., which he attributed largely to the Toustone acquisition completed in December 2024.
Second-half outlook, utilization, and Managed Services expectations
In Q&A, management discussed expectations for a stronger second half. Stokes said the company anticipates revenue growth in Asset Management Services versus the first half, with a recovery expected toward the end of the period and further growth in the second half. He cited stable conditions in Western Australia and signs of recovery in the East Coast market.
Stokes also referenced improved sales activity in the second quarter that leads to project kickoffs in the second half, increasing utilization trends beginning in February, and the business’s “natural seasonality” in the second half related to license renewals. He said COSOL has indicated positive half-on-half growth in both revenue and earnings, and that the company intends to provide further guidance in the early part of the fourth quarter as the half progresses.
Discussing Managed Services specifically, Stokes referenced a baseline revenue level of 11.6 for the half and said management expects that to grow to “closer to 12” in the second half as implementation work comes online. He also said COSOL expects “core” annualized growth of around 10% for 2027, with margins continuing to improve and an expectation that margin could move closer to 40% during 2027.
AI, pricing pressure, and board comments
Asked about the impact of AI and what the caller described as a “SaaS apocalypse,” management said it views AI as increasingly embedded across delivery rather than a standalone revenue driver. Gowen said COSOL is embedding AI into operations, delivery, and software, describing it as “table stakes.” He added that the company does not currently see an ability to charge a premium for AI features, but does see potential productivity and efficiency gains, which he characterized as in the “20%-30%” range, with benefits beginning to emerge as capabilities are rolled out.
In a separate question on board composition, Gowen said the near-term priority is “sustainability and security” given the recent results and the need to rebuild shareholder confidence. He said board expansion and capability changes may be considered as the business grows, but emphasized that current focus is on executing plans and delivering results.
Closing the call, Gowen reiterated that the first-half result was “not acceptable,” said management has made changes during the first half, and stated that the company is starting to see benefits flowing into the second half. He said COSOL’s priority is to execute and rebuild investor confidence through quarter-on-quarter and half-on-half improvements.
About COSOL (ASX:COS)
COSOL Limited, together with its subsidiaries, provides information technology services in the Asia Pacific, North America, Europe, the Middle East, Africa, and internationally. It utilizes proprietary software and services to deliver solutions for clients operating in asset-intensive industries with a focus on resource and capital-intensive enterprise asset management and infrastructure-focused systems. The company also offers digital business solutions, including business process and strategic reviews; data migration; and ongoing support services to clients, as well as implements enterprise resource planning/enterprise asset management solutions.
