EROAD Limited (ERD) Earnings Call Transcript & Summary

Welcome, everyone. And we have about 20 people here in the room in Sydney, and I think about 80 people online. So welcome to today's meeting. My name is Graham Stuart. I'm the Chair of EROAD, and I will be chairing today's investor update. As I indicated in the company's 2022 annual report, and I reiterate at the Financial Annual Shareholders Meeting in July that year, the financial year ending March 2022 was a poor one for EROAD. Notwithstanding the acquisition of Coretex, our underlying business performed below expectations. We failed to achieve our forecast revenue targets, costs grew faster than revenues, working capital ballooned as we reacted to supply chain challenges arising from COVID, and we built stock ahead of sales. We also had the prospect of decommissioning on our 3G network in New Zealand to plan for, and of course, costs associated with the acquisition and integration of Coretex. All these factors combined to significantly weaken EROAD's cash position. At that same time, the capital markets for tech companies changed dramatically, facing a far higher premium on cash generation and a much lower emphasis on revenue growth. By the end of the financial year '22, the business model for EROAD that we had been operating was clearly no longer suitable for the market conditions that we are operating in now. Whilst we needed to implement change inside the organization, there are also a lot of external factors that we cannot control, like the share market valuation and the state of customer markets. All we can do is put in place the best strategic plan and go about executing that to the best of our ability and controlling our controllables. With that in mind, Mark Heine was appointed as CEO last June, with the remit of getting the company to sustainable cash generation, something that we have not achieved before. To support Mark, McKinsey was appointed to undertake a strategic review of the business, which included how we can turn around the core business to drive cash and efficiency and then use this to set the foundation to drive revenue growth and particularly in North America. That strategic review has been completed, and today's market update is to inform investors of the outcome of that review and EROAD's pathway to cash generation. If investors leave today's presentation with an understanding of the strategic initiatives that we have already begun implementing and a more thorough appreciation of the business' underlying economics, then we will have achieved what we set out to do today. We recognize the business has had a disrupted year, but I believe we have a team focused on achieving our strategic objectives. We have short-term milestones which we have already started to achieve, but the Board are also focused on long-term growth opportunities. Mark and his team will walk us through the key points from the update and allow you plenty of time for questions. I will now introduce you to my team attending today. Joining me in the room are Selwyn Pellett. Selwyn joined the Board in December 2021 and prior to that had been the Managing Director of Coretex. Selwyn brings to our board a very strong background in transport telematics and technology businesses in general. Online, we have Susan Paterson, who chairs our Audit and Risk Committee. Susan is one of New Zealand's most accomplished directors. She joined the Board in 2019 and has a wealth of experience and corporate governance of listed companies including technology companies. Tony Gibson is our longest-serving board member. Today, he has announced that he will be retiring by rotation at this year's Annual Shareholders Meeting. Tony has served on the board since 2009, and chairs our Remuneration, Talent and Nomination subcommittee. He's held a number of senior executive roles in transport and logistics. Tony's retirement is part of a Board renewal program that commenced in 2021. From the United States, we have Barry Einsig, who joined the Board in January 2020. Barry has extensive experience in transport technologies, marketing and strategy. Sara Gifford is the most recent addition to the EROAD Board, Sara lives in Boston and joined the Board in March 2022. Sara has enjoyed a successful senior executive career and technology sales and marketing in the North American markets. I will now introduce Mark and leave it to him to introduce his executive team.

