Earnings call: WiseTech reports robust first half with 32% revenue surge

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Earnings call: WiseTech reports robust first half with 32% revenue surge
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WiseTech Global Ltd (WTC), a leading provider of software solutions for logistics companies, has reported a strong financial performance for the first half of the 2024 fiscal year. The company's total revenue saw a substantial increase of 32% to $500.4 million, compared to the previous year. This growth was primarily driven by a 40% surge in revenue from its flagship CargoWise platform, which reached $420.7 million, bolstered by recent acquisitions. EBITDA also rose by 23% to $229.9 million, with an EBITDA margin standing at 46%.

Key Takeaways

  • WiseTech's total revenue hit $500.4 million, a 32% increase year-over-year.
  • CargoWise revenue grew by 40% to $420.7 million, largely due to recent acquisitions.
  • EBITDA increased by 23% to $229.9 million, with a margin of 46%.
  • Operating expenses as a percentage of revenue decreased, showing operating leverage.
  • The company invested $94.6 million in growth initiatives and reported a liquidity of $445 million as of December 31, 2023.
  • WiseTech continues to focus on its 3P strategy: product, penetration, and profitability.

Company Outlook

  • Full year 2024 revenue is projected between $1.04 billion and $1.095 billion.
  • EBITDA for the full year is expected to range from $455 million to $490 million.
  • The company anticipates achieving $15 million in net savings in the second half of 2024 and aims for $40 million in annual savings.
  • EBITDA margins are expected to exceed 50% in the full year 2026.

Bearish Highlights

  • The company reported a negative EBITDA margin of 6.1% in the first half, although this was an improvement from the previous year's negative 15%.

Bullish Highlights

  • WiseTech's Rule of 40 was 63% in the first half of the fiscal year 2024.
  • The company's strong balance sheet and liquidity position it well for future growth opportunities.
  • Integration of recent acquisitions and global rollouts for CargoWise are progressing smoothly.

Misses

  • Future product enhancements have been delayed to fiscal year 2025 to ensure optimal quality.

Q&A Highlights

  • No specific guidance was provided on capitalization rates for fiscal years 2025 or 2026.
  • The company remains focused on revenue growth and cost efficiency rather than capitalization rates.
  • Customer wins, primarily in global freight forwarding, are driving growth, with expansion plans into customs and warehousing.

WiseTech has demonstrated a consistent track record of revenue, EBITDA, and margin growth since its listing in 2016. The company has invested over $1 billion in product development over the last five years, delivering 576 new product enhancements in the first half of the fiscal year 2024 alone. With a strong focus on their 3P strategy and investment in Landside Logistics capabilities, WiseTech is confident in its long-term trajectory and business model enhancement. Despite delays in product enhancements to fiscal year 2025, the company's successful early access program and the outperformance of CargoWise customers showcase its robust market position. WiseTech's leadership, particularly CEO Richard White, remains optimistic about the company's future potential and its ability to deliver exceptional results.

Full transcript - None (WTCHF) Q2 2024:

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Operator: Thank you for standing by. Welcome to the WiseTech Global Limited First Half 2024 Financial Year Results presented by CEO and Founder Richard White; and CFO, Andrew Cartledge. [Operator Instructions] I would now like to hand the conference over to Mr. Richard White, CEO and Founder. Please go ahead.

Richard White: Good morning, everyone, and thank you for joining us today for our first half 2024 financial year results briefing. Before we look at the financial highlights, I want to draw your attention to four key points we'd like to focus on in today's results. We have delivered a strong first half performance with our margin rate ahead of expectations as we continue to execute on our 3P strategy. We have invested over $1 billion in product development over the last five years with our accelerate rate of R&D investment and improved productivity over the last 12 months set to continue. This increasingly powerful engine underpins our product delivery and drives revenue growth for WiseTech and value creation for our customers. We continue to enhance CargoWise's landside logistic capability with the addition of MatchBox Exchange, which we acquired in October, while the integration of all our recent acquisitions is progressing well. And lastly, CargoWise's momentum continued with three new large global freight forwarder rollouts including Sinotrans, which is a top 25 global freight forwarder, meaning we now have 13 of the top 25 on global rollouts. I would like to call out the passion, dedication, hard work and focus of our team of more than 3,300 people around the world. I thank them all for the work they do. Our success is only possible because of their efforts. In the first half '24, we delivered a total revenue of $500.4 million, representing a $122.2 million or 32% increase on our first half '23. Organically, total revenue was up 15%. The vast majority of growth came from CargoWise with revenue up 40% to $420.7 million an outstanding result which includes the benefit of our recent strategically significant acquisitions. This delivered CargoWise recurring revenue of 99% and combined with incredibly low customer attrition of less than 1%, drives our ability to consistently grow revenue each year. EBITDA was up 23% to $229.9 million versus the prior corresponding period. As we explained at the full year '23 results, due to the near-term dilutive impact of our recent acquisitions, our EBITDA margin is down 4 percentage points to 46% versus the first half '23. Our organic EBITDA was up 16% with an EBITDA margin of 53%, flat on the first half '23. The margin rate is ahead of expectations, which Andrew will talk about later. Our underlying NPAT for the half was up 5% to $128.4 million and our free cash flow for the first half of '24 of $155.3 million was up 13% on the first half '23. We are delivering high quality earnings, giving us plenty of headroom to execute on our organic growth plans and further acquisition opportunities that may arise. The interim dividend of $0.077 per share is up 17% on the first half '23, representing a payout ratio of 20% of underlying NPAT. What these results show is the value of our 3P strategy, which we consistently deliver against through the strength of our software, diversity of our revenue growth and the agility of our talented team to adapt to changes in the evolving logistics industry. Andrew will now take you through our detailed financial performance.

