Half-year to September 30, 2015
EROAD Limited (EROAD) (NZX:ERD) today reports financial performance in line with expectations, delivering another half year of strong revenue growth and increased market share in New Zealand.
“I am pleased with what has been achieved operationally during the six months. To have continued to grow strongly while adding a further 30 staff, including building our R&D teams, illustrates the exciting working environment EROAD has created,” said EROAD Chairman, Michael Bushby.
Revenue totalled $12.2 million for the six months, up by 55% from $7.9 million for the same period last year. While sales were slower than anticipated in North America, the shortfall was made up for in New Zealand/ Australia. With rental units now making up 91% of total unit sales, Future Contracted Income (FCI) climbed to $47 million at 30 September 2015.
“Customers, both new and renewing, are choosing EROAD based on EROAD’s breadth of services from Road User Charges (RUC) and Weight-Mile Tax (WMT) to driver behaviour, fleet performance and electronic logbooks,” said Mr Bushby. “EROAD’s market leading tax capability, combined with our breadth of commercial and compliance services, supports EROAD’s very high customer retention rate of 98%.”
Revenue growth was supported by EROAD’s launch of a number of new services as well as enhancements to its platform. These services utilise the EROAD platform’s online, in-cab and mobile capabilities. EROAD also launched its next generation in-cab unit, Ehubo2, in New Zealand, enabling additional services such as EZmessage and Drive Buddy, which help customers improve both commercial and health and safety outcomes.
In Oregon, EROAD accepted slower WMT sales growth to complete a re-organisation of its business to address significant opportunities earlier than anticipated. It re-positioned some of its sales team into neighbouring states, established an indirect sales channel, and brought forward R&D on new services. “While this contributed to lower revenue in Oregon, we are satisfied it is in the best interests of EROAD in the long term,” said EROAD Chief Executive Steven Newman
EROAD’s strategic priorities remain unchanged. The company has a broad, high quality service offering, built on tax compliance (RUC, WMT and International Fuel Tax Agreement (IFTA)) which allows it to competitively target customers in New Zealand and North America.
Overall EROAD expects its full year results to be in line with guidance released to the NZX on 28 September 2015. The New Zealand business is expected to continue to achieve strong sales growth in the second half year. EROAD’s North American performance in the second half year will be influenced by:
We will update the market on 29 January 2016 as to our progress in North America and New Zealand.
Consistent with its dividend policy, EROAD does not intend to pay an interim dividend for the year 31 March 2016.
New Zealand’s continued strong growth
EROAD has collected $834 million in RUC since 2009, and is now collecting 31% of New Zealand’s total annualised Heavy Vehicle RUC, up from 26% at September 2014.
While RUC was the main driver of demand in the early years, customers are increasingly seeking solutions to other compliance needs, especially in the area of health and safety. EROAD has continued to expand its services, specific to industry, business or vehicle type, and these are contributing to the company’s continued growth.
EROAD has a range of new developments it intends to release in the coming months, to leverage its next generation Ehubo2.
Significant market opportunities in North America
Although sales in Oregon have not grown as quickly as the company would have liked, it is worth noting that, after 18 months in the North American market, EROAD’s sales are some 90% ahead of New Zealand sales at the equivalent point of market entry in New Zealand.
EROAD chief executive Steven Newman said, “We are satisfied we have proven there is a market with 306,000 heavy vehicles registered for Oregon WMT, and we expect the Oregon-based business to grow consistently in the coming years, particularly when the FMSCA ELD mandate is published which will provide more certainty to the transport industry when making technology decisions.
“More than 200,000 of the 306,000 heavy vehicles registered for Oregon WMT are based outside Oregon, many in the neighbouring states.
*FMCSA – U.S. Department of Transport, Federal Motor Carrier Safety Administration
“We have replicated, initially in a small way, our direct sales model into two neighbouring states, Washington and Idaho. Our focus for the coming six months is to get the direct sales model working effectively such that our sales teams in each state are delivering efficiently.”
Given the broader opportunity in the North American transport market arising from two key regulations, 1) IFTA and 2) the imminent FMCSA Electronic Logging Devices (ELD) mandate, EROAD has supplemented its three direct sales teams with the development of an indirect sales channel capable of making larger-scale sales right across the United States and Canada.
“This enables us to address the 4.5 million vehicles subject to one or both of these regulations,” Steven Newman said. “This is a substantial opportunity over and above Oregon WMT services.”
EROAD’s indirect sales channel focuses on partnering with larger networks serving transport fleets, such as transport service companies, fleet lease companies and insurance companies.
“I will be spending considerable time with our newly established indirect sales team to ensure we build an effective sales pipeline,” Steven Newman said. “Many of the opportunities addressable in this way involve larger transport fleets.
“By year end, with the FMCSA ELD mandate published, we plan to have an established footprint of four sales teams, Oregon, Washington, Idaho and Indirect Sales, to provide us better access to the North America wide IFTA and ELD/Electronic Logging Service (ELS) opportunities.”
During the six months, EROAD has had success in attracting new talent, and has recruited a full complement of R&D team members.
A number of promotions were made in the New Zealand sales team in October. Tony Warwood was promoted from National Sales Manager to General Manager, EROAD New Zealand, supported by Andrew Davies as Australia/New Zealand Sales Manager; and Guy Hocquard as Commercial Manager New Zealand.
Peter Batcheler, Executive Vice President of Global Sales, resigned in November.
“I’d like to acknowledge Peter’s commitment to EROAD over the past eight years,” Steven Newman said.
Steven Newman will be based in Portland, Oregon for the next six months to support EROAD’s management, training and sales focus in North America.
Research and Development key to capturing our share of North American opportunities
“We have the resources and expertise to deliver on our development goals over the next 12 months,” Steven Newman said.
“Investment in our technology platform and suite of services remains a key focus for development. Development of services relating to nationwide IFTA, ELS and ELD are all progressing well, and will hit full productivity when the ELD ruling is published, which is imminent,” he said.
Summary financial statements
Attached to this release are unaudited summary financial statements. The summary financial statements for the six months ended 30 September 2015 and the comparative financial information for the six months ended 30 September 2014 have been prepared under the New Zealand equivalents to International Financial Reporting Standards.
EROAD is a fully integrated technology, tolling and services provider. It was the first company to implement a GNSS/cellular-based road charging solution across an entire country. Its advanced technology provides road charging, compliance and commercial services with the same platform to lower overall client and delivery costs.
The EROAD system consists of a secure electronic distance recorder (Ehubo), integrated with mobile applications, and an online bank-grade payment gateway and services portal. It undertakes design and manufacture of our Ehubos, as well as software development, from our headquarters in Auckland.
EROAD’s successful New Zealand reference site provided it with the opportunity to enter the international market. In 2014 EROAD commercially launched in Oregon, becoming the first approved electronic WMT service provider in North America.
EROAD’s goal is to offer flexible and powerful solutions based on our innovative technology to assist in the creation of a transport sector that is responsive to the evolving needs of business, government and the wider community. For more information please visit www.eroad.com.
For a detailed description of EROAD’s business, and terms including Total Contracted Units, Future Contracted Income and Retention Rate, which are non GAAP measures used by EROAD to manage the business, please refer to the final page of the November 2015 Investor Presentation, uploaded to the NZX with this announcement.