EROAD Limited (ERD) Earnings Call Transcript & Summary

Good afternoon, shareholders. Thank you very much for joining us today on this webcast. Speaking to you, I'm Susan Paterson, the Chair of EROAD. And I've got joining me today, Mark Heine, who is our CEO, [ ending right ]. And Margaret Warrington, our CFO, is also available. If any of you have any direct questions for Margaret, we'll bring her into the conversation as well. But it's fantastic that you've joined us, and we're very happy to take you through some of the details of our capital raising at EROAD and some of the rationale, et cetera, for it, and then we'll have lots of time for questions and answers after that. Early in 2020, EROAD actually undertook a strategy refresh and had a really good look and a comprehensive dive into the business to -- in our strategic review to say, where do we want to go in the future and what's our strategy? And it was really important that we all got aligned behind our strategy. So we knew where we were going and what we are doing going forward, and this has resulted in the last 12 months really getting on and executing that strategy. It's been around rationalizing our cost base, stabilizing our foundation and then really setting us up for growth going forward. So we've had 2 major aspects. As I said, there's been a large cost-out aspect, which we've spoken to. We took $10 million out of our recurring costs last year, have another target of $10 million this year and so far, up to $7.5 million. And then you'll be aware we've landed some big enterprise customers like Sysco in the U.S.A. and have gone above 100,000 connected units in the U.S. The capital raise is really all about making sure that we've got the right capital structure going forward. We did have some feedback from customers and investors, and the market was looking for telematics companies to be less feared. And so we had to look at our capital structure, and said what we'd really like to do is make sure that we strengthen our core and give ourselves some flexibility in our headroom going forward as we execute on that strategy. So the equity raise is for $50 million, which we believe is the right amount to raise without needing to come back to the market or anything. And it's -- as part of an institutional placement, which is for $11.4 million, but the majority of it is through an entitlement offer to all our shareholders. And right throughout, it's been really important to us that we make sure that we treat all shareholders equally in this capital raising. Where are the use of proceeds are going to go? As I said, it's going to strengthen our balance sheet, give us more headroom in our debt because we will use it to pay down debt in the initial instance and provide us, as I said, that keep growing so we can accelerate our growth strategy. Our debt facilities, these actually weren't due to expire until March 2025. But we decided again, to give us the confidence and the certainty going forward, we would approach the banks and extend those facilities out to what we've extended them based on capital raises to September 2026. And we took advantage of bringing in a new lender, Kiwibank, into our lending syndicate. So that's really the overview of where we're at. And let me pass on to Mark Heine with regards to our strategy and some further detail for you.

