Trade Window Holdings Limited (TWL) Earnings Call Transcript & Summary

[Audio Gap] March key performance indicators up on the screen, but post the quarterly update. Today, we have Andrew Balgarnie, the company's Chief Strategy Officer, on the line. We do have the ability to take questions that have already been submitted or can be submitted through the Q&A panel that you'll see on your screen through the chat. But with that, Andrew, I'd like to hand it over to you to go through the presentation. Thanks.

Great. Thanks, Simon. Hello, everyone. Thanks for joining us today. As Simon mentioned, Andrew Balgarnie, Chief Strategy Officer at Trade Window. The full context for today's results is set out in the written investor update that was published earlier today, and I'll be walking through the key metrics on the dashboard displayed on the screen. Before we get into the numbers, a couple of housekeeping points. This webinar is being hosted on our new Investor Hub, which is Trade Window's dedicated platform for shareholder communications. You'll find today's investor update and all of our NZX and ASX announcements in one place. You can also submit questions through the Q&A function at any time, and I'll be working through those questions at the end. If I can't answer the questions during the webinar, we will provide a written response on the Investor Hub. Today, I'll be walking through the quarter 4 FY '26 results, and we'll cover revenue, ARR, customer metrics, gross margin, our Australian performance and then Freight AI. It'll take around 15 minutes, and I'll aim to leave plenty of time at the end for questions. So let's get into it. Starting with the headline numbers. The dashboard shows the key metrics for the full year ended 31 March 2026. Please note all metrics presented are unaudited at this stage. Trading revenue came at $9.6 million, up 20% on FY '25. That's within our revised guidance range. And we maintain an unbroken run of year-on-year revenue growth since we listed on the NZX in November 2021. The number I want to draw your attention to first is annual recurring revenue. We ended the year at $10.1 million in ARR, up 17% on FY '25 and crossing the $10 million threshold for the first time. ARR is the metric we track most closely because it reflects the predictability and durability of our revenue base. So reaching this milestone is significant. Customer count came in at 547, down 7 on FY '25. I'll address that directly because I know it draws attention. This isn't customer attrition in the traditional sense. It's a deliberate outcome of our transition to new pricing plans where we've rationalized a small number of lower-value legacy accounts. The underlying retention rate actually improved. It was up 2 percentage points to 89%, which tells you the core customer base is holding and it's growing. On gross margin, Q4 came in at 63%, which was up 3 percentage points on Q3. I'll cover the gross margin story shortly in more detail. But the short version is that we're in the final stages of migrating our on-premise Trade Window Freight customers to our cloud-hosted solution, and that transition is compressing our margin temporarily. We expect gross margins to further improve as we scale up revenues. Moving on to ARPC, which is average revenue per customer. This is where I think the FY '26 story becomes particularly compelling. Shipper ARPC for the year was $30,352 on an annualized basis, up 22% on FY '25. To put that in context, only 2% of that uplift came from price increases. The remaining 20 percentage points of growth reflect customers using our solutions more. So that's higher transaction volumes, broader product adoption and a deliberate shift in our sales focus towards larger shippers who tend to be heavy users of our solutions. What this tells us is that revenue growth is organic and usage driven, and that it's more durable and compounding dynamic than price-led growth. That's the kind of ARPC trajectory we want to see sustained into the next financial year. On net customer numbers in the Shipper segment, we haven't grown the headcount significantly, but we've grown the value of the base materially. That's the model working as intended. The freight forwarder ARPC has also moved strongly at $13,904 on an annualized basis, up 27% on FY '25. The drivers here are a little different from shippers. We've been actively recontracting existing freight forwarder customers onto our refreshed pricing plans, which incorporate cloud hosting and reflect the full value of the platform. Some churn has occurred as a byproduct of that recontracting activity, and the current economic environment hasn't helped with retention at the margins. But the customers who have recontracted are generating meaningfully revenue than before. New freight forwarder customers are also being onboarded at the new pricing structure, so the base is progressively shifting to a higher value profile. The 27% ARPC growth in this segment is the clearest evidence that the