EROAD Limited (ERD) Earnings Call Transcript & Summary

Thank you, everyone, for joining us today on our FY '22 update to the market. I'm joined today with Graham Stuart, EROAD's Chairman; and Margaret Warrington, our Acting Chief Financial Officer. So I'll pass over to Graham, who will get us going today, then I'll talk about our operating metrics. Margaret will then talk about our financials. We will then come back to Graham, myself to talk about our product offering and our priorities and outlook for FY '23.

Thanks [indiscernible], and good morning, ladies and gentlemen, and welcome to EROAD's financial results webinar for the 12 months ending the 31st of March. By way of housekeeping, if you have -- we will have 3 short presentations from myself, Mark and Margaret and then followed by a period of question and answer. So if you have a question, either raise your hand or type the question into the Q&A chat area indicated on the screen, and we'll take those questions at the end of the presentations. So I'll start off discussing the highlights of the year. Mark will then chime in with an operational update. Margaret will follow that with some of the financial results, and then Mark and I will conclude by talking about the growth opportunities and the outlook for the year. So EROAD is a business dedicated to creating safer and more sustainable roads. We provide regulatory and specialized telematic services together in a bundle, which we described as a hardware-enabled SaaS business. We have over 8,000 customers in New Zealand, Australia and North America, who between them have over 200,000 connected vehicles. EROAD has an attractive business model. We have growing recurring revenue, growing from both new customers and, of course, increasing revenue and products and solutions being sold to existing customers. We maintain over 90% of our customers on contract renewal. And with this model, we expect to grow to at least $250 million by March 2025. EROAD employees talented and capable teams in New Zealand, Australia and North America. And last year, we invested significantly in building capability through research and development and in inventory to fuel future growth, and in the case of inventory, to ensure continuity of service in the light of global top supply chain disruption. We also went through a merger with Coretex in November, in the end of November last year. And this leads us well positioned to be a leading player in the Australian, New Zealand and North American transport telematic markets. By way of financial highlights for the year, Margaret will report on these in some detail. The financial result reflects investment and capability and, of course, the merger with Coretex. 4 months of Coretex revenue has been included in this result. This has been a significant period of transition for EROAD. Despite challenging macro and economic conditions, the Board are comfortable with the progress that EROAD has made. Annual monthly recurring revenue now over $134 million, and our monthly average revenue per unit over $55. These means, our retention rate and trying difficult economic conditions was 93.4%. This means EROAD is well positioned to build growth momentum through '23 and beyond. This is a year where EROAD has launched its sustainability policies. And in June, we will present our first sustainability report to shareholders. Through the acquisition of Coretex, we now have penetration into food, construction and industrial waste markets, which broadens the range of environmentally-sustainable solutions that we can offer to our customers. Soon, we will be launching our heavy vehicle decarbonization tool, which will enable EROAD to further support government's climate change policies. I'll now hand over to Mark to take us through the operational highlights.

