Source: FY21 Results Investor Briefing Materials (Slide 18 and 7).
WiseTech’s strategic vision is to be the operating system for global logistics and our mission is to create breakthrough products that enable and empower those that own and operate the global supply chains of the world.
To achieve this, our strategy is driven by our people and centred around the 3P’s: Product, Penetration and Profitability – with a focus on accelerating our global growth by leveraging the structural changes that are currently taking place in the global logistics and supply chain sectors.
In particular, WiseTech's strategy is focused on capitalizing on the growing demand for integrated global software solutions as industry consolidation drives large logistics providers to replace their legacy in-house systems with integrated software solutions that deliver increased visibility, productivity and control.
Our customers operate in a highly complex, dynamic, ultra-competitive environment. CargoWise’s competitive advantage is its ability to continue to rapidly enhance productivity and capability, drawing away from regional and local competitors, delivering advantages to customers and potential customers still on aging legacy systems. This is what enables us to retain customers, increase their CargoWise usage and attract new customers.
We are a ‘product-led’ business and have reached an inflection point in our growth trajectory which can be seen in our financial performance.
Our focus on the Top 25 Global Freight Forwarders and top 200 global logistics providers, is gaining traction. Importantly, we have a strong pipeline of potential new global customers, which we are actively pursuing.
Our ability to secure new global customers is driven by the appeal of our CargoWise offering and our ongoing product development and enhancement. In FY21 we expanded our CargoWise native customs functionality to cover approximately 45% of global manufactured trade flows, up from approximately 35% in FY20.
We also completed the product integration of global rates functionalities secured by our CargoSphere and Cargoguide acquisitions. These are now in production with major customers, and we have commenced the rewrite of this functionality into CargoWise as a native module.
Also, of strategic note in FY21, was the addition of sea freight to our eCommerce capabilities; the addition of 1,096 new CargoWise product features and enhancements, and the deployment of the beta version of CargoWise Neo to a select group of customers.
Our product development and increasing market penetration drive our top line revenue growth, which coupled with the delivery of our organisation wide efficiencies and acquisition synergies enable us to achieve a step change in operating leverage, enhancing our Profitability not just in FY21 but also setting us up to deliver ongoing, attractive returns for shareholders in the years ahead.
For more detail on each of our 3P strategy focus areas, please see slides 19-24 of our FY21 Results Investor Briefing Materials here.
Source: FY21 Results Investor Briefing Materials (Slide 22).
With fully digital and highly automated global logistics solutions still in very early stages we have considerable scope for growth.
Our approach is to target global rollouts by the Top 25 Global Freight Forwarders and the top 200 global logistics providers because they can fully leverage our global capabilities and therefore provide the greatest revenue growth potential.
On the above slide (slide 22 of our FY21 Results Investor Briefing Materials), you can see the progress we have made in securing global rollouts.
We have grown our global rollouts in two ways; through CargoWise customer contract commitments and by existing customers who are not on formal roll out agreements but are growing organically adding new geographies and users as they go.
Over a third of the 31% CAGR of our CargoWise recurring revenue, over the past five years, has been driven by Large Global Freight Forwarder rollouts.
What is of note over the past 12 months is the significant momentum we are seeing in global rollouts and new customer wins.
In FY21 we secured six new global rollouts and we signed FedEx post our end of financial year.
These wins are in addition to the existing 30 global rollouts that we already had in place, such as DHL Global Forwarding, DSV/Panalpina, and Bolloré. Importantly, we have a strong pipeline of potential new global customers which we are actively pursuing.
Source: FY21 Results Investor Briefing Materials (Slide 6).
Overall market conditions in global logistics in FY21 continued to be impacted by ongoing COVID-19 restrictions, with consumer demand for services shifting to demand for goods, supported by various country specific fiscal stimulus measures, boosting demand for global trade.
However, limited sea freight capacity, port access issues and container availability challenges, coupled with reduced air freight bellyhold capacity caused by passenger travel restrictions, have resulted in constrained capacity, congestion, disruption and higher freight rates.
Whilst higher freight rates do not translate into immediate revenue growth for WiseTech, we are benefitting from the acceleration in longer-term structural changes that these conditions create, in particular through digital transformation as logistics providers fast track the replacement of their in-house legacy systems with integrated global software, such as CargoWise.
These conditions are also driving increased consolidation within the sector, for example, the recently announced acquisitions of JF Hillebrand by DHL and Greencarrier by JAS, as well as DSV’s publicly announced interest in acquiring DB Schenker.