Andrew Cartledge: Thanks, Richard, and good morning, everyone. Before getting into the financials, I wanted to remind you that as we previously explained and contemplated in our FY '24 guidance, our recent acquisitions, while strategically significant and value accretive over the long-term do have a near-term dilutive impact on margins, which is reflected in these results and noted throughout my commentary. Starting with an overview of our first half financial performance on Slide 8. As Richard noted, the business delivered strong revenue growth in the first half with total revenue up 32% on 1H '23 to $500.4 million largely driven by strong CargoWise growth, which was up 40% to $420.7 million. Organically, total CargoWise revenues grew by 19% on 1H '23 with recent M&A contributing an additional $53 million. Gross profit for the half was up 29% on 1H '23 with gross profit margin of 84%, down 2 percentage points on 1H '23, reflecting dilution from recent M&A. Organically, EBITDA grew by 16% to $230.6 million with underlying EBITDA margin in line with first half '23 at 53%. Reported EBITDA was up 23% with the EBITDA margin of 46%, reducing 4 percentage points on 1H '23 again due to the dilutive impact of recent acquisitions and cost investments in product development to drive future growth. Our first half margin rate is stronger-than-anticipated. As we progress with the integration of Envase and Blume, some planned cost investments have been delayed or eliminated as we leverage WiseTech's global scale to recognize synergies. We've also focused our efforts on larger product initiatives. Consequently, this generates larger revenue growth opportunities slightly later than originally planned. This strong organic EBITDA growth reflects our top-line growth underpinned by large global freight forwarder rollouts, pricing, new product releases as well as the impact of enhanced operating leverage and ongoing financial discipline. The increase in product investment for future growth held the organic EBITDA margin flat on 1H '23. The 17% growth in EBIT reflects a 46% increase from 1H '23 in depreciation and amortization, equating to an increased cost of $17.2 million driven by an additional $7 million of acquired amortization from recent M&A, $6.9 million from amortization and a $3.2 million increase in depreciation. The increase in acquired amortization included a favorable adjustment of FY '23s preliminary acquisition accounting values in 2H '24, we expect acquired amortization to be approximately $12 million, assuming no further acquisitions. Underlying net profit after tax for the half was up 5% on 1H '23 to $128.4 million, with net finance costs of $9 million primarily reflecting interest on our drawn debt facility to fund recent M&A, reducing impact growth by approximately 7 percentage points. Underlying EPS was up 4% to $38.08 per share with statutory impact up 8% to $118.2 million. On Slide 9, you can see the split between recurring and non-recurring revenues, as well as between CargoWise and non-CargoWise revenues. For a SaaS and subscription based business like WiseTech, recurring revenue represents revenues from customers who use our products consistently. A high proportion of recurring revenues gives us good visibility over future performance. In 1H '24, recurring revenue grew by 31% or $111.4 million, excluding the impact of FX. This was driven by further large global freight forwarder rollouts. Price increases to offset the impact of inflation and generate returns on product investment, new products released in prior periods and revenues from recent acquisitions. On the right hand side of the slide, you can see the contribution from strong organic growth in CargoWise revenue, which was up $58.6 million or 19% excluding FX. Of this $50.1 million was from existing CargoWise customers and $8.5 million was from new customers. This growth also reflects new large global freight forwarder rollouts, price increases and new products released in prior periods. Importantly, as Richard said, CargoWise customer attrition remains extremely low at less than 1%, demonstrating the stickiness of the CargoWise platform for customers and emphasizing the significant long-term value generated from each CargoWise customer under our SaaS model. On Slide 10, you can see our operating expenses across product design and development, sales and marketing in general and administration where a strong revenue growth and efficient operating model continues to drive operating leverage. Overall, operating expenses as a percentage of revenue were up 1 percentage point from 1H '23 with the impact of our recent M&A, the main driver. Importantly, operating expenses as a percentage of revenue were down 2 percentage points from 2H '23. This demonstrates our ongoing operating leverage, which is offsetting the previously mentioned gross profit margin dilution from recent M&A and underpins our confidence to return to 50% plus EBITDA margins in FY '26. Product design and development expenses increased by $27.4 million on first half '23 or 2 percentage points of revenue due to recent M&A and investments in CargoWise innovation and development. Expenses supporting maintenance of non-CargoWise platforms represented 23% of total PD&D expenses, down 8 percentage points on 1H '23, a trend which is expected to continue. Sales and marketing expenses of $38.1 million increased 2 percentage points on 1H '23 to 8% of revenue, with the increase attributable to recent M&A. General and administration expenses as a percentage of revenue were down by 2 percentage points on 1H '23 returning to pre FY '23 levels. Excluding M&A costs, G&A expenses were flat year-on-year at 14% of revenue. Returning now to Slide 11, where you can see our R&D investment, which has previously communicated has deliberately accelerated as we focus on innovation and product development as a strategic priority. Our overall R&D investment increased by $62.4 million or 54% versus 1H '23, reflecting hiring activity to drive future revenue growth and recent M&A activity. Overall, this represents a reinvestment of 35% of our revenue in R&D, which is slightly higher than prior periods and increasingly weighted towards CargoWise. 54% of our 1H '24 R&D investment was capitalized, up 1 percentage point on the prior corresponding period and remaining above the target range of 40% to 50% as expected. This reflects the quality of our development process, which is delivering stronger productivity and lower defects, which allows our team to focus on developing new products that will drive future revenue growth. We expect this level of capitalization to continue through FY '24, as we invest in new product releases across our 6 key development priorities, which can be seen in development costs for work in progress R&D increasing by 86% to $71.6 million at December '23 versus December '22. We delivered 576 new product enhancements on the CargoWise application suite in the first half, bringing total enhancements delivered to more than 5,500 over the last five years from a total investment of over $1 billion. CargoWise's product development resources increased by 86% versus 1H '23, driven equally by increased hiring and M&A activity, with 62% of our global workforce now focused on product development, up by 5 percentage points from 1H '23. Moving to Slide 12, you'll see how our strong balance sheet and liquidity provide a solid platform for future growth. At 31 December '23, we had total liquidity of $445 million, providing significant financial flexibility and headroom to fund strategic growth opportunities as demonstrated by our recent acquisitions. The $109.8 million increase in intangible assets was driven largely by investments in capitalized development and recent M&A, partially offset by amortization. Turning to our liabilities. Our borrowings decreased by $25 million, as we took the opportunity to pay down some of our debt from free cash flow generation. In October '23, we refinanced with a new 5 year $0.5 billion unsecured debt facility maturing in FY '29, which was well supported by a diversified panel of 9 banks. The $102.9 million increase in share capital reflects new shares issued as consideration for acquisitions as well as to the employee share trust to fund our employee equity programs. Our employee equity programs are a key component of our policy to support staff retention, attract high-quality talent and encourage long-term value creation across our workforce, which is reflected in the high proportion of our people with WiseTech shares and share rights. Finally, turning our strong cash flow performance on Slide 13. In 1H '24, our operating cash flows were up 23% versus 1H '23 to $249.9 million, demonstrating the strength of our highly cash generative operating model. In 1H '24, we increased the proportion of our operating cash flows reinvested to support long-term growth initiatives to $94.6 million, which were invested primarily in product development and data center capacity. Our operating cash flow conversion rate remains strong at 109%, in line with the prior corresponding period. Free cash flow for 1H '24 was up 13% to $155.3 million with higher operating cash flows partially offset by increased product investment. Free cash flow conversion reduced by 6 percentage points on 1H '23 to 68%, reflecting increased R&D investment and the dilution from recent M&A. Taking the sum of our total revenue growth and free cash flow margins, our Rule of 40 was 63% in 1H '24, which remains highly attractive when compared to SaaS businesses globally. To summarize, we're pleased with WiseTech's financial performance in the first half of FY '24. The business is continuing to grow at a healthy pace with EBITDA margins ahead of our forecast and underlying earnings and cash flow remaining strong. A highly cash generative business model and strong liquidity continue to provide a solid platform to fund long-term sustainable growth. Back to you, Richard.