Thank you, Graham, and good afternoon, everyone, both here joining me in person and also online. So accompanying me today from the executive team is Margaret Warrington, our Chief Financial Officer; Margaret, as you may know, was appointed our full-time Chief Financial Officer back in November of last year after a search process we had in place in terms of looking for a new CFO. Also joining us today is Akinyemi Koyi, also known as AK. AK had 10 years of experience working with the Coretex team, was the Chief Technology Officer for Coretex for some time as well as running the North American business. He stepped into the role of North American President as well. And then at the back is Konrad Stempniak. So Konrad is our Executive General Manager for ANZ. So for today, what I'll do is reiterate our guidance for FY '23, which we marked in February. I'll then turn to look into the opportunity that basically came out each year. Finally, we'll talk about each of them. And we are putting in place free cash flow positive as a company. So as you may have seen in end of February of 2023, we updated the market around financial results. As we have noted, our revenue is on target between $159 million and $164 million for this financial year. We also saw [indiscernible] normalized EBIT to address slightly down negative [indiscernible]. We also have market around the sort of growth we are seeing. We capitalized prices in New Zealand recently acquired [indiscernible]. It's one of the opportunities that set our chance to of full range solutions to top-leading New Zealand customer. We have also been very focus on our organization business and making sure that we show it on efficiencies in markets and costs down. The [indiscernible] slightly to the delay Sysco rollers as customer [indiscernible] approaches right now and we are also seeing some [indiscernible] one-off inflation cost in the business. As a company we've been very focused on reprioritizing our R&D program, and we'll talk about that in a bit more detail today. Our management team is committed to be free cash flow positive. We're on track to be free cash flow neutral by FY '25, and we have some information today that we'll share with you to help walk you through that and be positive by FY '26. In terms of recap of FY '23, as Graham mentioned, it was a difficult year. We saw some of our small to medium business customers in North America still face challenges come now COVID. They had to reduce the size of their fleet, which had an impact on our churn. It also for our larger customers pushed out some of the buyer cycle and it delayed some of the installation of our units into enterprise accounts. We are, however, really focused on the strategic review and implementing debt. We are focused on rightsizing the cost base of the business to generate free cash flow. And we are also targeting the great opportunities we have in front of us around significant growth opportunities, particularly in North America. We've also been refreshing our management team. So not only has Mark and myself been appointed into the role of CFO and CEO, respectively. We've also gone out there and appointed new executive members to our team. So we appointed Steen Andersen as our Chief Transformation Officer, who joined the EROAD business in the beginning of this year. Stephen has extensive experience in technology businesses, the focus on customer support and service, and he is very focused on making sure we can stick to our free cash flow management program. We have also appointed Aaron Leismer as our Chief Operating Officer. Aaron has worked with EROAD before and has joined the EROAD business in May. And we are joined by Shadi Printers, who joined us as our Chief People Officer in April. The rebuilding of the executive team has been critical as part of us implementing our journey to move to a free cash flow positive business. We've also, as part of the year, retained our senior team from the Coretex. AK as role as North American President. We also retained Tracey Herman, who is our Head of Finance in North America as well as Dave and Craig Marris, who lead the sales and operations in the North American market. So to the key opportunities, it's probably worthwhile just reiterating the EROAD is positioned to date and the current solutions that we have in the market. As many of you know, we began in the EROAD charging. And we still see that as a key aspect of our business, particularly in New Zealand. There's a demonstrable ROI for our customers there. And it does also lead into our customers acquiring other solutions from us. With the merger with Coretex however, we also did that to comply to it more broadly. So from a food services perspective or construction and a waste to a cycle perspective, we offer a broader range of assurance products to our customers. It allows us to give surety to our customers when compliance perspective will broaden what we've done historically. We continue to focus on health and safety as we see that as a key driver for growth. We've seen, in particular, in ANZ, where our customers have a strong desire to make sure they get full transparency of their fleets and they drive health and safety perspective. And we've added on to that with camera solutions, with applications as well, as well as looking into our vehicle inspection and the like. Productivity is always a key aspect of any telematics business, and we have solutions in that regard. So GPS tracking and geofencing, which enables our customers to get all the time, all day, every day, understanding where the assets are and how they've been utilized. We've built solutions around fleet maintenance, which are particularly important to our larger accounts where they want to understand given how precious vehicles are these data sourced to make sure that they are in effect and work in order, and we provide insights into that. We also provide good insights into fuel and idling to make sure what is the biggest cost into our customer business is well managed. Sustainability is also a new journey that EROAD is on. And then if you look at EROAD journey today, we first capitalized on road user charging, being safety, we see that sustainability is the next frontier for our business. Not only do we already offer fuel management and idling reports to our customers to provide benchmarking around the carbon emissions, we're now expanding into decarbonization assessments and insights, work with New Zealand's EECA organization to help build solutions for heavy vehicles to understand what is the right solution needed for our customer to help them manage their decarbonization journey, and we look to roll it out into North America in the foreseeable future. Now if you look at our key market size today, we see great opportunities there as well. In terms of the growth of the markets, we are seeing that telematics generally at a global level is going to be growing over 10% year-on-year to 2030. And we also have an enviable position already in the markets we operate in, particularly in New Zealand with a revenue of $80 million. We've seen good upside into revenue in North America, and AK later on today will be talking into what we see in the growth in that market. And Australia is a market that we do believe we can get continued growth in as well, that's a relatively nascent market for our business. So key focus of our strategy review was looking at how do we optimize the EROAD business model. And the review highlighted 4 key opportunities in the market, which we are now focusing on. First is our customers. This necessitates us having a more segmented customer service model in all the markets that we operate in. The second area that we looked into was the R&D payback. How can improve faster speed to market and better prioritization in the areas for quicker return on investment of how we spend our R&D dollars. The third area is North America, which requires a differentiated product offering to deliver on large enterprise accounts. And finally, we looked into unit economics as we improve as we focus our cost-out initiatives and our customer growth. Today, I'll focus on the first 2 points. AK, our North American President, will focus on the North American growth and Margaret will be talking to our unit economics. We do, however, have a clear pathway forward to focus on our opportunities and these are based on 2 key plans. The first is about turning around the core, and that's focused on driving cash and efficiency across the business. This is looking at tailoring our service levels to our customers to help drive performance, streamlining our R&D spend, and we focus the spend on those areas that we believe we get a quicker return on investment on. We're looking at driving operating efficiencies to rightsize the cost base and generate operating leverage, and finally, we have already taken $10 million out of the business in FY '23, and we're targeting another $10 million on an annualized basis for FY '24. We're also looking at growing North America. And this is to drive revenue growth from enterprise customers with whole of fleet solutions. We are targeting the transportation vertical which includes construction. We'll also be continuing to target refrigeration traders with our core habit stream trailer solution. We're going to complete a scalable and competitive product offering for our enterprise customers. We'll be scaling up our North American focused enterprise team there to ensure that we can capitalize on our sales targets. And we undertake a strategic review to identify partners to help accelerate our North American growth. We do have a clear pathway to be free cash flow neutral by FY '25 and will be generating free cash flow by FY '26. And this is within our current credit limits. So I'll turn now to our customers. EROAD has a diverse customer base over geography and size, and this has been instrumental to our growth journey to date. It has also led a proliferation of the offerings in the markets that we operate in. EROAD, however, is not overly reliant on any one customer. Our top 10 customers account for 22% of our revenue, mitigating NEK customer risk. We are focused on ensuring we have strong customer and tecnocar support for these customers, seeing this as an important differentiator for us compared to other telematic companies. These larger customers also are typically more resilient in macroeconomic headwinds and many of whom are currently in growth mode with the key constraints being accessed to vehicles within to grow their fleet. Looking at our revenue mix based on customer size, we see that over 85% of our revenue is driven from our mid- to large customers. Our evolution here has been logical, but segmenting customers make more sense now as we continue to grow. The needs of our largest customers in terms of functionality and support differ very much from the customers who have sub-15 units in the smaller end of the market. While the diversity has been broadly a positive factor to date, the counterpoint to this has been that we've got a long tail of customers which requires an uneconomic focus for management and auditors to help serve them going forward. Given this, we are rolling out different customer support models going forward. Currently, our customer self-service portal is in beta mode which should help our small to medium businesses manage their more routine inquiries going forward. We will also focus closer on our enterprise accounts. We have seen continued success against competitors in ANZ in North America with these customers. We'll invest more into our solutions to help grow this segment. This will help also lead to these solutions being available to our smaller customers over time. Our investment into North American customers will also help enable ANZ customers access to new technology as we bring those technologies down to this part of the world going forward. And look at some of our market accounts, we do have an enviable list of blue-chip customers in all of our markets. Not only do they provide us with a sizable customer base, which continues to grow both in terms of assets and product needs. But they also serve as strong reference accounts for new enterprise customers that we seek to target. We also see relatively low churn with these customers. I'm incredibly excited to bring onboard to Sysco, the world's largest food services company into the EROAD family as well as Won Fonterra and use it on ICON. Both the market leaders and EROAD is working with them to ensure we continue to be bringing to market the leading solutions for those customers, which we can then bring to other customers. If we turn to our R&D payback and our focus on this area, our strategy review has indicated R&D spend has been misallocated at times, with R&D payback negatively impacted by products being delivered to market too late to capture premiums while focusing on solutions that do not have a demonstrable return in the short term. This has been compounded by hardware volumes that don't typically scale. The improvements require an optimization of administrative spending in R&D, including by a reduction in complexity in the maintenance following the Coretex acquisition. This will involve the development of the EROAD 2.0 platform, which is in order to realize synergies, along with the various work streams to unify platforms and improve the customer experience. We're also colisting around our hardware strategy around 3 proprietary solutions. These are Corehub, our Clarity Dashcam and Ehubo and building an agnostic ingestion engine that can collect data from third-party hardware as well. Removing process friction has involved improving project delivery, team structure, software delivery process and team communication and autonomy. We are now targeting an increase of 20% in productivity from our product and engineering team during FY '24. This is supported with the appointment of the Director of Agile Delivery and Transformation, her insurance standardization when it comes to team sprints deliverables and project management to drive greater efficiency. We are also realigning our new business strategy spend when it comes to R&D which includes refocusing projects to produce quicker ROI and focusing on what our customers need right now. By focusing on a large enterprise account, we do get a faster return on investment as well as launching into the market leading solutions that other customers can upgrade to if they wish. As a result of our current program, we expect R&D to spend to remain broadly consistent at around $30 million annually going forward. This is lower than the FY '23 spend of $38 million, which included integration spend, but it is in line with what we spent in FY '22. We believe that $30 million in R&D investment each year enables us to ensure a platform is resilient and scalable, as well as investing into new functionality critical for our growing customer base. I'll now hand over to AK to talk about the North American growth in that market.

