New Eroad boss Mark Heine on where his fleet tracking company went wrong, how it plans to reverse recent losses, a board room refresh on the way, a directive to return to the office, a consumer opportunity as the Government starts charging an army of EVs road user charges from early 2024, the abrupt departure of the firm's founder and how he, as the in-house lawyer, managed to take the top job.
You don't need a fancy GPS system to see Eroad has gone a bit off track.
Mark Heine, who was named the Auckland firm's new chief executive on June 21, takes the reins at a time when its shares are cratering (they have fallen from $6.69 in July 2021 to a recent $1.45) and its accounts have swung into the red.
Its stock continues to be under pressure. Investors, it seems, are yet to be sold on the merits of its $158m takeover of rival Coretex - a deal that closed in December.
Eroad makes fleet tracking hardware - everything from hubometers to record mileage for road user charges, to GPS trackers, to systems for monitoring engines and video cameras that can be pointed at both the road, and a driver - plus software to wrangle it all and help trucking firms calculate the cheapest routes, minimise fuel and maintenance costs, and fulfil their health and safety obligations over drivers' rest times.
Sales were up for the year to March, rising from $92m to $115m as four months of Coretex revenue was added to the mix.
But operating expenses ballooned from $61m to $94m, and Eroad reported a net loss of $10m, against a $3m prior-year profit. Its bottom line is forecast to be somewhere between breakeven and a $5m loss for the current year.
What went wrong?
Heine says some of the loss is down to expenses attached to the Coretex acquisition.
But he also says Eroad miscued its strategy between 2017 and its Coretex deal.
"We were focusing less on hardware and more on services. We slowed down our hardware journey. We probably didn't invest as much there from 2017 to 2019 as we should have. We got off the pace a bit and that slowed down our sales."
It pitches the Coretex deal as the solution.
"They are where we were going to be in two years' time.
"They already had the product suite that we were looking to do. Their CoreHub product, which is a 4G enabled, Internet-of-Things device with Bluetooth sensors, cameras and other sensors, we see that as a fantastic piece of technology. It's going to be a key enabler of growth."
And where Eroad's strength has been in regulatory telematics - calculating road user charges and making sure they're paid on time, calculating fringe benefit tax and fuel tax credits in Australia and monitoring work-time rules in the US - Coretex is stronger in enterprise support and product assurance.
"They've also got brilliant technology in refrigeration and construction to certify the quality of what's being carted around, whether its Covid vaccine or Chick-Fil-A burgers".
Coretex was also ahead in the key US market (North America is the largest and fastest-growing market for telematics), and had a strong engineering team at its home base in NZ, Heine says.
"My role really in the business is to make sure that two teams integrate well together. We're really well advanced in doing so at the moment."
Post-deal, there are close to 700 staff, split between Eroad's headquarters in Albany and Coretex's office in Parnell. Heine plans to keep Coretex's office open, but to also get the two engineering teams working as one.
An in-house lawyer is not the obvious pick to take the CEO role and rev up team spirit.
There are not many precedents. But Heine - Eroad's general counsel from 2015 until his ascension to the big chair - has an example at his fingertips: Sky CEO Sophie Moloney was the pay-TV provider's chief legal officer before taking the chief executive role (after a six-month inbetween stint as chief commercial officer). Moloney has overseen turnaround in subscriber numbers, and strengthened the balance sheet to the point where the dividend will finally be reinstated in September.
"As a lawyer, I have a really good understanding of the fundamentals of business, negotiation and strategy and bringing people along with me. I also am good at evaluating situations and forming decisions quickly," Heine says.
He became acting CEO after the abrupt departure of Eroad founder, chief executive and major shareholder Steven Newman in early April.
His front-foot, pick-up-the-pace decisions have included a mandatory return to the office for at least two days a week.
Face-to-face collaboration is just faster and more effective for product development. He says he proved his people leadership and logistical chops as interim boss, leading to the board's decision to make the position permanent.
Regardless, investors have yet to return the love. Analysts say that's in part because of poor communication. Newman's resignation with immediate effect on April 8, came as a surprise to investors. No reason was given in a brief NZX statement. Shares dropped 11 per cent on the day.
Eroad said on April 8: "The board and Steven commenced succession planning in 2020. With the completion of the acquisition of Coretex Limited, and the relaxation of Covid-related travel restrictions, an international search to identify potential CEO candidates is well advanced."