Richard White: Thank you, Andrew. WiseTech's strategic vision is to be the operating system for global logistics. And we continue to make excellent progress towards achieving this vision through consistent execution of our 3P strategy, product, penetration and profitability. The logistics industry is complex, dynamic and ultra competitive. CargoWise's competitive advantage has its proven ability to rapidly enhance productivity and capability at scale and globally, delivering accelerated continuum of competitive advantages to existing customers and attracting potential customers away from unproductive and increasingly problematic legacy systems. With the majority of the top 25 global freight forwarders now on or moving to CargoWise, CargoWise is rapidly becoming the de facto standard. Looking at product development, we continue to focus on 6 priorities in order to deepen the value that we create from CargoWise and build even more capabilities over the long-term. 5 of the 6 priorities have now had significant product investment or have been strengthened by M&A. In the first half, we completed a tuck in acquisition, MatchBox Exchange and a Mexico foothold acquisition Sistemas Casa. I'll touch on these in more detail later. In each of these development priorities, we drive adoption of or create increased attraction to implement CargoWise. Additionally, we are creating access to entirely new addressable markets by solving deeply complex supply chain issues. R&D remains a critical component to our growth with over $1 billion invested in R&D over the last 5 years, delivering more than 5,500 product enhancements. In the first half '24 alone, we released 576 product enhancements. As a product led company, we have a long-term strategy of not releasing new products commercially until we have delivered an industry leading or breakthrough component that provides the full set of features, functionality and usability that our customers need at the quality and reliability that our customers expect in today's rapidly changing environment. We currently have $71.6 million in process R&D, up from $38.5 million a year ago with a large and growing number of customers signing up to our early access program which allows them to gain access to advanced features still under development. Our mantra of slower today, faster forever drives the way we approach our product development and commercial release. Now I'd like to give you a short update on the use of our machine learning, generative AI, big data and our business and product automations in general. Firstly, I would like to remind you that we have spent over $1 billion in product development over the last 5 years alone, and we have been using machine learning, big data and automation extensively for over 10 years. Our first half '24 R&D investment has risen to $177.5 million, which is 54% higher than in the first half '23 with 35% of revenue reinvested in R&D. This investment, its continued growth and a relentless pursuit of software development productivity will drive revenue expansion opportunities including within landside logistics and other major core and adjacent markets as these large product developments come to market. Some of you will have noticed that we said very little about AI last year, deliberately avoiding the buzzwords and the hype often seen in this rapidly evolving AI space. We have been quietly working with a select set of new AI capabilities to enhance our existing machine learning, big data and automations, focusing on our capability and productivity within our software development function across the company's many teams and functions and within our already highly productive CargoWise ecosystem. This careful infusion of further AI automation and productivity enhancements is already providing a substantial number of major opportunities to improve our own business and the capabilities and productivity of our CargoWise customers. This includes improved productivity and automation in areas such as software development, marketing, sales, training, staff development, product support, customer service, talent acquisition, industry training, WiseTech Academy courseware across the business units and within our CargoWise ecosystem and customer base. As a short and hopefully entertaining demonstration of this expanding capability, our publication of this script on our investor relations portal will include multilingual avatars of myself and Andrew speaking in English, French, German and Spanish. It is important to note that these foreign language videos are avatars machine translated from the English script, but not otherwise verified and should be treated as demonstration only. All of this investment in product and automation will continue to grow the platform and its customers and drive further productivity and capability across our product portfolio, enhancing our customer value chain. These product opportunities enhance our core international freight forwarding market and extend our reach into key adjacent markets like customs, compliance, warehousing and landside logistics. They are attractive to existing and new customers and they expand our capabilities into new market segments. As I mentioned in our full year '23 results, we have launched and deployed Neo to a growing number of customers. This deep additional value set allows our customers to better service their customers. As I referred to earlier, in November, we announced the acquisition of a customs foothold business in Mexico called Systemes Casa. Mexico is the second largest economy in Latin America and now the largest trading partner with the U.S. It is also the 17th largest export economy globally. Today, our CargoWise global customs capability covers approximately 55% of global