Thanks, Mark. Hi, everyone. Good afternoon. My name is AK. I'm the President of North America EROAD. It's a pleasure being here today. What has become apparent in the last few years is as explained in DNA, better lines with light enterprise customers. These are customers with very complex supply chain operations that needs -- that have needs that goes beyond just basic telematics features. The U.S. transportation and supply chain industry is faced with a few challenges and seeking capable technology partners, to work with them going through an evolutionary transition. And we see EROAD as a great partner to help capture some of these opportunities. We are the system of record for our customers. Historically EROAD has been more focused on the trucks. We are now shifting our focus to more of the operators. The combination of the labor shortage in the U.S., specifically around truck driver [indiscernible], the country aging road network is materializing into poor road conditions and congestions that can often lead to delays, higher cost of operation and decrease efficiency. Combination of that with the regulatory environment, the transportation industry is subject to a complex and evolving regulatory environment. Compliance with safety, environmental and labor regulation can be a very costly and time-consuming. We're also making sure that we do have customers that don't kind of get in violation of these regulations. Technology disruption. The transportation industry is going through massive, massive disruption when it comes to new technology such as autonomous driving vehicles, EVs, shared mobility services. These changes could have a big impact on the industry's competitive landscape, labor needs and profitability. When you look at what we've done from the McKinsey work around the strategy is very clear that we need to focus on our R&D and where we're going to get the best return. What we've done here is to kind of reduce the aperture, but also refocus on where we think we need to win. This kind of goes through safety. So having core telematics navigation, temperature and trailer monitoring beyond the track and trace, but also looking into things around cameras and what we do in the ER space, eventually. Regulatory areas around IFTA, around ELD, house of service, DVIR, post-trip and pre-trip inspections and video-based telematics. We're also looking to how do we help the productivity. We need to be more -- we need to help our customers be more efficient when it comes to truck and fleet utilization. We need to be able to show how we can benchmark their operation against the industry benchmark. We need to help them when it comes to workflows and integration with TMS systems. So when it comes to dispatch and driver scheduling, underpinning all our growth is sustainability. ESG is a big headwind, but also a tailwind for EROAD. So the industry is looking for partners to help them solve these critical problems. So North American market when it comes to product market fit, after the merger with Coretex, the acquisition of Coretex, it's very clear that we now have a stronger product market fit. We still need to continue to invest in key areas, but right on kind of going through the 4 different verticals we had in North America, which are waste and recycle, construction, railroad transportation and also general transportation. What we've said to do is to reduce the aperture a little bit but actually focus more on all fleets. And what that means is that when we approach a customer, we're looking for the entire fleet. So whether you are in cameras, whether is management of fleets, safety or productivity, we want EROAD to be the system of record across the entire operation. We do sell into a very large market. There are tens of millions of commercial assay just in the U.S. Transportation is the fourth largest contributor to the U.S. GDP, sitting around 8% at about $2 trillion annually. So what I've been very operate is, we need an ability to ingest multiple data sources from assets like trucks, trailers, yellow gears to drivers, workforce, workflow solutions, business systems, infrastructure, and over across the whole fleet with a strong focus on sustainability. We need access to data, but more importantly, we need access to the high-quality, high-fidelity data. We have hundreds of sensors in these modern trucks, ranging from oil pressure monitoring, braking systems, acceleration, fuel burn and so on. Once we're able to ingest all this data, we need an efficient way that we can use to train AI models to help that surfacing some relevant insights that are actionable for our customers. The key thing here is that data alone would not solve the customer's problem. It's what we do with data that is important. We can't be good at analyzing data if we don't have the data in the first place. So reliable connectivity to mobile asset underpins what we do at EROAD. Once we have the data, we can start leveraging big data actionable insight AI and so on. They are key things are about OEMs. So OEMs has been kind of playing our space, replicating some part of the solutions we provide to our customers. But it's very important that we have tens of millions of these assets that have about 15 years of useful life. So when it comes to the need for aftermarket solutions, we still see that there's still a need for aftermarket solution to also kind of drive parity and a consistent operation across all the businesses. Typically, we have customers that have more than 2 providers when it comes to the truck manufacturers, and they don't have a common standard. Even though we have run on Canvas, we do know that are quite a few things that are different from providers to provider. So EROAD stands ability to help unify the experience the customer has across the safety, regulatory, productivity and sustainability. We also know that the access in the technology advancement around us, we need to be able to pick the right ones to assist in transforming our customers' ever changing business landscape. So the lower cost of that acquisition now means that customers are able to afford connecting more types of assets into IoT hubs, providing a holistic view of the whole fleet and gives them the opportunity to manage and improve behind the one dimensional ramp. So Mark touched earlier on growth in the U.S. Where would the growth come from? So the growth in the U.S. will be coming from the continued organic growth from existing light and enterprise customers, also the continued delivery on our enterprise pipeline. Our focus has now shifted from having a broader marketing approach to more targeted ABM, account-based marketing strategy. Sysco and our other enterprise customers continue to prove to be a tailwind when it comes to credibility and also a proof point that our platform works at the enterprise level. How do we go about doing this? Two key things? We continue to deliver key product that serves our customers' problem and also with great customers. service. So Mark talked earlier about how do we refocus our customer segment. It's very important that we are now focused on the segment that customers support. So how do we focus on premium support versus enterprise versus standard? This is how we differentiate ourselves by having unique proposition that goes beyond the single ramp that combines the assets, their trucks, trailers with their drivers and their workforce, but also the load and the workflow to do. So you combine those 3 dimensions, we believe that will be the strongest in serving our customers' problems. I will now hand over to Margaret to take us through the unit economics and minimal.

Hi, everyone. Probably one of the more common questions Mark and I have had since stepping into the roles has been can you talk us through the unit economics and explain to us how it works. So we thought we'd use the next couple of slides to try and do that. Clearly, it's key to understanding how we can continue to grow the business in a sustainable way that's profitable. The graph is supposed to be an illustrative -- illustration of the cash flows and the value we derive from our customers. For those of you who are not familiar with EROAD's model, we tend to lease hardware to our customers, and we tend to do that on a term of between 3 and 5 years. The leasing cost is how we give them access to our CAC products and the leasing cost is embedded within CAC -- the monthly CAC charges the customer's pay. Most -- across most of our products, a unit has a useful life of about 6 years as a rule of thumb. Our customer attention has been sitting at about the mid-90% range. In simple terms, if we can retain a customer for 2 leasing periods of 3 years, we spread the cost of that unit over the useful life of that unit. If we can retain a customer beyond that, we're going to need to upgrade their hardware, but we obviously don't incur the cost to acquire again. So like all subscription models, management are very focused on customer service and retention of that customer because it will drive profitability in the long term. In the leasing model we use, the first 2 of them that at least pays back the hardware costs incurred to sign the customer, including both the cost to acquire and the upfront hardware costs, along with the operating costs in that period. It's the second term that the lease starts to drive profits. Currently, our breakeven average point is about 23 months. So even if we don't retain a customer for the second term, the customer is still profitable in that first period. On average, we do find we swap out units about every 5 years. It's not because the useful life of that unit is less than 6 years, it's because customers make decisions within their business that require them to need a new piece of hardware. For example, they might upgrade a track or upgrade their services with us in both those scenarios for some parts of our business that requires a new piece of hardware. This upgrade stats, the payback cycle and that piece of hardware again. On an individual level -- unit level, we can drive profitability by reducing our costs, either at the start of the transaction or during it or by retaining that customer longer. However, if we end up with technological obsolescence, which we'll talk about shortly, we do have to upgrade the hardware earlier in that cycle. And the payback period is extended. So what does this mean for EROAD? The diagram on the left demonstrates the cash unit economics of a leased unit, 1 unit, and it assumes a scale of 200,000 units. The top half of it represents the variable cash flows associated with that hardware and the delivery of the upfront and fixed services. Included in the inflows is the cash we received to the customer, both at the point we sign them up and then during the useful life of the asset. Initially, we received reimbursement for installation costs and accessories. So the cash flow is higher in year 1. The following years, we represent the subscription fixed charges that we charge the customer within that leasing model. The bottom half of the page -- sorry, apologies, the outflows, we should talk about them, are the cost of the EROAD hardware, the installation and the ongoing fixed charges we incur as a business. We've also factored in some hardware maintenance costs to reflect that 5-year useful -- sorry, the 5-year actual life of units with a customer. The bottom half of the table is about our business operating cash flows, including the fixed cost to acquire the customer. So that represents our sales and marketing type investment, the engineering costs to maintain our CAC platforms, and end market and corporate costs. EROAD's cost-out program to date has been primarily focused on the bottom half of that table, namely improving R&D efficiency, reducing corporate costs and reducing our cost base in New Zealand. Moving forward, the integration of our suppliers and economies of scale will help us improve the operating cash flows in the top half of that diagram as well. The graph on the right is designed to demonstrate how the breakeven point moves once we reduce our cost base. The dotted line shows the contribution to fixed costs as our unit volumes increase. It's not intending to be a graph that provides guidance around unit volumes, but what we are trying to demonstrate is that the forecast breakeven point was much closer against our average connections for FY '22 when adjusted for our cost targets. It is worth me pointing out that these are illustrative in nature but -- and they're based on the leasing model. We do have a group of customers that don't lease from us. They buy their hardware outright. When a customer does it, EROAD receives the cash upfront for their hardware and the ongoing monthly charges tend to be lower for that customer. You are not rid of me yet. I am coming back, but I'll just pass back to Mark and then move on and then you'll see me again in a moment. No, you'll see me again now, my apologies. I'm a slide ahead of myself. Right, our 3G replacement program. So over the course of the last couple of years, we've been through the exercise of upgrading our units in North America. As the 3G units into 4G units as the network shut down. Concurrently, we've been carrying out a similar program in ANZ, but due to the network shutdown dates and the supply constraints, we prioritize sending the 4G units to North America. We now are rolling back to ensure that we do the same exercise in ANZ. We've got approximately 80,000 units in those 2 countries to swap over the next 2 to 3 years, and we've developed a new product that helps set swap out be significantly quicker and faster and, in some instances, our customers will be able to do it themselves. The program is a significant one-off cost as necessitated by the telecommunication networks being shut down. And our view based on the information that we are aware of and available in the market, it's unlikely this will reoccur in the next 10 years or so, which is a much longer period than the useful life of our units out in the market. As mentioned, unit replacement use is a natural part of our business cycles with customers and customer decisions. So these costs would have been accrued regardless, albeit in a longer time frame. The New Zealand business is currently our largest market and generates positive cash returns. This program will secure those and make sure we keep that base into the future. This time, you can get rid of me, and I'll see you again in a moment.

