Eroad Limited · NZX:ERD
Eroad — Investor Day (March 2023)
35 slides from Eroad's investor day presentation, Mar 21, 2023
Slide 1: EROAD Investor Day
EROAD INVESTOR DAY 21 March 2023
Slide 2: EROAD Investor Day Attendees
EROAD INVESTOR DAY ATTENDEES CHAIR – GRAHAM STUART CEO – MARK HEINE - EROAD Chair since August 2018 and Director - CEO of EROAD since April 2022 (General Counsel since January 2018 and Company Secretary since 2015) - Previously CEO of Sealord Group - Previously at Bell Gully and Allens in technology
Slide 3: Contents
CONTENTS Trading Update & Guidance Key Opportunities 1. Customer Mix 2. R&D Payback 3. North America Market Fit 4. Unit Economics EROAD Tomorrow • Repositioning to Generate Cash & Drive Growth • Strategy Timeframe • Financial Outlook • Key Metrics • Positioned for market growth 3
Slide 4: Welcome & Opening Remarks
01 WELCOME & OPENING REMARKS GRAHAM STUART (CHAIR) 4
Slide 5: Trading Update & Guidance
TRADING UPDATE & GUIDANCE Trading Update • New Zealand & Australia continue to deliver solid growth with new client wins (e.g. Fonterra) • Focus on business optimisation and cost efficiencies driving demand in NA but longer sales cycles prevailing Guidance Reiterated FY23 Guidance • FY23 revenue gui
Slide 6: FY23 Recap
FY23 RECAP • Difficult market conditions over the last year impacting operations including: North America customers facing macro-economic challenges resulting in delayed customer decision making and EROAD facing increased competition broadly • Strategic review announced in November 2022 to address f
Slide 7: Key Opportunities
02 KEY OPPORTUNITIES MARK HEINE (CEO) MARGARET DELANY (CFO) AKINYEMI KOYI (PRESIDENT NORTH AMERICA & CHIEF INNOVATION OFFICER) 7
Slide 8: Integrated Solutions Overview
INTEGRATED SOLUTIONS OVERVIEW EROAD PROVIDES A COMPLETE CONNECTED NETWORK THAT CONNECTS WITH CUSTOMERS’ SYSTEMS, ALLOWING THEM TO TURN DISPARATE DATA INTO ACTION COMPLIANCE AND ASSURANCE HEALTH & SAFETY PRODUCTIVITY SUSTAINABILITY • RUC and fuel tax compliance • Driver behaviour monitoring and • GPS
Slide 9: Key Market Size
KEY MARKET SIZE OUR SOLUTIONS ADDRESS A LARGE, AND FAST-GROWING MARKET OPPORTUNITY NORTH AMERICA NEW ZEALAND AUSTRALIA One of the largest markets with Cash generative geography with Opportunity to leverage leading significant long-term growth leading market position in New Zealand market position pr
Slide 10: Optimising the Business Model
OPTIMISING THE BUSINESS MODEL THE STRATEGIC REVIEW IDENTIFIED 4 OPPORTUNITIES FOR OPTIMISATION, WE HAVE A CLEAR PATH TO GENERATE POSITIVE FREE CASH FLOW + DRIVE GROWTH STRATEGIC REVIEW IDENTIFIED 4 KEY OPPORTUNITIES REPOSITIONING TO GENERATE CASH & DRIVE GROWTH TURN AROUND THE CORE 1. Customer mix n
Slide 11: Opportunity #1: Customer Mix
OPPORTUNITY #1 CUSTOMER MIX Customer mix necessitates a segmented service model • Challenge #1 11
Slide 12: Customer Mix: Diverse Customer Base
CUSTOMER MIX DIVERSE CUSTOMER BASE ACROSS FLEET SIZE AND INDUSTRY HAS BEEN INSTRUMENTAL TO GROWTH TO DATE CUSTOMER CONCENTRATION (2022) TOP 10 CUSTOMERS (2022) DIVERSE FY22A CUSTOMER BASE Customer Geography recurring revenue 35% New Zealand / Australia Customer 1 North America 6% Revenue United Stat