manufactured trade flows. With active development projects underway and with our most recent foothold acquisitions, Sistemas Casa, this will lift the underdevelopment coverage to more than 75%. We continue to build foothold capabilities to meet our long-term objective of covering 90% of global manufactured trade flows. The expansion of our CargoWise ecosystem into landside logistics drives a significant increase in our addressable market beyond international freight forwarding. Our integration of Envysse and Bloom into the WiseTech Group is progressing well. And as Andrew mentioned, we have reduced some investments as we refocus on larger product initiatives and realize synergies faster than expected from the removal of duplication and the redeploying of talent into other development roles. CargoWise can now manage marine and intermodal containers for U.S. trucking, railroads, ocean carriers, intermodal equipment providers, global freight forwarders and BCOs, digitally linking and integrating planning, execution and visibility. Our acquisition of MatchBox Exchange in October is another key component in bringing strong container optimization into our capability stack. The MatchBox platform enables import containers to reuse directly to an export activity, which is a major efficiency improvement compared with returning the container to a container park. Turning to our second P penetration, we can see the value and power of the CargoWise system in the progress we have made in securing further global rollouts in the first half '24, adding to our list of top 25 global freight forwarders, we have secured a CargoWise global rollout with Sinotrans bringing our penetration of the top 25 global freight forwarders now in production or contracted and in progress to 13, which is more than half of the top 25. We have also secured two further large global freight forwarder rollouts with APL logistics and Yamato transport, which brings the total number of large global freight forwarder rollouts to 49. CargoWise has become the platform of choice for global logistics service providers. Using Armstrong & Associates data, which tracks the top 25 global freight forwarder marine container volumes. We know that our in production large global freight forwarder clients have over the last 12 years grown by 82% compared to 12% for the remaining top 25. This difference is staggering. CargoWise is likely to gain substantial additional customer attraction given what we are presenting here today. Finally, our third P profitability, we remain focused on driving returns through our high growth scalable SaaS model, which delivers strong profitability and operating cash flows. Our company-wide efficiency program delivered a net benefit of $1.2 million in the first half '24 with the remainder of the forecast $15 million net savings on track to be realized in the second half. On our way to achieving $40 million of annual run rate savings. We are both growth and cost focused and these programs continue to enhance our operating leverage. As Andrew has mentioned, our integration focus has been on leveraging WiseTech's global scale to recognize synergies, allowing us to delay or eliminate some planned cost investments in Envase and Blume. We expect EBITDA margins to return to more than 50% in the full financial year '26. This leads me to our guidance for the full year '24, and our continued strong growth outlook. Our guidance is based on the assumptions we have set out in the appendix of our investor presentation. Assuming there are no material changes to these assumptions and no unforeseen events that arise prior to the 30 June, 2024, we reconfirm guidance and expect to deliver full year 2024 revenue in the range of $1.04 billion to $1.095 billion, representing revenue growth of 27% to 34% with CargoWise revenue expected to grow at the lower end of the 34% to 43% range overall. In terms of full year '24 EBITDA, we expect to deliver $455 million to $490 million representing EBITDA growth of between 18% and 27%. As outlined on the slide, we expect full year '24 revenue and earnings to be less weighted to the second half than in full year '23, which had a 46%, 54% split. As this includes the impact of slight delays in several large product releases. We have delivered a strong track record of revenue, EBITDA and EBITDA margin growth since our listing on April 11, 2016, delivering 34% revenue CAGR and 43% EBITDA CAGR and 54% free cash flow CAGR really demonstrates the focus on our strategy and the strength and resilience of our business model. To wrap up today, I'd reiterate my comments from the start of the presentation. We have delivered a strong first half '24 performance, as we continue to execute on our 3P strategy. We have invested over $1 billion in product development over the in product development over the last five years with our accelerated rate of investment over the last 12 months set to continue. We continue to enhance CargoWise's Landside Logistics capability with the addition of MatchBox Exchange, while the integration of all our recent acquisitions is progressing well. And lastly, CargoWise's momentum continues with 3 new global rollouts by large global freight forwarders including Sinotrans which is a top 25. Meaning, we now have 13 of the top 25 on global rollouts. This is a truly exciting time for our business, our global team and our customers. Accredo says it best, we are truly deeply passionate about what we do and we use all of our empathy, energy, focus, courage, talent, drive and logic to confront the really big stuff that others will not. I'm excited by the huge potential we have ahead of us. My team and I look forward to reporting on our progress in the months years ahead. Let's open for questions.