Thank you, Susan. And just before I get into our strategy, there is an ability for participants to raise questions as part of our discussion today. So please feel free to raise questions throughout Susan and I talking into the presentation. We will, however, address those questions at the end. But in terms of this capital raise, it's really important to understand our EROAD strategy and how we're progressing to date. This strategy gives us confidence that we'll be heading to free cash flow positive by FY '26. But importantly, at the same time, as Susan mentioned before, we'll be growing as a business. This means that EROAD has sustainable profitable growth into the future. This achievement is one that EROAD to date has not achieved since we listed in 2014. It has meant that the Board and the new management team have taken a different pathway than what we've had to date. Our focus is very much on growing revenue, but at the same time, ensuring that it is sustaining and growing cash and making us a profitable company. As Susan mentioned before, there are 2 key plans to this. The first is turn around the core, which is responsibly removing costs from our business. And the second is future growth. So in terms of turn around the core, we have actually outlined having sort of taken out, to date, $10 million in annualized costs in FY '23, and the full impact of those cost reductions have been filled during the course of this year. And those centered around, one was reducing headcount in the business. As a company we had grown too large from a headcount perspective, and we need to reduce it down to a lower level. And the second one was around consolidating down some of our overhead expenses, including our property footprint. In this financial year, we also targeted a further $10 million in cost out, of which we've already identified $7.5 million to date, those savings being made on the back of principally around renegotiating our agreements with suppliers. We further reduced our overhead expenses as well. And we've also looked again at the right headcount composition for the company. In addition to turning around the core, we've also been focused on future growth. And so during the course of this year, that's underpinned by launching new products. So we've launched a new AI-enabled product, which is our predictive maintenance for our refrigeration solution. We're also launching new products in Australia, which is our cold chain solution, CoreHub Xtreme. And secondly, we are introducing our sustainability module into New Zealand over the course of the next couple of weeks as well. And releasing those new products does enable us to achieve future growth. In terms of long term, we are targeting further growth in North America and the key steppingstones we put in place there. The first is executing on the back of our Sysco deal that we won at the end of last year and rolling out over 9,000 solutions during the course of this year to help enable that customer and grow off the back of it. We're also building up our enterprise sales team in the market as well, and that's to enable on the back of winning customers like Sysco, creating new opportunities to deliver more enterprise growth going forward. We've also been looking at, and as we announced back in March of this year, any potential partnerships we could unlock in the U.S. too. Our business plan is not required or predicated on actually executing on those partnerships, but we do believe, from potential to obtain future growth or additional growth, or derisking our plan, that partnering with folks in the U.S. with us around go-to-market or technology partnerships does make sense. We do those in New Zealand, and we're looking to see what sort of partnerships we can have in the U.S. Those conversations are still ongoing. We do have parties in that market that we're speaking to right now, but these things do take time. It's not critical that we do deliver on those partnerships because we do believe we'll hit our targets in FY '26 even without them. But we do believe that obtaining these partnerships will be fruitful to us if we do obtain them. Turning to now some of the key fundamentals of the EROAD business and how they can unlock future growth going forward. The first is around the attractive markets that we're targeting. The North American market has grown to around 11% year-on-year between now and 2030. And EROAD is targeting similar growth in the market. We do believe we've got the right product set that we can launch in the market. And as I touched on before, we're growing our sales team to help unlock it as well. The second is around our proven track record of delivery. In New Zealand, year-on-year, we grow by around 8,000 to 10,000 connections each year, and we continue to win in enterprise customers, as seen earlier this year, where we won the Fonterra account, which is a major achievement for the team as we're able to launch a whole range of solutions for Fonterra and get our product into that market customer. It is what we did also generate over $54 million in EBITDA during the course of the year, and we're able to use this in another market to leverage opportunities into Australia. During the course of last year, we obtained the trans-Tasman fleet, Ventia. And during the course of this year, we announced as part of the capital raise, a further 3,000 unit vehicle connection in Australia of another trans-Tasman fleet, which goes to show that our ability to execute in New Zealand does flow through into the Australian market as well. And this area is our ability to create return on investment to our customers where they use our solutions. Our solution does enable our customers to reduce cost in the business and also enables them to be smarter, safer and sustainable. And there are 4 areas in which we can help our customers in this area. The first is around compliance and assurance. Not only do we help our customers manage their road user charges obligations, but with the merger with Coretex, we have other assurance products now principally around cold chain and also construction which could help our customers meet their compliance obligations. In addition to that, the new products we're launching around sustainability allows our customers to meet the obligations around carbon emission reporting too, which is a really important pain point for our customers, which we are helping them on. Our second area is around health and safety. Our customers want to be safe on the road, and our product helps deliver on that. And by being safe, they can help generate now better understanding of their brand values with our customers who really value fleets that go out there and are safe operators on the road. The third area is we are helping them obtain, around fleet management, a bit of cost savings in their business. That might be around fuel utilization, around idling, around predictive maintenance to make sure that they can help in terms of any potential issues to the vehicles prior to actually [ achieving maintenance by itself ], and also around making sure that from an asset utilization point of view, they've got the right number of vehicles in their fleet. And finally, around the return of investment provided customers is around sustainability. Going forward, a major cost and also issue for our customers is around managing the sustainability challenge. And that is anywhere from helping to transition internal combustion engine vehicles to electric vehicles. We'll understand their carbon footprint and making sure that they reduce cost in their business by getting on top of that. By doing so, those 4 areas help manage our customers' return on investment. So it's a really attractive proposition for them. Another key fundamental of our business is the nature of the customers that we've been lucky enough to attract and retain. In each other market, we have marquee customers. With us in the U.S., where I'm at right now, where we have Sysco, which is the world's largest food services company [ or ODSL ]. There's also Medline, who help deliver medical equipment to hospitals all across the U.S. In Australia, we have customers such as Ventia, where we're able to help them manage their challenges around [ open day, around the salt ] construction part of the market in Australia. It is on -- I talked to you before about Fonterra. But in addition to that, we also have Fulton Hogan and Downer as well as [ Fletcher's ], again, large fleets. And by having those customers and working really closely with them to manage their transportation and compliance journeys, we help those solutions which we can sell to other customers in the markets, too. The next area is our scalable platform. And we're getting to the point now at a tipping point where the number of connections that we have in the market off the back of our continued growth, our unit economics and our cost down work means that we are getting very close to being free cash flow positive. And that's a really important factor for this management team to help enable that and capitalize at the back of it. And finally, we've built up during the course of the year an experienced management team who've got great experience around turnaround companies, transportation and also around technology. And having that management team here incentivized on delivering this plan is really important to give our shareholders confidence that we can deliver. I'll sort of touch on briefly now around our trading update. So it's important to update our shareholders around how we've been performing for the year-to-date. Here are some key callouts here. First, we've achieved over 100,000 connections in North America. There's a major credibility point for us as a fleet operating company in telematics. It shows that we've got the ability across a number of industries to sell a solution and gives our customers the confidence that we can help support them, given the range of customers that we can deliver on and the size of our solution in the market now. We are also continuing to grow and rightsize the business, and we're working towards our inflection point of being free cash flow breakeven in the next financial year in FY '25 and being positive in FY '26. We've been looking also about pricing. And as the inflation pressures are underway, we've sought to recoup some of that in both the ANZ and North American market, where we've increased in New Zealand and Australia for a majority of customers our cost -- sorry, our fees by 6%, and we did that in July. And in the U.S., we increased our fees by around 3% in September. And we are progressing really well our 3G to 4G stop out in ANZ. We're over 40% complete in transitioning our customers for our 3G connected units to 4G. And but for that we'd be free cash flow positive now. It's a really important investment for us to make to transition our customers on to 4G connections and help guarantee and secure that additional revenue going forward. And we're working hard to make sure we deliver on that. As part of our capital raise announcement, we also reiterated our guidance for FY '24. We released this guidance back in May when we announced our results for the last financial year, and we're still confident of our revenue growth of between 6% and 9% for this financial year. We will continue the cost-out program that I talked about before by removing $10 million on an annualized basis during the course of this year. So then by the end of FY '23 and FY '24, we would have realized $20 million on an annualized basis of cost out. And finally, we're targeting EBITDA -- so EBIT, sorry, of between 0 and $5 million normalized for the 3G switch-out program for this financial year as well. And finally, we've also maintained our key metrics to the market and most importantly, around our growth. We're committed to grow between 11% and 13% on an annualized basis by FY '26, and at the same time, ensuring that we can maintain our historic low churn rate of only 5%. During the course of this -- last financial year, we had around 5% churn, and we are seeking to maintain that going forward. And finally, around our free cash flow margin. By FY '26, we're targeting a 9% or greater free cash flow margin in the business. Just turning quickly now to the timetable for the capital raise. For this rights entitlement offer for our retail shareholders, we launched it on the 12th of September and will remain open until the 21st of September, so I invite you to participate during that period of time. Off the back of that, will be -- the shares have been trading around the 2nd of October -- or the 3rd of October of this year. I might just pause now and hand back to Susan, who can talk to further points around capital raise, and then we can open up to some questions.