Thank you, Margaret. So in the prior slide we've outlined, there are 4 key opportunities in our business model, which we are focused on. These were EROAD's diverse customers in the long tail of smaller customers, our R&D payback cycle, our North American focus and investment we put into that market, and our hardware unit economics the Margaret has walked us through. In this section, we're focused on tomorrow's EROAD, outline how we've positioned ourselves to focus on generating cash and driving growth. The areas we address are reposition EROAD to generate cash, our strategy time frame, our financial outlook, the key metrics we hold ourselves accountable to and how we're positioned for market growth. To achieve this pathway forward is based on 2 key plans detailed in this slide, one which I mentioned earlier, which is turning around the core. It has the laser focus that business has on driving cash and efficiency across the business. And to reiterate, that was all around targeting of our customer segments and making sure we have the right service model for them. We're also focusing on our R&D expenditure and how we spend our dollars to bring together the EROAD and Coretex hardware around consolidation around the leading Corehub, Clarity and Ehubo products and simplifying our product spend will reduce our expenditure in R&D over time. It has been coupled with the work we've been doing to unify our platforms that improve our customer experience, which will reduce complexity and maintenance post the Coretex merger. We've also been focused on driving out operating inefficiencies and rightsizing the cost base to generate operating leverage. Our corporate and back-office costs grew over time outside of our revenue growth. And R&D spend over time has also been heightened and we've taken tangible steps to pull this back. And this has manifested in us removing $10 million annualized in costs in FY '23, and we're targeting a further $10 million in FY '24. The other key plan to our growth for tomorrow is around North America. We are targeting the transportation vertical with a whole fleet of solutions, and we've been particularly successful with an enterprise customers in this space. And as AK's slide showed earlier, there are over 500 enterprise customers and enterprise fleets, which we can target in the verticals we're now focusing on. And we are committed to completing our scalable and competitive product offering for enterprise accounts. Already, we have a strong suite of services supporting these customers in their safety and regulatory concerns. We are now targeting R&D investment on further productivity and sustainability solutions for our customers, seeing these as key areas we can differentiate EROAD offering from our competitors. And we'll also be scaling up our North American-focused enterprise teams to enable it. We are transitioning away from having multiple solutions with a range of offerings through having scalable unified platforms which provide a faster customization and value to our customers with a lower R&D spend over time. Alongside this, we need a greater focus on scalable software development with much quicker time to market. And if you look at the strategic time frame, there are 3 horizons that we're focused on. We have taken cost out of the business. Margaret will shortly take you through what we've been focused on during FY '23. And in FY '24, we've targeted a further $2 million. This was driven around the customer's segmentation I talked about earlier, moving away from a one-size-fits-all model to targeted customer support, including rolling out customers self-serve. Executing on our accelerated replacement program, and this is critical to secure New Zealand cash flows. Our product simplification and stabilization work is a critical focus of this, as well as rolling out installation of Sysco and ensuring we retain our North American customer accounts. Over the next 3 or 5 years, we'll be targeting further growth in transportation, which includes construction as well as our refrigeration segment. We do have a strong list of market enterprise clients, which we can capitalize on in these verticals. We've also been rationalizing the cost base, particularly in R&D in North America. And we do see economies of scale in R&D by consolidating around a narrower hardware set in a unified platform. So I'll hand over to Margaret to talk about our revenue bridge into the foreseeable future.

So I think as Graham mentioned, we've been recently ambitious in the past about some of our revenue targets. And the purpose of this slide is to address and provide confidence in what we're saying and how we're going to achieve it. It breaks down the component parts of our planned growth and much of that planned growth is coming from our existing customer base through their own growth or through penetration into their fleets. That is consistent with results from our prior year. You'll see in our prior year reports where we've reported how much has come from our current customer base. We're anticipating ANZ to grow in line with historical trends. In North America, we're focusing on the rollout of the Sysco units, helping our current customers but we still also have a pipeline, and we are expecting to convert some of that pipeline through the pilot and get some new logos. We expect the SMB growth in North America continue at historic rates. In both instances, we've assumed that our customer attention will be consistent, and as such, our churn will be at historical levels. The cost-out program. Look, it's best to start here by acknowledging that our cost base grew quicker than our revenue, but we have taken steps to reverse that and to make sure that we reduce our costs moving forward. On the previous slide, we've talked about the fact we already took out $10 million in costs, that's on the left-hand side of this slide, and we've set a target for the coming fiscal year of another $10 million out. In terms of the left-hand side of the graph, the majority of those savings were driven from the staffing and contractor changes, and there's another common question we've had is where were those staff. They weren't specific to any one business unit or any one region across the board we saw and looked to create opportunities there. Moving forward, we've got a number of targeted areas that will help us take more costs out. You can see the detail on the screen. In some cases, these require some investment to be able to generate those savings or synergies that are yet to be driven from the Coretex and EROAD merger. Free cash flow. EROAD will be free cash flow neutral by FY '25 and cash flow positive by FY '26. The graph on the left steps you through how -- our expectations about how the cash flows will move over the coming year. You can see we'll be doing a lot of the heavy lifting in FY '24 to get closer to free cash flow neutral. That's by targeting further cost reductions in R&D and corporate and realizing the cash benefit of the prepurchase inventory. As described in the cash unit economics through our forecasted growth, we expect to get better leverage as our fixed costs either stay the same or reduce and our revenue grows, and that will drive increased cash flows -- increase free cash flows. The table on the right provides a breakdown of the main areas of -- we're expected to earn cash return on investment. They're in addition to our forecast operational earnings. And then lastly, we've talked a lot about key metrics. We've had a lot of people talk about units for many, many years. And what we are trying to do is move to key metrics that are more in line with the test business and was sustainable for us moving forward. They are the key indicators of how EROAD is going to be performing. I'm not going to go over these in detail because I think they're relatively self-explanatory, but happy to talk later if anyone needs to. But they represent the metrics used by many telematics businesses with sets of subscription models. One of the important things to note is that our targets are in line with stuff we've delivered in the past, which is why we have confidence in them. But to Graham's point, we need to make that we do this within a sustainable business model and that we do it in a way that we can keep growing and being profitable.

So to conclude before going into any questions, we are well positioned going forward as a business. If you look at the key industries trends that we've seen from our strategy review, they are 8. First is looking around the demand for advanced workflow-based solutions. For EROAD, we see this as demand for best both customer workflow solutions, and we've got proven basis in the past have been able to deliver on this. One of the reasons we won Sysco was due to our ability to integrate into their back end and help customize the data they need for their business so they can leverage it all across their business. So we see that as an area that we do have the ability to capitalize on. We see trends such as AK talked a bit before around OEMs and offering built in telematics. However, we also see the complexity of what a customer needs is that we can provide that gap between what the OEMs provide and what the customers actually need to help drive their business. We also have seen a tighter integration across supply chains, the need for fuller visibility across all the activities in the business. And that requires a decoupling of just being hardware-focused, also being able to integrate into the customers back end into different assets for different providers, so a customer can get full visibility, whether it's been driven off EROAD assets or assets provided by third parties. Other trends we've seen in the industry around the commoditization of the base offering stack and has been manifested in a lot of competitive is at the lower end of the market. EROAD is very much focusing on the enterprise end, we do see that we can provide a bit of value at the end of the market with a better range of solutions and a proven ability to capitalize on them. We're also seeing fleet consolidation. So our customers are teamed with other customers as part of the transportation industry, and we can see that we can leverage that to get our devices, not adjust into our current customers but into new customers that they merge with. Finally, we've seen the last 3 around the transition to EV fleets as well as a focus on sustainability and future regulatory requirements. That's our DNA. EROAD is a business we drove the first regulatory wave around road user charging, and we took great advantage of that intent of the market. We then rolled the way versus of safety. EROAD has seen a massive amount, both in ANZ and North America of growth driven from the customer needs to manage the safety of their drivers and also their vehicles. That new wave is around sustainability, and we believe we can ride that well. EROAD has got great ability to innovate in this space, and we already have solutions we're offering to our customers and we're building new ones as well. So by focusing on here and differentiating ourselves from the pack, we do believe we can have a great ability to grow in North America compared to our competitors. So I'll just pause there for any questions which we may take on the floor as well as online. I'll let Chair Graham moderate the question.