Typically, consolidation is driven by the larger global logistics providers, and WiseTech benefits to the extent that our customers are the acquirers, or our platform is in place in the acquired business and adopted by the acquirer.
The market buzz around other potential acquisitions, shows an acceleration in appetite, size and speed for consolidation among the top 200 global logistics providers, that WiseTech regards as our target customers.
Source: WiseTech's 2020 Investor Day presentation.
WiseTech operates in the global logistics service provider software market. Our CargoWise offering provides a cloud-based, supply chain and logistics execution software solution that enables our customers to manage their involvement in logistics and the global supply chain in areas such as freight forwarding, customs clearance, tracking, warehousing, cross-border compliance and transport by air, sea, rail and road.
According to research firm Armstrong & Associates, the global logistics market is valued at approximately US$9 trillion1 and expected to grow at approximately 5% p.a. through to 20232, reflecting increasing global trade flows. Gartner estimates transport and logistics IT expenditure in 2019 was valued at $164 billion or approximately 2% of the total global logistics market3.
Looking more specifically at the global supply chain software execution IT segment, Gartner estimates this to be valued at US$4.7 billion in 20194 with the broader global supply chain software management IT segment valued at US$15.2 billion5. This is supported by Allied Market Research which estimates the global supply chain management market to be valued at US$15.9 billion.
We have for some time spoken about growth in global logistics occurring at a time when structural change is also taking place.
Logistics service providers are facing a number of challenges including increasing supply chain complexity, greater regulation, compliance hurdles and cost pressures resulting in:
- a move to digitalization or what we call “straight through digital processing” when you consider CargoWise One and CargoWise Neo;
- growing demand for an integrated global logistics technology solution; and
- further industry consolidation.
1Source: Armstrong & Associates, Global 3PL Market Size Estimates, 2019 Logistics Cost, March 2020
2Source: Armstrong & Associates, Global 3PL Market Size Estimates, Global Logistics Costs Growth Expectations, 2018–2023
3Source: Gartner Transportation & Logistics IT Expenditure, Worldwide, 2019, 3Q20 Update, 5 October 2020
4Source: Gartner Supply Chain Software Execution, Worldwide, 2019
5Source: Gartner Supply Chain Software Management, Worldwide, 2019
Source: FY21 Results Investor Briefing Materials (Slide 12).
This answer looks at our historic revenue growth drivers, and provides a framework for how to think about our CargoWise revenue growth trajectory going forward.
On a constant currency basis, over the past five years CargoWise recurring revenue has almost quadrupled from $84.5 million in FY16 to $321.9 million in FY21. This equates to a 31% compound annual growth rate over the five years.
The above slide (slide 12 in the FY21 Results Investor Briefing Materials), helps illustrate the relative contribution to our CargoWise recurring revenue growth from each of our revenue drivers. The table separates out the relative contribution to growth based on the averages over a five year period, recognizing that the contribution to growth of each of these may vary year-on-year.
The biggest driver of CargoWise recurring revenue growth over the past five years has been Large Global Freight Forwarder rollouts, which have contributed just over a third of our revenue growth or 12 percentage points of the 31% CAGR.
This also highlights why the six new global rollouts secured in FY21, and the signing of FedEx post 30 June 2021, are significant when considering our future revenue growth pipeline.
These large customers take multiple years to rollout the CargoWise platform across their sites globally. This means their usage and transaction revenues continue to grow over time.
The next biggest contributor to CargoWise recurring revenue growth over the past five years has been new customer wins across the FY17 to FY21 cohorts, which contributed 6 percentage points of growth.
Next, are over 4,300 new product features and enhancements reflected in price which contributed 4 percentage points to our growth.
Increased usage by existing customers contributed 3 percentage points to growth, with major new product launches and underlying supply chain market growth each contributing 3 percentage points to growth.
What is important to note is that of the 31% CargoWise compound annual growth rate, 28 percentage points of this growth relates to WiseTech specific factors primarily our increasing market penetration and the appeal of the CargoWise customer value proposition. This has enabled us to significantly outpace the overall market growth.
CargoWise non-recurring revenue growth over the past five years has been driven by customer paid product enhancements, which are important future growth enablers.
Looking ahead, we anticipate future CargoWise recurring revenue growth will reflect our historical experience – driven primarily by the acceleration of large global freight forwarder rollouts and further new contract wins, as well as the launch and expansion of new products such as customs and rates and longer-term new product developments such as CargoWise Neo.
We intend to provide updates on the relative contribution to our revenue growth drivers at our full year results each year.
Source: FY21 Results Investor Briefing Materials (Slide 13).
On the above slide are three graphs charting our operating expenses year-on-year since FY17 across three areas: product design and development; sales and marketing; and general and administration expenses.