Operator: [Operator Instructions] Your first question comes from Lucy Huang with UBS.

Lucy Huang: In terms of my question, just wondering if you can give us some color on the volume outlook comp coming into the start of the second half. I'm guessing with all the rhetoric around macro still being a bit challenging, have you started to see any impacts to your volume growth in CargoWise? And would you assess that it's tracking above or below your expectations for the full year?

Richard White: It's Richard. It's pretty close to what we expected. There has been a slight uptick in the latter part of the calendar year and it's followed through. It's a bit hard to say this early in the new calendar year, but it looks to us to be pretty similar to what our expectations were and it hasn't shown any significant drop. I think that’s -- it's hard to extract our growth with global logistics and so it's a distorting factor but we see that we're on trend.

Andrew Cartledge: I would just like to add to Richard's comment there as well. Remember that less than 10% of our overall CargoWise growth comes from market out of the 33% compounded growth rate that we've discussed on the last few results, 3 percentage points of that comes from the market growth.

Operator: Your next question comes from Kane Hannan with Goldman Sachs.

Kane Hannan: Obviously, a very strong first half. Since you're guiding to a bit of a slowdown in that growth in the second half despite the incremental benefit, I suppose, of the cost out program coming through. I was interested, is that the sort of trajectory we take into '25? Or can you help us to understand some of the drivers that accelerate your growth again into FY '25? Is that the delayed product release coming through and, obviously, these contracts rolling through?

Andrew Cartledge: Look, I think, overall, we're very pleased with the first half revenue at $500.4 million up 32%, and CargoWise up 40% in the first half. A really strong performance there. Obviously, the continued momentum is there coming through from FY '23. As we've said today, there's some of our product development releases which have been delayed into FY '25. As a result, we've guided to the lower end of our CargoWise revenue range for FY 25. Richard, I might just hand it over to you as well.

Richard White: I think it's very important to understand that these big releases and they're getting bigger and they're in adjacencies as well as in our core business, are very substantial product developments and therefore will affect revenue as to when they're released. This doesn't really change our long-term trajectory. I think the simple test is when you think about us today, are we in a stronger position now than we were at the beginning of the reporting period. And I think unequivocally everything that we're talking about today shows that our position is stronger going forward than it was when we started this half.

Operator: Your next question comes from Bob Chen with JPMorgan.

Bob Chen: Just a quick follow-up on that revenue growth sort of slowing down a little bit this year. I mean, just doing some quick math. I mean, it looks like sort of the full year you're sort of tracking around that sort of 19%, 20% organic revenue growth in CargoWise, one. I mean when you're thinking about sort of these new product releases is it sort of you're leveraging that to push more prices or do you expect more take up of more modules or more seats to help reaccelerate that growth?

Richard White: Well, it's always going to be a combination of those effects, but we're talking about substantial product releases with therefore, substantial revenues attached to them. And we're only talking about a relatively minor delay from the latter part of this half to the next half to the early part of the next financial year. But we're expecting those capabilities to come through. As I said in when I was talking to the detail in the presentation, we are very concerned to make sure that when we release a product that is fully complete, bug free, high value and create substantial advantages for our customers and of course revenue for us. So this question of landing a product perfectly, particularly as you get larger is not something that you should focus on. You should focus on the long-term effect of this product development. We're spending at a very efficient rate extremely large amounts of money on building revenue streams for the future. So I think that's Andrew, do you want to make any more comments on that?

Andrew Cartledge: Yes, just to add to Rich's point there, Bob, I mean. What we're seeing is an increase in the amount of in process R&D that we've got capitalized on our balance sheet. It's increased by 86% over the last 12 months, and now sits at $71.6 million. So really that what you should take away from that is that indicates the significance of the coming pipeline of new products. And that's also highlighted in terms of the increase in the hiring rates that we've seen in our product and development teams as well as the capitalized development through the back end of last year and into the first half of this year.

Operator: Your next question comes from Matt Ryan with Barrenjoey.

Matt Ryan: Just maybe some comments on Blume and Envase how the integration has gone so far? It's like you've, I guess, tweaked your margin assumptions moving forward. Just interested in how much of that's driven by those acquisitions?

Richard White: I think Andrew, do you do it first?

Andrew Cartledge: Yes, sure. Look, as we mentioned as we were going through the presentation, we delayed or actually in fact, eliminated some of the costs that we'd indicated were going to come through. And the reason that we've done that is we've been able to focus on this global scale that we have within the WiseTech business that's allowed us to look at different ways to integrate those businesses quicker and more cost effectively. That's why our first half margin is coming out ahead of our expectations at the 46% EBITDA rate on a reported basis for the first half. Those integration activities will continue through the second half as well. But that's the main reason for the margin uptick here in the first half.

Richard White: And I just want to point out that, first of all, we've done quite a lot of acquisitions in recent times, and we've become extremely adept at integration. It's a process in the company. It's not an event that happens. It's a process that we drive very carefully. And then secondly, underpinning WiseTech's development capabilities and the way that we run the business, we have very, very efficient processes. We focus on productivity, we focus on reducing defect rates, we focus on eliminating things that are not going to add value to the business going forward. And all of those things feed into the acquisitions. And as a result of that, we've made very sophisticated decisions around what we will and won't do and how quickly we'll go and what we do with these substantial assets. But equally, this is what we do for a living. This is exactly how we function. Our acquisition capability and integration capability is fundamental.

Operator: Your next question comes from Paul Mason with E&P.

Paul Mason: I just wanted to ask a bit more detail about the guidance structure. So you've got a bullet point on Slide 23 saying the second half EBITDA margin is going to be in the range of 46% to 48%, which seems to make your 44% to 46% full year guidance impossibly too low, basically. Could you maybe reconcile those two bullet points for us, if that's all right?

Andrew Cartledge: Yes. Paul, you're absolutely right. So we've indicated 46% to 48% for WiseTech's overall EBITDA rate in the second half of the year on top of the 46% that we delivered here in the first half. Obviously, we have got a revenue growth trajectory here to sort of work through in the second half of the year as well as the ongoing integration of not only the Blume and the Envase businesses, but also the most recent acquisitions, and also the cost program that is on track through the first half and delivering to expectations. So, I think those are the key variables in terms of the range. We've indicated that overall, for the year, the margin rate for the business is somewhere between 44% and 46%, and the top end of that range has increased since the guidance that we gave you with the FY '23 results.

