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Fleetmatics Tames Unruly Service Fleets, Gains Share

Posted
3/13/2013 3:51:00 PM
By: Investor's Business Daily
Referenced Stocks:CMCSA;FLTX;TRMB;VZ

Jim Travers likes to count the number of white vans he spots while stopped at a traffic light.

"You'd be amazed at how many white vans are delivering food or delivering a service," he said. "That's our target (market)."

Travers is chief executive ofFleetmatics Group ( FLTX ), a fast-growing fleet-management company based in Dublin, Ireland, with U.S. headquarters in Wellesley Hills, Mass.

Its so-called software-as-a-service solutions are accessed via a Web browser or mobile app.

If owners of local delivery and service vans think that managing their drivers and fleets is like herding cats, Fleetmatics can come to the rescue.

Its software-based solutions monitor vehicle location, fuel usage, speed, mileage and other variables. The goal is to get the fleet humming smoothly so that operators can cut costs and grow revenue.

"We provide real-time insights to owners," Travers said.

A driver might think twice about speeding, veering off course to run an errand or chat with friends on a cellphone.

The company was founded in 2004 in Dublin. It expanded to the U.S. a year later.

"The real turning point was bringing on Investcorp as our deep-pocket private equity investor," Travers said. Investcorp initially invested $40 million in 2008. It took the company public in early October, raising $125 million.

Local Fleets

After a secondary offering in late January, Investcorp's majority stake was reduced to 48%.

Fleetmatics is "the largest supplier in the U.S. to local service and delivery fleets," said industry consultant Clem Driscoll, president of C.J. Driscoll & Associates. "They appear to be adding several thousand units a month to their installed base. Their growth is impressive."

At year end, Fleetmatics' 18,000 customers deployed software to 331,000 vehicles, up 40% from the prior year. About 85% were in the U.S., where it had no customers prior to its 2005 entry into the U.S.

The firm targets small- to midsize fleets operating in local markets within a 100-mile radius of their headquarters.

Travers says the company has "significant market opportunity in an underpenetrated market."

About 18 million commercial vehicles are registered in the U.S. More than 10 million are light commercial vehicles with the rest heavy trucks, Driscoll says.

Of those 10 million light commercial vehicles, he says, about half are in the smaller fleets targeted by Fleetmatics. Fleetmatics' addressable market in the U.S., Driscoll says, is 5 million to 6 million vehicles.

In a pre-IPO filing last June, Fleetmatics noted that 11.3% of the 18.5 million local commercial fleet vehicles in the U.S. and Canada utilize a fleet management solution, or a little over 2 million vehicles.

When making sales calls to fleet owners, Travers says "eight out of 10 times they have no system in place. They have no idea where their vehicles are."

Market share is tough to nail down due to varying ways of measuring the market. Analysts estimate Fleetmatics' share at well below 10%.

In a November report, RBC Capital Markets' analysts put Fleetmatics' market share in the highly fragmented North American fleet-management software market at around 1.5%.

For the small-to-midsize fleet market Fleetmatics is focused on, "it's still in early stages of adoption," said analyst Jonathan Ho of William Blair & Co. He doesn't cover Fleetmatics but is familiar with the industry.

"Penetration is probably in the single to low-double digits," he said. "The problem is it's hard to tell at what rate (the market) is going to grow and not all fleets need the technology," he said.

But he says software-as-a-service solutions are a good value for smaller fleet operators since they don't have to manage digital infrastructure and can leverage the platform.

While market share numbers are fuzzy, analysts agree Fleetmatics is growing at a healthy clip and gaining share.

Through SageQuest, acquired in 2010, Fleetmatics serves larger fleets that need more advanced solutions, such as integration with third-party work-flow products. But that's a relatively small part of its business.

"Their forte is having a good solution for small fleets, meaning it's fairly simple to use but it has a lot of features," Driscoll said.

Customers deliver everything from food and flowers to services such as plumbing, electrical, heating and cable. Fleet sizes range from 10 to more than 1,000. The average is around 20 vehicles.

Fleetmatics' largest customer isComcast ( CMCSA ) with 15,000.

While continuing to penetrate the North American fleet-management market, Fleetmatics plans to expand from Ireland and the U.K to mainland Europe this year, Travers says.

Another way it might grow is by acquiring new technology so that it can sell more products.

The fleet-management market is competitive and highly fragmented. Many of the players are privately held. Those targeting smaller fleets include Telogis, Teletrac and GPS Insight, among others, Driscoll says. San Diego-based Networkfleet is part ofVerizon ( VZ ).

A division ofTrimble Navigation ( TRMB ), the biggest name in the market, targets mostly large commercial trucking fleets.

"We only compete with (Trimble) on larger business," Travers said. "We went head-to-head with them for Comcast and beat them."

Revenue Generation

Almost all of Fleetmatics' revenue is generated from subscriptions, which typically run for 36 months. A vehicle generates $40 a month on average, Travers says.

The company has invested a lot of its cash back into the business, especially to grow its sales and marketing efforts. It currently employs 275 sales reps, most of them telemarketers who generate leads from paid Web searches and targeted direct mail and email campaigns.

"We're a very sales and marketing driven company. That's our DNA," said Travers, who comes from a marketing background.

Income has been up and down. In last year's pre-IPO filing, the company reported it had "operating losses in certain recent fiscal periods." It reported a net loss of $700,000 for 2010, net income of $2.9 million in 2011 and a net loss of $400,000 for the first six months of 2012.

In the fourth quarter, adjusted earnings were 18 cents a share vs. 9 cents a share in the earlier year, or $6.4 million in income vs. $2.6 million in the same period in 2011. Quarterly revenue rose 38% to $35.8 million.

Management expects 2013 revenue of $162.5 million to $164.5 million, 28% higher at the midpoint than in 2012.

That's a lower rate of growth than in 2012, when revenue jumped 38% to $127.5 million. Travers says the slower pace is due to the "law of bigger numbers."

The firm expects 2013 adjusted earnings of 69 to 72 cents a share, up from 55 cents in 2012.