Route1 Reports Results…. They Disappoint

Last week I touched on Canadian company Route1 and their struggles. On Thursday afternoon after the close of the market they reported their FY2011 results and they were less than stellar. Here’s the highlights:

  • Revenue increased to $5.5 million from $5.4 million in 2010
  • Gross profit for 2011 dropped to $4.5 million from $4.7 million in 2010
  • EBITDA for 2011 was a loss of $1.5 million
  • Subscriptions to their TruOffice product were basically stagnant at 15903 subscribers versus 15654 in 2010 according to the MD&A document [Warning: PDF]

There was one factor that worked against the company:

The Company’s profitability for 2011 was significantly and negatively affected by its auditors’ advice that approximately $1.5 million for the costs of pursuing an arbitration award be included in Route1’s results for the 2011 fiscal year, while the proceeds from payment of the award, amounting to approximately $3.4 million, could not be recognized until fiscal 2012. Interest income on the award in the amount of $583,741 is included in the Company’s 2011 results.

The award that they are talking about is this one. Route1 had a bit of a falling out with Qwest Government Services. Quest was supposed to help them break into the US Government market, but things clearly didn’t go well on that front.

The market reacted negatively to this news. The stock dropped to 7 cents from 8 cents at the start of Friday. Now the company did say that good things are coming. Here’s what CEO Tony Busseri had to say:

“Based on our progress to date, we remain convinced our strategy of focusing our marketing efforts on the government and military sectors, particularly in the United States, is best for Route1 in both the short and long-term,” said Mr. Busseri. “While it is clearly taking longer than we had hoped to reach final purchase agreements with the many organizations in those sectors, we remain convinced that their size and security requirements mean their potential for Route1’s revenues and profitability is significant in the long run.”

Here’s the problem. Until a big deal happens, nobody will take this company seriously. That’s a shame because I believe the remote access technology that they offer is first rate. But great technology doesn’t make a great company. What makes a great company is the ability to take that technology, get it into the marketplace and make the value proposition that the technology offers so attractive that it becomes a must have. That doesn’t seem to be happening with Route1. But to be fair, the company does plan on giving regular updates as to their business development pipeline. That will help with their credibility. Of course I need to mention that if things continue the way they are right now and they don’t get the big breakthrough sale, they’ll be the next RIM who is another company with great technology that they can’t sell.

I’m going to keep an eye on this company as I feel that a shake up is coming within the next quarter or two if things don’t improve. When that happens, it might get ugly given the shareholder sentiment in places like Stockhouse.

Leave a Reply

%d bloggers like this: