EROAD Limited (ERD) Earnings Call Transcript & Summary

I'm just looking at -- for the thumbs-up from our technical team. So yes, we're online. Thank you. [Foreign Language] Good afternoon, ladies and gentlemen, and thank you for coming. I am looking out at Eden Park. It would be remiss of me, I think, not to acknowledge the passing yesterday of Andy Haden, who spent a lot of his time running up and down that green track there. My name is Graham Stuart, and I'm the Chairman of EROAD Limited. On behalf of your directors; Steven Newman, our CEO; and the EROAD team, a very warm welcome to you and those of you that are following our meeting online. I appreciate that you've taken the time to join us, and we will update you on our 2020 financial year results and the progress we're making on delivering our strategy. But before we kick off, I just want to sort of do a wee housekeeping thing. In the event of an emergency, if you just take your time and follow people who will tell you that they're in charge out the way you came through Gate A, and the assembly area is immediately outside Gate A. And there are restrooms to the rear of the room on the left-hand side. With that, also I'm pleased to confirm that we have a quorum represented here today. And therefore, I will declare this 2020 Annual Shareholders' Meeting of EROAD Limited open. Upfront joining me and online, we have Barry Einsig, online somewhere, be aware he's in the ether. Barry is an independent director who joined the Board in January this year. He brings to the Board a deep understanding of the North American transport market and, for that matter, the global market. He has an extensive and very impressive experience in connected vehicles and smart transport networks. In short, he's an encyclopedia of all matters transport-related. Sitting here also, in no particular order, we have Tony Gibson; Susan Paterson; Steven Newman, our Chief Executive Officer; and our Chief Financial Officer, Alex Ball. And sitting in the front row here are Mark Heine, who's the General Counsel to the EROAD Board and to the company. We're also joined today by a number of senior management and other EROADers, many of whom are shareholders. I would like to take this opportunity to thank Michael Bushby and Candace Kinser, who have left the EROAD Board recently, for their contributions to the Board. In early 2019, the Board undertook a thorough review of our capabilities. As a consequence of that review, Susan Paterson has joined the Board and now Barry Einsig. And now we see Candace and Michael have stepped off the Board. Yes, the Board will continue to review its composition. We're trying to find the right balance between experience and fresh ideas, and that's not to say that experienced people can't also have fresh ideas. But it's just to make -- case of making sure we have those capabilities, and it's something that the Board takes seriously and that we continue to review and discuss. On arriving today, also you would have been greeted by staff of Computershare, our share registrar. They're available to support you with the formal aspects of this meeting and will help us through the voting process. Also here today, we have our auditors, KPMG, and our company solicitor, Chapman Tripp. The format of today's proceedings will comprise of presentations briefly from myself and then Steven, followed by Alex. We will then -- Steven will make some concluding comments before we move to the formal part of the meeting. At the conclusion of the formal part of the meeting, I'll open it up for questions on anything. So those questions could relate to matters that have been raised in Steven and Alex' presentations or my own or any other matters that shareholders may wish to. And at the conclusion of the questions, we'll conclude the formal part of the meeting, and then I would encourage you to stay and enjoy some light refreshments and engage in conversation with the EROAD team. Well, it's an understatement to say we are living in unprecedented times. Great many things have changed throughout the world. However, EROAD's passion and our energy for solving our customers' problems and the growth opportunities that this presents the business remain. Our customers choose us because of customer service, because of our solutions, because of our reliability and accuracy and because our solutions are easy to use. These factors become even more important in times of economic downturn. Now more than ever, EROAD's values of safety, trust, integrity, teamwork and innovation position us well to be able to deliver safe and efficient outcomes for our customers. We continue to deliver on our strategy with 116,488 contracted units, a greater than 95% asset retention rate and by growing monthly sales revenue per unit to $58.38. EROAD is a purpose-led company, driven by making safer and more productive roads. EROAD's solutions directly impact on road safety. We improve driver behaviors. We reduce well-known precursors to road accidents. We provide service and maintenance monitors to enable our customers to run safer vehicles on our road. And we provide deep insights to our customers, both forms of business and government, in order for them to be able to make better decisions. We are pleased to have delivered another period of strong growth in all key metrics. We've also advanced our strategy and invested for the future. In the past year, revenue increased by 32% to $81.2 million. We delivered an increase in EBITDA margin of 31% and profit -- and we delivered a profit before tax of $1.4 million, demonstrating increasing scale and improved operating leverage. Our future contracted income increased by 14% to $134.4 million, up from $117.4 million. Free cash flow was an outflow of $12.8 million. This reflected $16.5 million spent on investing activity during the year. We remain in a strong financial position with sufficient headroom from our banking facilities, undrawn facilities of $23.9 million to be able to continue to grow and fund organic growth. The quality of our products benefited from continued investment in research and development, and quality of our customer service is reflected in the strong growth. Contracted units grew by 21%. Our customers remain loyal with 95% asset retention rate, and our monthly revenue per unit rose by 6% to $58.38. EROAD spent some $15.6 million on research and development, which will ensure that we retain customers and it will position us to reach our next major milestone of more than 250,000 connected vehicles. We continue to invest in our operating leverage and scalability, $6.9 million invested in new generation business systems. This will not only enable us to help our customers, but also to drive more efficiencies in our own business. Backed by a strong foundation of energized and capable people, EROAD is driven by a common purpose of safer and more productive roads. We continue to create shareholder value through the last financial year. During the year, we extended the platform. We had 7 key launches of products and services. We scaled the business for growth. We completed the rollout of the new generation business systems, supporting -- and the supporting business processes. We built capability in sales and customer support, and we launched on a new leadership program. Most importantly, last year, we chose to grow. We added 20,282 new contracted units. And we built significant capability, ensuring that we're ready to execute appropriate opportunities that may arise in this current year. We also refinanced our debt facilities and extending the duration and term of the debt. Like every business, in March, our Board and management and over 300 EROADers navigated into a new reality that came with the COVID-19 global crisis. I'm proud to say that EROAD continued to operate effectively under our global business continuity plan. EROAD's employees, its products and its services continued to support the supply chain and the activities of our customers. Many of EROAD's customers provide essential services and kept New Zealand, North America and Australian economies running, despite the operating restrictions imposed by the stop -- to stop the spread of COVID-19. We would like to take this opportunity to thank all of our EROAD customers that provide essential services for their outstanding efforts during this time. EROAD itself was deemed an essential service and was able to remain operating to support those customers. This is my last slide. And on this, you'll see the severity of the lockdown that occurred in New Zealand. You'll also get an idea of some of the impacts on the different segments that we supported. This type of information is very useful for EROAD to be able to understand the market and how we can support our customers to navigate through these uncertain times. I'll now hand over to Steven to present on the business.

Good evening, everybody, and good evening, good afternoon, good morning for everyone online. So I love this part of the year where we get to explain how we did over the previous year and that we certainly got a lot of things to celebrate and share. If we go to the next slide. So this slide really shows a story of growth to continue. You can see for the last 2 half-years, we have broken out the Australian numbers, so we can provide more transparency around that. But we have a compound growth rate over the last 6 years of 42%. So we continue to grow in New Zealand, and we got to add some incredible enterprise accounts in North America. We're next going to go and look at a breakdown by market. So in New Zealand, we continue to grow, and that provides the cash flows to fund growth both in new markets and new products. New Zealand being 3 significant growth, delivering 21% growth in revenue year-on-year. And the revenue came really in 2 forms: One is increase in subscriber vehicles; and secondly, in the addition on ARPU per vehicle. Contracted units increased 10,256, which is -- 30% of these new customers came from civil contracting, agriculture, forestry. We also renewed 8,123 vehicles as they come up to the end of the 36-month contract. 6,283 of those were on the original Ehubo1 solution, and the sales team did an incredible job upgrading 42% of them to the latest Ehubo2. That, in itself, increases monthly ARPU. There was a number of SaaS services, which we will talk about, and we have some of those being demonstrated today, were also uptaken by our customers, being our Inspect product and our Logbook. This combines to an increase in ARPU of $2.04 per month. And also, retention rate was incredibly strong at 96.1%. Over to North America. So North America was really coming of age. We're now established in that market, and it contributes strongly at both the revenue and EBITDA line to group. Revenue grew by 62% year-on-year to $24.8 million. Most significant thing that happened during the year was the winning of 2 large enterprise accounts, which contributed strongly to the 9,342 contracted units added. This represented a 38% year-on-year growth. EBITDA significantly increased. In FY '19, it was NZD 0.4 million, and that increased to NZD 7.5 million for FY '20. We continue to add additional services to our North American product to make us more attractive for enterprise. One of the products that we will be adding in the coming months is a product called EROAD Go, and that allows these larger fleets to connect EROAD to their logistics systems. So that's pretty excited -- exciting and allows us to address the market that we were previously unable to address. And also later in the year, we'll be introducing our cameras to help with health and safety outcomes and -- as it's becoming a requirement for insurance of trucks in North America. In terms of Australia, we're relatively new in this market. We have a very promising enterprise pipeline of future business, and things were progressing well prior to COVID. There were a number of possibilities there, which we're in the final stages of talking about contract terms before going into COVID. Those opportunities are still available to us but are being pushed out. We won our first Trans-Tasman customer from the Australia end. We've got a number of customers which have their services on in New Zealand and then subsequently put them on in the U.S. We had our first situation where we run them in Australia, and then they rolled out the balance of their fleet of nearly 500 units in New Zealand. So some great progress. Before I hand over to Alex, I would like to personally thank the contribution of Michael and Candace as Board members for the last sort of 10 years for Michael and 8 years for Candace.

Thank you, Steven, and good afternoon, evening and morning, everybody. As Graham has outlined, EROAD delivered another strong period, a period of strong growth in the year ended 31st of March 2020. Revenue increased 32%, reflecting strong growth in both the North American and New Zealand markets for the reasons that Steven has outlined. And EBITDA, therefore, was up a pleasing 73%, which resulted from an operating margin of 33% compared to 25% last year. This demonstrates the improving operating leverage that EROAD is now beginning to deliver on as it grows. The growth in revenue and EBITDA resulted in reported profit before tax of $1.4 million, up from a loss of $5.1 million in the prior year. Free cash flows were a 20 -- $12.8 million outflow, which, while only a slight improvement on last year's outflow of $13.1 million, did include a $5.2 million increase in software development costs, as EROAD continues to invest in R&D to ensure customer loyalty, unit growth and increasing average revenue per unit. We turn to the next slide. As I outlined at last year's Annual Shareholders' Meeting, we use 7 key financial metrics that we and you as investors can measure our financial performance by, and I'll just run through those over the next few slides. If I start with this one, which is our leading growth indicators. Annualized monthly recurring revenue on the left-hand side of the slide, or AMRR, gives you a forward view of revenue. This has increased in the year from $66.5 million to $86 million at the end of the year, reflecting the growth in recurring revenue from new units onboarded during financial year '20 and growth in our ARPU, or average revenue per unit, in our software as a service revenue. Future contracted revenue, which is the next one in the middle, which represents contracted SaaS revenue, increased from $117.4 million to $134 million with an average remaining contract life of 2 years. This ensures that EROAD is well positioned despite any economic uncertainty that we might face into and that we're currently experiencing. As you're aware, research and development is critical to a business such as ours. So it's important that we look at our investment there. And our investment in reliability, scale and quality continues to pay us back with consistently high asset and customer retention rates, as Steven outlined earlier, strong growth in units and a growing average revenue per unit or ARPU. We continue to anticipate that spend will increase (sic) [ remain ] in the 18% to 22% range of revenue. However, we do not spend without a good investment case in any event. Let's turn to the next slide. Moving on to the metrics around creating enterprise value from our existing customer base. Monthly software as a service revenue per unit, or otherwise, as I've said, known as ARPU, increased in the year from $55.08 to $58.38. We can't take credit for all of that growth, as the stronger U.S. dollar to New Zealand dollar exchange rate in financial year '20 accounted for about $1.23 of that. However, the rest of the uplift is as a result of upgrading customers from Ehubo1s to Ehubo2s in New Zealand and as we renewed those customers and selling more SaaS products across all of our markets to current customers. Reflecting our strong customer value proposition, we also saw another period of customer loyalty, really reflecting in here in the asset retention rate on the right-hand side of the slide, which remains stable at 95.2%. Finally on the monitoring performance, so things in terms of profitability. Our cost to acquire customers as a percentage of revenue fell in the year from 22% to 20%, reflecting the further operating leverage that we're generating. And we will expect that to trend down further over time. Cost to service and support as a percentage of revenue, again, it was consistent at 4.6% in our expected range of between 4% and 5%. And again, we expect that to trend down further over time as our operating leverage improves, as we see that investment that we've made in our business systems start to pay back. So just then to move on into our financial position. EROAD remains in a solid financial position and, we believe, is relatively economically resilient. We have significant contracted future income of $134.4 million, as I had outlined. And as we've also illustrated here, we have strong diversity across geographic markets, customer segments and as well into different industries. We have $23.9 million of annual debt facilities that we can draw on that is undrawn at the balance date from our overall increased facility of $60 million. And we consider this to be able to fund the anticipated levels of organic growth that the business is going to generate. But as we've previously indicated, any significant opportunities, be they organic or inorganic, that will be outside of that would most likely have to be equity funded. And while we're well positioned and we are heading into choppier waters, and we're heading in all 3 markets into those choppier waters as a result of the downturns and the lockdowns, it's important that we stood back and undertook a full review of the potential scenarios in those markets and the potential responses that EROAD could have and has had for those scenarios. And so we have increased the frequency of -- we've also increased, sorry, the frequency of our financial reviews, and we are keeping a close eye, particularly on debtor collectibility. And with that, I'll hand back to Steven for his concluding remarks.

Thank you, Alex. So as you can see on this slide, we still have significant growth opportunities ahead of us in all 3 markets. But we are in a period of chaos, and many of our customers are still trying to understand what that impact of the economic downturn is on their business. While you're in a period of chaos, generally, you're not making many decisions. We expect that once we get through this period of chaos, we're not sure how long that is, and it'll be different for different markets. We know when we look at our North American business, our staff up there had been on lockdown for 14 weeks. And as they look forward, things look bleaker now than they did 14 weeks ago. The same impact for our customers. So I think that's likely to be our most affected market. In New Zealand, we bounced back quite quickly, having been on lockdown. And we've had some good months. I'll talk about that some more later. But we are seeing that a lot of the stimulus packages to support income earners both in New Zealand and Australia are going to come off. And also, some of the mortgage holidays are also going to come off in the next 3 to 4 months. So again, that creates chaos. So it is uneven waters for us. But we know that once we get through that, most markets will be in a recession. And we know that telematics and the ability to help our customers manage their cost bases within their businesses will be very much desired. Next slide, please. So as I mentioned, there's 2 ways that EROAD can increase revenue. One is, of course, adding more subscriber vehicles, and the other one is about growing ARPU. And I think one of the pleasing things for this last year was the ability that we demonstrated in being able to upsell our customers. So we've already talked about the selling up of Ehubo1 to Ehubo2 in New Zealand. When you look at that set of slides, we still have 37% of our subscribers in New Zealand on Ehubo1 and 57% on Ehubo2. So there's still opportunity for further upselling. When we look at North America, we have 3 main customer plans. One is the ELD only. That's a driver fatigue product, and that's sort of in the $35 range and that's only 8%. The next package we sell is called TotalTax. That's sort of around $40 per month, about 37%. But the most expensive or most valuable plan for our customers, which is around that sort of late 40s, that's 48% of our customer base. So I think we're doing a really good job of continuing to add value to our customers. And as we add more value, we actually open up our addressable market, too. So it's a win-win in terms of that linkage of delivering more value, which is primarily R&D, and increasing our market share. One of the things that we have in our future platforms area is there are more and more applications that operate on smart devices. So on the right of the screen, you can see in New Zealand, we have an Inspect product, which is pre- and post-vehicle inspection. And we also have a Logbook for managing driver fatigue. So both of those products have been taken up strongly last year, and we expect that to further improve this year. In Australia, we added the fuel tax credits. So all of these new products are opportunities to add ARPU in really the best time and most cost-effective ways when we're renewing customers to talk about those. Many of these new services range from sort of $3 to $7 per vehicle per driver per month. The next slide shows some of the products that we've delivered during the course of this year, and a number of those are being displayed. So we've got our current product team here in demonstrations at the back of the room. And we're also going to have a few videos to show some of these new products and how they add value to our customers. So the first one of these is EROAD Where. So I think we'll watch the video, and then I'll provide a little bit more detail on that. [Presentation]

So this product was an idea of how we could leverage off the many vehicles we already have with Ehubos on it. So every one of these Ehubos has a Bluetooth connection, and we can have that on and looking out to see if they can see these EROAD Where tags. Vehicles in New Zealand drive about 50 million kilometers a week. So if you've got a micro asset or a small asset within about 60 meters of the road, we will pick it up. In addition to that, there's a smart device application, which can also be used to pick it up. So this is really one of our incubator areas, really trying to understand how our different customers will use it. It seems to be quite an exciting product and a differentiator for our enterprise accounts. And Genevieve has been doing a great job, who's our Head of Marketing, in terms of trying to understand this and where it sits within our customer base. So we're pretty excited about that one and the future of it. On to the next product, which is our new Logbook. So this is all about managing driver fatigue. This is a New Zealand product, and this is a refresh, a significant refresh based on an earlier product that we delivered to add more value and make it easier for drivers to use. So let's have a look at it. [Presentation]

So both of these products are being displayed at the back of the room. So again, have a look. In terms of -- on to the outlook. So in terms of the outlook we've previously provided for FY '21, we're now 1 quarter into it, and that remains unchanged. As we've previously said, economic uncertainty across all our 3 markets makes it really difficult in terms of sharing any more clarity on what FY '21 will produce for us. But we remain confident that we are well placed. We have a strong customer proposition, future contracted income. We have a diverse customer base, both in terms of what they do and the sizes of our different customers. So I think we're incredibly well placed. Today, we released our Q1 results. And that showed that there was growth, which we are encouraged, particularly in New Zealand, where we're back to sort of pre-COVID numbers on a monthly basis. But again, there's the uncertainty I mentioned before, as the stimulus packages come off, it looks like there will be government support, both in New Zealand and Australia in terms of horizontal infrastructure, which our civil contracting customers make up about 28% of our customer base. So I think they will be doing quite well in this next period as we try and build our way out of the current downturn. So growth-wise, for FY '21, we will grow. It won't be at the levels that we had anticipated for this year pre-COVID or at the kind of levels we had for FY '20. We have good pipelines for growth. And as the markets open up, our customers get comfortable with the new reality, then I'm sure our business will continue to grow, particularly as we sort our customers -- support our customers manage their cost base. They might not have the kind of certainty they had around their top line revenues, but there's certainly an awful lot we can do to help them manage their costs in addition to their safety. So in closing, I think EROAD is incredibly well placed, and we are ready. We continue to support our customers, many of which will be critical to rebuilding the economies and the markets that we operate. We have the cash flows and the funding facilities to support anticipated organic growth, and we continue to look at growth opportunities, both organic and inorganic. It's a time for us to be bold, and we have some of the largest product launches planned for the end of this year, many of these new products the first deliveries of our new future platforms for growth, and we look forward to sharing those with you. I'll hand back to Graham to take us through the formal part of the meeting.

Thank you, Steven. We will come for questions. But first, I'll move to the formal part of the meeting. If you do not have a pen or a voting paper and you would like one, please indicate now to the Computershare staff, and they will help you. At this time, can I ask if there are any questions regarding the 2020 financial statements and the auditor's report? Right. There being no questions, we will move straight to resolution 1. Resolution 1: Tony Gibson, who is eligible for reelection, be elected as a director to the company. The Board recommends Tony to you as a director of EROAD and unanimously supports his reelection. I'll now invite Tony to address the meeting.

Thank you, Graham, and thank you for the opportunity to stand for reelection. As you'll be aware, some of you, I've been on this Board since October 2009. Alongside my role as director of EROAD and Chair of the Remuneration Committee, I'm also CEO of the Ports of Auckland. I chair the Ports of Auckland freight forwarding subsidiary and trucking subsidiary, which I'm pleased to say have EROAD products embedded in it and have just put in the latest EROAD Logbook. I'm also Chair of North Tugz, which provides marine services in Whangarei Harbour. And I'm also a director of Marsden Maritime Holdings, which is a publicly listed company. Despite my tenure on the EROAD Board, as Graham has alluded to recently, we undertook a review and confirmed that I have the skill sets and the drive to continue to contribute to EROAD's growth and development. I bring to the Board a deep and global understanding of transportation and logistics. And as Graham mentioned, the Board committee continues to review its composition and skill sets. I've always been privileged to be a director of this leading-edge technology company, and I'm very proud of the achievement of Steven and his team. I seek your endorsement to continue as a director of EROAD and contribute to its success. Thank you.