Thanks, Mark. Yes, I just thought that it was probably worthwhile addressing upfront maybe some queries that you would have and some feedback that we heard from various people. So the first was Volaris and their participation in the offer. So their nonbinding indicative offer is unrelated to this capital raise. They're not linked at all. And what we wanted to make sure was that when we did the capital raise, it was in the best interest of all shareholders taken as a whole. So strengthening that balance sheet, we believed, was in the best interest of all shareholders. And when Volaris did approach us early on, I had an early meeting, as you would imagine, with their principal, and we've had subsequent meetings. And we've been very clear about the fact that we weren't going to allow the overhang of a nonbinding indicative offer to detract us from getting on with our strategy. So you will have seen that at the AGM, we appointed David Green as a new director to the board, a very competent person that has joined our Board, and we're delighted to have David on with us going forward. And when we had some feedback around -- from shareholders, the level of debt we were carrying on our balance sheet, we had a look and said, hey, is the right thing to actually improve the strength of our balance sheet and improve our flexibility? So the 2, that binding offer and Volaris are unrelated. We were surprised that Volaris didn't participate in the raise. It seemed somewhat unusual sort of commercial behavior in that they didn't preserve their economic interest in the company. But we do have the raise underwritten. So we are just moving forward and looking at the long-term value for EROAD. With regards to the discount, we looked at where EROAD had been trading prior to the raise. And we wanted to set the price at an attractive level which was going to ensure participation from the maximum number of our existing shareholders. So before the NBIO, the share price was trading around $0.70. And that's where we landed on as a price. It means also that we've got shareholders who do participate or limit any dilution that they faced. We did have a placement as part of that, but we made it a very small part of the offer, so it was just $11.4 million of the $50 million raise. And while that is somewhat dilutive, it does give us the opportunity to bring in some new shareholders, which should strengthen our register and strengthen the quality of the shareholders that we have on board. But definitely, from that point of view to avoid dilution and the best way is to participate in the equity raise. There were a few comments also, I guess, following the ASM, and we did make statements in the ASM that we did have sufficient headroom to deliver our current strategy. And that absolutely was the way that we stood. But we looked going forward. And when we've taken on very large prospects like Sysco, we realize that there's a large upfront cost on delivering. And as those opportunities come along, we want to be able to actually maximize those opportunities. So we decided that if we raised some debt, it would give us some headroom, and it means that going forward, we have some operational flexibility and the flexibility to take on some large enterprise customers should we manage to win those. I just thought it was important to go through a few of those key aspects that people may have questions on. Mark, is anything else you'd like to add before we open the lines for questions?

