EROAD Annual Shareholders Meeting 2020 Presentation

Te n a koutou, tenakoutou, tenakoutoukatoa.
Good afternoon ladies and gentlemen and thank you for joining us.
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My name is Graham Stuart and I am Chairman of EROAD Limited.
On behalf of your directors, Steven Newman, our CEO and all of the EROAD team,
a very warm welcome to you and those following the meeting online via our
webcast.I appreciate that you have taken the time to join us as we update you on
our FY20 financial results, the progress we have made delivering on our strategy
and conduct the vote on the resolutions outlined in the Notice of Meeting.
With that, I am pleased to confirm that we have a quorum represented here today
and therefore declare the 2020 Annual Shareholders’ Meeting of EROAD Limited
open.
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Up front with me or joining us virtually today I have:
•Barry Einsigwas appointed as an independent director in January this year.
Barry brings to the Board a deep understanding of the North American
transport market, combined with extensive and global experience in connected
vehicles and smart transport networks.
•To ny G i b s o n
•Susan Paterson
•Board member and Chief Executive Steven Newman.
•Chief Financial Officer, Alex Ball and
•General Counsel to the Board and the Company, Mark Heine,
We are also joined today by a number ofthe senior management team and other
EROADersmany of whom are shareholders.
I would like to take this opportunity to thank Michael Bushby and Candace Kinser
for their contribution to the EROAD Board.As part of our succession planningwe
have been fortunate to have Barry and Susan join over the last 2 years. The Board
continues to review its composition and skills and will update you all on any
changes in due course.
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On arriving today, you will have been greeted by staff of Computershare, our share
registrar, who are available to support you with the formal aspects of the meeting.
Also here today are KPMG, our company’s auditor and Chapman Tripp our
company’s solicitor.

The format of the formal part of today’s proceedings will comprise of
presentations from myself, then Steven, followed by Alex Ball who will run through
the numbers in more detail. Steven will make some concluding comments before
we break for questions. After that we have three resolutions to consider before we
address any general business matters that shareholders may wish to raise. Then we
will close the formal part of the meeting, I encourage you to stay and have some
light refreshments with us.
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We are living in unprecedented times, and a great many things have changed
throughout the world. However, our passion and energy for solving our customer’s
problems and the growth opportunities that presents remain.
Our customers choose us – because of customer service, differentiated solutions,
reliable and accurate and being easy to use. These become even more important in
an economic downturn.
Now, more than ever, EROAD’s values of safety, trust, integrity, team, and
innovation position us well to deliver safe, efficient and compliant outcomes for
our customers.
We continue to deliver to executive successfully on strategy – with 116,488
contracted units, greater than 95% asset retention rate and a growing monthly
SaaS revenue per unit to $58.38.
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We are a purpose-led company, driven by making safer, more productive roads.
EROAD solutions directly impact road safety:
by improving driving behaviors,
•reducing the well-known precursors to road accidents,
•providing service and maintenance monitoring to enable our customers to run
safer vehicles on our roads; and
•providing insights to help businesses and governments make better decisions.
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EROAD is pleased to have delivered another period of strong growth in all key
metrics, while also advancing its strategy to invest for the future.
•Revenue increased by 32% to $81.2m, up from $61.4m in the prior financial
year. EROAD delivered an increase of EBITDA margin of 31% and a Profit before
tax of $1.4m demonstrating our increasing scale and improving operating
leverage.
•Future Contracted Income increased by 14% to $134.4m from $117.4m.
•Free Cash Flow outflow of $12.8m, reflects $16.5m spent during the year on
investing for future growth and scalability.
•We remain in a strong financial position, with enough headroom to fund organic
growth with undrawn facilities of $23.9m following the successful refinancing
earlier this year.
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The quality of our products, the continued investment in research development
and the quality of our customer service is reflected in strong growth in contracted
units of 21%, loyal customers with a 95% asset retention rate and a rise in Average
SaaS Monthly Revenue per Unit of 6% to $58.38.
We spent some $15.6m on R&D which resulted in seven key launches of SaaS
products and enhancements which ensure we retain customers and position us
well to reach our next major milestone of 250k+ connected vehicles.