recontracting strategy is working. The broader point across both segments is that ARPC growth is a key value driver right now. We're not chasing customer numbers for its own sake. We're focused on the quality and revenue intensity of the customer base. And these are -- both of these metrics validate that approach. On gross margin, the full year figure of 60% is down 1 percentage point on FY '25. And I want to give you a proper context for that. Our cost structure in the current period reflects the tail end of a multi-month migration, moving our on-premise Trade Window freight customers to our cloud-hosted solution. During that migration, we're carrying both legacy infrastructure costs and the new cloud hosting costs simultaneously, and that creates a temporary drag on margin. The Q4 figure of 63%, up 3 percentage points on Q3 is an early signal that this dynamic is resolving. As the migration completes, the legacy cost base falls away and the margin recovers. We expect gross margin to recover and trend higher in FY '27 as the migration completes and the revenue continues to grow over the fixed cost base. This isn't a structural margin issue. It's a transitional one, and the Q4 number shows that we're on the right track. On the customer numbers and the geographical mix, total customer numbers came in at 547, which was down 7 on FY '25. As I noted earlier, this reflects the rationalization of lower-value legacy accounts through the pricing transition. Customer retention of 89%, up 2 percentage points, confirms the underlying base is stable and that the accounts we are retaining are more valuable than those we've rationalized. The geographic story is important. Our revenue from Australia came in at $4.1 million for the year, up 34% on FY '25 and now representing 43% of total group revenue. That's a significant shift. Australia is the largest near-term opportunity in our addressable market, and FY '26 demonstrates that we can grow there. The freight platform has been the primary driver of that growth. On the pay-as-you-go segment, covering Origin and SpeEDI, revenue growth was driven primarily by Origin in Australia. This is a lighter touch transactional revenue stream and the Australian growth there reinforces the broader market opportunity. Entering FY '27, continuing Australian growth is our top commercial priority. The FY '26 result gives us a solid foundation to build from. On to Freight AI, development is progressing to plan. And from this update, we've changed how we report on it. We've moved away from a percentage of expenses attributable to R&D, which was a relative measure, to an absolute capitalized R&D figure. We think this gives investors better visibility into the actual capital being deployed into this program. Capitalized R&D expenditure for Freight AI reached $661,000 as at the 31st of March 2026, which was up 47% on Q3. It's a meaningful acceleration in investment, and it reflects the program entering into a more intensive development phase. The design principle behind Freight AI is important to understand. We're not building AI as a stand-alone feature or bolt-on. We're embedding AI directly into trade workflows, which include document ingestion, job creation, customs preparation, exception handling. So the automation is native to how customers work. It's not something that they actively need to invoke. Commercially, this has 3 outcomes we're focused on. First, higher transaction volumes per customer without a proportional increase in their cost or effort. Second, it opens a pathway to usage-based or transactional-based pricing, which allows us to monetize the platform activity rather than just system access. Third, deeper workflow automation increases switching costs. The more integrated Freight AI becomes in a customer's operation, the harder the platform is to replace. The initial rollout of Freight AI is targeted for September 2027, and we will provide updates on milestones as the development progresses. To summarize, FY '26 saw Trade Window cross the $10 million ARR threshold for the first time, deliver a 20% uplift in trading revenue and sustained strong ARPC growth across both customer segments, driven primarily by usage. Australia now accounts for 43% of group revenue, but from a lower base, and Freight AI -- the Freight AI investment is accelerating. The gross margin movement is transitional and showing early signs of recovery, and the fundamentals of the business are moving in the right direction. Our annual results presentation and FY '27 guidance will be delivered on the 30th of May. We will cover audited financials, our balance sheet position and a more detailed view of our FY '27 priorities at that point. For those of you who want to stay close to the business, between now and then, the Investor Hub is the best place to do that. We'll be adding content regularly, and you can submit questions directly through the platform at any time. Thank you for joining us today. And now, let's open it up for questions.

