Eroad misses prospectus targets but for a positive reason

Eroad’s [NZX: ERD] maiden annual result as a listed company shows it missing its prospective revenue forecast but for a reason that suggests a stronger business model.

Revenue of $17.6 million for the year ended March was short of the $19 million prospectus forecast.

Founder and chief executive Steven Newman says that, when it prepared the prospectus issued in July last year, his company had expected to be selling a lot more hardware in Oregon in North America.

However, more customers than expected have preferred to rent the equipment on 36-month contracts than to buy it outright, and the revenue will be recognised over the life of those contracts.

“That has meant that revenue that could have fallen this year will come in over coming years,” Mr Newman says.

“Renting is absolutely our preferred model,” he says, adding that that’s the model Eroad is operating in New Zealand.

The company, which sells technology to manage road user charges and other technology-based services for trucks, also missed its forecast units in which its technology is installed by 791 – it came in at 23,915 compared with the 24,706 forecast.

Mr Newman says the company is about eight weeks behind in Oregon.

“The bigger factor is that for February, March, April, our run-rate is 500 units a month, which is in line with the PFI (prospective financial information),” he says.

The company had a further 1947 contracted sales pending installation at balance date.

“I think we’re well-placed in terms of delivering against our PFI for the coming year.”

Eroad’s bottom line, a net loss of $1.3 million, was also slightly higher than the forecast $1.02 million and includes the $2.02 million costs of floating the company.

The result excluding those costs is slightly higher than forecast.

The company’s customer retention rate of 99.2% is also higher than the forecast 98.2%.

Mr Newman says Eroad is very carefully measuring customer satisfaction to ensure the retention rate remains high.

Positive outlook
The company expects its New Zealand and Australian operations to perform strongly and those markets will remain its core business but it is also looking at expanding further in the US.

Mr Newman says Eroad is already expanding in North America, currently establishing operations in Washington state, Idaho and California and is currently studying the truck markets in neighbouring states to help it decide where to go next.

Eroad has committed to larger premises in Oregon capable of housing up to 70 sales and customer support staff.

It has also been working on completing its automated fuel tax reporting and electronic logbook products and expects they will allow it to address a market in North America of upward of five million vehicles.

Mr Newman says the electronic fuel tax service has been well-received by both customers and regulators in North America.

The logbook product will support truck drivers in meeting their hours-of-service obligations ahead of the US Federal mandate requiring all interstate drives to have such a product by late 2017.

“The challenge for us continues to be being able to grow fast enough and to execute fast enough to capture the opportunity,” Mr Newman says.

Eroad shares fell 5c to $3.95 after the results were released but have traded well above the $3 float price since trading started in mid-August last year.