Thank you, Graham. So I just want to start off on a slide looking at our performance in terms of growth in units over the last financial year. There's been particularly a significant milestone for the EROAD company. So we've achieved over 200,000 cited vehicles in FY '22. It is a deliberate strategy of EROAD in terms of growth. We very much are focused on having scale in the markets that we operate in, and that's in terms of trying to have the scale to be an acquirer, not an acquiree, as we're seeing markets that we operate in undergoing some degree of consolidation in the telematics industry. So growth was made up by 2 components. First, as Graham mentioned, we merged with Coretex in November of last year. That led to over 66,000 units in growth, predominantly in North America, more than doubling the size of our presence in that market. When it comes to organic growth, that was -- in terms of composite growth was over 16,000 units, predominantly in New Zealand. We're really impressed by how New Zealand business continues to grow organically and find the opportunities and it grew by over 11,000 units in the financial year. North America grew by 1,600 units organically in FY '22, and we'll dig into some of the details around that further shortly when we talk about the North American market. In Australia, we're particularly satisfied by the capability we're building up in the market and achieved 3,000 -- over 3,000 units organically, another over -- almost 8,000 units inorganically. And that's very much establishing the enterprise capability and skill set for the Australian market, which we'll continue to build on into the future. We've also launched our Clarity Solo product in October of last year, and we're seeing growth across all the markets in that space. On this slide, although we talk about hardware a lot, it's fair to say we're a hardware-enabled SaaS business. It's particularly important to us in a SaaS model that we operate under. Over 90% of our revenue is recurring based off the leasing of hardware in the complementary service offering that we provide to the market. It is underpinned by 2 quite strong fundamentals that we have. One is our high asset retention rate, which is over 90% in our markets. And the other is the length of contracts that we enter into with our customers. Typically, these are for 36 months. albeit for some, we have longer in the enterprise space. And what that does is it gives us assurance and confidence to continue to invest in R&D and to grow revenue off the back of that investment. Given the focus we're having, moving away from the hardware into more SaaS-orientated business, the effectiveness of the measure of total contracted units is less and less. So from now, we'll be moving towards aligning with other technology companies, whereby we'll announce our operating metrics at the half and full year and very much focusing more on our revenue growth that we are achieving. Now the SaaS model in the growth here is very much underpinned by the expansion we're doing across our customers as well as the total addressable market. So over the next 2 slides, I'll talk about some of the products that we are launching or have launched over previous years, which very much increased the total addressable market that we have. It also aids in improving our ARPU or the retention with our customers. So on EROAD Clarity Dashcam, we launched last year the Solo version of that product as well, and what that's enabled us to do is to further help our customers on their health and safety and its generation journey. In North America, we're particularly seeing led by insurers the need for camera technology in the cab to monitor what's going on the vehicle and to use to [indiscernible] any accidents that happen. And more and more, we're seeing our customers in [ ANZ ] with the health-inspected journey that they're on talking to us about the camera offering that we have. Another point I'd like to sort of talk about our mobile SaaS applications, EROAD Day and EROAD Inspect that particularly help in terms of improving the ARPU and retaining customers. And what's unique about these is they're not linked to our hybrid products. Anyone can actually use these devices and use these services and sign up for them and helps us an entry point into some new fleets. So does the mini tags, and Where Tags launch as well. They can be a feeder into our larger enterprise accounts. During the previous financial year, we've launched a number of products, some which we're very much focused around data insights for our customers. As we generate more and more data, our customers are seeking greater degree of insight into what we offer. So in addition to our usual reporting suite of software, we also have launched our EROAD Analyst product. And what that does is it allows our customers to create bespoke reporting to understand the efficiency of the effects and monitor performance of their drivers, and that's been very helpful in getting greater granularity for our customers to understand how these businesses operate. We also, during the last year, launched our CoreVision product in Australia that were launched in North America during this financial year, and it provides to us a full portfolio of [ cam technology ] from the entry point CoreVision product, which hooks into our next-generation CoreHub offering to our Clarity family of cameras, which are either connected to a hub of devices or the EROAD stand-alone Solo Clarity product, which is in itself a telematic device to a partnership we have with the machines. We're able to get a broad offering to our customers around camera insight. And the merger of Coretex has also enabled for us access to greater technology they have around monitoring temperature with Cortina product, and the array of sensors they have to understand how fleets are operating in greater detail than what previously we had, and that's really building on a broader IoT strategy that Coretex supports to the fold. Now what these products help us do, it helps us maintain a high retention rate that we have. As I mentioned earlier, we have a retention rate of over 90%. And that -- when we look at Coretex over the last 4 months, they're over 98%, which just shows the stickiness of the products that they've built with the customer. During the last financial year, almost 30,000 units were renewed for over 1,000 customers. And we saw those customers not only renew their product, but almost 1,000 upgraded the plan that they had with EROAD that as they went to a high tier of service that we offered or a new generation of a hardware solution or they also added on additional products and services, whether it's the camera to knowledge we talked about earlier, the Logbook or other or the endless product and so forth. So what we're seeing is sort of land and expand with our customers there. And that's helped improve our future contracted income as well, which we grew from $149 million in FY '21 to $290 million in FY '22. Over the next few slides, I just want to go into our markets and highlights in those. So kicking off with New Zealand. New Zealand had an exceptional year last year. It grew to be over 100,000 units in itself. That was driven significantly by organic growth, as I mentioned earlier. And the organic growth sort of broken into 2 key areas. One was expanding in our current customers. 70% of that growth was generated from expanding in our current customer segment. We also found 30% growth further into new customers as well, and this was shows the continuing opportunities we see in New Zealand as we evolve with our customers. When we started, we were very much around the robust charging model. Over about 5 years ago, our customers started on the health and stated journey with us, and we continue to see that as a strong driver of growth, and we'll see that particularly around the camera solution that our customers are talking to us at the moment. As we move on, our customers are now talking to us around our ESG offering, and it's very important that we help our customers with the knowledge that they need to sustain themselves on that journey. So we're having some pretty exciting and interesting conversations with our customers on that end. When it comes to asset retention rate, we're still maintaining strong asset retention rates. In New Zealand indeed, we increased over the course of last year. That includes our continuing partnership with Downer in New Zealand, which we're particularly happy that we are still working with demand, as well as other enterprise opportunities that we increased during the year. And we are also adding on additional subscriptions on our Logbook and our Inspect products as well. Turning to North America. It's fair to say North America on a stand-alone basis was challenging for EROAD during the last financial year. And it was very much driven by COVID and the uncertainty that it caused with our customers, particularly those in the small to medium business space. The other ones are most vulnerable to shops in the economy. And what we saw during the course of the year, given what we've seen earlier, was that there's increasing volatility for them, which means that when it came up to the renewal possessions, some of them were true in the fleet sizes that they had, which had a consequential impact on the churn in our customer base. That was largely driven by the 3G to 4G discussions that we had with them, which we are coming to the end of. And what we're seeing now is with Coretex as part of the team, we've actually seen far better retention rates coming along there as they're more focused on the enterprise side of the equation. So we've introduced to balance into the market with the merger there. And that's helped us regain momentum, not only by the fact they are more established from enterprise space, but their products and the product market themselves, sales execution strategy has helped us grow and will continue to grow in this space going forward. Other areas to note are the fact that our EBITDA debt reduced slightly during the year. There was partly a backout of a grant we received from the U.S. government in FY '21. Going forward, we are talking to customers around the virtualization that we're having and is open up opportunities in the pipeline for us. and so we saw a stronger pipeline than what we anticipated when we completed the merger in November, and we're seeing the opening up of opportunities on that front as well. So we're looking to converting those, hopefully, in the course of FY '23. And finally, Australia, I mean, with our strategy, we're satisfied with the performance during the course of last year. Bringing on Ventia into the company was a particularly strong achievement. We have worked through the rollout of them now. And also with the merger with Coretex, we brought on further enterprise fleets. And what that's done is start establishing our credibility with customers on the enterprise side of the business. As we continue to develop and integrate our product solution between EROAD and Coretex during the course of this year, we'll start seeing those solutions flow down from North America into Australia, which will further open up opportunities in the construction side, in particular. In the meantime, we focused very much on continuing to talk to our customers around our EROAD Clarity products and health and safety benefits that brings as well as our asset tracking solutions EROAD Where and EROAD micro tags. I might pass over to Margaret Warrington now to talk about our financial results.