Thank you, Susan. Worthwhile just noting, in the ASM we were quite clear that we were also, in terms of looking at ways to optimize the capital structure, and we were quite clear about that. It is important that, as you noted, that we did believe we have sufficient headroom. But in terms of review and our capital structure, it's important to have this optionality. We do think it's a prudent time to actually seek to raise capital at this juncture, so it's worthwhile recognizing that. We might just pause there. We'll have Jason provide some questions which will be hopefully coming through from our shareholders right now.

Thank you, everybody. Jason [Audio Gap]

[Audio Gap] our transformation office. Has a lot of [ excellent phase ] in terms of working for technology companies, particularly on the SaaS side, has over 25 years of experience doing so. He's also worked in a number of companies around them going through transformational journeys as well and making sure they're growing, and so having the right sort of cost structure in place, too. So significant experience on that bag and he's based in North America. In terms of our Chief Operating Officer, Aaron Latimer, he's worked for other companies -- a number of companies as well when it comes to consolidating down cost base, that's making sure that the companies can leverage off scale. And so we're really impressed of what he brings to the table. Our new Chief People Officer, Shelley Prentice, she's worked with transportation companies and understands the challenges that they go through and what our customers go through around making sure that they can use and utilize solutions like ours in the business, and at the same time, working the company is going to turn around as well. So that's 3 of the key hires we brought into the business. In terms of further confidence that we have, we've already got some demonstrable proof points for doing so. When we look at the area of turning around the core, that's really based on making sure we responsibly take costs out of the business. As Susan and I mentioned earlier, we've already realized over $10 million in annualized savings during FY '23. And we're on track to remove a further $10 million in annualized savings in FY '24. And even despite that, we are still able to launch new products into the market, and the launch of such new products will help us enable and unlock future growth going forward as well. We're also in the process of building up our enterprise sales team in North America, too, which all off the back of winning an account like Sysco will enable us to target other fleets in those areas as well. So for me, I'd look to those proof points to show that we are not only able to reduce our cost base, but we're also able to also set ourselves up for growth going forward as well. Let's maybe turn to the next question, Jason.

