Knowledge hub

Source: 1H23 Results Investor Briefing Materials (Slide 20).

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 20 of our 1H23 Results Investor Briefing Materials), you can see the progress we have made in securing further global rollouts in FY23. On the right-hand side of the chart, you can see the addition of Kuehne+Nagel, our first global customs rollout as I have mentioned, as well as NTG, IFB, and EMO Trans in global freight forwarding.

We added three new organic rollouts ‘In Production’ in the form of DB Group, Jet Logistics, and Maersk. This follows Maersk’s acquisition of several companies including Senator, which has been a WiseTech customer since 2012, so Maersk replaces Senator on the slide, and reflects their recently announced unified brand.

We have talked before about the benefits of continuing consolidation amongst global logistics operators. Maersk’s acquisition of Senator, along with JAS’s acquisition of Greencarrier and CEVA’s acquisition of GEFCO, are all great examples.

This now brings the number of global rollouts to 47. This demonstrates how our customers grow with us and how our software becomes increasingly integral to their operations.

These global rollouts provide us with significant revenue growth runway. As we said at the FY22 results, over a third of the 31% CAGR for CargoWise recurring revenue since FY16 was driven by Large Global Freight Forwarder rollouts.

32 of these 47 global rollouts are already ‘In Production’ whilst 15 are ‘Contracted and In Progress’, which means in the process of being rolled out globally. We therefore expect significant growth from these more recent rollouts, with only about one third of their expected users currently live on CargoWise.

Source: 1H23 Results Investor Briefing Materials (Slide 20).

Kuehne+Nagel is the world’s largest freight forwarder*, already successfully using our customs and compliance capabilities in a few countries. They have now signed a substantial global customs rollout to realize the benefits of using a single customs platform. The significance of this watershed deal cannot be understated. There has never been a customs platform with the global capability and sophistication required to satisfy the complex needs of customers like Kuehne+Nagel, until now. Traditionally, players at this scale have engaged individual vendors in each country in order to comply with the local legal requirements of electronic customs procedures. Our global customs success has been directly driven from our foothold acquisition strategy and our long term focus on developing a true global customs architecture.

A global customs rollout, at this scale, also demonstrates real progress on a key part of our development priorities and highlights another significant opportunity we have outside of our core international freight forwarding capability, across both existing customers and new customers and regions. This is in addition to what a true global customs capability adds to our product reputation, recognition, customer attraction and retention.

Our global customs and compliance capabilities address a major pain point for our customers. With this breakthrough global rollout with Kuehne+Nagel, we continue to advance our customs capabilities in the same way that we have for our core international freight forwarding business.

This follows the more than $250 million of investment we have made in customs/foothold acquisitions and internal product development to deliver a global customs platform, along with significant long-term investments in reusable global customs architecture. This accelerates the delivery and lowers the cost of delivering customs and compliance procedures across approximately 90% of global manufactured trade flows. This is another reason for the world’s largest global freight forwarders and logistics organizations to increasingly choose our software as they look for ways to drive operational efficiencies and reduce risks.

* Based on Armstrong & Associates, Inc. Top 25 Global Freight Forwarders List ranked by 2021 gross logistics revenue/turnover and freight forwarding volumes - Updated 20 September 2022

Source: 1H23 Results Investor Briefing Materials (Slide 6 and 19). 

Our two strategically significant acquisitions of Envase and Blume Global significantly expand CargoWise’s landside logistics capability in North America and beyond. As set out in our FY22 results, landside logistics is one of our six key development priorities.

Leveraging our experienced M&A machine to accelerate our presence in these areas is a significant and long term product and revenue growth lever, and we intend to continue this very effective strategy by using our strong balance sheet and cash generative capability to accelerate our growth in a disciplined manner.

The industrial logic of the Envase and Blume acquisitions drives our expansion of CargoWise into an integrated landside road and rail capability. Envase adds to WiseTech’s existing capabilities and investments in North America and beyond. Blume adds rail and intermodal capability to Envase and WiseTech’s container haulage TMS, or drayage capability.

According to the Intermodal Association of North America, the value of the North American intermodal market is approximately US$51bn. In the US alone, more than 500,000 truck drivers and 12,000 trucking companies are making around 100 million container moves annually. This includes the transportation of containerized goods from port to rail, rail to port, and port or rail to distribution centers. Envase’s TMS software suite is the largest intermodal trucking transport solution in North America.

It’s a substantial but also hugely fragmented market, and because of that, highly inefficient. Adding Envase to CargoWise and our existing landside logistics capabilities in North America and beyond, we have considerably expanded our ability to compete in this valuable space.