Thanks, Mark. Hi, everyone. I'm Margaret. Would you want to plot to the next slide for me, Mark? Thanks. So we've seen revenue grow this year. It's in part to do with Coretex being there for 4 months, and EROAD for the 12. But it's also underpinned by the strong year that New Zealand's had. They had a stellar year, and that's seen their revenues for that segment grow $10 million. Because of that 4 months plus 12 AMRR, which is our annualized monthly recurring revenue, but cost forward of you 12 months of where our recurring revenue sat in March. So that metric at $134.6 million has taken a step-up and reflects Coretex and EROAD on our current customer base for a full year. We are likely to see revenue profile become a little bit lumpier. So the point both Graham and Mike have talked about where we've got large enterprise customers that we're focusing. They have a longer lead time, 12-month lead time. And then they -- once they come in, clearly, they have a big impact into our revenue once the units are all installed. The other new aspect Mark touched on is on the other side is the hardware revenue. So with the merger of Coretex, we've got a new product that will renew commercial term that we hadn't had previously at EROAD, where hardware has been sold historically outright. There's no cash impact of this, but the revenue recognition is upfront. Our reported EBITDA is down 32%, in part this is the one-off transaction costs and integration costs in that and some one-off acquisition revenue. When we normalize for both those elements, will drop is 5%. That's due to the growth in our OpEx costs, some of which is the inclusion of Coretex and some as interest spending in areas of investment. We've looked at key teams and lifted our market in preparation for growth. We'll expand and talk more about that in the OpEx slide. Our future -- sorry, our free cash flow, apologies, are negative $47.9 million. It's normalized for the payments for Coretex. This is reflective of 3 key areas of investment. One is in inventory, the second is an increased R&D and the third as increased OpEx, I have already noted. The first one was about risk management, the second to have been about building towards our long-term strategy and future. Thanks, Mark. This slide talks about EBITDA by region. As we've mentioned, New Zealand had a stellar year and off both organic growth and the acquisition of Coretex. EBITDA for New Zealand grew 16%. The Coretex merger has driven most of the increase in our revenue base in North America. EBITDA, well, it drops in North America, as Mark mentioned, that's to do with the one-off grants we got last year from the U.S. government around COVID. We've also seen in North America some pressure on our margins related to TMU1500, which is one of the Coretex products. That product is going to be replaced in FY '20 -- '23 apologies by the CoreHub Extreme. So that we expect that to be a short-term pressure. Australia is EBITDA positive for the first time this year, and that's off the back of both a Coretex acquisition and the rollout of Ventia. Overall, our margins have been impacted by those one-offs that we've talked about, the TMU1500 costs and the investment in operating costs. Thank you. AMRR that I signaled at the start has seen a step-up for the acquisition of Coretex. It's also underpinned by growth in our units and increase in ARPU in New Zealand. Future contracted income, it's increased by the Coretex acquisition as well. But actually, it's also as much about the renewals that we're seeing in the New Zealand market. So we've renewed all to 29,000 vehicles with a revenue base of about $50 million. We've also been doing a 3G upgrade program in North America, which, as part of that, we'll be rolling customers onto longer-term contracts. R&D spending is up $10 million. That's in part the integration investment, but it's also investment in our future product set for our growth. We've grown the size of our engineering team, and we've also taken the opportunity to use third-party contractors so we can flex up and down as required. ARPU. ARPUs dropped $55.57. There's a number of factors sitting behind that. The Coretex ARPU is lower than EROAD's historically. It actually reflects the historical selling model when I mentioned before the outright hardware sales. What that does -- not change cash, it changes the recognition of that transaction within the financial statements. So they recognize it upfront often, and then the ongoing SaaS revenue is the low right as a result. We've also seen the mix of in-cabin trailers change with the acquisition of Coretex. Ultimately, our underlying ARPU will grow interaction with ancillary products, the Solo, the dashcams, the PCT, the add-on products we're selling. Our asset retention is the only measure you see here that's EROAD standalone. The reason for that is it's a 12-month metric. It measures something from the beginning of the year to the end of the year. We have added in the Coretex's 4-month metric to give you a sense. The drop in their asset retention, as Mark mentioned, was to do with some of the churn, this will happen in North America with some of our small to medium business customers being impacted by COVID and driver shortages. Our cost to acquire as a percentage of revenue stayed relatively static. So I'm going to talk to our cost to apply per unit. This year, we've had a change in our methodology. Previously, we've been looking at our cost to acquire over our [ met ] growth. We've changed that this year and to be more in line with what the market does, and we're now looking at over our gross sales. One thing to note here, though, is this includes activity on both renewals and new sales because it's the same team across EROAD that do both activities. Part of the reason for the growth has been we've had staff -- the same sort of level of staff in North America but lower unit growth, and we've also started increasing marketing spend in that region to help support future growth. Our cost to serve metric has gone up. This in part reflects the fact we brought 2 teams together, and we're still working on efficiencies to bring that back down. It also reflects the investment we're doing in some -- we've got staff in this area working on some projects that will help reduce this in the future and help improve our billing and automate some of our customer service. OpEx. So that's grown $32.7 million. It's growing more than revenue in FY '22. It was included -- I start at the right-hand side of the bridge for a moment. We've included Coretex as a separate bar in part to provide some context. But it also is worth noting, there are costs across this that we -- once we merge, we've treated as group costs and we haven't pulled out. So they're set within the EROAD cost base. So some examples of that include we renegotiate of our software agreements as a group agreement to get a better outcome for both entities. However, we haven't recharged them to Coretex. So you will see some of the costs on the other bars, but we've been able to pull it out. The bar to the left of that is our acquisition integration cost. Now I'm going to pop back to the left-hand side, which is around personnel. So personnel cost growth reflects a number of things I've talked about that. In fact, we invested in some teams, particularly engineering team but also our global supply chain team. So that team has been under immense mental pressure this year dealing with all the issues that many organizations have been dealing with, accessing components and managing the risk. We've seen wage inflation pressure that the Board disclosed. So we have seen an increasing expectation around labor markets and what we'll be paying people, and that's a big part of that growth as well. The underlying regional teams has grown in North America. It was for the 3G swap-out program. In New Zealand, that's been to support the ongoing unit growth that we're experiencing there. We've also seen that hits this line as well with lockdowns, particularly in New Zealand. Our staff haven't been taking the annual leave that they might have in another year, and that's driven on some additional cost. The SaaS platform costs reflect our growth in customers and units. The subcontractors reflect us backfilling to churn but also supporting some of the projects we've described. The software systems, half of this cost relates to an accounting adjustment for some guidance on cloud-based systems and how we treat the implementation related to those. The rest of it, as I talked about, reflects the larger group along with some new systems we're putting in place to support the larger team. The drop in other primarily relates to bad debt, where we did some provisioning in FY '21 to reflect the risk associated with COVID that we haven't needed to do in FY '22. It's fair saying we would expect to see OpEx costs through FY '23 continue to be impacted by integration and by our ability to bring teams together rapidly. So we're focused unashamedly on the sales teams and bringing -- and making sure they have the systems to bring together and to deliver to our customers. What that means is the back-office teams are still running off the multiple systems, and we'll see that through FY '23. We do expect, as we grow and finish integration that on FY '24, we'll see increased leverage. Our property, plant and equipment. Story here is really around inventory. So we have got the acquisition of Coretex, which accounted for $9.2 million. But as I talked about, we've made a conscious decision to increase our list inventory to address the market and global risks we're currently seeing. So that's seen inventory grows a little of $12-odd million. Intangibles, all about the Coretex acquisition. So in terms of the numbers at least, $174.3 million, which reflects acquisition and more distant in the development of the brand, the customer contracts to goodwill, The R&D that we talked about, the increased R&D for our future growth added $37.2 million. Sorry, Mark, I'm done. Well, thank you. We talked about R&D on the list really. On the right, it's just giving you a sense of the quantum of the movement and the intangibles. We are going to see a growth in amortization. Those intangibles I talked about that we brought them as part of the Coretex acquisition, they are -- other than the will, they are amortized. So we will continue to see the amortization grow as we have a full year of [ flow ] take within our numbers. So free cash flow, this is giving you a cash view of what I've just talked to. So I'll just explain. In terms of the numbers, you can see the increase in inventory sits within our hardware and assets under construction. It was $11.8 million, and then you can see the R&D development to support our growth. The CapEx side of it is sitting within the $26.5 million in development methods, and then the OpEx part of that would be sitting within the corporate EBITDA on that measure. We noted the purchase, the cash power of the purchase of Coretex separately, and it's down the right-hand in with acquisition of subsidiary of $72.4 million. With that, I'm going to hand it back to Mark and Graham.