Is there any discussion of resolution? There appears to be no further discussion. I'll now put it to the vote, the ordinary resolution, that Tony Gibson, who is eligible for reelection, be elected as a director of the company. Please take a moment to mark your voting form in relation to resolution 1. [Voting]

Resolution 2, that Barry Einsig, who is eligible for election, be elected as a director of the company. The Board recommends Barry to you. Barry arrived at the Board after a long and thorough search, international search. And we commend him as a director. The Board unanimously supports Barry's election, and I'll now invite Barry to address the meeting.

I'm Barry Einsig, up for first election for EROAD Board. Very excited by the opportunity and feel like I can contribute greatly to the Board and its new mission to continue to grow and to take the next steps. I have a broad experience in transportation systems. I work across all modes of transportation, rail systems, roadway systems, mass transit, aviation and maritime and, as Graham pointed out earlier, connected and automated vehicles, sometimes called driverless vehicles. I think I bring a lot to the Board in order to be able to bring a global start-up community as well as global large companies that work from -- with some of the largest tech firms in the world, as most of the automobile manufacturers and heavy vehicle manufacturers as well as light vehicle manufacturers, cities, states, national governments, private -- and other private corporations. I look forward to the opportunity to continue to help the Board and the executive team to grow in this arena, particularly focused in supporting Norman and North American mission. I feel like there's a lot of growth potential and opportunity, and I look forward to the opportunity to be a part of that. And thank you, and appreciate the opportunity to be on the Board.

Is there any further discussion with this resolution? There appears to be no further discussion. I'll now put to the vote the ordinary resolution that Barry Einsig, who is eligible for election, be elected as a director of the company. Please take a moment to mark your voting forms. [Voting]

Resolution 3 proposes that the directors be authorized to fix the fees and the expenses of KPMG, the auditors of EROAD. Is there any discussion of this resolution? You're a quiet lot today. There being no discussion, I will now put to the vote the ordinary resolution that the directors be authorized to fix the fees and the expenses of KPMG as auditor of EROAD. Please take a moment to mark your voting form in relation to resolution 3. [Voting]

Thank you. This now brings us to general business. In this section, we throw the floor open for questions of any subject arising from anything that myself, Steven or Alex might have addressed or any other matters that you think are pertinent and want to raise with us. And so please, the floor is yours.

Good day. Sorry. Can you hear me? You alluded to the fact that you expect R&D expense to be between 18% and 22% of revenue going forward. I was a little bit surprised to see that, that's not going to be decreasing to some degree. Are you prepared to provide a time line on that? Or...

I'll -- I can give you an add up. It would be better if Steven answers this question on it.

I think Alex mentioned that we don't spend this money willy-nilly. When you look at the large addressable markets that we have and how you access those addressable markets, it's by having the right product market fit. So while it makes sense and we get the growth coming from the investment in product, we will continue to do that. So the other side of that is EROAD is a platform business, which means you have your platform. So you've seen the Ehubo1. You've been seeing the Ehubo2. There's the third-generation of technologies, which relate to what's in the cab, what is the web services, and we previously called that product Depot. We're now calling it MyEROAD, which is really changing the focus in terms of what the customer focus was. Previously, it was really small to medium business. And of course, they continue to be very important customers to us. But we also need to bring in some functionality and scale to support our large enterprise customers. So part of the R&D expense is moving that capability of the underlying platforms to better support enterprise. Some of our larger customers have got more than 5,000 vehicles and 10,000 drivers. So we're talking about very large-scale systems, producing a huge amount of data. And then what hangs off the back in terms of the data analytics is huge and incredibly valuable to those large enterprise accounts. So I think we have large addressable markets as we deliver more value and can serve these larger customers, we're going to continue to grow. So we -- there is the business case to make those investments, and we'll continue to do that. The corollary to that is that if our R&D investment goes down at this particular point, and if you look at many of our competitors, they're also investing in future products, that might mean that we've run out of ideas, which I think is a very bad thing for a high-growth tech company. So that's not being -- pushing back too assertively, but that's -- my mindset on it is that we need to continue to grow in that investment in new products and delivering more value to our customers. That is the secret sauce.