We continued to invest in our operating leverage and scalability with $6.9m
invested in new generation business systems – this will not only enable us to help
our customers more but also drive efficiencies out of our business.
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Backed by a strong foundation of energised and capable team, who are driven by a
common purpose of safer and productive roads we continued to create
shareholder value in FY20.
Extending the platform – we had seven key launches of products and services.
Scaling for growth – we completed the roll-out of new generation of business
systems and supporting processes. We built capability in sales and customer
support and we launched our new leadership programme
Choosing to grow – adding 20,282 contracted units, adding acquisition capacity so
we are ready to execute on appropriate opportunities that may arise in FY21 and
we refinanced and extended our debt facilities.
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Like everyone, in March our Board, management and our over 300 EROAD’ers
navigated a new reality that came with the COVID-19 global crisis.
I’m proud to say that we continued to operate effectively under our global business
continuity plan, EROAD’s employees, products and services continued to support
the supply chain and activities of our customers.
Many of EROAD’s customers provided essential services that kept the New
Zealand, North American and Australian economies running, despite the operating
restrictions implemented to stop the spread of COVID-19.
We would like to take this opportunity to thank all our EROAD customers that
provided essential services for their outstanding efforts during this time.EROAD
itself was deemed essential service, so it was able to support these customers.
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On the slide, you'll see the severity of the lockdown that occurred in New Zealand.
And you also get to see some of the impacts on the different segments that we've
supported in New Zealand. This information is very useful to us to understand the
market and the customer impact on how we can support our customers navigate
through these uncertain times.
Now, I will hand over to Steven for his CEO address.
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Welcome everyone. We appreciate we get to spend with our shareholders,
updating you on our progress and also hearing your feedback directly.
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As of 31 March 2020 we sat at 116,488 units, which represents a 6-year compound
annual growth rate of 42%. This growth has come from New Zealand as we expand
into current customer fleets, and also adding new customers and North America
which we are now firmly established in.
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New Zealand continues to grow, as it always has providing the cashflow to fund
growth - across new markets and into new products.
New Zealand remains a significant growth opportunity, delivering a 21% growth in
revenue year-on-year. Revenue growth came in two forms: growth in subscriber
base, and also growth in monthly average revenue per unit.
Contracted units increased 10,256 with 30% of these new customers coming from
construction, civil engineering, agriculture, and forestry. We renewed contracts for
existing customers of 8,136 vehicles. This provided us with an opportunity to offer
additional services. 6,283 vehicles were on our original Ehubo, Ehubo1 in-cab
hardware. The team were able to upgrade 42% of these to the latest Ehubo2
hardware. This, combined with the additional SaaS services, saw monthly ARPU
increase to $2.04 to $55.78. Asset retention rates remains high at 96.1%.
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The North American business is now an established market and is contributing at a
group level both in terms of revenue and EBITDA.
Revenue growth was 62% year-on-year to $24.8 million. The deployment of two
large enterprise customers contributed strongly to the increase of 9,342
contracted units. This represents a 38% growth rate. EBITDA grew significantly
year-on-year. In FY19, it was $0.4 million and increased to $7.5 million in FY20.
We continue to add services to our North American product offer to increase the
products that brought our enterprise prospects. We look forward to releasing our
EROAD Go workflow logistics management solutions for drivers and our in-cab
camera solution towards the end of the calendar year.
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Australia is a relatively new market with EROAD. We have a very promising
enterprise sales pipeline pre-COVID, and we're in the final stages of agreeing
supply terms. COVID has seen these opportunities push out, but they're not lost.
Subject to continued uncertainty, we do expect progress on this during FY21. We
onboarded our first trans-Ta s m a n c u s to m e r, o n e i n A u s t ra l i a , w h i c h w a s 3 5 5
vehicles, and that was rolled out simultaneously across New Zealand and Australia.
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Thank you Steven, and good afternoon everyone.
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As Graham we outlined, EROAD delivered another period of strong growth in the
year ended 31 March 2020.
Revenue increased 32%, reflecting strong growth across New Zealand and North
America for the reasons outlined by Steven.
EBITDA was up a pleasing 73%, which resulted from an operating margin of 33%
compared to 25% last year. This demonstrates the improved operating leverage
EROAD is now beginning to deliver.