Blume, amongst other functionalities, has a deep capability in rail in North America, and manages intermodal containers and chassis on behalf of 6 of the 7 Class 1 US railroads, ocean carriers, intermodal equipment providers, global freight forwarders and beneficial cargo owners.

Blume brings the valuable ability to digitally link and integrate planning, execution and visibility through rail, road and intermodal activities.

Both newly acquired businesses and WiseTech provide an extensive portfolio of valuable adjacent product capabilities, development capacities, talented teams, deep industry knowledge and valuable customer relationships. Combined, these businesses will enhance planning, productivity, control, and execution, and create productivity improvements for logistics service providers and their customers.

These are essentially three highly complementary but different sets of landside logistics capabilities. Combining them means we can provide freight forwarders and BCOs with complete end-to-end visibility of shipments from point of origin in the export location to the point the container is delivered to the unpack location or warehouse in North America and returned for de-hire, reducing dwell time, container detention costs and delivering significant efficiency and productivity to our customers.

Integration of Envase and Blume’s existing systems will be rapid, as we deploy a web services based integration of the platforms that combines booking, tracking, capacity utilization, fleet and journey optimization and other valuable operational capabilities into the CargoWise architecture. This development approach removes customer disruption, creates rapid “straight through digital processing” whilst building on top of, alongside and through these existing platforms over the long term.

It also enhances our product capability, market penetration and long-term profitability whilst bringing in a wealth of new talent, in addition to our accelerated investment in R&D to drive future revenue growth.

We have made considerable progress in global customs and compliance and have substantially expanded our presence in landside logistics in North America and beyond, all of which demonstrates that we have a vast runway ahead of us in these areas, and of course we have continued to focus on our other key development priorities.

This adds to our ability to win new global customers and further penetrate our core segment, the international freight forwarding space.

Source: FY22 Results Investor Briefing Materials (Slide 11). 

Note: CargoWise revenue growth drivers are updated on a yearly basis and will be shared at our full year results briefings. The below numbers and percentages are based on our FY22 Results Investor Briefing Materials and do not include our recent LGFF rollout wins.

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 last six years CargoWise recurring revenue has grown by almost five times from $85.2 million in FY16 to $422.3 million in FY22, an increase of $337.1 million which equates to a 31% compound annual growth rate over the period. 

The above slide (slide 11 in the FY22 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 six-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 six years has been Large Global Freight Forwarder rollouts, which have contributed over a third of our revenue growth or 12 percentage points of the 31% CAGR.  

The next biggest contributor has been new customer wins, which contributed 6 percentage points of growth. 

This is followed by thousands of new product enhancements reflected in our pricing, which contributed 4 percentage points. Major new product launches and increased usage by existing customers contributed 3 percentage points each to growth.

Lastly and importantly, underlying supply chain market growth contributes just 3 percentage points, or just under 10% of growth. This means the overwhelming majority of our growth is driven by factors we influence, like winning new customers and investing in new products and features. We’re therefore not reliant on the market to deliver the majority of our organic growth.

CargoWise non-recurring revenue growth has been driven by customer paid product enhancements and in FY22 the licence of a CargoWise Landside Logistics component to accelerate product commercialisation, both of which are important future growth enablers.

Looking ahead, we expect future CargoWise recurring revenue growth to be consistent with our historical experience, driven primarily by the acceleration of large global freight forwarder rollouts and further contract wins, as well as the launch and expansion of new products from our long-term R&D investment including growth from our 6 key development priorities.

To date in FY23, we continue to see strong demand for our products from the world’s largest freight forwarders, having secured four new global rollouts and three organic global rollouts since July last year. CargoWise is rapidly becoming the industry standard. Importantly, in January this year, we also secured our first global customs rollout with Kuehne+Nagel, the world’s largest global freight forwarder. This is a testament to the success of our foothold acquisition strategy and our customs product development, as we build out a global customs engine. We now have 47 large global rollouts in place, including 11 of the Top 25 Global Freight Forwarders, with a significant pipeline of new customers and the opportunity to deepen our penetration with existing customers.

Pursuing inorganic growth opportunities is another important growth lever including smaller ‘tuck-in’ as well as potentially larger, strategically significant acquisitions where we can deploy our sizeable balance sheet, supported by strong operational cash generation, our undrawn $225 million debt facility and our proven M&A capability to accelerate our development opportunities and build out the CargoWise ecosystem.

Source: 1H23 Results Investor Briefing Materials (Slide 11). 

Our strong revenue growth and efficient operating model continues to drive enhanced operating leverage and margin expansion.

