EROAD Limited (ERD) Earnings Call Transcript & Summary

A very warm welcome to everyone today for EROAD's interim results for the period ending 30 September 2023. I have Margaret Warrington with me today, our CFO, and it's my pleasure to take you through EROAD's interim results. If we turn to our agenda, there's a bit of housekeeping to talk about just at the start. I cannot see you, unfortunately, but you can ask questions of me. There's a chat bubble, I believe, in the top right-hand side of the screen. Please use it to ask questions of Margaret and me during the course of the presentation, and we'll take them at the end. We'll then go through now shortly our results for the half year. So we'll start off the financial and operational results. We'll then move to our results around our strategy and how we're performing against that. And then we'll touch on our guidance and our outlook. So now, for the good news. If you look at our results for the first half of the year, we're incredibly proud of how we performed. It has been underpinned by relentless discipline on solid discipline around grant management and strategic execution. If you look at the top left-hand side of your screen, you'll see that our reported revenue went up by about 13% to $88.9 million. In the center of the screen, you'll see that our normalized EBIT improved from a loss of $3.4 million for the first half of last financial year to a profit of $1.9 million for this financial year. When it comes to free cash flow, we're really proud about how we performed during the course of the last half of the year. In the first half of FY '23, our free cash flow was negative $27.1 million. And for this half year, it's down to only $200,000. In addition to that, our cash burn reduced from $4.1 million per month the first half of last financial year to $900,000 a month for this financial year. We are largely through our cost-out program as well. So as you recall, we've targeted $10 million of annualized cost-out this financial year. And that's on top of the cost-out for last financial year -- $8.5 million through this, and we have targeted next $1.5 million over the next 6 months. First, I want to call out on this slide is our performance in North America. I'm really proud to announce how we passed 100,000 unit connection growth in North America for the first half of the year. It has a massive proof point in terms of EROAD's ability to scale and to provide services to market customers in North America, particularly with some of them are the leading Fortune 500 companies in that market. If you look at our normalized revenue growth, over the course of the last 12 months has increased by about 11.7% of the back of increases -- 13% of the back of a 10% increase in connected units as well as favorable foreign exchange rates. For the half year, we have around almost 16,000 net new connections that we added to the business, over half of which were based in the North American markets. If you look at EROAD and our positive momentum that we are currently building, there are the 4 key factors I'd like to talk to today. Further based on our strong foundation, the first one being the fact that we are in 3 complementary markets. If you look at New Zealand, New Zealand is a strong cash-generating market for our business. We've had to go wide in this market, and we have a leading platform to servicing a range of customers from a range of industries. We focused very much on health and safety and sustainability, and we see future opportunities growing in the future. We do not see this ceiling yet on our ability to grow. When we look at North America, we are investing in our future high-growth market here. North America is 15x larger than the Aussie and New Zealand markets combined. We're focusing on niches in this market. And in this thing today, we are also winning customers there and progressing well. Finally, our Australian business. There are 2 projects that we take into our Australian business. First is we try to capitalize off the back of our Trans-Tasman fleets, though typically, these fleets may have EROAD already in their business and they're attracted to use us in Australia as we refocus on them. Secondly, we'd like to capitalize on our investment in North America and bringing new products and functionality down into the Australian market. And as you'll see today, we've had successes on the back of our refrigeration and our construction products. Another strong foundation that we have is Intelligence empowering sustainability. In the course of the last half of the year, we've been launching new products around sustainability, and we're committed to investing this into the future. We see a real growth for our customers and demand for these solutions, and we look forward to continue to grow in this space. In addition to our strong foundations, we also have a relentless focus on executing on our strategy, and there are 2 key learnings to this: first is about profitable growth at scale. And in this regard, Sysco is a clear proof point of that. By bringing Sysco on, it helps build a scale up in the North American market. It also means we are more agile as we bring them on to target other large enterprise accounts in North America. We've also, during this half year, have been able to win with 8 key enterprise customers or renew them for almost 10,000 connections. And as I talked about before, we are well on the journey towards having our $20 million cost-out on an annualized basis by the end of this financial year. We're also really focused on being free cash flow positive. And I'd like to confirm today that we believe that we'll be consistently free cash flow positive by the latter part of calendar year 2024. This has driven off the back of new customer wins, inflation indexation and really strong cost control. With not for our 4G upgrade program, EROAD would be free cash flow positive right here today. If we turn to our operational overview, EROAD is very much focused, as I talk