The growth in Revenue and EBITDA resulted in a reported profit before tax of
$1.4m, up from a loss of $5.1m in the prior year.
Free Cash Outflows of $12.8 million, only slight improvement from last years
outflow of $13.1m however it included a $5.2m increase in software development
costs as EROAD continues spend on R&D to ensure customer loyalty, unit growth
and improving average revenue per unit.
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As I outlined at last years Annual Shareholders’ meeting we have seven key
financial metrics we and you as investors can measure our financial performance
by.
Starting with our Leading Growth Indicators.
Annualised Monthly Recurring Revenue gives you a forward view of revenue. This
increased from $66.5m to $86.0m reflecting the growth in recurring revenue from
new units onboarded during FY20 and growth in SaaS Average Revenue per Unit.
Future Contracted Income, which represents contracted SaaS income, increased
from $117.5m to $134.3m with an average remaining contract length of 2 years.
This ensures EROAD is well positioned, despite any economic uncertainty markets
are currently experiencing.
As you are aware, R&D is critical to a business such as ours – Our investment in
reliability, scale and quality continues to pay us back with consistently high asset
and customer retention rates, strong growth in units and a growing Average
Revenue Per Unit. We continue to anticipate that spend will remain in the 18-22%
range, however we do not spend without a good investment case.
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Moving to our Enterprise value from our existing customer base.
Monthly Software-as-a-Service Revenue per Unit, otherwise known as APRU
increased $55.08 to $58.38. While we can’t take credit for all of this uplift, as the
stronger USD versus NZD accounted for $1.23 of this. The rest of the uplift is a
result of upgrading customers from Ehubo1 to Ehubo2 as contracts in New Zealand
were renewed and selling more SaaS products to our current customers.
Reflecting our strong customer value proposition, we saw another period customer
loyalty reflected in an asset retention rate of 95.2%.
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Lasting our profitability metrics.
Cost to Acquire customers, as a percentage of revenue, fell from 22% to 20%
reflecting operating leverage. We would expect this to trend down over time
further.
Cost to Service and Support customers, as a percentage of revenue, was
consistent at 4.6% and in the expected range of 4-5%. Again we would expect this
to trend down over time, as operating leverage improves as we see the investment
we have made in our business systems start to pay back.
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EROAD remains in a solid financial position and relatively economic resilient. We've
got significant pre-contracted future income of $134.4m, and we have a diversity
across geographic markets and customer segments, as well as being diversified
across different industries.
We have $23.9 million of annual debt facilities to draw from within our overall
increased facility of $60 million. And we anticipate this will be able to fund
anticipated levels of organic growth, but as we've previously indicated, any
significant opportunities, both organic or inorganic would most likely have to be
equity funded.
While we are well positioned, we are heading into choppy waters in all three of our
markets as a result of the economic downturns, credit buckets, because of
lockdowns. We undertook a full review of the potential scenarios and operations in
all of our markets and possible responses EROAD has for us in each of those
scenarios.We have increased the frequency of our financial reviews and keep a
close watch on debtor collectability.
With that I will hand you back to Steven.
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Thanks Alex.
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We have a large and increasing total addressable market. Once we get through this
period of chaos and each market is in a stable recessionary mindset, we expect to
see the increased adoption of telematics to return and maybe potentially increase.
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EROAD will grow in two ways – adding connected vehicles – units and growing the
average revenue of each of those units.
Upgrading customer plans to grow average revenue per unit - In New Zealand we
have the opportunity to upgrade customers from Ehubo1 to Ehubo2 and in North
America we have an opportunity to upsell customers to a higher tier plan.
This is on top of the opportunity of selling more SaaS products to each customer –
such as Inspect and Logbook.
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Why do we spend the money we do on R&D – it is critical in developing new
products and services to retain customers, grow connected vehicles and grow
average SaaS monthly revenue per unit. We had seven ley launches over FY20.
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We have developed EROAD Where to create a cost disruptive solution to asset
tracking versus IOT trackers.
This product was developed together with our customers and utilisesa unique
mesh network that only EROAD can deliver in New Zealand of Ehubo2 devices, and
apps on users mobile devices, to locate small bluetoothtags, that have been
designed and manufactured locally and are robust enough for any environment.