Slide 13: Customer Mix: Segmented Service Model
CUSTOMER MIX SHIFTING TO A SEGMENTED SERVICE MODEL TO MANAGE THE LONG TAIL WILL REDUCE COST TO SERVE & INCREASE PROFITABILITY EROAD CUSTOMER BASE BY REVENUE CONTRIBUTION LONG CUSTOMER TAIL Enterprise NZ$100k ARR ~160 51% of revenue • EROAD’s total customer base is weighted to small- medium business
Slide 14: Customer Relationships
CUSTOMER MIX RETENTION OF REFERENCEABLE BLUE-CHIP CUSTOMERS ENABLE A TARGETED ENTERPRISE PIPELINE WITH HIGH CONFIDENCE KEY ENTERPRISE CUSTOMERS CUSTOMER RELATIONSHIPS NORTH AMERICA NEW ZEALAND & AUSTRALIA Fleet size of 1,000 – 11,000+ Fleet size of 500 - 6,000+ Average tenure of Average tenure of 1
Slide 15: Opportunity #2: R&D Payback
OPPORTUNITY #2 R&D PAYBACK R&D payback can improve through faster speed to market and prioritised projects • Challenge #1 15
Slide 16: R&D Payback
R&D PAYBACK SPEND WILL REDUCE AS A % OF REVENUE; PAYBACK WILL IMPROVE AS SYNERGIES REALISED, PROCESS INEFFICIENCIES REMOVED, AND STRONGER PRIORITISATION R&D RE-FOCUSING INITIATIVES R&D INVESTMENT (% OF REVENUE), NZ$M Optimise admin spend: • R&D spend is expected to reduce to approximately $30m • Red
Slide 17: Opportunity #3: North American Market Fit
OPPORTUNITY #3 NORTH AMERICAN MARKET FIT North American business requires differentiated product offering to deliver to large enterprise market • Challenge #1 17
Slide 18: North American Market Fit: Product Gaps
NORTH AMERICAN MARKET FIT WITH A STRONG DIFFERENTIATED SAFETY SOLUTION IN NA, R&D INVESTMENT WILL FOCUS ON OUR SOLUTION GAPS REQUIRED BY ENTERPRISE CUSTOMERS NORTH AMERICA PRODUCTS Market: Must have / Current EROAD Feature set Inclusions Ability to differentiate solution Core telematics Track/trace,
Slide 19: North American Market Fit: Target Segments
NORTH AMERICAN MARKET FIT DURABLE GROWTH IS ACHIEVABLE THROUGH TARGETING 3 TRANSPORTATION SEGMENTS WITH LARGE SERVICEABLE OBTAINABLE MARKETS WHERE EROAD IS STRONGLY POSITIONED NORTH AMERICA OPPORTUNITY Transportation Construction Segments where EROAD Less than truckload plays Refrigerate (F&B) (LTL)
Slide 20: OEM Hardware Environment
OEM HARDWARE ENVIRONMENT OEM INTEGRATION REMAINS A KEY FOCUS AND WILL BE INCORPORATED INTO OUR SOLUTION WELL BEFORE OEM HARDWARE BECOMES A SIGNIFICANT THREAT Users of telematics are provided with two options to connect with Original Equipment Manufacturers (‘OEM’) o OEM telematics (telematics shippe
Slide 21: Opportunity #4: Unit Economics
OPPORTUNITY #4 UNIT ECONOMICS Unit Economics improve as cost- out initiatives are realised and customer growth occurs • Challenge #1 21
Slide 22: Unit Economics: Hardware Replacement Headwind
UNIT ECONOMICS HARDWARE REPLACEMENT HAS BEEN A HEADWIND TO UNIT ECONOMICS, TECHNOLOGICAL OBSOLESCENCE AND CUSTOMER CHURN INCREASE CAPITAL OUTFLOWS AND REDUCE LIFETIME VALUE ILLUSTRATIVE CUSTOMER LIFETIME VALUE Profit Customer Breakeven Acquisition (CAC payback) Point Customer Acquisition Cost Custom
Slide 23: Unit Economics Improve with Growth and Cost-Out
UNIT ECONOMICS UNIT ECONOMICS IMPROVE AS EROAD ACHIEVES CUSTOMER GROWTH AND REALISES COST-OUT INITIATIVES NET CASH FLOW PROFILE OVER TIME, NZ$ FIXED COST BREAK-EVEN AS A FUNCTION OF UNITS (FY22) Per unit, Assuming 200k units Units in k, costs in NZ$m Illustrative example assumes a constant asset bas