about, on sustainable, profitable growth. And to this end, in the course of half year, we did increase our pricing in the New Zealand market and also in Australia for a vast majority of our customers by around 6%. In North America, we uplifted our pricing by around 3%. And it was also looking at the value of our product and the strength that our customers get out of that believes we justify those price increases. Also during the course of this half year, we had a capital raise. And in addition to that, we renegotiated and extended our banking facility. That gives our customers and also our shareholders' certainty. One, around the liquidity, we have close to $60 million that we can use to fund additional growth, particularly in North America; and two, we have certainty that we can reach our free cash flow positive stage without having to raise further capital from the market. We are winning, retaining and expanding with our enterprise customers. We stand by this objective, and we believe we're delivering on this. For example, during the course of the half year, we won programmed sort of a labor hire company in Australia for around 3,000 connections on a 5-year contract. In addition to that, we renewed our contract with NZ Bus owner Kinetics for the 1,950 connections already had. We've also grew by additional 1,000 connections. And equally, we renewed our contract with Boral, the largest construction manufacturer in Australia. On the back of that, we've added 1,300 units on top of the 1,900 units we already have with them. Enterprise customers represent real value to EROAD, and it happens in 4 ways: first, when we win an enterprise customer, it impedes the interest of other competitors to the customer in the market as they can see that EROAD can provide a strong solution to their competitor, and it begets conversation around opportunities to grow. Secondly, we do renew our enterprise customers more so than our other customer base. And that's at the back of our strong product offering that we provide them. As we renew, we typically increase the profitability over the long term. Three, when we do renew our customers, we typically upgrade into new services and solutions and look to achieve a price uplift off the back of that. And finally, enterprise customers grow. Large companies and they typically acquire others, while they increased the number of assets in their fleet, and we typically grow quite significantly off the back of that growth as well. Now in terms of report card, this is one I'm particularly happy to talk to you about. As you may recall, in March of this year, with our results -- with our Investor Day, we did set out our reporting card around the key metrics that you need to hold us accountable to. And there are 2 key metrics here I'd like to talk about: first is our annualized monthly maturity revenue. It has grown over the course of last 6 months by around 10% to $169 million and just shy of the 11% to 13% growth we have targeted for this metric by FY '26. In addition to that, as you can see, we're incredibly focused on our free cash flow margin. And since months ago, that was negative 18%. It is now currently neutral. Now we are still going through our 4G upgrade program in New Zealand, which will remain there will be further estimate into inventory over the course of this half year, so it will not be free cash flow neutral for this financial year. However, I can confirm that at this point next year, we will be free cash flow positive on a consistent basis. Over the next 3 slides, I'll talk about our performances in each of our regions, starting with New Zealand. Typically, we grow each year in New Zealand by between 9,000 and 10,000 connections, and we're bang on target for this half year at over 5,000 connections. Our asset retention rate is slightly lower than we've seen prior, and it's driven off the back of the 4G upgrade program that we're currently going through. As we switch out these units, some of our customers are testing other products out in the market. However, I'd like to say we are significantly renewing a vast majority of our customers in that space. Those who typically churn are looking for a lower-priced product and more functionality than what EROAD offers in this market. And finally, we grew our EBITDA by almost 15% by $28 million in this market for the year. If we look at North America, in this market, we've grown our net new units by about 8,000 during the first half of the year, and our gross units increased by around 13,000. Now a large amount of that was driven off the Sysco win that we had and the rollout that we're having with them right now. In addition to those initial units that we contracted Sysco for, we've also supplied them with additional 1,400 units which aren't necessarily counter in these numbers as they continue to grow and seek further solutions from us. If you look at our asset retention rate, that's hovering around consistently at just around the 94% mark and where we are churning that's typically in the small to medium business customer base. These customers are more price sensitive and looking for more based offerings to the type of solution that EROAD offers in this market. And in the half year, we grew our EBITDA by about 25% to $16 million. Moving to Australia. There's been a record organic growth year for our Australian market with growth of over 2,000 connections in this market. And as I touched on before, that's on the back of the 2 key strategies we run in North America: one is targeting Trans-Tasman fleets and the wins we have there. Another is sort of targeting construction and refrigeration customers using our technology that we bring down in the North American market. We have renewed confidence around our success in Australia, and we look forward to be able to capitalize on further enterprise wins going forward. We also have an intently high asset retention rate of over 90% in this market. I might now pass to Margaret to talk a bit about the financials.

