Eroad narrows 1H loss
By Paul McBeth
Nov. 26 (BusinessDesk) - Eroad narrowed its first-half loss as a focus on more valuable sales in the US and new business in New Zealand offset increased spending in the period.
The logistics and fleet management firm reported a net loss of $3.4 million in the six months ended Sept. 30 from a loss of $3.9 million a year earlier. Earnings before interest, tax, depreciation and amortisation were positive, jumping 81 percent to $6.2 million and at a wider ebitda-margin of 22 percent than the 17 percent posted a year earlier.
Revenue rose 46 percent to $28.5 million compared to the same period a year earlier, largely matching a 45 percent increase in total contracted units to 86,240. Sales growth has been faster in its smaller North American market at 115 percent, although Eroad said those sales fell short of expectations.
The shares fell 2.9 percent to $2.64, a 13-month low.
Eroad expects US demand for higher-value products to emerge now the rush to install electronic logging devices has passed and customers look beyond simply meeting the minimum regulatory requirement.
New Zealand growth was steady and Eroad plans to re-launch in Australia, hiring sales staff in key states to target that market.
The Australia and New Zealand segment increased ebitda to $13.5 million from $10.1 million a year earlier on the sales growth, while the North American ebitda-loss narrowed to $400,000 from $2.3 million.
Operating costs rose 38 percent to $22.3 million, in part due to an expanded management team in the US. Eroad expects opex remain high in the near-term with the Australian re-launch and a refreshed strategy for North America.
"Due to additional costs in Australia as we build in-market sales capability, that investment will run ahead of revenue in the near to medium term," it said. "As Eroad is adopting a measured approach, leveraging its New Zealand operations, a substantially smaller investment is required than with a traditional new market entry."
Eroad also kicked the tyres of a potential acquisition in the period, spending $400,000 pursuing an opportunity that didn't eventuate. The expense line increased by $200,000 on a strategic review of the North American business, $200,000 on a project to transform systems and processes, and $400,000 validating the Australian re-launch.
The company found its North American review was ultimately ill-timed as rivals and other telematics companies in adjacent markets were working on their own products. Despite that, the review found there is an opportunity for Eroad to sell more units with a wider distribution channel and that its own product is regarded highly.
US sales have been accelerating as states mandate the introduction of electronic logging devices. Uptake was initially slow because of intense lobbying to delay the tools.
Eroad changed its accounting treatment of lease standards in the latest period. Where sales were previously recognised upfront, they will now be spread evenly over the contract term. Capitalised costs of securing a contract will reduce as a result. This better reflects cashflow, it said.
The company's operating cashflow soared to $7.1 million in the half-year from $718,000 a year earlier, while the net outflow on investment rose to $13.6 million from $11.6 million. Eroad held $22.3 million in cash and equivalents as at Sept. 30.
Spending on research and development rose to $6 million from $4.8 million a year earlier. Eroad said it will keep investing in developments for the US and Australian markets, and setting up its platform for future growth.