Operator: Your next question comes from [Gary Sheriff] with Royal Bank of Canada.

Unidentified Analyst: Really strong performance specially with cash flow. Just with capitalization rates historically your target range has been 40% to 50%. It's much higher I guess first half '24 54% and again similar in the second half. How should we think for FY '25 and '26 about those capitalization rates? And the reason is because you have guided for FY '26 for margins to be above 50%. So I'm just wondering is that being aided by higher capitalization rates that you've got now continuing into that '25, '26 financial years?

Richard White: First of all, look at the capitalization rates as we progress in the business and so we're not going to make a prediction about '26, it's too far away for that. But what's actually going on with those capitalization rates is that we've been working and we've been talking about this consistently over the last few years. We've been working on those things that cause software to be less efficient or more expensive or those things that you build that you shouldn't build or and how to create the very best outcomes from an investment in software development. And that's become an extremely strong capability. We do a lot of internal training. We do a lot of internal review of the processes and we've spent a lot of time on squeezing out problems and getting better and better at building software first go to perfection. It's one of the reasons why the rate -- the the products are slightly delayed to the early part of FY '25, because we are really building the best we can possibly build. So those capitalization rates are a goal for us to try to lift but it is -- we are actually very efficient. Getting squeezing more out of that is going to be quite a job. I think we should leave it as, as we've said, Andrew?

Andrew Cartledge: Yes. just to sort of add to Richard's comments there, the 50% plus EBITDA margin return in FY '26 is really driven by revenue growth and the operating leverage that the business throws off that achieves that, it's not us diving into more capitalized development to get to that at all. I want to be very clear on that. It is revenue growth and operating leverage that's driving the track back to 50% plus EBITDA margins.

Operator: Your next question comes from Nick Basile with CLSA.

Nick Basile: Just a question on Slide 21. I think it's trying to show us the performance of CargoWise in production customers versus performance of top 25 players without it. How powerful is that message when you go to sell the CargoWise platform to C-Suites whose businesses are not influenced [inaudible] of your ability to win some of the remaining top 25 more quickly or perhaps, continue to see elevated spend from existing customers? Just interested in the conversations and the feedback.

Richard White: It's certainly a very powerful message. First of all, marine containers are 90% of international shipping. And so it's a very strong indicator of what's going on in the marketplace. I think if you look at that you can correlate that to a lot of different things, but ultimately, we have very successful business in that top 25, and we're able to extract using Armstrong & Associates, say, we can extract this data and present it in this very simple way that shows what's going on with our customer base. I do think it's going to attract some attention or I do think it's going to make a difference to people or when this are looking at these things. So if you think about what we're talking about here, we've always talked about productivity at the center of everything. We've shown you that we've got the productivity and that the customers that use CargoWise are significantly advantaged by being on a platform which is truly global, live and real time single database. And this is just another data point that indicates that capability, is it going to help us in sales? I'm pretty sure it will. But there are many other things that drive our sales results. And now that we've signed Sinotrans, we now have 13 of the top 25, that's more than half. There's a tipping point effect here. I think that will start to occur. And I think we need to keep working very hard on being highly productive in how we build software and making sure that the software that we put in front of customers is the best it can possibly be and creates further and further competitive advantage and productivity and cost reductions for our customers. After all, that's what creates growth.

Operator: Your next question comes from Roger Samuel with Jefferies.

Roger Samuel: I've got a question on your guidance. It looks like you have increased the benefit from FX by about $5 million and yet you have increased the proportion of revenue as well that is covered by hedging. I just want to understand that extra $5 million was that already banked in the first half?

Andrew Cartledge: Yes. Roger, a little bit of it came through in the first half. And you've seen quite rightly we've lifted the FX benefit in CargoWise revenue from $10 million to $15 million for the year to $15 million to $20 million I did indicate in the comments there that that's evenly split, first half to second half and there's a little bit of improvement in the first half, FX numbers versus what we had back at FY '23 results. And then correspondingly, there's a little bit coming through in the second half as well. The hedging program has sort of continued to add a little bit of volume. It's now at 65% to 70% of the second half revenue that's covered by some form of hedging instrument.

Operator: Your next question comes from Siraj Ahmed with Citigroup.

Siraj Ahmed: Just a two part question on organic growth expectations. Can you just clarify what's assumed in terms of organic growth for '24? Because I do think the recent acquisitions, MatchBox and Sistemas is adding another $10 million to '24 number. On that, Andrew, you previously mentioned that second half should see organic growth back to that sort of 30% target that you have. Is the expectation is new products drive that in 2025? Is that is that the way we think about it? Because it seems like it's going to be 20% this year.

Andrew Cartledge: Organic growth in the first half of the year, we expect to see continue into the second half of the year, given the range that we've indicated for CargoWise revenue growth. I think you can kind of use the first half as a bit of a proxy for the second half. The thing that returns it to sort of the 30% plus type of areas Siraj are all the elements that drive our revenue growth. It's all of the wins that we've had with the large global forwarders that are in the process of them rolling out. They're coming onto the platform. As they roll out, they generate more revenue. It's new customers outside of the large global forwarders. It's price increases. It's product development. But it's also the new products that Rich has talked about today and the significant pipeline in process R&D that we have on the balance sheet that is due to launch in FY '25. All of those elements are in play as we move forward, as they have been in the past.

Operator: Your next question comes from Roy Van Keulen with Morningstar.