Unfortunately, like many in our community at the moment, I'm home with COVID with my family. So I'm joining remotely today. In this part of the presentation, we're going to look at growth opportunity outlook. So I'll first talk about our products and the products we've been bringing on June last year and what they're going to do to unlock our growth for this year before turning it over to Graham to talk about our FY '23 priorities and outlook. So in terms of how we operate, if you look at the left-hand side, at the core, we have hardware products. We're drilling cab, which help enable us to collect data to provide additional services. So EROAD has very much been focused historically on Ehubo product on the left side. And last year, we launched in October stand-alone Clarity Solo Dashcam, which combines camera technology or capturing what's happening in the cab and on the road to give it a telematic componentry that historically is in Ehubo. The Coretex team had historically the Coretex TMU1500, and that's now being replaced by the CoreHub technology, which we'll talk about shortly. In addition to those core hardware components, there are additional products and services we spoke about earlier, and what they do is they enable us to open up a broader addressable market for our customers. Will allow us to penetrate more deeply into them, providing additional services. And critically there, what it enables us to do is to visualize all of the vehicles, all of the customers' assets onto one platform. So they can see all of the key areas of the business together in one area. And that's important because our customers have a range of problems they seek to solve. Productivity is getting greater and greater as they're struggling to find more drivers in vehicles, they need to utilize the assets more effectively and efficiently and for a longer period of time. So we're able to give them good insight as to how they maximize the use of the assets. We still have to help our customers monitor the IRP compliance activity as they are driving more and they need to use the assets more, it's really important that they do so within the work time roles, and do so safely paying the appropriate level of taxes. Road safety is greater as well, and that's led us to our camera technology and other products that enable our customers to get insight around the driver's activity and how to train and monitor what they're doing to improve safety outcomes on the road. With the merger reported, we've also unlocked the ability to solve customer problems around food safety, refrigerated products as well as other products which need refrigeration such as vaccines. Our products help enable customers to monitor and record how they have been transported to ensure that there's assurance around the safety of those products when they reach the destination. Proof of service is getting more and more acute for our customers as well. Our customers and their customers want to know better the effect of delivering the timing in order to meet either contractual obligation to other concerns that their customers might have. We seek to certify the quality of the products that they are delivering, and we've got solutions to help our customers enable that. So I talked before about CoreHub being the next-generation platform. So this is a graph, it sort of shows how it interacts with the various solutions that we have. So the heart in the cab, the CoreHub is a next-generation IoT advice, which is very advanced with intercomputing power, which enables more to be done in the vehicle and quicker virtualization realization to the driver and as displayed on the left-hand side on the driver device in the vehicle. Not only can the driver use that to manage the reparatory obligations with around work time with a ultra logging device or ensuring that the vehicle is fit for purpose with DVIR, it also helps them understand routing navigation to ensure they're efficient and effective during the workday. That IT hub can be connected with camera solutions here as an entry-level CoreVision or the more advanced Clarity cameras to better understand the risk the driver's under on the road. We've also added IoT tags and sensors to our products as well, and that enables us to reach into different verticals with the CoreHub. It may be around understanding and monitor for the civil construction side, concrete and how the quality of concrete is being made by understanding the rotations that happened in the vehicle to measure in the sense of refrigerated vehicles around maintaining appropriate temperature for the goods inside it. All of that is visualized back at home base on the MyEROAD 360 enterprise solution, and what it unlocks for us, unlocks a huge range of solutions for our customers and which deal with the customer problems we've talked about earlier. As you can see, we have a pretty comprehensive product offering around SaaS, around road safety, IRP compliance and productivity. Some of those are very much directed at helping our customers around understanding what's going on the vehicle. From our perspective, they also help us in terms of retaining customers and growing ARPU. We are also helping our customers on the ESG journey as well for those icons, which are in green. Those are the ones which enable our customers to understand the carbon impact that they're having or to be more efficient and effective in their daily business to reduce their impact on the environment. Across the bottom, you can see the build-out of our technology across the verticals that we operate in. We continue to invest in these verticals because we do believe these are a key area of growth going forward to enable us to reach $250 million in revenue by FY '25. So as we continue to grow with our customers, we'll continue to invest with them by providing solutions for them. If we look a bit more deeply into our verticals, there are 4 main verticals, which we're targeting at the moment. EROAD has historically been in the in-car professional transportation vertical for a long time. And EROAD, regulatory technology complements the more advanced technology stack that Coretex brings to the table from the merger. So we're quite excited about getting deeper and broader in the professional trucking area. In terms of refrigerated transportation, that's the area of U.S. that is growing, and we are investing more in the CoreHub solution, hubs unlock and enable that market as well as the new [ Cortina ] product that we have launched in that area as well. EROAD has been historically strong in construction, particularly in New Zealand, teaming up with Coretex has helped us get more strong in the North American market. The range of products that they offer up there as well as introducing waste and recycling into our product set. We've also a bit balanced our business as well. We've got a bit of balance between the markets. So the U.S. has increased from 28% of units per market to over 40% now. So derisked us in terms of impact in the economy in different areas. This one grows and other contracts we have insulated to a degree there. It has also been critical in terms of the scale that provides us that increased scale, increased the reputation of our customers in terms of giving the credibility around us as an operator. They do like to know who our largest customers are and what industries we are in to give them confidence that we're the right technology partner for them. And so team at Coretex has increased the ability and the scale and reference customers that we bring to that as well. And you can see we've got a bit of balanced industries that we operate in together as well. We will continue to invest in these areas and off the back of this to grow our revenue in our markets. Finally, I just want to talk about our status of the integration. We are making significant progress on our integration. As Margaret mentioned before, a critical area that we've been working on is our supply chain. As we've all seen, globally, many companies are impacted by supply chain challenges. We're included as part of that. When it comes to the increase in different types of product sets that we have that does increase our exposure and the supply chain risk. We have very much invested and worked together and combined the supply chain team quickly to make sure we're on top of the risk in the area, and we are satisfied with the progress we've made in terms of addressing the risks we have in that area. Sales activities are well integrated across our markets as well. There's been good cross training of our sales folks, and they're very much focused on their previous verticals. They're working on with that training. We are aiming to have our key products and platforms fully integrated by the end of this year, and we're seeing good progress in that area. And our 3G to 4G upgrade program is almost complete, so the underlying churn we've seen from the back of that should abate as we finish that stock-up program. So I might pass over to Graham to talk about our priorities for this financial year.