Thank you, Mark. Mark, Akinyemi and Margaret have outlined the strategy and they've presented the actions that make up the pathway to cash positive generation. And they've also outlined where management's focus is going to be. This is a necessary and a high priority for the business. But the Board are also focused on supporting Mark and his team, not only to achieve these outcomes, but also to drive near-term performance. The Board hasn't taken its eye off the subject of longer-term growth and how we can accelerate that growth. So we've announced that we have appointed advisers to assist the Board to work through the options to accelerate growth in North America in particular. And that review is focusing on market access, complementary technologies and capabilities and to some extent, capital. It's very early days in this review, but I expect to be in a position to discuss some of the outcomes of that review by the time our annual shareholders meeting comes along later this year. Now I'll now open the floor for further questions.

I'll take questions first from people on the floor. I'm conscious that you've had the presentation pack for over 24 hours now. So they've got plenty of time to digest the materials and come up with good questions for the team. Jason will be moderating online questions. Where it gets to 2 questions that are very similar, we may collate them. If you're online, it may take a pause, while we go through in the room questions. So we're open for questions.

Just going to the cost out strategy to talk through what the annualized cost savings would be if you fast forward a couple of years. So you kind of got $20 million from an OpEx space, you've guided up the $10 million from the 3G to 4G unwinding. Can you just go through because there's a couple of others there? Just what -- is it on an annual basis?

Yes. So the target for the cost out is $20 million annualized the 3G impact in terms of operating cash flows that I guess under your question, Owen is probably, let's call it $3 million to $4 million, which are one-off.

And just going back to the North American strategy. So you said 500 enterprise customers that you'd be going after. I'd imagine they already have incumbent solutions. So maybe is there a competitor that you guys would be planning to pick off or -- just talk through how -- is there a regulatory change that kind of go after the $0.04 switch? Just talk through that.

Yes, so we've seen about 25% of enterprise customer base come up for renewal. So there's always a annual renewal cycle. Would you typically go through a refined F&B process to get to a pilot? So what we are planning on here when it comes to our pipeline is to have an ABM strategy of going after the ones that we know we strongly align with when it comes to solutions and also our current customer base in LTL are flat. So how do we get that focus on the 500,000 possible connections back with that pipeline. So it's more around we know they come for renewal every year. And at the enterprise level, they do have a refined F&B processes to invite us in. And once we get to a refined F&B, we know we have a very strong chance of being able to convert.

It's all quiet in here. Do you have anything coming through online?

Thanks. First question on the leasing model. The lease model is capital intensive. Does it still make sense targeting enterprise when considering capital constraints? Is there a way to be more capital light in this model?

Look, the large enterprise customers are brilliant for us from the perspective that we grow with them. And so as they grow, they contribute further into our profits as well. And so in terms of the consideration of the leasing model overlay, there are options. We've got all the options in front of our customers right now. They can choose to buy outright or choose to lease. We think the best way forward is to continue with those options. And that for large enterprise customers, we price it accordingly and they make a decision based on their business, but they are profitable. And as I signaled within 23 months on average, we've paid back that capital from the front of the lease.

And just to add on there in terms of the strategic review and our focus, we did look long and hard at different segments of the market and where we should focus on, including SMB. We do see our product market for best in SMB and being lower end of the market -- less competitive end of the market to the smaller ones or the enterprise space. So we do see that SMB is more competitive, lesser product market for enterprise, we've got a better product market fit. Less competitive, and we believe we get a bit of value out of it. And we have seen -- if you look at our churn numbers, we churn far less at the top end of the market than we do at the low end of the market. So it is strategically the right place to play in. But we do add conscious of the cost consequence as it does when it comes to growth. We have seen in the past some other enterprise customers do buy outright, but many leases as well. And that's just on the effect is we take in account when we sell to them.

A question on the strategic review, this is a multipart. First, are any options off the table? Second, what would a partnership look like? Third, ideas on a potential partner. And fourth, could this tech stack be split by geography?

So the answer to the first question is no, no options are off the table. So the second question, what might a partnership look, like the answer is the same as the first question. No options are off the table. So it could, like any form, it could be some form of business combination, some form of joint venture, alliance partnership, take the full spectrum. Jason, I'll get you to repeat the third and fourth questions.

Do you have any ideas on a potential partner? And the fourth one is could the tech stack be split by geography, if part of the business were to be parts sold.

Yes, yes, we're looking -- an order of preference or so, in order of priority, if you like, we're looking, first and foremost, around market access and then secondly, around compatible technologies and capabilities and then potentially around capital. So that in itself sort of narrows the universe of potential partners. So we are aware, we have a list, but we haven't got to a point of having potential partners identified yet. The primary focus of the review is North America. But we haven't closed our mind to thinking about Australia and New Zealand either. We're in very early stages here. So if I sound a bit vague, it's basically right at the end of a funnel, and we're going to go now through a process of narrowing down those options.

On free cash flow targets being positive in FY '26 with a 9% margin, can you give us a bit more detail around the assumptions made, specifically around the hardware replacement in that year? And if that is outside of the 3G accelerated replacement program?

The short answer is yes. So we're expecting that 3G program to run over the next 2 years, and then into the third. So the vast majority of it's completed over the next couple of years. And then obviously, during that period, we're expecting growth coming through as well. Jason, help me out. Was there another part of the question?

That cash flow includes the hardware replacement program.

Yes. It does, yes. So we are expecting to see -- you would have seen the graph, in FY '24, we're expecting to utilize a lot of the inventory build we've got in place at the moment.

Another question on debt levels. Where do we see debt levels peaking? And can we provide an update on the balance sheet?

We expect to be able to carry out the plan within our current debt limit. Our debt limit is $90 million. We've got choices to make around how we buy inventory and how -- what we do with it moving forward. So we've got levers we can pull where we need to given the stock but we've got to this point and given our fix for the around the 3G program. Where are we sitting at the moment, we're seeing debt sitting at about early 60s at the moment in terms of where we currently are, and we have seen our cash burn drop significantly in the second half of the year.

As a follow-up to that, once you reach cash flow positive in FY '26, is there an intention to pay down debt after that as a priority?

Yes.

Yes, it's probably a little bit premature to sort of go into any great detail around the yes on that. It's capital efficiency and how the balance sheet is managed as part of the strategic review that we've just launched. So we have a clear view around that. We'll be able to talk about that at the Annual Shareholders Meeting.

On the R&D, how did you reach the R&D as a percentage of the revenue target? And what gives you comfort that it's the right level? And then as a follow-up to that, and how much of that spend is dedicated to North America?

So in terms of where we got to how we got to that number. So we looked at the last few years in terms of R&D expenditure and looked at the current stack we have in terms of our product market fit. So we had elevated levels expenditure this year when we're talking to a case integration and building the ingestion engine, which we knew was going to roll off during the course of the year. And so backing that out, we thought $30 million, which is still at historic high levels, which what we spent in FY '22, made sense from both what we need to do to maintain the current cash coming in, in terms of maintaining our current solution and cost base. And looking at what the needs would be, everyone making sure that's reliable and scalable over time, as well as what we need to do to spend over time to continue to sort of build on this market trend we talked about before around sustainability and productivity. So we looked at those in a system. We are phasing our R&D program over time. So we're not trying to front foot everything now. We want to phase a bit more, but we thought $30 million based on that analysis is about right as a foreseeable future, what we want to spend on. What was the follow-up is the second point of that question is, Jason?

Whether or not it's the right level.

When we're looking at the R&D expenditure for FY '24, a significant amount of it in terms of new builders into the U.S. I don't have the exact percentage on the top of my head, but when we look to that. Again, it goes back to that product market fit. We've got quite a strong product market fit in New Zealand outside of bringing in more canvas connectivity and sort of sustainability work, we've got a pretty fulsome product market here in New Zealand. So a lot of that is focused on the U.S. to help some closing those gaps around productivity and sustainability. It is also capitalizing on the new enterprise account we've just won as well, Sysco. Yes. And as Margaret pointed out, as we bring new technology into markets, we do have the ability then to bring it into new markets as well. So Classic One is we launched Corehub stream into North America last year, which is the leading trailer tracker product for refrigeration solutions. We are aiming to bring that into Australia during the course of this year and target some of the reefer customers that we have here and some potential new ones. So we bring new technology from 1 market into next where we see there's a good product market for fruit as well. So it's not just exclusively North America benefits from it other countries do as well.

Owen Humphries, Canaccord. Just on your medium-term growth guidance, I guess, your revenue growth and therefore, your operating leverage is kind of premised on execution on an enterprise pipeline in North America. That's kind of what you're outlining today. You have a more comprehensive solution, you've won Sysco, you previously said you had 26,000 units in the pipeline, 8 large enterprise customers. Can you just maybe talk through is that building? How is that going? Just to kind of give us comfort around that strategy?