Yes. Next question is, could you please talk to why you felt selling the company at $1.30 per share wasn't acceptable to the Board, but selling 1/3 of the company at $0.70 per share was acceptable? Where does the Board see value?

Thanks, Jason. I think what people need to understand is that in looking at an offer like we had, the nonbinding offer from Volaris, that was made at a point in time where the share price was trading reasonably lowly. I mean it was down in the sort of $0.70. But we're looking at long-term value, and also don't forget that offer was to take over 100% and control of the company. And we do have a lot of shareholders who are very passionate about the company and really do see that long-term and trust in us. So I think there's an issue of time frames there of what's the long-term value of the company, and we do believe that the $1.30 substantially undervalued that. When you say we're selling out of the company at $0.70, what we're really doing is giving everybody an opportunity to give us some more flexibility in our capital structure. And so we're using that to repay debt and allow us some extra headroom as we execute our strategy. So given that we've made it a fully participating offer from all our shareholders, people who wish to invest in the long-term value of EROAD are able to participate in that offer.

I might just add to that, Susan, as well, I mean when we looked at the consideration at the Board in terms of Volaris' offer, it's quite different to look at a capital raise. So the Volaris offer, the Board looked at what is the fundamental value of the company if we deliver on our strategy? I talked earlier around some of the proof points, again, the Board confidence that, that strategy is the right one and they were on track on it, and then look at the fundamental value to shareholders ultimately if we did deliver on that. And that's quite different to the -- what you need to look at when it comes to a capital raise. It is around obviously giving certainty to actually raise the capital and taking account that these are in interest of shareholders, including those that participate and those that don't. So it's important that the two are quite distinguished. As such, capital raises are typically done at discounts lower to where the share price typically trades as well. So it's quite important that we divorce the two, and the one is around fundamental valued long-term execution of strategy and the other one is very much around obtain a certainty as part of the capital raise which is, we believe, is important to help unlock that strategy going forward in the long term.

Thank you, Jason, further questions.

Yes. Given the share price is currently trading around the same price as the placement, is that indicative of investors' faith in the Board?

We would have to let investors make up their own mind about where the share price is currently trading, but we certainly -- from a Board point of view, we believe we've done a reasonable refresh, and we have brought new people on board, and we're having changes at the Board level. And I have huge confidence in my fellow Board directors. Going forward, we've got some extremely good directors: Sara Gifford and Barry Einsig in the United States; Graham Stuart, who's now chairing our FRAC until he steps down from the Board. We brought David Green on board, and Selwyn Pellett, who, of course, was the original founder of Coretex, for his deep knowledge of the business. So we've done quite a Board refresh over the last year or 2, but we do feel very confident that we have the management team that can deliver on the strategy.

And in addition to that, I mean typically during the retail offer period this year through trade around the offer price. So it's not surprising at the moment where the shares are trading. Post the close of that, we expect that the share price would be [ quoted more around the tier ], which is the [ theory the quote ] gets the right price, which we believe is around $1.12. So I think right about now, it's not unusual for the share price to be trading at the point that it's at.

Jason?

Yes. Do you think the offer and its structure was fair and in the best interest of all shareholders?

Absolutely. We looked very hard at how to structure that offer and make sure that we could have -- treat all our shareholders equally and have them all participating in the offer. So as Mark highlighted, the offer is structured around certainty of raising the capital. We don't want to have to go back to a market for more capital at a later date. So that certainty of raising the capital but also treating all shareholders fairly, so absolutely, we believe it was the right structure.