Thank you, Mark and Margaret. The merger with Coretex accelerated our growth strategy and particularly in North America. In the coming months, we'll be undertaking a refresh of our strategy to reflect that. And this year, though, we will have 3 priorities. The first priority is to build momentum in our growth strategies in both North America and the New Zealand market. The second priority is to maintain an engaged culture that's aligned to the vision of the merged company. We refer to this company as EROAD Version 2.0. We're doing this in a time when the unemployment market is hotly contested and the war for talent is precious as it's ever been. The third priority is, as Mark indicated, to deliver on the key product and platform integration by the end of this calendar year. Capitalizing on the merger with Coretex, we expect to deliver key products and platform integration that will enable enhanced SaaS products for further growth. What does this mean for our outlook in the coming year? We expect the growth momentum will further build through the year. With the successful conversion of our North American enterprise pipeline opportunities and our New Zealand pipeline opportunities. Underpinning this expectation across all of our markets, we currently have 18 pilots with enterprise customers that represent some 30,700 units and 10,000 micro tags. However, revenue growth in 2023 financial year will reflect the lumpy nature of enterprise sales and the phasing of our hardware and software rollouts. In addition to growing revenue, there are a number of enterprise customers that were renewing their contracts during the year. We anticipate that revenue will be between $150 million and $170 million, reflecting the contribution of a full year of Coretex and the continued growth across all the markets and the realization of the investments that we've made last year and we continue to make this year. The last year has been a year of significant investment in capability. This is in preparation for growth, and this investment will continue into 2023. As a result, we're targeting a normalized EBIT of between a loss of $5 million of breakeven in the coming year. We expect in the following year, we will start seeing the benefit of operating leverage and that bottom line result will improve. As I've mentioned earlier, in the longer term, we're targeting to deliver ongoing strong growth in revenue to at least $250 million per month in '25. At this point, I'd like to conclude the formal part of these presentations and open the floor for questions.