Thanks, Mark. All of our half year results are tracking in line with the full year guidance we provided earlier this year. As you can see from the first 2 graphs, good revenue growth, combined with tight control of our operating costs has delivered an improved EBIT position. Our normalized EBIT is $1.9 million profit for the 6 months, up from a loss in the same period of $3.4 million last year. We expect this to continue, and we are confident we'll achieve our target guidance range of $0 to $5 million. We've already implemented work programs that will realize $8.5 million Mark referenced earlier, and we're confident that we'll deliver the remaining $1.5 million of our $10 million savings target this year. That's in addition to the $10 million cost-out we took in the last full year. As part of our cost review, we've been focused on obtaining efficiencies in our operational costs. You can see we're achieving that goal across 2 main categories: cost to acquire and cost to support our customers. Cost to acquire per unit, which is shown in the center graph, demonstrates the impact of the lag between incurring costs and revenue being realized. This is particularly evident for our enterprise customers. Cost to acquire for these customers are significantly higher, particularly where there are integrations required, and so we experienced a lead with the cost upfront and a lag as the matching revenue occurs once the units start to roll out. Cost to support in our more mature ANZ market has reduced. While in North America we're investing in our teams to support customers such as Sysco and other customer growth in the developing regions. This slide demonstrates that we are holding our costs flat while we're continuing to grow. On operating costs, it's almost all areas that have reduced as a percentage of revenue when comparing to the same time last year. That's demonstrated with the graph on the left. The graph on the right shows how operating costs have reduced $1.3 million when compared to the same prior period. This reflects the benefit of the cost-out program, which has enabled us to fund inflationary pressure as well as support our growth and the 4G upgrade program. But the largest change in our cost of sales which has grown $1.6 million. This aligns to the increase in our unit base. As revenue grows, cost of sales moves with it. Our guidance for R&D in the current financial year was approximately $30 million or about 16% to 17% of our revenue, our full year revenue. As you can see, we're right on track. Our current spend is $14.7 million, and that equates to 17% of our revenue for the half year. This graph shows R&D growing through FY '22 and peaking into FY '23. That reflects the period EROAD invested in integration following the merger of Coretex. A combination of the cost-out program, completion of the integration and a focus on return on investment sees our overall R&D which has been reduced along with a reduction in the proportion that is capitalized. Mark used the word relentlessly a couple of times, hence upfront I'm about to use it again, we have been relentlessly focused on cash for the last 18 months, and that's not just Mark and I, that's everybody at EROAD. That's seen our free cash flow improved by more than $30 million during that time frame from negative $30.5 million to negative $200,000. Compared to the same time last year, cash flows from operations have more than doubled from $8.3 million to $20.7 million. Our average monthly cash burn continues to reduce. At the AGM, we noted the average monthly cash burn was $1 million per month for Q1. This has further reduced during Q2 and reduces the average for the half year to $900,000 per month in spite of increasing interest costs. Importantly, based on our forecast and assumptions, as Mark mentioned, we expect to be free cash flow positive about this time next year. As noted on the slide, EROAD would be free cash flow positive today but for the 4G hardware upgrade program across ANZ, which requires us to replace more than 80,000 units. That program has been from the previous inventory build we've talked about. Having exhausted most of that stock, we will see a larger cash investment and inventory required to support this accelerated program over the second half of this year. In October, we completed our capital raise and secured a new 3-year $80 million bank facility. These 2 initiatives have ensured we have a strong balance sheet, which in turn has safeguarded our strategic execution and has provided confidence and certainty in our road map. It has achieved 3 key things. We delivered our position as amortization will limit -- will reduce the limit of the loan to $60 million at the end of the 3-year term. We've safeguarded our debt position by adding another lender, additional duration and greater flexibility with headrooms for covenants and deliver the liquidity we need to grow under the right structure without the need for further capital in an ever tightening credit market. With the shutdown of the 3G network in ANZ, EROAD has embarked on a hardware swap-out program to upgrade the hardware our customers use. In many instances, as Mark mentioned earlier, this enables us to re-sign our customers for additional contract terms and secure future contracted income. The program and termly labeled Sunrise is progressing well into plan with almost half of our 3G units upgraded already. We are confident in our ability to meet the project time lines. And one of the reasons for that is the pipeline we have. It consists of a further 20% that represent units that are either with customers or installers awaiting installation or in negotiation with customers regarding timing of their units. As we've noted previously, the majority of our hardware is 2G compatible. And in New Zealand, it will continue to work and fall back to the 2G network once the 3G network has switched off by One NZ in August next year. Our plan in New Zealand sees us upgrade the majority of our devices by the 3G sunset date and well before the sunset of 2G. In Australia, 3G shuts off in June next year, but we are confident in our plans to transition all customers before this time. Since -- the expected investment remains within the levels we have previously signaled, although we are expecting to be at the bottom end of the range for the current financial year and the top end of the range for next financial year. We are seeing impact of the weaker exchange rate with the U.S. dollar. With that, I'll hand back to Mark to talk about our strategy.