Correct. And we structured it upfront as a -- we announced the offer at a placement and importance around announcement offer was, again, one, it allowed shareholders to participate who, in effect, could not. So they could actually buy it at a reasonable amount. And if they could not participate, we're seeking hopefully to realize value for shareholders at the end of their -- as a book build process. And the build sort of clears it higher than the right price that we're trading at right now. So there was one year that the Board did look at and try to provide benefits to both current shareholders who can participate and those who could not. In terms of placement, there are 2 reasons why we believe the placement was appropriate in this context. One was in order to reduce the capital call that we're obtaining from current shareholders to sort of take some of that pressure off. And the second one was around if people didn't participate, we were able to bring on new investors into the register too, which helps from a couple of perspectives. One is around helping to build liquidity in the share price. Now we know that that's an area they actually hold us up to. And the second was around diversity partnership, which is to make sure that there's a broader register to help support us going forward. Next question, Jason.

In regards to your comment of a quality shareholder, what do you view as a quality shareholder?

Have you touch a bit, Susan? Or would you like me to address that one?

No, you go first, Mark.

Look, I mean from a shareholder point of view, you look to have a diverse shareholder base, and we're lucky enough to have a very diverse base from both a retail and from an institutional perspective. And we're looking for shareholders that have belief in the long-term value of what we can realize for the company. We do have a very clear plan in place that we did launch to the market in March this year. And the management team and the Board certainly believe our ability to do so. So having confidence with our shareholders on delivering on that and shareholders who believe in the long-term value of the company is really important to the Board and to the management team. Anything, Susan, you would like to add to that?

No, I think that's exactly right. And I think -- to be honest, I think quality shareholders actually understand what the company does and really believe in the vision and the value that the company is delivering. So I look at every day as to what our products and services are delivering to our customers. And if you look at our retention rate, which is incredibly high because of the value that we are delivering, I mean it's on everything from health and safety through pre-inspection checks, through electronic logbooks, through monitoring over speeding, harsh braking, all that sort of thing that's going to keep the workforce really safe. And then adding on these days, things around the environment and emissions reporting. And our new emissions tools, being able to understand which vehicles in a fleet to maintain, which to switch to electric vehicles. Had a report on Scope 3 emissions for all our customers, which is going to become a really big thing, and you'll be aware that roads have to be paid for. And so as we decrease the use of fossil fuels in more and more, you're going to have to collect road user charges some way from vehicles. And we are absolutely perfectly positioned and have led the world in electronic collection of road user charges. So if you look at the value that we do create, where I think it's good is for our shareholders to be a pool of people that actually shares that vision and shares that value and wants to support the company in delivering the amazing things that we're actually delivering for our customers for New Zealand, for the U.S., for Australia, everywhere that people are using our products and services.

Next question, did EROAD consider the option of moving from a hardware leasing model to a hardware sales model, given this would reduce capital requirements and reduce the time needed for EROAD to become free cash flow positive?

So from our perspective, we look at all ways that we can bring a product to market and help obviously reduce the cash burn that creates. And obviously, starting the hardware update does reduce the commitment in terms of cash, in terms of the cash burden of the business. A couple of things too we consider as part of it though is, one is from a customer perspective, they very much value the leasing model. And overnight leasing for our customers in New Zealand for a lease, lease their solution from us. And that helps them outline -- and no, we manage their cost of taking EROAD on into the future. So as the markets are very much conditioned to this and they like that model, we also see that growing more and more in North America as well, particularly for enterprise customers. The second area that we had regard to is the fact that when we lease the solution, it enables us over multiple periods to obtain more revenue off the back of it than what we would had we just simply sold the solution to our customer. So from a long-term perspective, it seems more economically sensible as well. But I just wanted -- we have sort of reviewed long and hard to see what's the best approach to take, but we do believe that a leasing model in the long run is better for EROAD.

Next question, what alternatives did EROAD look at to raising equity?