Thank you, Chair. We've got some questions. from the call. So I'll let Hamish Murray. Do you want to turn your microphone on and ask a question. I might take some other questions. So the question was, given where consensus earnings were, was any consideration to providing given to providing guidance to the market prior to the results? I will start with it. I might then hand over to you there, Margaret, off the back of that. So -- or you Graham as the case can be. Or Graham, do you want to start?

Yes. I think the Board is very conscious of our continuous disclosure obligations, and we regularly renew progress. Given that there was a wide range in this forecast and this year, we -- and bear in mind, withdrawn guidance on the merger with Coretex, this year, there were a number of material accounting judgments and a number of items normalizing that made it difficult for us to be in a position to be able to give any further guidance prior to the release of this result.

Another question was, do the right people in the U.S., key positions apart from CEO and CFO that need filling? So I can take that, and Graham would welcome to you to that you wish to do. So absolutely, we do have the right people in the U.S. We've actually got a really strong team in the U.S. that we are really confident in terms of delivery. So Akinyemi Koyi as a North American President has deeply experienced and worked with Coretex for 8 years. He has a very deep understanding of the North American market and technology solutions and concern that the customers have there. And the rolling out of the virtualization model they've had historically across the EROAD business there he's leading and with a complete confidence in there. He is supported strongly by a leadership team of made up of EROAD and Coretex team members who have -- many of whom who have been in the U.S. for quite some time and understand the customer concerns they have there. So we don't anticipate any positions in the U.S. that need following. And equally apart from the CEO and CFO, we are comfortable with where we are with the leadership bench as well. Graham, is there anything you'd like to add to that?

No, you've covered it very well. Thank you, Mark.

So we got a question from Joshua Dale. I think, might open up his microphone, so we can talk. You want to do that, George?

Can you hear me okay, Mike?

We can, Josh. Thank you.

First question, just to clarify, if I heard correctly, you're not going to provide quarterly updates going forward. Did I have that right?

That's correct.

Okay. Second question, can you give us an indication of how much revenue Coretex contributed for the last 4 months of FY '22?

Margaret, would you like to?

So of the growth, about 10% of that came from EROAD's business and the remainder was as part of the acquisition of Coretex.

And just on the FY '23 outlook, roughly how many enterprise units are up for renewal this coming year?

Repeat the question again, Josh.

For FY '23 in your outlook statement, you sort of do provide a bit of caution around enterprise units that are coming up for renewal. How many of those units are coming up for renewal?

We have a proportion up for renewal. I'm not going to get to the exact details of that. We don't have a [ just ] don't know how many we are going to be renewing. But we have some of our large enterprise accounts out for renewal this year. but out of the proportion generally, they're not the bulk of our enterprise customers that we have.

Okay. Are they primarily Coretex customers or primarily EROAD?

I'm not sure. We can say that our growth expectations are net.

Correct.

Okay. And just while still on the topic of FY '23, you have 8 enterprise customers in the North American pipeline. Other products are trialing more on the Coretex side or the EROAD side?