Thanks, Margaret. So if we look at our strategy, this half year has all been about delivery. But in addition to the cost-out program that we have had, we've also been focusing on innovation and building scale. On the innovation side, we have released new products into the market. The first being a refrigerated trailer tracking product, CoreHub Xtreme, which we now brought into the Australian market, and we're able to be successful for Woolworths off the back of that product launch. We've also launched a decarbonization tool, which I'll get into a bit more detail very shortly. We've also this half year been focused on building scale, particularly in our North American market, so we had a strong foundation for growth going forward. We've been building up our enterprise sales team and recruiting some incredibly experienced people from who work for competitors and other telematic companies out there to help join our team to sort of help us in our growth. And that includes building our pipeline and helping to convert the pipeline that we have currently before us. If we choose sustainability, quarter purpose is using intelligence to enable sustainability. And we see a number of customer pressures in this area. We know that in terms of total carbon emissions in New Zealand, 17% of it comes from the transportation sector. And in Australia, 19% of all carbon emissions come from transportation. It's absolutely critical that our customers get insight and guided to help manage average their carbon emissions, and we're incredibly focused on helping them do so. That's all the way from helping them understand their fuel usage and idly, all the way through to helping to obtain assurance and managing food to make sure it doesn't go off and keep that sustainable as part of their operations. I'm really proud to say that we launched over this half year 2 sustainability products: the first relates to our decarbonization tool in New Zealand. There's at the back of our partnership we had with the Energy Efficiency & Conservation Authority, and there are 2 aspects of that product. First, there is a fleet emission report that's available to all heavy vehicles in New Zealand, even if not our customers. What it enables them to see is what is their current carbon emission profile and get a better understanding around that. We've also launched a sustainability module where it allows our customers who currently use our product get an insight around their carbon emissions and how they can transition internal combustion of the engine vehicles into electric vehicles. In addition to that product, we've also been focusing on giving greater guidance to our customers around State of Charge. And in both in New Zealand and North America, we released solutions to enable our customers to understand the current State of Charge for electric vehicles to help manage [indiscernible] and obtain the right vehicle for the routes they are using. As you may recall in March of this year at our Investor Day, we've talked about our strategic search -- sorry, for a strategic partner in North America. And there are 3 key aspects to that search: we're looking for customers and suppliers that could help us with go-to-market channels, technology partnerships and also providing possible capital. But we're incredibly focused here on only those areas that we have a competitive advantage in. And that's the large enterprise customers, cold chain and in construction. I'm really delighted that we've recently announced a couple of key collaborations with both Microsoft and Thermo King, which I'll get into now. If you look at this Microsoft collaboration, this is working with Microsoft to enable the use of generative AI to assist development of our CoreTemp product. Our CoreTemp product is a leading solution in the U.S. market that has predictive analytics. It understands the stated temperature of goods being carried in refrigerated trailers and constantly monitors it to abide any alert as the temperature goes out of range. Our customers love it, but we want to focus more on it and grow it in North America. Working with Microsoft will help enable us to accelerate product development and broaden our reach into the U.S. market, and it's particularly important given that there are over 400,000 refrigerated trailers in North America. And this is just the start of other generative AI programs that we're doing with Microsoft. That pipeline of new-generation AI products will not just benefit the U.S. market, but also be bringing it into Australia and also New Zealand. Today, we've also announced our partnership with Thermo King. Thermo King is one of the world's largest suppliers of cooling solutions. And our partnership enables us to get to pull data directly from their vehicles without the need for EROAD install our hardware in it. This creates less friction and lower cost in terms of us being able to obtain existed data and visualize on that platform and again, will help us grow in this vertical of transportation fleets in North America. Now if I look at each of the 3 business units that we have in the market, it's worthwhile going through them in a bit more detail. We have a clear growth plan in all 3 of our markets, and they all do have synergistic benefits to each other as well. However, each of them are in different phases of the current business cycle. If we look at Australia, we're focused here on our shared cost base from New Zealand and our ability to capitalize on the investment we have in products in North America in both cold chain and also in construction. As we can see, we are converting on enterprise opportunities there, and we expect to continue to grow there into the future. In New Zealand, we've had to go live. We're the leading platform for logistics, supply chain, health and safety, sustainability and compliance or transport fleets in the New Zealand market. We are truly a platform company that has strong economies of scale. Our customers benefit of the use of being on a platform which enables them to share data with their contractors and their suppliers and other third parties to get the benefit more from EROAD. We have strong growth forecast for Australian and New Zealand markets, but ultimately, they do hedge ceilings, although there's a long way to go before we cap out our market growth in both of those markets. In North America, we're focused on our future high-growth engine. And as I mentioned before, the North American market is 15x greater than Australian and New Zealand markets combined. Our approach here has to be going deep into verticals of large enterprise customers, refrigeration and cold chain where we have a differentiated offering and competitive advantage. Our current focus is on build and scale, and we have now crossed 100,000 unit connection in that market, which represents more than 4% of our business. Working with these large North American customers means that we're at the cutting edge of technology when it comes to telematics and compliance globally. And that means that our road map is future-proofed as we invest in new development, which our customers would know their want, both in the U.S. and also in New Zealand and Australia. We generally believe that the North American expansion is pivotal for us to achieve long-term enduring value for our shareholders.

