For Immediate Release
Wellington Drive Technologies third quarter update
22 October 2019
Wellington announces improved Q3 result and updated 2019 guidance
Wellington Drive Technologies (Wellington), a leading provider of Internet of Things (IoT) solutions and energy efficient motors to the retail food and beverage industry, today announced its unaudited trading results for the nine months ending September 2019 and the third quarter 2019 (Q3 2019).
|Nine months ended 30 September||2019||2018||Change|
|Wellington Connect IoT Revenue||$17.5m||$12.7m||+38%|
|Wellington ECR Motors||$27.0m||$26.6m||+1%|
|ECR2 Motor Revenue||$16.6m||$12.1m||+41%|
|Legacy ECR Motor Revenue||$10.4m||$14.5m||-30%|
|Gross margin %||26.0%||24.4%||+1.6pp|
|EBITDA pre fair value adjustment||$2.67m||$1.11m||+140%|
|Profit (loss) before taxation||$0.58m||($0.77m)||+$1.35m|
For the nine months ended 30 September 2019, the company delivered 13% revenue growth, with revenue at $45.9m, compared to $40.7m for the same period last year. Revenue from IoT products was 38% higher, revenue from the ECR2 motor platform was 41% higher and revenue for legacy motor products declined consistent with forecast.
Gross margin improved from 24.4% to 26.0% reflecting lower unit costs for Wellington’s ECR2 and SCS Connect products and the increasing IoT product share.
EBITDA1 for the nine months was $3.1m versus $1.1m for the same period last year, a result which included a $0.4m non-cash accounting gain arising from a change in fair value of the contingent consideration payable for the acquisition of iProximity Pty Limited. EBITDA1 excluding this gain was $2.7m. Net profit for the nine months, including the fair value adjustment, was $0.58m, up from a loss of $0.77m last year.
Revenue for Q3-2019 was $12.6m which is consistent with Q3-2018. Gross margin was 26.7%, an increase over the 23.8% recorded last year for the same period. For the quarter Wellington achieved an EBITDA1 surplus of $0.7m, which included the $0.4m gain from the iProximity fair value change.
CEO Greg Allen commented “Our Q3 result keeps the company on track to achieve its 2019 guidance. The third quarter generally sees lower seasonal trading volumes, which was the case, while it was pleasing that we managed a small EBITDA profit in the quarter (compared to the same quarter in 2018 which was breakeven). We were particularly satisfied with the year over year margin improvement, as a result of cost reduction efforts and the continued benefit from the change in mix towards our ECR2 and IoT and data services products. Our business development efforts are uncovering new opportunities for our iPX digital marketing platform in food and beverage, which whilst early in nature, are an important indication of the attractiveness of our marketing services solution.”
Other highlights in the quarter
- New IoT business opportunity in the Americas: The company is in the latter stages of negotiation for a new IoT business opportunity with a large manufacturer of commercial coolers in the Americas. Wellington’s confidence at this stage of discussions stems from the fact there is an existing long-standing commercial relationship with this customers on another line of business. The Wellington board has approved the commencement of early development work on customer specific applications.
- Data services growth: Services billings for the nine months ended 30 September 2019 were US$1.4m, an increase on the $1.0m billed for the same period in 2018.
- New Product Progress: The company shipped the first ten proof of concept models of its SCS Network Cellular IoT Hub to selected beverage customers. This early stage product is already receiving strong indications of interest.
- Debt repayment: In September, Wellington repaid $1.5m of debt to Onimeg Investments Limited and negotiated a six-month extension of the remaining $1.0m. Borrowings (excluding lease obligations) amounted to $3.2m compared to $4.8m at 30 June 2019.
- Cash: Cash on hand at 30 September 2019 was $2.5m compared to $1.8m at 30 June 2019.
- Working capital: Trade receivables were $7.0m lower than 30 June 2019 at $11.1m. Inventory was $0.8m higher at $5.2m as a result of the falloff in legacy motor business. Trade payables were $4.0m lower at $12.6m. Operating cashflow for the quarter was strong at $3.3m.
- Contingent consideration due to the vendors of iProximity Pty Limited: In July 2019, Wellington issued 1,417,344 shares to the vendors of iProximity Pty Limited pursuant to the sale and purchase agreement and reflecting the achievement of SCS Connect volume targets for 2018.
Wellington’s strategy will continue to focus on growing its IoT business with large food and beverage brands, developing customers for its iProximity digital marketing platform and developing new customers for its ECR2 and soon to be launched ECR2+ motor.
As a result of growth in new customers won in the previous year, a slightly stronger third quarter and continued favourable USD/NZD currency rates, Wellington is adjusting its previous EBITDA guidance up from around $3.0m to now be between $3.0m and $3.5m. Net profit is now expected to be around break-even, and operating cashflow somewhat higher in comparison to 2018. Guidance excludes any fair value adjustment that may occur as a result of iProximity contingent consideration.
The company’s total revenue in 2019 is expected to be at similar levels to 2018 due to the decline in legacy motor volumes offsetting the growth in the new ECR2 and IoT products. Hardware revenue volatility is expected to continue during the fourth quarter as customers manage for year-end inventory and first quarter readiness.
2020 initial outlook
Forecasts for 2020 are in the early stages, with customers typically releasing next year’s demand in late fourth quarter or early in the New Year. The company’s early planning models suggest revenue growth of 10% is possible, with further improvements in EBITDA, net profit and positive operating cash flow versus 2019. The forecast is based on a NZD/USD exchange rate of $0.65 and assumes the company is adequately funded to execute its operational and growth plans. Forecasts are based on the general assumption of stable global macro-economic conditions, including stabilising of current global trade agreements.
EBITDA1 (i.e. Earnings before interest, taxation, depreciation, amortisation and impairment) is a non- GAAP earnings figure that equity analysts tend to focus on for comparable company performance analysis. Wellington considers that it is a useful financial indicator because it avoids the distortions caused by differences in amortisation and impairment policies.
Wellington is a leading provider of IoT solutions, cloud-based fleet management platforms, energy-efficient electronic motors and connected refrigeration control solutions. It serves some of the world’s leading food and beverage brands and refrigerator manufacturers, and offers proximity-based marketing for Smart Cities to the Australian market. Wellington’s services and products improve sales, decrease costs and reduce energy consumption. Headquartered in Auckland with a global reach, Wellington is listed on the New Zealand stock exchange under the ticker symbol NZ:WDT
For further information visit www.wdtl.com
Chief Executive Officer
Chief Financial Officer
+64 27 5870455