Predominantly, we're in 4 verticals now. So predominantly across those verticals, less on professional tracking, more so than others. It's a bit of a mix there.

Mark means to say that predominantly Coretex.

Yes.

Sure. And just on your target for normalized EBIT of negative $5 million to breakeven. I'm assuming the normalization you expect is integration costs. Is there any steer you can give us around the quantum of those?

So I'll jump in here. We stick to the market. We thought integration costs were between $12 million and $15 million, and we're still on track for that sort of range. It will likely be the upper end of that range with the majority in FY '23 being [indiscernible]. it reflects the business systems investment we need to do and investment in the customer-facing platforms and products.

Okay. So just to clarify, of like -- just for argument sake, you say the integration costs were $15 million, wake and subtract, I think it was $7.5 million from FY '22 from that to get an idea of the FY '23 number.

Yes, I think you'll find this year is close to $25-odd million when you add the capital and operating together. But yes, general principle, it's correct.

Okay. Just last question from me. On your FY '25 target of at least $250 million of revenue, is that organic? Or do you need M&A to help you get there?

No, that's organic.

Yes.

Okay. And I guess just a follow-up. How have you arrived at that number? I guess, optically, it does imply a growth rate well above what's currently being delivered. And just curious if you've got any comments around how you've built up to that number and your own modeling.

So we have reasonable predictability around our New Zealand business. We know the accessible market and we know their product range. So that New Zealand core is reasonably straightforward. If you look at the North American market, the market itself was growing somewhere in the range between 15% and 20% in the years leading up to COVID. COVID has sort of impacted that quite significantly and probably half the -- most of the reads of somewhere between 7% and 10% growth in the underlying market. We are expecting that the underlying market growth, once we shake off the effects of supply chain and COVID, will go back to close to what they were pre-COVID. So we're sort of dealing with the underlying market growth in the mid-teens. And then we look at our pipeline and we look at the features that we're building and with the investment we're putting into R&D and the targeted accessible markets for those. And we think that our overall growth rate of slightly over 20% year-on-year, which is what that represents is a realistic target in that context. Bearing in mind, we've also annualized the contribution from Coretex. You're seeing in our 2022 result only 4 months of Coretex revenue.

Thanks, Josh. Another question we've had is, what feedback have we received from an enterprise pipeline in the U.S. around the estimations of Stephen Elop has resulted in its canter decisions or framed enterprise pipeline? No, they haven't impacted at all on the enterprise pipeline. I was up in U.S. twice now over the last 2 months, and there's been no concerns or pushback raised by those customers around originations. We've got a very strong team in North America who have continued conversations with those customers. So we don't have any concerns there. Guys, got a question around one-off integration OpEx in FY '23. We've sort of touched on some of that. Anything else, Margaret, you want to add on there?

Oh, jeez, which one are we on?

One-off integration OpEx.

No, I think it's covered up from Josh's question.

Yes, correct. The question around what further detail will be disclosing going forward to our SaaS business reports and its associated metrics, I can start and hand over to Graham and Margaret. So as Graham mentioned before, we are going through a strategic refresh in the next few months, where we will be looking as part of that around how we do invest, look at the metrics in terms of our performance. It would be fair to say that certainly, revenue and AMRR will be components of that. Is there anything Graham, you'd like to add to that?

No, I think I referred earlier to the acquisition of Coretex as advancing our strategy a couple of years. It has also brought forward the complexity of having such a wide range of products and solution offerings to customers. So historically, it's always been easy to characterize us by the number of units or installed units in cabs and on traders. That's becoming far more complex because that's not as reflective of our revenue base as it has been historically. So we'll go through that refresh process, and we'll reset the metrics, and then we'll come back and present those and talk to the market about how we think we best reflect the performance of the business.

Thank you. There's a question from Mark Williams. What level of cash for now we expect in FY '23? And can the balance sheet to support the business through to our future cash flow positive position? And as part of that, another question to touch on in terms of, do you have sufficient cash to get us through the next 2 years?

Do you want me to jump in, Mark? So thanks. So short answer is yes. We've just renegotiated a facility that is $90 million. And based on our modeling, we feel that the facility is sufficient. I'd love to have other regional teams mean to hold it more way out, so we've got to go back to the banking syndicate and say we need some more to fund the inventory growth to support those customers. But both Beacon syndicate members have indicated. They're happy to support that. So at this stage, we think that the investment we had to do in inventory will start to level off in terms of risk, and we'll see sufficient within that facility to fund the growth has got planned.

Thank you. Question, do we spend any working capital unwind in FY '23? Margaret?

Sorry, I'm keeping up with your question, apologies. No, I would expect to see improved.

Camera has increased by $26 million. And how much of these inventories and how much deployed with customers? Can you speak us through the movement given the impact it's had on cash? Can I repeat?

Yes, apologies. I was just working. I've got 4 on the screen. I just we're talking to -- you'll see in the slide deck actually the split between, which we disclose hardware asset movement, excluding inventory. So that is in the slide deck. I would expect the majority of that inventory to start being deploying our customers over the course of the next 12 months. Some of it has been around managing our supplier risk as well. So ensuring we had a variety of suppliers to help and continue with that product. It's clearly had a big impact on cash this year. It will continue. Inventory picture is often have a long lead time at the moment to make sure there's a bit of a balancing after our global supply chain team between the cash they're investing on the price they're getting it for, so the time price situation. So we do have forward orders that will continue to come through over the next 6 or so months, but some of that includes safety stocks that would be near to unwind.