Great. Thanks, Andrew. Just a few questions that have been submitted previously. The first one, when are you likely to be paying dividends?

Yes. So Trade Window is currently focused on growth. Our dividend policy is not to pay dividends. So the first milestone for us is taking the business through to EBITDA profitability, which we're aiming for in this financial year. So by 31 March 2027, we would like the business to be at EBITDA breakeven, but we will be reinvesting the profits back into the business. We see that Freight AI as a key driver for growth into the future.

And where do you see gross margins could tend -- or trend over the medium term?

So, in the medium term, we expect to see incremental improvement as the revenue scales. And so the mid-60s, we seem to be on trend for with the current product suite. Notwithstanding the release of Freight AI then provides us with a much more scalable platform. And that's where we would expect to see margins [indiscernible] businesses, so north of 70%.

Great. What's driving the decline in customer retention rate?

As I mentioned, it's the recontracting primarily around Trade Window freight customers. And so we've had some of the more marginal players drop out of the market. We're firmly focused on winning higher-value mid-market to larger-sized enterprises, and that's a much more profitable customer segment for us.

Perfect. Just a question -- in terms of conflict in the Middle East, is it having any adverse impact on Trade Window?

Yes. The conflict in the Middle East doesn't impact us more or less than any other business out there. We don't have any direct exposure and nor do our customers. And so for us, it's really a case of the overall economic environment, and we're no more exposed than any other business.

[Audio Gap] impact on R&D and commercialization expenses as well as the conversation with customers.

Sorry, I missed part of that, Simon, as you faded a bit.

I'm sorry. Can you discuss how AI has been impacting on R&D and commercialization expenses as well as the conversation with customers?

Thanks, Simon. We see AI as an enabler of our business, not a disruptor of it. So Trade Window operates in a space that in part is highly regulated. For instance, international trade documentation, customs compliance, border processes, all require accountability, and in many cases, require a qualified human in the loop, such as a customs broker. And for example, they carry the legal and professional responsibility for the accuracy of a customs declaration. AI can help automate the preparation and reduce the manual effort involved, but it doesn't remove the need for human oversight and sign off. And that's a regulatory reality, and it's a structural feature of the market, not a limitation. It means that the value of our platform isn't written by AI. In fact, it's enhanced by it. And with Freight AI, we see that's an expression of that view. And so embedding AI across workflows to make our customers faster and more efficient while keeping people in the loop more accountable for being able to deliver against regulations.

Great. And just in terms of Freight AI, September '27, is still some...

Sorry, Simon, you faded out again.

I was just saying just in terms of Freight AI September '27 launch, what happens between now and then?

So we've still got a great product suite out there. So on the shipper side of things, we've got Prodoc, Cube and more features and functionality coming from Origin, which is used by both the shippers and the forwarders. And then, we've got some significant upgrades coming to our existing Trade Window freight product. And so that will continue to extend the capability of that product and allow us to serve a wider range of customers, including more of these mid-market customers. And that feature and functionality will also be baked into the Freight AI product potential.

Great. Just a question, what was the ARPC for shippers and freight forwarders for the quarter?

Yes. So the ARPC for the shippers was, on an annualized basis, $30,352. That was up 22% on the prior year. And then, for the freight forwarders, it was $13,904, on an annualized basis, up 27%.

Great. How much investment have we budgeted for Freight AI between now and September '27?

I will have to come back to you on the precise figure. I won't do it off the top of my head. We're going through a final budgeting exercise at the moment.

And I suppose just specifically on Freight AI, noting it's not in the market as yet, what are the sort of key specific outcomes that customers should expect or the company is aiming to achieve with the new launch?

A much higher degree of automation inside of freight forwarders business. That's really important because freight forwarders are margin-constrained businesses. They generally scale up by the number of operators they have. And so being able to enable the operators to do more is a key element that attracts freight forwarders to a product like Freight AI. So I think that's the key deliverable, is making our customers more productive, more efficient, more profitable through a much, much higher degree of automation.

Great. Just a further clarification with regard to what was the ARPC for shippers and freight forwarders for the quarter, not on an annualized basis? For example, last quarter, it was $2,482 for shippers.

Let me have a quick look. I'll put the number in front of me. Yes, we've gone to doing it on an annualized basis because it was confusing to people that, that was a monthly number. I kept having comments that the figure was low. So all we've done is just extrapolated the monthly figure out by 12. Bear with me as I pull up the numbers in front of me. Yes. So the freight forwarder monthly ARPC figure was $1,159. So it's still up the same percentage points of 27% on the prior year. And then, ARPC per month was $2,529, it's up 22% on prior year. We don't have a quarter-on-quarter comparison.

Got it. Just final question. WiseTech have said they will easily copy and replicate anybody's efforts to compete with them using software or AI to dominate. Any comments on that?

We've been competing against WiseTech for a very long time. The roots of our freight business go back 15 years. And so yes, they are a familiar competitor to us, and we're ready to respond to any actions they or any other competitors make. And so we understand it's a dynamic market, but it's a huge market, and there's plenty of room for growth for everyone.

Great. Thanks, Andrew. That concludes the Q&A segment. I might just hand it back to you.

Great. Thank you, Simon, and thank you, everyone, for your attendance today. And if you have any further questions, please submit those through the Investor Hub. But I appreciate your time. Thank you.