With the information provided here, our intention is to provide a more granular view of where we spend our R&D and what we spend it on? The current mix of R&D is designed to support our current customers, target new customers, respond to regulatory changes and address market needs. Whilst this slide represents what we're currently doing, it does shift around over different period over different time frames depending on those needs. Driven by an allocation that primarily reflects the main market that we're building for. The geographical mix currently is 41% for New Zealand, 6% for Australia and 53% for North America. Given North America is our growth market, we have a significant R&D investment in that area, particularly focused to enterprise customers. We will look to leverage products. The benefit of our model is that not only once we build it for 1 market, but we can offer and leverage there and bring it back into one of the other markets as opportunities arise or both of the other markets. Our R&D investment is not only about new customers, but it's also about retention and growth within our current customer base, and that can happen through expansion, through penetration or through adoption of new products. Historically, approximately 50% to 70% of our net new growth has come from existing customers. This means it's important we continue to invest in maintaining our current platforms and addressing those customers' needs. There's a lot of detail on this slide, but it also answers lots of various questions that Mark and I have been asked in our time in these roles. When looking at individual markets, it's worth noting the CAGR rates are post merger. So that's already factored in the acquired unit base. Whilst the Australian CAGR is the highest, it's off a much smaller base and is not really reproducible at scale. The key point is one Mark made earlier. The addressable market opportunity in North America is 15x larger than our other 2 markets combined.