So we do have over 20,000 connections that we're currently piloting with right now, and they're mostly enterprise and large enterprise, which it is. Beyond that, we have a very bigger pipeline when it comes to enterprise and SMB. But more importantly, we just focus on that from a pilot point of view, we have over 20,000 units right now that were pilots and with are we expected to convert quite a few of them. Yes, so kind of color that we're looking for is 3x what we have in budget. So that was a kind of a minimum pipeline cover. Conversion rate, we've had over 60% conversion of what we had in the pipeline last year. Some of this growth will be come from existing customers. So talk about Sysco is to have a decent opportunity when it comes to the trader solutions. But also now the Sysco where you have other exists customers like ODFL and U.S. Foods as well and in the same bucket. So new logo then also access the customer growth.

Jason?

Sysco was obviously a high-profile win, beating Samsara and displacing Verizon. Has this attracted attention from other players perhaps those just mentioned and perhaps kickstarted the strategic review?

Yes. So we've seen quite above inbound activities, especially when it comes to marketing and also existing cost asking us trying to understand how we that happened. I think it's very important that we've been able to leverage customers like ODFL, that becomes referenceable for us. So when Sysco was very important that we had for customers like ODFL, but we definitely take into consideration our product market fit. And I believe to win, like Mark said earlier, these customers are asking the same questions. They're looking for a partner, not just an off-the-shelf solution. So EROAD has a DNA of being very good at partnering with our customers trying to innovate faster with them, but also give them access to data in a very unique way that most of the other telematics providers don't. So ability to do integrations behind the sense becomes very, very easy, which derisks their transition. Steven.

Steven Newman. Just a question around cash facilities, et cetera. So the growth plans that you've outlined, will that require additional cash and also the model has when you grow quite clear, you consume cash. So is there kind of a sensitivity around that in terms of at what point will additional capital need to be raised?

I'll do the growth part.

Okay.

So the model in our plans as we have them as a staying within our debt limit of the $90 million, it includes assumptions around the growth through the next 2 to 3 years, some of which will come from large enterprise customers. If we were to have the fortunate position to have 3 or 4 large enterprise customers want to go live at the same point in time of Cisco's size, for example, we may need to revisit those plans and look. But it's also a situation that I imagine our banking partners would be happy to help us with given its funding growth. So right now, that's sort of where we're at. Graham, on for the capital part?

Yes. The focus is on cash generation, and there is a trade-off with growth. There's no -- but I wouldn't go so far to say today, we we're capital constrained in growth. We've got a model, I think, which quite rightly prioritizes the reset. 6 to 12 months out, I think there will be opportunities to accelerate growth that will require capital. How that comes, as you pointed out, Steven, the hardware -- the upfront cost of the hardware is a securitizable, bankable sort of mechanism you could potentially put around that if we want to go deeper into debt. Interest rate sitting with that at the moment, there's a point for the Board to consider. So at the moment, I think the Board are very comfortable living within the constraint we have. I think that's a -- that constraint drives a set of disciplines, which are all virtuous for the business right now. But I think there will be a stage where this team gets on top of the cash generation. We've worked our way through the 3G switch. We've onboarded the key customers and we'll be looking to accelerate that growth. So the focus of the review that we've disappointed advisers to support us with is about thinking through all of those options to help the Board think through those. Engaging with management as appropriate by making sure their focus stays very firmly on Phase 1 of the plan.

The question is the Australasian business is competitively strong and cash generative. Have you considered just selling the U.S. business?

The Australasian business is incredibly strong and cash generative, would we consider...

Selling the U.S. business.

So I did say all options are open to us, but that's probably not 1 of them. So I'll go back on that answer at this point in time no. We're not looking to divest any part of the business at this stage.

Given the management changes over the last year and the staff reductions, what does succession planning look like across the different levels of management?

From a Board perspective, we've been surprised, and we've had a strong legacy of talent development, and we've had leaders in the businesses that have been stepping up from third tier to second tier roles and up until third tier role. So we've had good investment historically, the ability to attract good human capital, and we're seeing those people come through. We also, as you see, we're recruiting from outside the business. So the blend and the combination, I think, of you people coming in and EROAD is stepping up has been about right. for where we are. I'll sort of pass it over to you, Mark, to sort of have a management perspective.

Thank you, Graham. So we have a really clear succession planning process. We will map out every quarter, the talent we have in the organization to understand who are right now, we did step up and over the next 2 or 3 years and so forth. So we've been focusing on that for quite some time. We think we've got the right math in terms of internal succession and bringing people up as well as bringing people sternly do need to look at both. And so we've been carrying on that under our current Chief Officer, making sure we've got the right leadership there in place. We've seen a lot of strong people step up from, as Graham mentioned before, from there were 3 into Level 2 and equally from Level 4 into Level 3 and so forth. But we've also been able to attract really top notch talent to bring in Steen Andersen into the business, as a Chief Transformation Officer, he's got many years working with technology businesses in the U.S. He's based in the U.S. but comes down to New Zealand quite regularly. He's had a lot of strength to the executive team, bringing Aaron Leismer back, who had a really good understanding of supply chain if they need to sort of refine and simplify that does bring his excellence as well. So we've got a really good mix of both internal and external candidates to come in. So I think we're all very lucky and very happy with the management team we have in place to actually capitalize on the plans we have before us.

Yes, I think these times where we might have from a Board point of view, sort of encourage Mark to sort of move quicker to recruit. But I think we've been very careful to make sure we're getting a good fit and, yes, we're making sure that the quality of those appointments is maintained. So there has been a lot of change in that senior team, but I'm comfortable that the processes that lead up to that are actually bringing to the table, people that have good fit.

It's Brook from Milford. This is for Mark and AK. And a lot of the businesses that I'm dealing with at the moment, we're putting through some pretty significant price rises. It doesn't seem to be any talking about pricing here. So I'd just like to understand the kind of the pricing strategy that EROAD is going to put in place in the opportunity that you've got in front of you, particularly in the New Zealand market in the next couple of years by the look of it.

Sure. We're careful at times to talk as progress Kits to talk a bit about pricing due to competitors can obviously hear what we're saying equally from a customer point of view, but we are really live to the inflationary pressures in the business. And we're one that we do need to look to see how we pass those costs on to our customers. We actually consider that from time to time, we've got the ability to do so as well. So it's something that we do focus on and make sure that we have right in terms of the right balance of what we pass on to that certainly is a focus for us. From a North American angle as well, you want AK to make a reply?

Obviously, the U.S. has a more competitive landscape. And we do see on the lower end of town, so more the SMB ability to review pricing -- we'd also have contractual mechanisms on the large enterprise to also adjust for pricing. We have all options on the table and we're reviewing our best option.

Question online. Do you have any telecom partner in the U.S. to help reduce data transmission costs for your units?

Yes, so good question. We just concluded a review with the telco partner in the U.S., AT&T, that is going through the IoT data plans and how we can leverage some of the narrow bandwidth data plans to help us address data better at a more efficient pricing. So we do leverage our partnerships, I think maybe in New Zealand as well. We're doing some things there.

And we're just in the process of doing a similar exercise in New Zealand.

In reference to the -- to North America, what are you referring to in terms of adding market expertise or additional access? And on top of that, if the North American review doesn't eventuate with anything what is your plan from there?

The market access simply finding more efficient ways to access more customers, that's channel partners, compatible technologies. Compatible technologies and capabilities, some of the sort of thing adjacent products, products similar to ours, products driven not some of the customer needs. So that's kind of what we're looking for in those 2 respects. What happens if we don't find something, then we had -- that doesn't exhaust our options. I think we just need to go back and rethink through how we'd accelerate growth. So remember, what we're trying to do now is at a level of growth to a business which will be already performing and generating cash at that stage. So we're looking for acceleration methods beyond that business model. We will use this capital review to see what comes out of that review. Beyond that, we'll go back to the drawing board and rethink through all the other options.

I think it's important to just to recognize that the current plan is done without doing a strategic review on this point. So we do believe we're going to get the growth we want to North America and driving the free cash flow positive even without the strategic review being completed.

What's the size of the sustainability opportunity? How well serviced is that segment? Who is the competition? And at what point of the verticals you operate in up to regarding decarbonization.

Sorry, Jason, just repeat the last part of the question. Sorry, I just missed out?