Overall, 1H23 operating expenses as a percentage of revenue excluding M&A costs were down 3 percentage points on 1H22 reflecting our ongoing financial discipline. Product design & development expenses as a percentage of revenue continued to reduce even as actual spend increased $9.2 million on 1H22 to $54.3 million. This was due to strong revenue growth and ongoing investment in CargoWise innovation and development somewhat offset by continued reductions in maintenance of non-CargoWise platforms. The reduction in maintenance of non-CargoWise products was down to 33% for 1H23, from 47% in 1H22 as a percentage of total product design and development expense. As previously indicated, this trend is expected to drive further cost efficiencies as we transition these legacy products and customers onto our efficient CargoWise platform over time.

Our sales & marketing expenses were down 1 percentage point to 6% for the half, or $24.1 million. This reflects the efficiency of our targeted sales & marketing approach on the Top 25 Global Freight Forwarders and the top 200 global logistics providers. This is clearly proving to be effective with the addition of four new global rollouts this year, and expanding new customer revenues.

General & administration costs were up by 2 percentage points primarily due to M&A costs. Excluding these costs, G&A reduced by 1 percentage point on 1H22 to 13% of revenue as we continue to grow and benefit from ongoing financial discipline.

Source: FY22 Results Investor Briefing Materials (Slide 12).

Note: Large Global Freight Forwarder revenue growth details are updated on a yearly basis and will be shared at our full year results briefings. The below details are based on our FY22 Results Investor Briefing Materials.

Our large global customers can take a number of years to roll out the CargoWise platform across all their global operations. As the roll-out progresses, customers add new countries, adopt new modules, and implement our productivity tools.

Of the 43 global rollouts in place at the end of FY22, 32 are ‘In Production’, meaning they are operationally live on CargoWise and have rolled out to 10 or more countries and 400 or more registered users.

The remaining 11 are ‘Contracted and in Progress’, meaning they’re at an earlier stage of their global rollout.

From a revenue generating perspective, you can see that these 32 global rollouts ‘In Production’ have delivered a compounded annual growth rate of 36% since FY16, driven by the growth of global rollouts by customers such as DSV, DHL, Toll, Yusen and Geodis; the adoption of additional CargoWise modules, products and features; and customer expansion through their own M&A activity.

Importantly, six of these 32 customers ‘In Production’ are Top 25 Global Freight Forwarders, which have generated a significantly higher compounded annual growth rate of 46% over the same six-year period, which shows the attractiveness and importance of these large global rollouts.

Looking ahead, it’s critical to understand the scale of the opportunity for growth within our Large Global Freight Forwarder customer base. Of the 11 global rollouts that were ‘Contracted and In Progress’ in FY22, collectively they have approximately only 25% of their expected users currently live on CargoWise. That they have grown at a compounded 114% since FY19, even with such a limited user base adopting CargoWise, shows the significant revenue growth potential.

To illustrate this point, in the last 12 months, the universe of expected users not currently live on CargoWise has grown by 30%, driven by five new contract wins including UPS and FedEx. There are four Top 25 customers in the cohort of 11 ‘Contracted and In Progress’ customers, or just over one-third, compared to around one fifth of the 32 Large Global Freight Forwarders ‘In Production’. All these factors contribute to the significant future growth potential this cohort of customers has and the value of new wins like UPS and FedEx in FY22, also noting initial customer rollouts have significant scope for wider adoption of CargoWise capabilities over time.

Our existing 32 customers with global rollouts ‘In Production’ will continue to drive revenue growth as they add new products, features and geographies – in particular as we increase our customs penetration from approximately 45% of global manufactured trade flows to our target of 90%.

We also anticipate continued logistics industry consolidation will support future revenue growth, with Large Global Freight Forwarder customers well positioned to leverage future consolidation to grow.

Given the significant runway of customers available to WiseTech in both the Top 25 Global Freight Forwarders and the Top 200 logistics providers, we expect to see future revenue growth driven by additional Large Global Freight Forwarder customer wins.

Source: 1H23 Results Investor Briefing Materials (Slide 43). 

In 1H23 we continued to deliver strong financial performance. This excellent outcome reflects the expansion of our product offering and continued financial discipline, driving further operational leverage as we penetrate our chosen markets further.

This was against an environment of softening global trade flows as geopolitical frictions and inflationary pressures persist, impacting global demand.

We provide solutions that work well when the economy is growing but equally, in tougher operating environments, logistics organizations have a greater need for our software to drive improved efficiencies; enhance productivity, drive manageability and labor visibility; and help with organizational cost reduction programs whilst maintaining their customer service obligations.

As our 1H23 results show, our business continues to be resilient even through this current cycle, a testament to the strength of our software and the diversity of our revenue growth, and the agility of our extremely talented team to pivot as the environment changes to consistently deliver against our 3P strategy.