Let's pause in here, just a reminder, you can ask questions of Margaret and me for this presentation. So please go to the chat bubble. I think that's on the top right-hand side of your screen. Be free to ask them and we'll address them very shortly. So now we turn to our guidance and outlook. We remain on track to deliver sustainable and profitable growth. Our strong results in this half year mean we can reconfirm the guidance that we gave to market at the beginning of our financial year. We still believe we'll have revenue growth up between the 6% and 9% by the end of the financial year. Our cost-out program to remove $10 million in annualized costs, we have strong confidence we'll deliver on that before the end of the year. We're also targeting on our EBIT to between $0 and $5 million once we normalize it for the 4G sunset program. Also like to reconfirm our free cash flow guidance. We do believe we'll be neutral to FY '25 and positive in FY '26. And as we discussed today, we believe that by the latter half of the next year's calendar year in 2024 will be consistently free cash flow positive. If you look at our outlook, in each of the markets, we have positive opportunities developing. First, in New Zealand, we see continued consistent growth in the New Zealand market. And also with the new government coming into parliament now, we do believe there's going to be new opportunities around EROAD, particularly for light vehicles. We look forward to working on those opportunities with the government. When it comes to Australia, we'll build a momentum gain to that market off the back of our enterprise customers. We will continue to launch new products to help target both the current ones and grow off the back of them. In North America, we are focused to grow off the back of our current customers in the market. And as we build our new enterprise and sales marketing team, we'll continue to start focusing on more new customers in the market going forward. I do have a note that when do target EROAD customers, it can be lumpy at times. And what EROAD is committed to is making sure that we can continue to grow on a consistent basis across all our markets, and we're seeing strong momentum building in each of these. So to conclude, as you can see, we are relentlessly focused on delivering and on the metrics that we've set for ourselves, but we believe that the results will eventually be realized for the market when it comes to our share price. So just pausing there, I will now turn to questions. I believe, Jason, people have been submitting questions, and I'd be grateful you could read it out for us.

Thanks, Mark. The first question is you're targeting free cash flow breakeven in fiscal year FY '25, during which time, you'll be bearing $8 million to $10 million of hardware replacement cost. Can I assume that I would be correct to -- would I be correct to assume that you would be $8 million to $10 million free cash flow positive in that year, excluding the hardware replacement cost?

Well, I'll just jump in there. The $8 million to $10 million reflects both program cost and hardware costs. So just to be clear on that. So some of it's around internal resources where needed to hire our support that program along with the installation costs and other costs alongside it. Broadly, I would say, fair assumption, possibly slightly lower than the total.

The second question is, EROAD is targeting a 9% plus free cash flow margin in FY '26, is this after bearing the $5 million to $7 million of hardware replacement costs? Would potentially be underlying free cash flow margin be even higher?

Yes. So our forecasting in corporate is everything we've indicated here and our target to sit off the back of that. So yes, that's included.

On the price uplift in -- on Slide 11 through 13, there was a 6% price uplift in July 2023. Is that a clean 6% across the board for all ANZ units? And as a follow-up, was there any pushback or churn from customers in relation to that uplift?

No. The uplift is applied to the units and customers that we were able to. We do have some customers that are on master services agreements, and we weren't able to adjust those. But the rest of the population it was applied to. Was there any pushback? Generally, our customers understood and the inflationary times and the fact we hadn't got out prices previously. They got it. They understood why we were doing it. We had, I think, a couple come back to us and challenge it. And as a general principle, most of it went through.

We have also focused going forward that we will be continuing to look at our pricing uplift for inflation as and when it's appropriate as well under our contracts.

A follow-up question on the segmented customer model. Has it worked as expected? Were there any issue encounters? And are there any cost savings worth noting?

So as a part of our turnaround the core, we're looking at how we segment our customer base. And when you look at it, our bottom 7,600 customers in terms of size, we in around 13% of our revenue. So what we're doing there is we're launching what we call our self-service portal that helps enable them to be able to look at the units, raise questions, get their bills and so forth. It's in an early adoption phase right now, but we you see that will continue to sort of apply going forward. Customers are relatively used to use the self-service portals as credit intuitive and helps to get the information they need quickly as well as around training. This is really important for those customers, and we don't anticipate any issues of that back. But also focusing on the top end of our customers. So roughly our top 20 customers contribute about 26% of our revenue. So obviously, we work very closely with them to make sure they provide them the support that they need and continue to grow off the back of it. In terms of reducing cost at this stage, we haven't realized a full amount of cost savings from there, but what it does mean is we're not growing a cost profile as we continue to grow as a company.

A question on the guidance. Your full year guidance implies that revenue growth in the second half of the year will be flat versus the first half. Given contract wins and price rises in both regions, how do you explained that is at a level of conservatism? Or is there something in the revenue projections that we should be aware of?