Bruce?

So I'm Bruce Sheppard from the Shareholders Association. Just to expand on that last answer. Is that ratio fixed ratio or linked or is it rise and fall?

So I think we've tried to show a range that we will oscillate in. So I would expect when we've got some platform build, which is -- addresses all the markets, but then there may be a specific need for -- to win an enterprise account, that we evolve, so we might step up to the top of that range, and then we'll come down again. But I think the underlying thing is there needs to be the business case to justify the investment. But when you compare that level of R&D investment to peers, it's not abnormal.

My question is around the churn in the North American market. What drives that churn? And what is EROAD's competitive advantage?

Yes. So I know that Norm's online. So are you available to answer that one, Norm, or I'll go first?

I'm here. Yes. So our churn has been a lot of trucks that are getting parked because of the COVID-19 situation that we're in. So we've had people just having to park trucks against the fence. And that's not a great situation to be in, of course, for our customers. And it certainly impacts the stuff that we have on air. But as was mentioned earlier in the discussion, our pipeline continues to look very good. Things are pushed out much more than we like, but we really have not lost any appreciable opportunities that we've identified. It's just taking longer for the fleets to get comfortable with the decision to make a change from another provider because at this point, we're taking business away from our competition. There are no new customers per se that haven't adopted telematics in North America because of the ELD mandates. So we're quite excited about COVID relaxing a little bit here, perhaps, hopefully in the not-too-distant future and getting back to where we can really show our growth like we did last year and grow enterprise as well as our medium and small customers. Hope I answered your question.

And your competitive advantage?

Sorry. Sorry. Carry on, Norm.

Yes. Yes. Our competitive advantage is many things. Our reliability and accuracy is second to none. We have the best reliability and accuracy in North America. And then our customer support is also at the very top of the list in our -- in the competitive analysis that we do. We get ranked by third parties as well as our own customers, and we have exceptional customer support. And then also ease of use, the designs that we get from our New Zealand engineering team are extremely intuitive. And our customers love that. And it makes it easy not only for the driver, but for the back office staff to use our products and to gain the efficiencies that they see. So there's 4 things that we really focused on in North America.

Thanks, Norm. Any other questions?

I'm [ Jim Familton ]. Maybe I just wasn't sure what the banks of the EROAD deals with. EROAD has large loans from the BNZ. The annual report of the NAB, an Australian Bank, showed Citibank, the HKSB and JPMorgan were large shareholders of the BNZ. Both Citibank and the HKSB were involved in the 2008 global financial crisis. In 2015, Citibank pleaded guilty and paid $6 billion in fines. 2018, HKSB was fined $800 million. In 2019, HKSB was fined for tax evasions and tax fraud. I just want to speak up as a supporter of Kiwibank. Kiwibank is 51% owned by the government, 49% owned by ACC and New Zealand Superannuation, employees in New Zealand with New Zealand Superannuation, and the returns have been very high. So we're all supporting New Zealand Superannuation and the ACC. I feel it is in the best interest of New Zealand companies and New Zealand people to support Kiwibank. We all should wish it well. The big 4 Australian banks take large profits out of New Zealand each year. With the outbreak of COVID, there's been a call to support New Zealand-owned businesses, support our local businesses. And I think one of the best ways we can do this and the most supportive things we can all do is to switch to Kiwibank.

Okay. There wasn't a question in there. But I will make one observation is that a component of EROAD's banking services is that we collect on behalf of the government road user charges, which is a heavy transactional banking requirement, which really in a practical sense, only the 4 large Australian banks can undertake for us. So to some extent, we're a prisoner of 1 of the 4 large Australian banks, probably all of whom have shareholdings by companies who transgressed during the 2008 GFC. But yes, EROAD does, as a New Zealand company, it's aware of its standing and position and obligations that brings in the New Zealand economy. And where possible, we do and we will support New Zealand businesses, including, if the commercial opportunity arises, Kiwibank. So I thank you for that impassioned plea on behalf of Kiwibank, and it's been heard and noted. Thank you. You are a quiet lot today. Yes?

My name is [ Huey Sells ]. I've got 3 questions. First one is on your ARPUs. Your strategy seems to gradually shift from unit growth to lifting ARPU. With everything you have, with the R&D you have had in the past and also the modules you're going to produce in the future, so looking at the pipeline, what is a realistic assumption for your ARPU lift, say, in the medium-term, in the next 3 years, for example? Can you share that with us? That would be the first question.