Can we talk to cash expectations, the bottom question, given FY '23 estimates, EBIT, the expectation of negative $5 million to breakeven, price integration costs at start that could be close to NZD 7.5 million.

Look, everything is underpinned by -- we'll have 12 months of Coretex in the results and 12 months of cash generation from Coretex. So yes, we've had some pressures on our cash through this year with the decision to list in the areas we have, but we will have increased cash flow coming from operations through FY '23 and FY '24.

Thank you. And we got another hand up, Clyde DeSouza. So turn on your microphone, Clyde, to be with us. Sorry, Clyde, if you could on your microphone, if you could maybe type your question into the Q&A chat. Apologies. That will be useful. And Sam Pitman, type in your question and as well. Apologies for the technology issues at the moment.

And Hamish, I want just add to that question on cash. There's 2 uncertainties. So one is the exact amount of the contingent payment on the final settlement of the Coretex, which will occur in the next 5 months. And the other one, of course, is we don't know around that lumpiness of the enterprise pipeline. So if we land a big customer towards the end of the year, that's going to result in a significant buildup in working capital and inventory.

Sam, thanks for typing your question in. It was in relation -- okay, it's just been answered. And Clyde, hopefully, you can type your question. Apologies, your microphone going at a moment. Would you discussed and quantify where possible employee cost inflation. I can touch on and Margaret can build on that. So obviously, like many people at the moment, we are having inflation around our employee cost base. It's been driven to a degree by the closed borders because cost of living is increasing everywhere. So employees are certainly talking to us about that. We've been actually having quite in-depth conversations with our staff. It's not just necessarily on remuneration, but an entire employee value proposition around the reason why they come to work and working for EROAD. And a number of people who are linked here with the purpose, so it's not necessarily just here for whim. But we are talking to them about a broader value proposition, whether it's New Zealand, Australia and the U.S. to address there's inflationary pressures, the ways of working, why they wish to work for a company like ours, and we're having good discussions on that front. Obviously, some costs do flow through to us, however. So I'll pass over to Margaret around the actual costs we're seeing.

Sure. So in terms of that $8-odd million that are sitting on the OpEx bridge, I would say 40% to 50% of that relates to remuneration growth. Remembering that part of it is also just our normal remuneration cycle, but there's also inflationary pressures we've seen in terms of attracting the staff from retaining the staff that we've got.

And Clyde, your next question around with U.S. cable market weakness is impacting on demand. Predominantly, the demand impact has been driven more so from COVID and really access to people. Historically, fleets were concentrated on moving in A to B as opposed to stopping their fleet and having new installs done. That's changing to a degree. It's maybe a bit early for market impact to see that flow through to impact the on-demand at this point in time. We haven't seen anything yet. It's just predominantly been historically just due to COVID and just general impact on business operation as per to demand per se at the enterprise end of the market. Question from Han. Coretex AMRR, the tone acquisition was $2 million. We covered EROAD, core of $95 million. Can we help them understand the reported $135 million? Margaret?

Yes. So I will title this, this is a pro forma that we did at the time. So we knew what we knew at the time and was subsequently when I described to you the previous commission terms with some of the stuff was sold outright versus our rental model for EROAD, that materially affects the AMRR and also materially affects watch in terms of the ongoing stuff. As I said before, it doesn't actually impact the cash of the transaction, it impacts that's recognized. So those accounts the time pro forma accounts with some underpinning assumptions around the mix of that, that has proven to be more weighted towards outright sales. We are seeing a mode shift though across the Coretex customer base, so we're seeing it shift from the outright hardware sales through the dimensional model over time.

Next question, Clyde. The IFRIC decision on customer behavior. Not quite certain, Clyde what we can -- before decision. Margaret, you can...

By IFRIC decision I think we're talking about the cloud adjustment. So in effect, what that did was shift your ability to capitalize some of those costs associated with third-party software when you're doing the implementation of third-party cloud software. It shifted it from an amortization line into effectively software costs of precision services. So we've seen it shift from the low EBITDA to -- into EBITDA this year with that decision. It required some restatement, which were disclosed the way through the financial statements. So there's a combination of restatement tapestry, and then that will impact maybe which we'll see less of that third-party activity. It will be capitalized on one of the expense in the year.

Thank you.

I suspect, Margaret, the other half of that question is, will that change in accounting treatment, change the way our customers might view purchases of our solutions.

Thereon stuff. I think where I see it impacting us where there's a large investment of -- investment required to implement our solutions. And for a big majority of our customers, I would suggest they don't have a large investment, that's reasonably low and so that they won't have the same issue.

So largely, our as a subscription service that would be expensed in the normal course through the P&L, and there will be a very low level of configuration that may be required to be.

In terms of expensing that, that's what they've been going up to this point. The IFRIC decision doesn't impact...

We got any other questions from the attendees?

Mark, that is probably at that stage of proceedings where we thank everyone, for attending. And some of you, we look forward to talking to you over the next few days, and the team are looking forward to an exciting year in front of us.

Thank you, everyone, for attending today's call.