Kiwi tech company Endace posts US$97.4 mln 2015 loss; new owners gain contracts

Friday 19th August 2016

Endace, which makes high-speed network monitoring and recording technology, reported a loss of US$97.4 million for the June 2015 year and negative operating cash flows of US$5.5 million though it has since undergone a management-led buyout from its former American owner and gained new contracts.

Financial results recently filed with the NZ Companies Office show the company operating as a going concern, an accounting term that means despite being loss-making, it has the funds to carry on in business without being forced into liquidation.

The loss for the 2015 year widened to US$97.4 million from US$22.5 million the previous year and included a one-off non-cash impairment charge of US$73 million after a write-down of the company’s carrying value. It took accumulated losses to US$106.7 million.

During the financial year, the group capitalised inter-company loans of US$65 million and injected US$85 million of capital to result in positive equity of US$20.1 million compared to negative equity of US$28.8 million the prior year.

Since balance date, the company said it had secured significant contracts resulting in sufficient positive cash flows to ensure the group can meet its financial obligations for at least the next year. Revenue for 2017 and onwards is projected to show steady growth.

Company ownership switched late last year from US-based Emulex to New Zealand-based Echidna, which is two-thirds owned by Endace chief executive Stuart Wilson and one-third by chief financial officer Andrew Harsant.

When announcing the management buyout, Wilson said demand for Endace’s technology was accelerating globally with some large customer installations in the government and commercial sectors, most likely due to an increase in media publicity on high-profile data breaches.

The Kiwi company was formed in 2001 to commercialise research out of the University of Waikato and then sold in 2013 to Californian networking solutions firm Emulex which was, in turn, sold in 2015 to Nasdaq-listed Avago Technologies. The ownership change caused Avago to forfeit tax losses of US$6.7 million and it then decided Endace was no longer part of its core business.

After the management buy-out Endace reached an agreement with Callaghan Innovation to repay $1.9 million of R&D grant funding from the Crown through a clawback provision which allows the agency to request repayment of some of all of the funding if the company enters into any arrangement that causes a material reduction in benefit to New Zealand.

Endace had received three separate grants since 2010 including a growth grant awarded in October 2013 with a potential value of $6.8 million that was later suspended.

The accounts show grant income of US$1.66 million from Callaghan in 2015 and US$1.7 million in 2014. Research and development expenses in the 2015 financial year dipped to US$9.2 million, down US$2.3 million on 2014, while overall revenue more than halved to US$10.8 million compared to US$23.4 million the prior year.

BusinessDesk.co.nz

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