Roy Van Keulen: Clearly, Slide 21 was the most interesting one for me for obvious reasons. It's really impressive. Maybe performance should be the fourth key behind product penetration and profitability. But I was wondering, Richard, what you attribute outperformance of your CargoWise customers to? And then to what degree should we expect revenue to grow with their outperformance of market share? And then lastly, what are the implications not just for customer acquisition but for if your customers just grow because of your product, do you really need to attract that much more customers or can you just wait for your existing customers to take market share?

Richard White: First of all, I think that data point on Slide 21 is just one data point. It just happens to be a very strong data point, but it doesn't mean that there's going to be some big bang explosion. I think we have to work very hard with the market with our potential customers, and we have to explain why changing is going to make a difference to their business. But I think we'll refer back to the total picture here rather than any particular slide deck. We've just crossed the halfway mark in terms of top 25 penetration. That's a significant thing. We're putting enormous amounts of investment into forward product development using AI, machine learning, big data automation. We're going to give every effort to making the platform even more efficient and effective and productive than it is now. And we're going to continue to prosecute this, long-term vision, which is much stronger now than it was even 6 months ago because of the fact that we've got this ability to create value through product releases, and of course, that adds to our revenue stream and it adds to our customer success. So I think there's no one point that indicates success. It's the combination of all the things we're doing and the continuation of the 3P strategy and our incredible focus on efficiency of product development and building innovations that make the industry better and better and solve these deep fundamental problems that nobody else is solving. That's the real secret sauce.

Operator: Your next question comes from Andrew Gillies with Macquarie.

Andrew Gillies: I'd just love a little bit of additional insight on the early access program. Are there any particular areas of customer interest? Can you provide any color on perhaps the types of customers participating and how many there are?

Richard White: In the early access program?

Andrew Gillies: Yes.

Richard White: I think it's quite broad, given the number of customers that have signed in the pipeline to sign. I think it's a good representation of our customer base. Typically, when you're doing these early access programs, it is smaller customers that jump in first, because they have less concern about the scope of their business and the size. But we are getting a lot of interest across the entire customer base. And it's still pretty early days in this program because we've got a number of fundamental products that we're releasing under this early access program. Many of them have some very broad implications for the long-term growth of the company and the success of our customers. But I'm going to tell you that it's a great new program. It means that we get much better customer feedback much earlier so we can actually build a much better product when it gets finally commercially released. It's very positive.

Operator: Next question comes from Tom Beadle with Jarden.

Tom Beadle: Just a follow-up from Gary's question on that 50% FY '26 EBITDA margin. I realize it's revenue growth and operating leverage to get you there. But just what is the capitalization rate for product design and development that you're assuming to get there? I assume it's probably falls back to maybe the mid-40s. Is that a fair assumption?

Andrew Cartledge: Look, we're not going to give any guidance right now in terms of capitalization rates into sort of '25, '26. We'll update you on that as we get through '24 results. I think what we're demonstrating in this set of results and consistent with we discussed the full year '23 is that the level of productivity and efficiency that we're generating in our development processes, the number of new developers that we're bringing on to focus on new product development areas has increased our capitalization rate through FY '23 and in the first half of FY '24. That's a great thing. That means we're focused on not fixing bugs and issues and defects in the software. But it means that we're really focused on, building strong new products that will generate future revenue growth. And like I said, we'll come back to you at the end of the year with an update on where we think that'll land for FY '25.

Richard White: I will add, though, that I think our focus in terms of getting back to margin is related to cost controls and related to revenue growth, not related to the fact that we want to be more and more efficient in development is not connected to our prediction about getting back 50% growth in '26. It might have a tiny impact on that but our real fundamental focus is we are very, very focused on revenue growth and we're very focused on being as efficient as we possibly can be in cost set in cost set. And there's, as Andrew has pointed out and I pointed out, there is a program which we're hoping to pull quite a lot of costs out of the business at the same time as continuing to grow revenue. That's what's driving '26.

Operator: Your next question is a follow-up question from Bob Chen with JPMorgan.

Bob Chen: Just a follow-up. Just in terms of the product enhancements that's been sort of delayed into FY '25, I mean, is there any color on when it might land in '25? Would be more towards the first half or maybe sort of later through the year. Have you thought about that?

Richard White: With that I want to give you perfection in delivery of product because these are big things, we're expecting it to be earlier in the first half. We might have got a little bit of the revenue in the latter part of this half. But it is not a thing of precision. When you're building product, you have to make sure that it's complete, working very well and able to be commercialized before you get revenue from it. So that's one of the reasons for the early access program, so that we can build confidence in the product releases and make sure they're hardened before we deliver them. We're working very hard to make sure that they get in as quickly as possible and we're thinking early in the first half of '25.

Operator: Your next question comes from Stuart Turner with Blue Ocean Equities.

Stuart Turner: I was wondering to what extent the 13 out of the 25 global rollouts is categorized one penetrated within the organization. How much more capacity those large sophisticated organizations have to increase the usage within their staff of the product?

Richard White: This is a great question because it shows that this is a multidimensional problem. So if you just think in terms of winning a new customer as the way of growing revenue, you're not in the right space because we do -- whilst we do think of that and that's very important, we've just crossed the halfway mark in the top 25, and that would be indicative of the top 200 as well. What we're really talking about is a multidimensional growth we're talking about growing into multiple adjacencies at the same time as we're talking about more penetration in the core. We're talking about creating much more value within the sector that we're in, so that's meaning giving people more and more productivity, cutting their labor costs and making their work more efficient, more effective and less risky, highly compliant adds value. So there isn't one dimension of sales. It is a multidimensional cube of how you build things to grow the company.

Operator: Your next question comes from Paul Mason with E&P.

Paul Mason: I just was hoping to get a bit of color on how Neo's gone out of the gates. Whether you've seen much take up from your customer bases, customers yet and whether you've started marketing proactively to any of the bigger BCOs as well?