Look, our guidance remains $175 million to the $180 million. We -- you have a mix that happens within your revenue as we -- as you go through the course of the year, things such as one-off fees for professional services, we've got contracts with customers where revenue can grow. We've got other -- there's a variety of things that go into that mix. Clearly, we're going to be targeting to do as well as we can, but the guidance remains at the $175 million to $180 million.

On the Microsoft collaboration, is there a cost to the Microsoft Open AI platform? And what will be the cost to the business if there is one?

So we work very closely with Microsoft. And as part of that, we can access next-generation generative-AI technology under our current licensing suite that we have with them. So we don't anticipate increased costs with Microsoft. What the great thing we're doing with them is that helping to provide resources and expertise into our business that we can build these applications really quickly. So all within our current relationship with Microsoft, it's not costing us additional money to help enable that collaboration.

And on the partnership with [indiscernible], could you provide some more detail on what that entails? Is that -- is that just -- is that an integration of hardware platforms? Or is it being actively promoted with new customers? And are there other producers providing integrations with their product finally is there? How should we think of the materiality of this?

So I'll try to work my way through each 3 of those points. And Jason, you might have to remind me if I missed one. So in relation to the first one, the way the integration works is we can pull data directly from their hardware that's already in the vehicle. That means we don't have to put our own hardware in there. And it just means we can use APIs and their technology suite to then virtualize that data onto our platforms. So it does really reduce that friction in cost of putting hardware into the vehicle. In terms of other integrations, is the question, Jason, around in the cold chain area or just generally so -- I wasn't quite certain.

And the question is whether or not other suppliers integrate with their product with the [indiscernible] product as well.

Not that we're aware. We see as one of the leading solutions here, and we're not aware of any other solutions that integrated in with them. We've actually had a very long-standing relationship with Thermo King, and they are very supportive of us. So as part of it is not just having this API integration, we're going to work together to help target customers and potential customers going forward to grow off the back of that. As I mentioned before, there's over 400,000 refrigerated trailers in North America, and we currently as a business have around 35,000 of them. We know there's more room to grow. And a lot of those traders don't even have a solution in them. So this helps us actually create new parts of the market that we went over target before. So we're really excited by this partnership, and we do believe it will help us grow into the future in North America.

On the seasonality of revenue with relation to the Coretex product, what would be the typical expectation of the second half seasonality in certain vehicles that have lower utilizations in that part of the year?

Look, I think we haven't seen any material movement in our own numbers around seasonality. What you'll find is different customers have different seasonality profiles. So while you see a point in time when we talk about fleet resizes as we come out in September and March, it isn't a material shift around to move our numbers in any sort of material significant way.

There's 2 questions here about the CoreTemp product. The first one is how many CoreTemp customers do you currently have?

Yes. And what's the second one? Or do you want to answer that one first?

Yes. The second one is that regarding the CoreTemp, the refi trailers are expected to have a lower ARPU. What can you say about the CoreTemp ARPU? And the question is asking how much we're charging for the CoreTemp product per month?

So in relation to the first question, we have a handful of customers in North America that currently use CoreTemp. It is a solution that we want to keep pushing into North American market, but it is very much in its early days. There's only really a handful who currently use it. And in terms of the second question, sorry, Jason, just ask it again. What was the second question?

The second question is how much we're charging -- how much is the ARPU on the CoreTemp product?

Sure. So obviously, it's a very new product. So we don't talk typically around the pricing. We sort of work with our customers in that lens. What I can say is to be refrigerated trailers generally have a lower ARPU versus in-cab. What this enables us to do is obtain further margin into the solution so we can grow off the back of it. So it helps us bring that margin back to a greater level than we would have in just basic trailers as well. So it's still relatively early days as we look at pricing, but so far, it has helped us build our margin in those markets.

On the 4G hardware upgrade, the hardware program costs that we've outlined, is that related to the transfer of 100% of your customers? Would that be your expectation? And or what percentage of your customers do you expect to be retained and transferred to the new 4G products?

So in terms of -- obviously, we're targeting all of our customers to try to bring them over on to 4G technology. As you see though, there's been a bit of an uplift in terms of churn. We anticipate the churn might increase dramatically so off the back of it. We are making sure we can minimize that as much as possible. So we still believe in the 90s that we'll keep our customer asset retention rate in that market.

