Dow Jones Part 2
The company finances itself by selling the TADs to banks as it needs cash. At present, the
company has no debt.
Actrade says everyone benefits from this setup. Providers assume no risk, free themselves of the
receivable, get paid a lot faster, and hence, are able to extend more credit to its customers. On the
flip side, buyers obtain an unsecured line of credit with extended terms.
Which means Actrade bears the credit risk. However, with a default rate averaging less than 0.10
of a percent last year, it looks as if their credit scoring techniques are working.
"The tool itself lends itself to a very low default rate," Stonkus, Actrade's chief financial and
operating officer, said. "We can treat it as an outstanding check because they are already
post-dated so they automatically discount it out of the money available to pay the bills."
Actrade further shields itself with a $10 million insurance policy against client bankruptcies and a
diversified customer portfolio. Also, shorter maturity instruments typically are less risky.
The company reported revenues of $38.1 million for the first quarter ended Sept. 30, with earnings
of $1.4 million, or 16 cents a share. That reflects an approximate 91% increase from revenues of
$20 million a year ago, while earnings advanced about 46% from last year's 12 cents a share.
For the fiscal year ended June 30, 1998, Actrade posted revenues of $98.4 million, up 126% from
the $43.5 million posted in fiscal 1997. Net income was $4.4 million, or 52 cents a share in fiscal
1998, compared with $1.9 million, or 28 cents a share the year prior.
The company's Actrade Capital unit - the TAD business - generated about $55.5 million, or the
bulk of fiscal 1998's total sales. But while Actrade is putting most of its capital energies into that
arm, it does have other revenue streams.
Its Actrade International Corp. unit, an exporting business, had about $8 million in revenues during
fiscal 1998. And its Actrade SA unit, which produced revenues of about $31.6 million in fiscal
1998, complements that division in that it facilitates trans-country sales, Menik said.
The company projects revenues from its TAD business will double in fiscal 1999, to about $110
million, Stonkus said. Total revenues for fiscal 1999 should roll in at about $168 million, a 70%
year-over-year increase, he added.
Two analysts, however, are a bit more sanguine. Chew and Stuart Barich, of Auerbach Pollack &
Richardson Inc., project 1999 sales of about $175 million and $180 million, respectively. Barich
sees revenues at $325 million in 2000.
Although top-heavy earnings reports have drawn criticism, for now, the two analysts said their
focus is indeed just that: revenues. They're not overly concerned about profits - yet - since its
expansion efforts have the company rightfully siphoning capital back into its infrastructure.
"What people see here is big sales and minuscule earnings from the TAD business, and they jump
to the conclusion it is not profitable," Chew said, "But that's because they are building up the
infrastructure."
The latest move to build comes in the form of Actrade's new London office, Stonkus told Dow
Jones. London will mark Actrade's second international location; the other is in Toronto.
Actrade also plans to begin test marketing the Negotiable International Check next quarter, which
essentially is a TAD that offers currency-risk protection.
Additionally, Actrade beefed up its sales force, adding six representatives over the last two months,
for a total of 20. These moves raised general overhead administrative and sales expenses in the
TAD unit to $966,000 for the first quarter ended Sept. 30, up 117% from $445,000 last year.
"They should grow operating overhead by 80% to 90%, but while they are doing that, they are still
making money," said Auerbach's Barich, "And that is pretty spectacular."
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