We did look at could we bring on any other strategic partners that could provide capital to us? And as we said at the AGM, those discussions are ongoing. And interestingly enough, they're not actually mutually exclusive. So they're looking at different aspects of the business and how we could partner in those and actually accelerate the progress of EROAD. So they're not mutually exclusive, and we certainly looked at those capital partners. And those discussions are absolutely ongoing. But we still thought that in the short term, it gives ourselves the certainty, the flexibility of strengthening that balance sheet, giving ourselves more headroom by repaying some of that debt going forward and that the capital raise was the right thing at this stage.

Next question, Jason.

Next question, was an attempt made to engage with Volaris regarding getting them closer to the price?

We had conversations prior to the launch, confidential conversations with Volaris to see if they would engage and come on board. As I say, I can't speak for Volaris as to their actions. It did seem interesting to us that they didn't participate, but they haven't given us any reason and we haven't had any communications with them since.

And I think in addition to that, in terms of the $1.30 price that they sort of raised which was borne from the year [indiscernible] the business, Volaris came back and were quite clear that they weren't open to going -- moving away from the price. In their communications to the media, they say that they, outside of advancing due diligence or the like, that they were sticking at the $1.30 price.

Next question. Will the addition of a North American partner result in further share dilution for current shareholders?

Mark, I'll back pass that over to you as you're closer to those actual negotiations.

So in terms of North American partner, probably asked it back in March when we talked about that. We were looking at 3 things in sort of descending order. One was around go-to-market, so helping to unlock further partnerships in that market. The second was around technology partnerships and the last was around any eventual further capital that they may bring on. And so in that regard, we are advancing discussions around certainly those first 2 points. In terms of any additional funding into the business from an equity perspective, obviously, the Board will have regard to what's investors or shareholders in the company at that point in time. At the moment, we're very clear that we've got sufficient capital to go forward in terms of executing on our plan. So we'll be sort of judged and sort of decided back on that point if anyone does come to offer equity as part of it, but we are very much focused on unlocking go-to-market partnerships and technology partnerships in that market, and it's the principal basis of our discussions today.

I think from that -- Mark, as you pointed out, it should be quite clear that we're actually looking for strategic partnerships as opposed to purely equity or capital.

Absolutely correct.

Next question, what is plan would be if this equity raise does not meet your targets?

The equity raise is underwritten. So we have certainty around raising the capital in this. So we do believe that the equity raise will complete satisfactorily. And we have done a lot of modeling as far as capital sufficiency going forward and believe that this is the right amount to be raising. So we have certainty around the raise because it is underwritten -- fully underwritten. And we believe we've done the sufficient modeling to make sure that we've got the headroom that we need and the flexibility to execute on our strategy going forward.

And next question, has EROAD properly estimated the capital required to carry out the 3G replacement program?

So as part of the work we did when it came to capital raise, we did look at the future spend and the future cost and future revenue profile of the business, including the 3G to 4G switch-out. We also did an innovative review of the sufficiency model as well, and we're confident off the back of that we hopefully effected then the cost of switching out 3G to 4G, which will be circa about [ $30 million ] across this year and the next 2 years after that.

And on the capital sufficiency, why was the offer size that $50 million and not a lower number?

I think as I outlined, we did all our modeling and had a look at what was the right level to raise it at. And we wanted obviously to balance participation and success in that raise, but also make sure that we didn't have to come back to the market again. So we determined that $50 million, having done a lot of sensitivity analysis, et cetera, around our go-forward strategy and determined that, that was the right number that we wanted to land on.

Thank you. No further questions.

I'm happy just to give a couple of minutes, it has been fantastic. Thank you, everybody, for joining, and thank you very much for all those questions. We hope that we have answered those satisfactorily. As there to any reason people do have further questions, Mark, I'll let you confirm, but I think it's [email protected] is an e-mail to send in those queries, and the company is very happy to answer any further queries that people may have. But apart from that, thank you very much for joining on the call today. Thank you for your questions, and we welcome your participation in the raise. So thank you very much.

Thank you, everyone.