Slide 24: 3G Hardware End-of-Life Replacement Program
UNIT ECONOMICS 3G HARDWARE END-OF-LIFE IS DICTATED BY NETWORK SHUTDOWNS, RESULTING IN UNIT REPLACEMENT BEING BROUGHT FORWARD AND SECURING NZ CASH FLOWS ACCELERATED 3G REPLACEMENT PROGRAM • Vodafone New Zealand will turn off its 3G service in August 2024 on which ~35% of our total units across all ma
Slide 25: EROAD Tomorrow
03 EROAD TOMORROW MARK HEINE (CEO) MARGARET DELANY (CFO) AKINYEMI KOYI (PRESIDENT NORTH AMERICA & CHIEF INNOVATION OFFICER) 25
Slide 26: Repositioning to Generate Cash & Drive Growth
REPOSITIONING TO GENERATE CASH & DRIVE GROWTH RIGHT-SIZING THE FOUNDATIONS TODAY ALLOWS EROAD TO SCALE EFFICIENTLY, RESPOND TO MARKET DRIVERS QUICKER AND BE MORE AGILE TO CUSTOMER NEEDS TURN AROUND Drive cash and efficiency • Tailoring of service levels to drive performance focus across the business
Slide 27: Strategy Timeframe
STRATEGY TIMEFRAME OPTIMISING BUSINESS OPERATIONS UNDERWAY, AFTER WHICH RESOURCES CAN BE DEPLOYED TO ACHIEVE SCALEABLE GROWTH Turnaround the core Future Growth Approach Corporate overhead reduction Efficiency in ANZ / Growth in NA Growth in NA Verticals Timing FY23 FY24 ~3-5 years Value focus Head
Slide 28: Revenue Bridge
REVENUE BRIDGE REVENUE GROWTH ACHIEVED THROUGH CUSTOMERS’ SCALING UP AND INCREASED MULTI-PRODUCT ADOPTION TOPLINE GROWTH BRIDGE Revenue, NZ$m LONG TERM GROWTH DRIVERS – NORTH AMERICA North America Expected to be Expected to be in-line with • Focus on Enterprise customers in-line with FY22 Expected F
Slide 29: Cost-Out Program
COST-OUT PROGRAM ALREADY HALFWAY THROUGH COST-OUT PROGRAM, WITH TARGETED PLANS FOR THE REMAINING $10M Completed $10m cost-out Targeted $10m cost-out • Right-sized personnel • Product simplification • Approximately 75 FTE removed • Consolidate product suite and eliminate • Reduced sub-contractor spen
Slide 30: Free Cash Flow Bridge
FREE CASH FLOW BRIDGE MANAGEMENT IS FOCUSED ON BEING FCF NEUTRAL BY FY25 AND FCF POSITIVE BY FY26 WITHIN EXISTING CREDIT FACILITY LIMITS In addition to operating earnings growing in line with market and FORECAST FREE CASH FLOW TO FIRM BRIDGE, NZ$M cost inflation, a number of initiatives are expected
Slide 31: Key Metrics
KEY METRICS FOCUSED STRATEGY PROVIDES CONFIDENCE IN OUR OUTLOOK TARGETS Goal Metric FY20 FY21 FY22 FY26 Commentary 11% - 13% Growth in-line AMRR* 84.0 88.4 134.6 CAGR with market In-line with Churn 5% 5% 7% 5% - 7% SaaS historical trends Quality Increased weighting to Average Lease 1.6 1.6 1.4 1.5 –
Slide 32: Positioned for Market Growth
POSITIONED FOR MARKET GROWTH The strategic shift to operate at scale positions EROAD well to translate momentum into durable growth for the long-term • Challenge #1 32
Slide 33: Broader Transport Telematics Industry
KEY MARKET DRIVERS EROAD’S CURRENT STRATEGY ALIGNS US WITH SIGNIFICANT MOMENTUM TO CAPITALISE ON TAILWINDS AND AVOID POTENTIAL NEGATIVE TRENDS KEY TRENDS EROAD FOCUS Demand for advanced workflow-based 1 TELEMATICS INDUSTRY solutions Demand for bespoke/custom workflow solutions 2 TRENDS OEM offering
Slide 34: Platform Demonstration
PLATFORM DEMONSTRATION
Slide 35: Summary and Q&A
04 SUMMARY AND Q&A 35