Etherstack (ASX:ESK) delivers strong revenue and earnings growth as recurring income builds

By Trevor Hoey. Published at Feb 22, 2017, in Technology

Etherstack plc (ASX: ESK) has delivered an impressive full-year result for the 12 months to December 31, 2016, having achieved revenue growth of 169% and earnings before interest, tax depreciation and amortisation (EBITDA) of US$836,000, a significant improvement on the previous year’s loss of US$703,000.

From an operational perspective it has been a successful year for the group having been awarded several multi-million dollar projects in North America. Most of these have related to large corporates and utilities that provide the company with exposure to defensive earnings streams.

ESK also broadened its customer base in Australia having received its first order from the Australian Department of Defence

Recurring revenue growing exponentially

The company boasts strong recurring revenue, with royalty income increasing exponentially relative to group revenues on a year on year basis.

Income from support and royalties nearly doubled from US$550,000 in 2015 to US$1.07 million in 2016 and now accounts for approximately 18% of group revenues. Notably, royalty revenue grew by 180% on a year-on-year basis.

This provides earnings visibility and predictability, making growth of royalties and income from ongoing support a key focus for the group. Chief financial officer, David Carter, said he expected robust growth in this area in fiscal 2017, and he will be updating the market on the company’s progress.

Just how much growth remains to be seen and investors considering this stock for their portfolio, should seek professional financial advice.

ESK has finished the year in a sound financial position as it transitioned to a cash flow positive operation. Furthermore, financing costs were reduced through the repayment of convertible notes following a capital raising.

Carter expects this trend to continue in fiscal 2017 due to a substantial reduction in interest costs.

S3 Consortium Pty Ltd (CAR No.433913) is a corporate authorised representative of LeMessurier Securities Pty Ltd (AFSL No. 296877). The information contained in this article is general information only. Any advice is general advice only. Neither your personal objectives, financial situation nor needs have been taken into consideration. Accordingly you should consider how appropriate the advice (if any) is to those objectives, financial situation and needs, before acting on the advice.

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