Yes, I'd just say that we've long from the North American rollout. So I don't think we've done this before, and we saw -- and it was across a customer base that tends to tune anyway. So we've listened and learned and we're applying them back into ANZ to retain as many customers as we can to Mark's point, we're targeting 100%.

On the same topic, if the 2G network switches off in '25 -- '26, would there be any customers who remained on that network? And what would that imply for any expenditures for EROAD to retain those customers?

So we have a really clear plan around switching customers out, which were managed across a bunch of customers in different segments. We're incredibly confident that we can roll out the 4G upgrade program across all of our customer base well before the December '25 switch off. So we have confidence there shouldn't be any customers along there. Based on experience, as Margaret mentioned before, sometimes customers can be a bit slow in change on the hardware, but we are making every available opportunity to help them switch it out, including the way we build our hardware, the way we provision our software to help them manage it themselves as well to make it incredibly frictionless process for them.

And this question is on Australia. The question wants to understand what is driving the uptake there? And what is our expectation for connections by the end of the year?

So in terms of what's driving uptake, as I talked about before, there are 2 aspects: one is those Trans-Tasman fleets. Typically, health and safety is a really important consideration for them. They know we're really good at managing health and safety in fleets. And so that end, we set as a key driver, and that was one of the reasons that we won programs. The other key drivers is around renewing our current customers with our new technology. So Boral renewed on our CoreHub product in our construction vertical and Woolworths in our refrigeration products, the CoreHub Xtreme. As we mentioned in our results for Australia, is around another 4,000 connections to roll out, at least in relation to both programmed and also a Woolworths over the course of the year, which will mean to be about a 28% growth in Australia for the year. So we're obviously trying to get those units out as quickly as possible, and we look forward to off the back of that, providing new opportunities to target as well.

And a follow-up to that on the New Zealand market. What do we expect the growth to be in the future? And is that expected to slow at any point?

So for New Zealand consistently would grow between 9,000 and 10,000 connections and a bit of context is quite useful here. What we find as a company, given we help solve complex transportation problems for our customers, we see each wave of regulation creates a new market opportunity for us. Traditionally, it was around compliance and Road User Charges. In 2015, health and safety came to the fold we won some really large fleets such as Downer, Fulton Hogan and some corporate fleets off the back of that who wanted to monitor the safety of their drivers because driving to the most dangerous part of workplace activity. Sustainability has now come to the fore. And what we're seeing is we've got a lot of customers coming to us now looking for sustainability solutions, which means 2 things for us: one, it creates new targets to the market we can go after. And second it means we can sell additional functionality to customers to increase our revenue there. The national government has announced they're looking at light vehicle RUC and the user EVs. Clearly, EROAD has the expertise there to look at that and see how we can focus and grow off the back of it as well. So we're really confident of the growth profile there. There's over 600,000 light commercial vehicles in New Zealand market. And currently, we've got around 40,000 to 50,000 of them. So we look forward to continue to grow off the back of that.

And the final question, the New Zealand government that has just been elected is looking to charge Road User Charges for electronic vehicles as well often is considering congestion charging. Have you had any discussions about how EROAD could assist in those areas?

So obviously, the government very recently came into effect is from Monday. So no, we haven't spoken to the government during yet. We have in the past worked with the NZTA, which is Waka Kotahi, the government agency around roading to look at how EROAD technology can help both light commercial vehicles as well as support congestion charging. I believe Auckland Transport's emission model was not to use our sort of technology but rather to use license plate camera recognition. But when it comes to the EVs and charging -- Road User Charges in there, we're absolutely positioned well to capitalize off the back of it. And it will be a clear focus of EROAD in the forthcoming months around how we can help support the government and customers with technology in that area. Any further questions, Jason, that have raised?

That's the queue. Thank you.

Thank you. Look, I just want to thank everyone for joining us today. As you can see, we have a very clear plan that leadership is absolutely laser focus on delivering on it, and we deliver on the metrics that we said we've would. So thank you for supporting EROAD, and we look forward to following up with some conversations with you all very shortly. Thank you.

Thanks, everyone.