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Eroad plays down patent dispute as accounting changes cloud result

Tuesday 28th May 2019

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Eroad is playing down a claim that it's infringed someone's patent, saying it's so confident of its position that is hasn't made any provisions for the claim. 

The logistics and fleet management technology firm said it might incur legal fees, and has warned the other party that it will pursue costs if it goes to court.

It noted the claim as a contingent liability in its 2019 annual report, which showed strong earnings and revenue growth. 

Eroad said it was accused of infringing patents by a third party during the March year. Based on an internal review, it said it believes there are grounds for why it doesn't infringe the other party's patents and that there are strong grounds that those patents would be declared invalid if Eroad was to challenge them. 

"The group strongly asserts that we do not infringe the patents and have informed the other party that we would seek our attorney fees from them in the event we succeeded in any potential litigation," it said.

Eroad valued its patents at $12.3 million as at March 31. 

The company reported a loss of $4.9 million in the 12 months ended March 31 from a loss of $3.5 million a year earlier, largely reflecting R&D costs, but is now strongly cash-flow positive. Revenue climbed 40 percent to $61.4 million, while earnings before interest, tax, depreciation and amortisation rose 49 percent to $15.6 million. 

Eroad boosted its R&D spend in the year, as it seeks to broaden its product offering, support a re-launch in the Australian market, and enhance its suite in North America. Expensed R&D costs rose to $5.1 million from $4.5 million, and capitalised R&D costs were up at $8.3 million from $6.8 million. 

The company adopted new IFRS accounting standards that change the way it recognises revenue and costs associated with customers. It restated its year-earlier accounts to adopt the new rules, which lowered March 2018 reported revenue by $7.7 million, and ebitda by $4.5 million. 

"Most significantly, since the half-year results, the company no longer recognises upfront revenues for outright sales, installation services, sale of accessories or finance leases," the company said. "Eroad now recognises these revenue streams evenly over the contract term, typically over three years."

Despite the accounting noise, Eroad's cash flow improved, with a net operating inflow of $14.3 million, up from $5.2 million a year earlier. Spending on investment rose to $27.3 million from $23.8 million, and its banking facility provided a net financing inflow of $7.2 million. Eroad held cash and equivalents of $16.1 million as at March 31, down $21.9 million a year earlier. 

"Our growth continues through regulatory disruption, because fuel taxation revenues are under pressure and safety on our roads needs to get better," executive director Steve Newman said in the annual report. 

"Eroad has significant gravitas in this field, having pioneered the world’s first nationwide electronic road user charging system (NZ), the first electronic weight mile tax service (USA) and the first independently verified electronic logging device (USA) to manage driver fatigue."

Total contracted units sales in Australia/New Zealand rose 19 percent to 71,446, and in North America, sales jumped 40 percent to 24,944. 

Eroad said it expects steady growth in New Zealand and the US to continue in the 2020 financial year, however, it anticipates spending in Australia will run ahead of revenue in the near-to-medium-term. 

The company said it's still open to mergers and acquisitions to drive growth and has an active interest in opportunities that offer customers complementary technology or better distribution. It investigated a significant opportunity in the March year and incurred some costs, but didn't proceed with a deal. 

The shares last traded at $3.09, and have gained 23 percent so far this year. 


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