There had not been any previous NZX filing on Newman and succession planning.
Jarden analyst Guy Hooper said in April the "timing and nature" of the resignation increased the risk that Eroad would struggle to grow the business.
"The immediate nature of the recent management changes is disappointing and deserved of a risk discount," he said.
One sharebroker wrote in a private note that the resignation announcement was "almost insulting" in its lack of detail about why its founding CEO had decided to suddenly resign mid-way through the succession process.
Heine says Newman made a personal decision to step away.
"The board had been working with Steven for over a year on succession planning. So Steven absolutely intended to step away from being a CEO and moving into a managing director role in the business," Heine says.
"He decided to exit the business in April. We respect his reasons for doing so [and] absolutely would love to get ahead of investors to let them know about succession planning, but Stephen's leaving in April was a bit ahead of schedule than what we expected."
Heine hints that Newman - a logistics head for Navman before starting Eroad - had outgrown his comfort level as a founder as the firm got larger, and that he
had simply reached a stage where he wanted to leave pyramid-building hours behind.
"Steven enjoys working in a smaller organisation where he is able to be more involved in day-to-day development as opposed to running a larger organisation. He also drove himself incredibly hard so it was time for him to step back," Heine says.
Newman could not be immediately reached for comment.
That all makes sense, apart from Newman exiting stage left while succession planning was still in mid-flow.
Heine refuses to comment on the immediate trigger, beyond saying that it was a personal reason.
And he emphasises that the founder is still constructively engaged. Newman remains Eroad's largest single shareholder, with a 12 per cent stake, and Heine says he gets on well with the founder and uses him as a sounding board.
"He's still a very strong supporter of the company. We catch up often. I had lunch with him, again, last week. He's really supportive of me being the CEO.
"Supporting the company going forward, he helps set the vision and a strategy that we're working on, and we have every belief we're going to deliver on it.
"Stephen made his own decision to move on. He'd been working incredibly hard for the business for a long time. He decided to step out at that point in time. I respect his decision for doing so."
More change is on the way.
Heine says he wants to make Eroad a "mid-Pacific" company, with half of its executives in NZ (home to its R&D) and half in its key US market.
Eroad currently has two Americans on its board (Barry Einsig and the recently appointed Sara Gifford) and four Kiwis (chairman Graham Stuart, Susan Paterson, veteran entrepreneur, political agitator and Coretex founder Selwyn Pellett, and Tony Gibson, who resigned as Ports of Auckland CEO in May amid controversies over workplace deaths and a $65m write-off a failed automation project).
Heine says the board will shift to a 50/50 US-NZ mix by year's end.
A heavy spend on research and development won't change, he says.
"We spend over 20 per cent of all our revenue on R&D; principally that's done in New Zealand with engineering teams. That added investment in R&D has caused the loss to be a little bit higher than we wanted. But we are doing the investment because we think it's right for long-term growth of the company. There's a lot of room to grow in New Zealand, Australia and the US."
It helps that governments and local authorities around the world are shifting their emphasis from fuel taxes to road user charges - in large part because the coming shift to EV cars and trucks means revenue from fuel taxes will dry up (here, EV owners will be required to pay $760 in road user charges per 10,000km from March 2024). That's a shift in landscape to Eroad-friendly territory.
Governments worldwide will also be placing more and more emphasis on reducing emissions - providing more opportunities for Eroad (and its peers) with their products for minimising fuel waste and cargo spoilage. It's no coincidence that Eroad is an emerging ESG advocate and has recently moved to produce an annual sustainability report.
Heine is open to a consumer play as more and more EV owners fall under road-user charges, but says his immediate focus will be on driving growth from Coretex's products for large organisations.
Eroad finished FY2022 with a modest $13.9m in cash (plus $58m undrawn on a $90m facility).
But Heine says: "Eroad does not anticipate the need for a capital raise in the foreseeable future. We have enough headroom in our facilities to grow organically to at least $250m revenue by FY2025."
For this year - its first with a full Coretex contribution - Eroad is predicting revenue will increase from $114m to $150m to $170m, with ebit somewhere between break-even and a $5m loss.
When will Eroad return to profit?
The best Heine can offer at this point is to repeat Eroad's line that margins are expected to improve, and costs flatten, from FY2024.
In trucking terms, it's a medium-haul.