Pinned straw:
ERD out with a very poor update today, compounded by the fluff headline "EROAD strengthening focus on ANZ opportunities".
Why is ERD focusing on Australia and New Zealand? Because the US segment which came about from a large acquisition in 2021 continues to be a struggle, with a large customer churning to a competitor and sparking a write-down of ~$150m.
The US has been challenging for some time and a return to strong growth was not part of my original investment thesis. ERD's top line has been modest growth for some time, but management had done well to rationalise the cost base which had resulted in what I thought was a sustainable cash profit base to build from:
ERD management is now guiding to $197-203m revenue for FY26, below the previous $205m forecast but still ahead of FY25's $194.4m. In FY25 ERD achieved a 12% free cash flow margin before the cost of a 4G upgrade cycle, and are now guiding to 5-8% for FY26.
It appears as if ERD management's cost discipline which had served them so well to returning the business to cash profitability was discarded to chase higher growth and as @Strawman wrote recently a management team chasing growth is often the fastest way to destroy shareholder value.
There may be light at the end of the tunnel for shareholders as the Co-CEO overlooking the US segment has now been pushed out of the business and perhaps some cost discipline will return.
Disclosure: Merewether Capital Inception Fund exited it's ERD position today.
Oh wow, what a shocker!
You have to give some credit to the IR team though, who seem to have bent backwards in trying to wrap this lemon of an update in gold foil.
At first pass, it’s all about “emerging opportunities,” “strategic focus,” and “energising the business.” all of which is a funny way of admitting that “North America didn’t work out, and we’ve had to significantly lower expectations.”
Even the title of the update is a vain attempt at misdirection...“strengthening focus on ANZ opportunities.” As if the market won't notice the key message. Ie $150m in write downs (more plainly, and accurately, lost money).
The language is relentlessly upbeat.. it's almost insulting. Would far prefer a candid, no nonsense update than this drivel.
Heck, even the co-CEO departure is wrapped in warm farewells and “next chapters.” But when a turnaround story quietly halves its growth guidance, takes a nine-figure write-down, and delays its investor day, no amount of “strategic focus” talk can fully hide the smell.
Such a shame. There was really a great business underneath all of this hubris and fluff.