At just $30 per EROAD Where tag, and $5 per month per tag for access to the
dedicated EROAD Where Asset Management application, the game changing price
point delivers a disruptive asset tracking solution to a large addressable market.
<play video of EROAD where>
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FY21 will be a year of strong launches for EROAD, as we position ourselves as the
telematics provider of choice once businesses get through the current uncertainty.
We launched this logbook in July.
<Play video of Logbook>
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In terms of FY21 and EROAD’s outlook, this has not changed since we released our
financial results and FY20 annual report which you all would have received.
There is economic uncertainty across all the markets we operate in. While it is
difficult to give you clarity on our financial results for FY21 we are confident that
we remain well positioned reflecting our strong customer value proposition, future
contracted income and, as you saw in Alex’s presentation, our diverse customer
base across regions, business size and industry.
In the Q1 quarterly update, released this morning we saw EROAD continued to
achieve growth despite challenging operating conditions. It was also encouraging
New Zealand sales return to near normal growth levels post lockdown in April and
May. As expected, we have seen a delay in implementation decisions by customers
and impacts of COVID 19 on businesses have largely contributed to suppressed
growth in Australia and North America respectively.
We do expect growth in units in FY21, albeit the rate may be lower than FY20 and
lower than we anticipated pre-COVID. While our pipeline of growth is still very
much there, we are seeing it being pushed out as businesses are unable to sign on
the dotted line with so much uncertainty hanging over them and it is also difficult
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to do deployment rollouts when companies are still working from home. Once this
uncertainty resolves, and we no doubt found ourselves in a recession EROAD will
benefit as businesses embrace telematics to reduce costs and improve the
efficiencies of their business.

We are well paced and we're ready.
We continue to support our customers, many of which will be critical in rebuilding
the global economy.
In the global downturn, current and new customers are looking for products and
services to help drive efficiency in the business and that's worked out well.
When you have the right systems and processes in place to drive efficiency in our
business and that will be a key focus over the next 12 months.
We have the cash flow and the funding facilities to support anticipated organic
growth and we continue to look at growth opportunities both organic and
inorganic and evaluate them.
Bottom line, we still choose to grow and we continue to invest in our future.
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Thank you, ladies and gentlemen. There being no more questions I now move to
the formal part of the meeting, the resolutions. If you do not have a pen or a
voting paper and would like one, please raise your hand and Computershare will
help you.
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At this time, can I ask if there are any questions regarding the financial statements
and Auditors report. There will be an opportunity to ask general questions once all
items on the agenda have been considered.
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Resolution 1. That Tony Gibson, who is eligible for election, be elected as a director
of the company.
The Board recommends Tony to you as a director of EROAD Limited and
unanimously supports his reelection. I now invite Tony to address the meeting. Is
there any discussion on this resolution?
There appears to be no further discussion. I now put to the vote the ordinary
resolution: That Tony Gibson, who is eligible for election, be elected as a director
of the company. Please take a moment to mark your voting form in relation to
Resolution 1.
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Resolution 2. That Barry Einsig, who is eligible for election, be elected as a director
of the company.
The Board recommends Barry to you as a director of EROAD Limited and
unanimously supports his reelection. I now invite Barry to address the meeting
virtually. Is there any discussion on this resolution?
There appears to be no further discussion. I now put to the vote the ordinary
resolution: That Barry Einsig, who is eligible for election, be elected as a director of
the company. Please take a moment to mark your voting form in relation to
Resolution 2.
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Resolution 3 proposes: That the Directors be authorisedto fix the fees and
expenses of KPMG as the auditor of EROAD.
Is there any discussion on this resolution? There appears to be no further
discussion. I now put to the vote the ordinary resolution: That the Directors be
authorized to fix the fees and expenses of KPMG as the auditor of EROAD. Please
take a moment to mark your voting form in relation to Resolution 3
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That brings us to General Business. Is there any other business a shareholder
wishes raise?
That brings us to the end of the meeting, the results of the voting will be posted on
the NZX tomorrow morning. As mentioned earlier, you are all invited to join us for
further discussion and questions over some light refreshments.
Thank you all for your attendance and for your continuing interest and support of
the Company. I now declare the meeting closed.
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