What point are the verticals you operate in up to? far are they in regards to decarbonization?

I'll start there. So I should -- in the U.S. again recently last few weeks. And every enterprise customer, I speak to, there's a transportation in particular, but also in refrigeration and construction all talk about sustainability is the major focus for the operations. It's not just fuel consumption. It's around -- no, if you look at a food services company, making sure that what they're carting around doesn't spoil too quickly. We know that construction is a massive producer carbon when it comes to producing cement. So they all are looking into this entity as a major pain point. We do see there's a subset of competitors out there. I mean, Geotab is one, albeit they're sort of a bit more ancillary around what they're sort of focused on from a sustainability point of view. Others also look at a premium solutions there as well. But we do see the focus we've been doing around some of the decarbonization insights and able to sort of look at optimal routing and the like. It has been a point of differentiation, so we do think we've got some good solutions out there. There are other players looking into the space as well, but we think we can do better than they can. In terms of the size of the opportunity, I haven't sort of quantified that, but we do know it's a major pain point for enterprise customers. They either have reporting obligations, which require them to go in to understand the carbon emissions or there's customer expectation that they need to be on top of this, so it is a key point of discussion for all of them. Anything you can add to that AK for your discussions or.

Your goal is to differentiate in the North American enterprise space versus your competitors. You've highlighted the solution gaps you're looking to address. Are your competitors doing the same things at present? What are your competitors not doing?

I think 1 of the key things that EROAD has is the ability to integrate. I think the -- obviously, we don't know what everyone is doing. But what we've seen in the market is more people focusing on more products and features, releases versus of retuning their platform to support that large data pipelines that a customer is expecting to integrate with. So that's the one thing that EROAD has invested in, in the prior years and our ability to connect our customers back end systems to more of the real-time data that we collect from the assets. I think that's a unique advantage to EROAD. It's quite difficult to do because it means you have to replatform your entire telematics pipeline. But it's not -- we don't know what a customer -- our competition are doing at the moment, but I'm assuming we have a few years ahead of them.

On the OEM hardware question, as fleets move towards their end of their life span in 10 to 15 years, what does the OEM hardware landscape look like? What's the landscape in your verticals? And how will you position yourself?

Yes, I think the OEM play, I say it in 2. The first one is what the truck manufacturers are doing versus what the builders are doing. So the first question will be now the truck manufacturers are embedding OEMs, there's embedding telematics solutions off the lines. But they're very generic. So they're looking at just aggressive can data connectivity location-based data. What they're missing is that integration is between what the driver is doing when it comes to either the cameras or the HOS data. So ELD versus what the truck is doing and also you overlay that with what the product that they are kind of moving should be doing. So the OEM pays, we see they're constantly evolving. There are no standards. So which is kind of one of the biggest challenges is each manufacturer is going about the OEM journey in a little bit different way, which gives us an opportunity as EROAD to be that system of record ability to go across more for different describing OEMs. We also see an emerging trend where EROAD needs to be able to ingest data from a cloud to cloud connectivity as opposed to always embedding hardware. So we see almost a hybrid scenario where if the customer has OEM telematics for basic track and trace location-based connectivity, we can ingest that data and enrich the data from a more advanced platform. More importantly, we also see embedding our hardware into that ecosystem. So even though they have connectivity, there's quite a lot of advanced edge computing that we do have that this is very beneficial to the trucks. So our ability to have a hybrid model, connect in the ecosystem, but also the play to play computing gives us that 100% view for the customers' fleet question is.

How are you planning to tailor your service levels to each customer segment?

So what we're saying is that at the large enterprise customers in the U.S. and perhaps estimate a macro is that they're looking for premium support, and most of them are actually willing to pay for that. So we are carving out a premium support, tiered support for North American customers, but also looking into that enterprise level. So that's going to be a product level. This is an enterprise unlike enterprise having premium support. What has dedicated support, dedicated customer success managers, dedicated TAMs, of having a team of TAMs and CSMs that can look after those group of customers. So our goal is to be able to have differentiation based on how good we support our customers, and we're really investing in our focus on getting that done in FY '24.

One model is to be particularly successful for us at ANZ is the use of outcome managers. So we actually embed EROADers within our customers, which help our customers won't get their fingers on the tools quicker so they can understand how they can actually utilize in the business but also provides a great upsell pathway as well into new solutions and helps from their feedback look to get greater insight from our customers around what we should be focusing on. On a road map that's been really, really successful and something I'm sure we'll be doing in North America as well. So that is a model that does work well. At SMB side, we are focusing more on customer self-service, so we're based on a solution right now to get in to help them see what they need. So we have fewer customer support people having to actually be on their phones supporting them over time.

Given the confidence in the opportunities being described, can we expect Board and management to be increasing their alignment with shareholders?

Short answer to that question is yes. I think the long answer to that question is probably yes as well. Yes, I mean, the Board are always looking for ways of improving alignment with shareholders. events like this play your role in doing that as well our results announcement. We're working all the time on improving our levels of transparency. I think we have a reasonably good standard of financial reporting. Yes, we're aligning to best-of-breed disclosures between ASX and NZX, and I think, yes, that's a trend that's only going to continue. That's all the questions online. I don't propose to make any concluding comments are the ones I made at the beginning of the question-and-answer session. So I'd like to thank all those on line for attending. And all those in the room, of course, you're welcome to join us for some refreshments. It will be our video playing, which is a bit of a customer sort of explaining the functionality, what the technology actually looks like to a customer and a bit of a customer journey. So I think you can sit and watch that, have a drink, watch up, have a chat to us. We'll just open that up and let that happen. So that will be starting to play after I've pushed this button a couple of times. I think is that, if I remember my instructions.