Steven?

Yes. I think that's a bit simplistic for us to kind of do that. And so there is -- basically, this year, I think we've demonstrated another tool in our toolbox. So prior, the conversation that we really were having with investors was one about unit growth. Now we're talking about unit growth and growth in ARPU. So I think that is kind of one of those macro trends. As soon as the user starts using a new technology, they absorb that and they go, "Okay. And what's next? And what's next? And what's next?" And that's what we're seeing happening is that the technology that sits underneath all of our products is incredibly versatile and has a high level of utility. And our customers are using more and more of that capability to manage different part of their business. So you have this kind of thing that also happened with technology. If you don't keep adding more value, it becomes seen as hygiene, and then you need to start reducing your ARPU. So you need to keep adding more value to continue to grow ARPU. So I think you've got those 2 forces. I think if you become more valuable to your customers, then your retention rates also stay high. So I think we will -- as we go forward, we'll be talking both about unit growth and also ARPU growth. Because we've got small customers, we've got enterprise, we've got heavy vehicles, we've got light vehicles. And we've got some of these micro assets that we're tracking, which are like $5 a month. ARPU kind of is going to be an interesting conversation to have because depending on what enterprises you might win, which could be heavy in one period and light vehicles in another period, that ARPU is going to jump around. So to really -- I think it's going to be problematic to kind of stand back and take a sort of total sum of ARPU view and sort of project what that might look like. So I haven't really answered your question. But hopefully, that explains why it's difficult to think in that one dimension.

You tried your best, but a number was lacking. So...

Yes. Our expectation would be that we would see ARPU not going down but improving as we go up. We will be adding cameras to our solution towards the end of this year, and that should be a reasonable ARPU add on top of what we already have. And of course, not all our customers are going to take it immediately. That will be an adoption over multiple years, but that we should see an improvement in ARPU of that trend, which we have really started to see happen over the last couple of years.

Okay. The second question is on a release you made roughly 2 or 3 months ago, in which you mentioned that you have some -- that your production of your units is impaired -- was impaired. You mentioned that there is sufficient inventory, I think, for 2 or 3 months or so. And we didn't hear anything about it. Is that completely resolved? And actually, I tried to Google where -- which countries you are producing your units, and I was unable to find it. Maybe you can remind us of that.

So it's quite normal for that not to be disclosed so much. But we are in the Philippines. Philippines was in lockdown, I think, through to the middle of June. We, of course, had increased our inventory levels, anticipating the growth in those enterprise accounts, which are kind of stuck in the pipeline. So that actually protected us quite nicely through this period. So we weren't impacted from not having inventory. So that was well-managed through this period.

And last quick question for you, please. We heard in the U.S. you had some nearly 600 units needed to be returned. What actually happens with returned units? Are they reusable? Or do you -- what happens with them?

Yes. So the units that we currently have in North America, that technology can be used in all the markets. We're talking about the cellular technology. So those units will come back to New Zealand, where we can refurbish them and then reuse them again.

Any further questions?

I got a couple of questions. The first is, I'd appreciate some insight in the New Zealand market, in particular, on the position of our competitors. And secondly, at the last shareholders' meeting, there was a consideration of listing in the ASX, and I'd just be interested to know if there's been any progress on that.

Do you want to take the first one?

Yes. You may also take the second one first.

Okay. The listing on the ASX is something that we continue to have under consideration. So there hasn't been any progress per se since the last time, but it hasn't dropped off the radar either.

So in terms of how we feel about competitors in any particular market, to talk about that on a public forum, I suppose, is in the area of competitive advantage. So I think I can say that the New Zealand market is consolidating in terms of the number of players. There are 1 or 2 other good players in this market. When we look at some of the indicators that we have, like -- such as total road user charges collected, we continue to see our market share being very good. So we're pretty confident with how we're traveling in this market.

Any other questions? Good. There being no further questions -- sorry. Got the light on my eye.

Online question?

Yes.

Yes. So the first question is from [ Tim Orlone ], and he would like to know, "Can you please comment on Jarred Clayton's departure and what this means for R&D going forward?"

I'll pass this to Steven.