Overall, our operating expenses as a percentage of revenue were down 9 percentage points in FY21, reflecting leverage from revenue growth and the benefits of cost reductions across the business as part of our organisation-wide efficiencies program.
In terms of product design and development expenses, we continue our long-term R&D commitment to drive innovation and the development of new CargoWise product features and enhancements. Our FY21 product design and development expense increased by $3.9 million to $88.8 million for the year, compared to $84.9 million in FY20.
This represents an increase of approximately 5% on FY20, but equates to a reduction in terms of percentage of revenue from 20% in FY20 to 17% in FY21, reflecting our revenue growth and cost efficiencies for the year.
Approximately 55% of our FY21 product design and development expense is related to supporting the maintenance of acquired legacy products. There is an opportunity for us to continue to reduce this cost as we transition the IP from these legacy products onto our efficient CargoWise platform.
Our sales and marketing expenses were down 4 percentage points as a percentage of revenue, from 13% or $57.0 million in FY20 to 9% or $45.0 million in FY21. This reflects cost reductions in sales and marketing headcount across our acquired businesses and a deliberate, more targeted sales and marketing focus on the Top 25 Global Freight Forwarders and the top 200 global logistics providers, as well as a reduction in travel and tradeshow costs due to COVID-19.
Importantly, our success in growing our new customer revenue and securing additional large global rollouts in FY21 demonstrates the effectiveness of our targeted sales and marketing focus.
Our general and administration costs increased from $84.1 million in FY20 to $89.1 million in FY21. This increase was predominantly the result of the $8.2 million in restructuring costs as part of our organisation-wide efficiency program.
Excluding the $8.2 million of restructuring costs, general and administration expense in FY21 as a percentage of revenue was 16%, a 4 percentage point improvement on FY20.
Source: FY21 Results Investor Briefing Materials (Slide 23).
Our large global customers take multiple years to roll out the CargoWise platform across their business units and geographies. As the roll-out progresses they add new countries, adopt new modules and implement our productivity tools.
DHL is a good example. We signed a global rollout contract with them in FY16 and over the next few years they have completed the rollout of CargoWise. This has been a five year process and, as noted by DHL, it is one of the fastest rollouts by a freight forwarder of this size.
Of the 36 global rollouts in place at the end FY21, 29 are ‘In Production’, which means they are operationally live on CargoWise having rolled out to 10 or more countries and 400 or more registered users.
The remaining seven are ‘Contracted and in Progress’, which means they are at an earlier stage of their global rollout.
From a revenue generating perspective, you can see that these 29 global rollouts ‘In Production’ have delivered compound annual growth of 37% over the past five years. This has been driven by the progression of rollouts by customers such as DSV, DHL, Toll, Yusen and Geodis and the adoption by these 29 customers of additional CargoWise modules, products and features, as well as customer expansion through M&A activity such as DSV/Panalpina.
Importantly, eight of these 29 customers 'In Production' are top 25 global freight forwarders. These eight have generated a much higher compound annual growth rate of 46% over the past five years, which explains our focus on securing global rollouts by these big players.
Looking ahead, given the significant runway of new customers available to us in both the Top 25 Global Freight Forwarders and the top 200 logistics providers, which we are actively pursuing, we expect to see future revenue growth driven by additional large global customer wins.
We also anticipate significant growth from the global rollouts that are ‘Contracted and in Progress’, two of which are Top 25 Global Freight Forwarders. To give a sense of the magnitude of this opportunity, if you look at the seven rollouts that were ‘Contracted and In Progress’ in FY21, collectively they have less than 10% of their expected users currently live on CargoWise, however, they have delivered 158% of compound annual revenue growth over the two-year period from FY19 to FY21, indicating there is significant future growth to come.
Our existing 29 customers with global rollouts ‘In Production’ will also continue to drive revenue growth as they add new products, features and geographies. In particular, as we increase our customs coverage from approximately 45% of global manufactured trade flows to our target of 90%.
We anticipate continuing industry consolidation will also support our future revenue growth with our Large Global Freight Forwarder customers well positioned to leverage future consolidations to grow.
Our strategy is designed to accelerate growth by leveraging structural changes, and our people focus on our 3P’s – Product, Penetration and Profitability – to deliver our vision.
We bring meaningful, continual improvement to the world’s supply chains. We replace aging, legacy, proprietary and domestic systems with efficient, highly automated and integrated global capabilities.
Our breakthrough software solutions are renowned for their powerful productivity, extensive functionality, comprehensive integration, deep compliance capabilities and truly global reach.