My name is Craig Mirus, I'm the Executive Vice President for our Transportation and Culturing division here in North America. I'm going to give you a quick demonstration our culture in solution. But before I should get into the demo, I just want to give you a few statistics about the industry itself and some of the regulations that hit adherently and who the key players are. So starting with kind of the market size, there are about 0.5 million refrigerated traders in the U.S. and about 200,000 to 300,000 refrigerator straight trucks. How those straight trucks typically do the final mile delivery. We believe it's about 30% to 35% penetration of refrigeration monetary, telematics monetary and the network, and it's growing at around about 12% to 15% on compared annual rates. The big driver for the adoption of telematics is typically around the food safety modernization net. There were recent changes to that which required that the receiver so the entity that's receiving the load, if they had -- if they could not prove -- sorry, if a carrier who's delivering the product, if they cannot prove within 24 hours that the temperature was indeed within spec, then they received it by law to reject that load. So the other player in the shipper. So a company like a Starbucks or McDonald's so that you need to see that's typically manufacturing the product and having the carrier move the product to the receiver, they were the ones that said, hey, carrier, you have to have telematics, if you're going to haul for me. So that's driving a pretty rapid adoption. The company that I want to showcase for you today is a company called U.S. Foods, and we got permission to do that from them. They have about 6,000 refrigerated trailers. So they're a big player here in North America. And they haul into or deliver to nursing homes, restaurants, hospitals and the like, and they actually manufacture their own food in a lot of cases as well as had suppliers provide food to them. Prior to getting our solution, which we've been rolling out over the last 2.5 years that we just finished in December, they had no visibility of the trailers. There are no visibility of how much fuel is being built, whether the -- what the temperature was of the product, what the utilization of the equipment with the issues, with the failure of the equipment. And so by installing our telematic hardware, and we have a very intelligent device that connects to the micro control of the refrigerator unit and gives them full 2-way control and that is an absolute game changer. So instead of the driver taking responsibility of sitting at their point and so on and so forth, users using our software can manage it centrally, and that's a significant change in the way they work. They also get the alarms, they come off the system that they never had before. So a lot of information they didn't have visibility. So I'm going to quickly show my screen and take you through the elements of the solution so you can get an insight to how it works. I thought what I'll do is start at the sort of at the high level. So thinking if I'm an executive in the company, I quickly want to understand how the overall operations is running. So we've developed a leaderboard, which is start at the high level the total fleet, but also I can go down to looking at specific regions, and then within those regions, I can then start comparing sites and then even from the sites getting down to the unit level. So what we've got here is there's 3 key metrics. The first is utilization, the capital employed a really important metric for them, given they had no visibility on health than with the refrigerated units working. The next one was precall. The precall is a state whereby we had a set point, and I need to get down to that set point and what I'm trying to determine is did I actually get this successfully before I left the distribution center. If I didn't, means that's a deemed fail. And so they want to see -- help them with a successful, how often were they failing. The third area is the Reefer Health. And the reefer health is to simply do have alarm codes, and the alarm codes could be serious shutdown codes or just simply I've got some issue, a low line issue with the refrigerator unit, why it's been switched on. So drilling into each of these areas starting with utilization. We've got 4 states of utilization. The first one is Ours Only. So Ours Only is a state where the refrigerator unit is on but the unit is not moving. The case soaking storage unit. Prior to getting our solution that had no idea what -- how many unit storage units ahead. The next category is Miles and Hours. Miles and Hours is the typical operation. So that's where the unit is running in the moving. So 51% of the loads are in that state. The third category is Miles Only. That is where the refrigerator unit is actually turned off and it's deemed as what we call a drive-in or just a trailer, let's say, with a refinement running to 6% of that. The third category is No Usage. That is where the reefer unit is not being used. There's a lot of capital employed. So in the last month, we can see 37% of the trailers have no usage. And this is the area they're really focusing on, making they had no visibility on this. But what they did have visibility on with the sites. They were talking about 90-odd sites yet. We're requesting trailers, just in case I had a problem with a trailer and I need another one. And now they can say, well, no, you don't. In fact, you can offload trailers or we need to move trailers to other DCs that needed extra capacity. Again, I can look at this simple drop down, I can drill into the particular sites, which is super helpful. The next area here is precalling. When we precall, think of the statistic. For every hour of the refrigerated unit running is equal to 1 gallon or 3.7 million liters. And in the cost of diesel today, that's a lot. So what we can do here is we can put the cost per minute of the run time of the reefer unit, and then very quickly we can calculate at the unit level or at the regional level -- sorry, at the site level or the region level, how much fuel are burning and medium duration. How long does it take for me to get to precall? Really important information for them to get because right us coming, I would say, hey, we can pre-call within 45 minutes. We know at the moment, on average, it's $0.50. When we first started, that was sometimes nearly 2 to 3 hours. Third state, Reefer Health, how often it is more refrigerated unit on with some alarm. We can see here in this duration. So if I can, I'm going to go to all fleets, and I can see across all fleets, it's around 58.4%. I'm just going to drill right on to stress when Southern New England. And you can see Southern New England is 70%, okay? That's extremely high. So that tells me there's some issue with their maintenance program. Straight away, I can look at this. What I want to do now is I sort of start at that high level, I just want to now go down a few layers deeper. And I want to go to a part of our solution we call the Reefer Manager. The Reefer Manager brings a lot of data into 1 pane of glass. And what we can do here is as we can very easily just simply right click and I can now control the refrigerator unit, which I mentioned earlier on. So I just want to touch on a couple of these. The first one is a pre-trip test. I can now run remotely a pre-trip on the refrigerator unit and now whether there's an issue with that unit before it goes out. Prior to getting our solution, they had no idea. And so again, proactively monitoring this is super helpful. And 1 thing that I would also add is a feature on the alarm health state. Our data science team have developed a machine learning algorithm, an assembled model. They actually can predict when a refrigerator unit will fail within, say, 7 days. So that is an absolute game changer. There is another module. We're creating value. We can capture value where we can start getting just they we are not just reporting an issue with a reefer. We're now predicting. Very powerful. So the other things we can do here is we can turn to set point, we can turn the unit on, we can change the operating mode, operating mode continuous means it's running the whole time. Auto start/stop state as it means it's got a set point, and it's got to come down to that set point and then it will switch off if we get so much like an air condition unit. The other thing we've got here that I just want to highlight is playback. And I want to click on the playback because what that does is that is like the forensic detail. So if you mentioned a few receiver and you're saying, hey, I don't think you delivered your load within specifications. Prove to me that you did. We can do this in a number of ways. First of all, I want to investigate did we do that? And so what we can do here and the playback is I can see right at the top here, I highlighted 1 day. Two courses when the trade is moving, the blue is the running of the equipment. So straight away, just by looking at this and then obviously, we got the net view that's shown the bread crumbs, I can see where we've got alarm states. So for example, here, we've got text, electronic truffling alarm code adding on. So not only is it here, but reports, text messages, alarms going to people who need to know and get that information, but the same time I can see in this report. The thing that's really steering out of me here is the amount of hours that are running that refrigerated unit without moving. So we've got about 8 hours. Remember, 8 hour, 1 hour, there's 8 gallons, 3.79 liters of diesel burned before they even moved, okay, and I can see the setpoint quickly, which is good. So it's a pretty cool state. But that is divided I for ages. The other thing I can see here is these gaps. So they're arriving in locations where you can see the move. They arrived in location, they're switching it off. Now that may be within the SLA, it may not either. So very quickly, I can see this information. The other thing that I can do is if I needed the receipt and wanted to get just some specific information, not the playback -- we hear this reefer chart. In a reefer chart is just basic information. I can collect on and off again, I can access through the 2-way command. It may be that I want to drill into a particular area. This example I just want to drill into here and may want to take away the supply because it's a bit confusing for them. I can then take the URL or I can click over here, e-mail it off to them within a minute, the receiver and also the shipper can get information about the health of this unit. Prior to this, we have to get a download at about a cost of $300 plus travel to them to go to the reefer unit, do the download, send it. They had to do that within 24 hours. If they didn't, they rejected the load. The shippers ourself often stay self-insured. And if the loads could be anywhere between $75,000 and over $0.25 million to $200,000 to $250,000, that's a huge loss potentially. So we don't literally like 4 or 5 months, you're paying one load loss prevention, you will pay for our whole system. So they are always the huge just on that factor alone. But here, more importantly, I can very quickly do the information to our -- to the people who need to know the receiver and the shipper. One other area, a new module that we've created which we're really excited about, is our core team. Core team is what we call simulated product temperature. What we do is we've created a machine learning algorithm that can determine the product temperature based on the return of the temperature of the -- where the product has been within the trailer or the truck. And so I want to quickly show you that as an example of some of the things we can do. So what I've got here is a dashboard, and I'm going to go see -- I'm just going to go initially to the dashboard. And I actually wanted to choose a day, I want to go to Friday because data has actually been completed. And I can see from here in this particular site, there was 14 routes. We had one of the routes had an execution, one in what they call in the frozen section. So I want to have a look at that in more detail. So I come to the energy here. Affliction to here. And I can see right here, in the pink here, this is a problem right here, and it was 17 degrees down instead of within the band -- upper band of 10 degrees. So if I click into here, I can see there's 3 products that we've simulated, dairy, frozen food, which is more a generic one, and chilled food, okay? And it's frozen that's got the execution. So I can see here if look on the return here, notice return is a lot higher. So there's some issue with that, I can go to the playback, look at it more closely to see if there was an issue. Did I had in land state but straight away, I can see that there's a problem with the receiver, and that's driving. This is the reason why it's going up. Now it doesn't necessarily mean that you have to reject the load here, but certainly, it's pointing then to say, have a look at this carefully. Historically, they would -- if there was a problem and the receiver said, hey, there's a problem here with the loads, then you have to reject the whole load. Now they may just say, hey, just the frozen food, we have to discuss, the rest of the dairy and chilled is absolute. The other thing I can look at here is I can look at my daily report, okay? So if I come back to -- again, to the Friday, which I know that was finished, we're coming here, I can see that I'm 92% compliant to more shipper because it's a shipper that's looking at this as well as the carrier. And I can sort of see very quickly, we potentially go and have some issues, okay? And often it's sitting around the frozen. And so if I look at the weekly summary again, I want to pick their week, so last week, this is where I can look at the team to compliance, okay, which days we are compliant and then which compartment. So again, I can see the frozen that seems to be an issue. So I can hand it on that not going to also look at a facility report, okay? Again, I can come into the week they want to look at, which was last week, and I can sort of see overall what's my compliance, okay? 95% compliant actually is pretty decent. When prior to putting this solution in place the compliance was as low as at 65%. So this is a game changer for the shipper, a game change for the carrier because now they know they -- what they need to focus on. And certainly, they receive a lot more confident that the carrier is doing their job. And so these tools are great examples of what carriers can do or use to increase their business. So it's not just about improving the operations, it's actually growing the business. So we're really providing some excellent insights. So I'm going to wrap it up here. Hopefully, there's a number of other things at core strategy that gives you some insight in terms of the capability we have just within this module, okay? Thank you so much.