WiseTech knocks company earnings out of the ballpark

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Sydney, Australia-headquartered customs and logistics software provider WiseTech Global yesterday released details of massive increases in revenues and profits.

ASX-listed WiseTech reported that total revenues increased by 68 percent (AU$93.4 million/ USD$67 million) in the July-December 2018 period to stand at AU$156.7 million in the first half of 2019. Australia’s financial year runs from July to June. Gross profit increased 64 percent to AU$126 million. Operating profit increased 59 percent to AU$35.9 million and net profit after tax increased 48 percent to AU$23.1 million.

CEO and founder Richard White, said, “We continued to deliver high quality growth in 1H19… a reflection of our strategy to accelerate WiseTech’s global growth and industry penetration, driven by geographic expansion, relentless innovation and deepening product capability, all of which saw usage by the world’s largest logistics providers increase.”

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Top line revenues
Organic revenues from existing and new customers delivered “nearly half” of the company’s total first half revenues of AU$156.7m. By way of comparison, these results are higher than the company’s entire 2017 financial year revenues of AU$153.8m.

Recurring on-demand revenues accounted for AU$114.1 million of the total revenues; recurring one-time-license and maintenance revenues accounted for another AU$24.9 million and one-time-license and support services accounted for AU$17.7m.

The company attributed top line revenue growth to increased usage of the company’s software products by its existing customers. About 89 percent of the company’s revenues (approximately AU$139.5 million) are recurring revenues. WiseTech also commented that there was increased usage by “many of the world’s largest freight forwarding groups,” pointing out that it now counts all 25 of the world’s top global freight forwarders (as ranked by consultancy Armstrong & Associates) as customers. The company added that seven of the top 25 are on, or have finished, global rollouts of its flagship product, CargoWise One.

Other revenue drivers included a continued transition to transaction-based licensing, growth in revenues from larger multi-region customers, and underlying growth by customers themselves.

WiseTech is an active corporate acquirer, buying 11 companies in the first half of the current financial year (in Australia, Italy, North America, Spain, Sweden, Turkey and the U.K.). It also acquired a Norwegian company in this month (February 2019). The company also acquired businesses in previous financial years.

Acquisitions have, over time, been accretive to revenues. Revenues from customers of acquired businesses increased AU$32.8 million in 1H2019, up 150 percent over the prior corresponding period. That figure includes AU$30.6 millon from 26 acquisitions completed in the last 18 months. WiseTech generated AU$17.7 million from from one-time-licensing and support services. The company noted that many of its acquisitions have higher levels of revenues from one-time-licensing and support services.

The company also noted that it has a customer attrition rate of less than one percent.

Costs and expenses
Costs of revenue generation increased by 87 percent to stand at AU$30.1 million. WiseTech notes that the businesses it acquired have higher product and support costs and lower cost leverage, which lowers gross profit margins. However, the company expects the dilutive effect to disappear over time as acquisitions become integrated into WiseTech’s product offerings.

Product design and development costs were AU$39.3 million, sales and marketing expenses were AU$19.7 million, while general and marketing expenses were AU$31.7 million. The main costs of the business (excluding financing costs) therefore were AU$120.8 million in the first half of 2019, a 140.5 percent increase on the prior corresponding period’s AU$49.9 million.

WiseTech explained that much of the company’s operating expenses could be accounted for by total research and development investment, particularly in its main global software product, CargoWise One. Another research cost is related to the expansion of the development workforce. A further AU$12.6 million of costs were investments in the acquired businesses, “which typically have higher levels of maintenance and support costs.”

Just under AU$20 million, an amount equivalent to 13 percent of revenues, was allocated to sales and marketing. It reflects an an extra AU$4.2 million of sales and marketing expenses baked into the 26 acquisitions it has made since the beginning of the 2018 financial year.

A 53 percent increase in general and administrative expenses (from AU$20.7 million to AU$31.7 million) was driven by costs from acquired businesses that had their own general and administrative costs. Costs also rose due to extra headcount in finance, growth, M&A, and People & Culture teams, along with investments in management systems and additional infrastructure.

The company also gave guidance for the financial year ending June 30, 2019. Given the growth of the main CargoWise platform, the low customer attrition rate and general global expansion, the company is forecasting full financial year revenues of AU$322 million to AU$335 million, representing growth of 45 percent to 51 percent.

Balance sheet
Turning now to the balance sheet, the company has AU$762 million in total assets and AU$375 million of total liabilities.

Current assets total AU$95.1 million as of year-end 2018, down about 41 percent from the AU$160.8 million recorded as of June 30, 2018. The biggest decline in current assets was in cash and equivalents, down from AU$121.8 million to AU$42.2 million. However, trade receivables were up about 46 percent.

In the non-current assets account, WiseTech nearly doubled its intangible assets in six months from AU$360 million to AU$651 million. Much of this account is goodwill from acquisitions and stands at AU$491 million as of Dec 31, 2018. Previous half-year periods track the growth clearly – it was AU$237 million at at July 1, 2018 and a year earlier it was AU$55 million (June 30, 2017). The other major intangible assets owned by WiseTech are computer software (AU$94 million); development costs (work-in-progress) at AU$43.6 million; intellectual property (unspecified) of AU$33 million; customer relationship of AU$24 million; and trade names AU$13 million. The company also owns AU$15 million of property, plant and equipment.

On the liabilities side of the ledger, WiseTech has total current liabilities of AU$138 million. It has payables of just under AU$26 million, which is largely flat from the previous six-month period. It also has about AU$82 million of “other current liabilities.”  About AU$61.5 million of this is “contingent consideration,” which is the amount owed to the former owners of acquired businesses and is payable if a conditional trigger event is met. There is also AU$16.4m of customer deposits.

In the non-current liabilities account, there is AU$175.318 million of “other liabilities” and, again, these are mostly comprised of contingent consideration, about AU$174 million worth.

WiseTech has markedly increased its borrowings too, up from AU$1.4 million to AU$30 million. About AU$2.6 million of that debt originated in acquired companies. The rest results from a restructuring of WiseTech’s debt structure. The company retired an AU$100 million debt facility (of which AU$29.9 million had been drawn down) with Westpac Bank at the end of 2018 and replaced it with AU$190 million of finance syndicated from HSBC, Citibank and Westpac. WiseTech also negotiated a further AU$200 million “accordion facility,” which is a type of expandable loan.

About WiseTech
WiseTech counts over 12,000 logistics organizations as customers in 130 countries, generating over 54 billion data transactions each year. It employs over 1,600 people across 40 offices mostly in Oceania, Asia, Europe and North America. It also has four offices in Latin America and two in South Africa.