Richard White: Well, remember that Neo is a product designed for our customers to present to their customers as an advantage. It will have an impact on our customers capabilities and particularly their ability to service their customers and provide productivity where otherwise customer -- a lot of human driven customer service is often presented. So that is an important thing. We are not selling directly to BCOs here. We're marketing through our existing customers to their customers. And that isn't a revenue item, at least in the medium-term. What it is an extraordinarily powerful way of adding value to our customer's platforms and bringing in their customers into the CargoWise ecosystem. Now, I've been surprised and delighted by the take up of Neo. We've had a lot of people queuing up to be in the early access program to get onto that. And we have to moderate how quickly we can roll it out, because we do have to do some configuration and some training with that, but it is going extraordinarily well. Meanwhile, whilst Neo is rolling out in this program, we are also expanding and adding new modules to it, creating further capabilities, hardening it for the customers, giving a better user experience across the platform. But I'm going to tell you that Neo is very powerful platform. It's going to make a big difference to our exposure to the world and it is doing very well.

Operator: Your next question is a follow up question from Siraj Ahmed from Citigroup.

Siraj Ahmed: If I could just ask two questions, just first one, Richard, in terms of just the delays to new products. A bit surprised given the cargos process is quite refined and using actually better productivity benefits. So is the delay just a function of getting customer feedback to add more functionality? If you can just clarify on that. And secondly, Andrew, in terms of Blume and Envase, I think you said it did 53, I think our acquisition did $53 million in the first half, the guiding to 125 to -- the lower end of 125. So it sort of implies a pickup in the second half. If you can just clarify that and whether that that's how we should think about the run rate into FY ' 25?

Andrew Cartledge: Yes, Siraj, I'll take the second piece first and then Richard can talk about the product development question. Yes, you're absolutely right in terms of the revenue reported in the first half. These businesses do have some think about it as implementation type revenue or project revenue. And we are anticipating to see a slightly higher volume of that in the second half of the year for projects that we're working through at the moment. So they're in trend and there's also inherent revenue growth in those businesses as well as we'd expect to see. So those are the two things that are really going to pick up in the second half. I'll hand it over to Richard just to go over the new product questions.

Richard White: So when we are building product generally, we need to get the product to a position that it is market leading before we commercialize. We bring customers in early on for a couple of different reasons. One is to harden the product to make sure that we've covered off everything so that it is fully able to be commercialized. And secondly to get feedback on where we should take the product further. One of the things that we've learned and I think is very well understood in the product development community is that products never finished. They're always released and growing and becoming bigger, better, faster, smarter, more powerful. There's not any different with Neo and it's not any different with our CargoWise business and with -- if you look at the customs rollouts we're doing. These are always improving and getting bigger and more across the world. If you look at the warehouse suite, we're always growing those things. This is a constant effort to make things better and better. I think just to refer back to the AI discussion, we now have the ability to transmit ourselves with a much greater capability, much more efficiently and much more globally because of those AI capabilities we've demonstrated. I remind people to have a look at the avatars. Andrew and I are speaking on a video and you'll see that when it's posted now. It's just been told it's been posted. We're speaking in the English script, as you've heard today. We're also speaking in French, Spanish, German and Mandarin. And I can assure you that, I don't know any of those languages, but I'm apparently very fluent now. That's all. And none of us actually recorded that. There is no video. That's completely an AI avatar. These and many other automations and machine learning components are going to make our product, our company and our customers much more productive.

Operator: Your next question comes from Roger Samuel with Jefferies.

Roger Samuel: Just want to go back to the guidance again and just want to confirm for shipment maximum Envase and Blume that you're expecting the margin to improve in the second half. Is that implying that it's still loss making or is it going to make a positive contribution in the second half?

Andrew Cartledge: It's a good one. I think in one of the backup slides, we've showed you where the margin has come out for the first half for the acquisitions. I think it's on Page 31 from memory. You can see $53 million of revenue in the half, generating a negative EBITDA of 6.1%. I think that's about a negative 7% EBITDA margin for the first half, which is obviously an improvement on the negative 15% that we saw in FY ' 23 there. We are expecting to see the margin to continue to improve. A little revenue growth will drive that, obviously the integration activity within the business too. That's part of that's all built into the second half margin right.

Operator: Next question is a follow-up question from Lucy Huang with UBS.

Lucy Huang: Just can you give us some more color on the trend customer wins particularly Sinotrans, which products are involved in this particular rollout? Is it mainly global freight forwarding or are you starting to see elements of customs in it as well?

Richard White: In the Slide 20 and in my comments about those wins, we're only talking about our global forwarding capability. We haven't been specifically reporting mines in those other places other than to say that the customs component is running quite well now. We've got a major program to go back to those large freight forwarders and to encourage them to use the global customers because they don't really have to sell these additional modules. They are literally on and available in use and all we have to do is assist our customers to understand that they're train some of the staff to get them there, and then start using. So we are getting obviously good take up in global customs. We're getting good take up in warehousing. We've got a major program in both customs, warehousing and in our Blume optimization -- logistics optimization to provide those capabilities at scale to a much larger group of customers. That takes time because these are very large customers in the main, and they do take a conservative approach to implementing software when they're already busy. But it is going very well in those spaces. However, as you requested in the question, we are just talking about the forwarding module when we talk about the rollouts.

Operator: We've come to the end of our Q&A. I'll now hand it back for closing remarks.

Richard White: Thank you everybody for attending today. I'm delighted with the results and I think you've seen in the deck and our considered approach to communicating this how confident we are about the future of the company. I think we are in a much stronger position today than we are in the beginning of this half and we are certainly looking forward to delivering exceptional results as we go forward. As we have been in the past, we will continue to do in the future. Thank you everybody for attending.

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