F leetmatics Group, an Ireland-based developer of software for managing vehicle fleets, has boomed the past four years and is forecast to keep driving earnings growth this year and beyond.
Companies of all sizes are progressively looking to improve the efficiency of their vans and trucks. Many of these fleets, however, are only beginning to tap the software-as-a-service (SaaS) options that the likes ofFleetmatics ( FLTX ) provide. It leaves a long runway to grow the customer base, the company says.
"We are building a business with the belief that global penetration rates could grow significantly over the next decade," Brian Norris, Fleetmatics' vice president of investor relations, told IBD by email.
Fleetmatics provides Web-based software to track data on everything from fuel usage to driver behavior, and says it helps clients swiftly analyze their operations, boost efficiency and lower costs.
Norris cites research by both Berg Insight and Frost & Sullivan that sees the global market for mobile technology which bolsters vehicle fleets as a multibillion-dollar-a-year industry. But it's a market that, as he puts it, "is lightly penetrated" -- just 10% to 15% now, according to the research.
That means Fleetmatics can keep growing substantially without having to worry about stealing market share from an emerging field of competitors, Norris says.
Sweet Spot In Fleets
Fleetmatics is heavily focused on smaller fleets, those with roughly five to 75 vehicles, as they represent the majority of the market and are the most likely to still need the company's products and services.
"The simple reality is, most (smaller) operators do not have an existing solution in place today," Norris said. He adds that Fleetmatics is targeting growth primarily in North America and Europe, with the former now the most fertile ground for growth but with long-term expansion opportunity abundant across mainland Europe.
Fleetmatics is the industry leader on the smaller end of the market, in terms of the size of its subscription base. But the company also works with larger operations, including midmarket fleets (75 to 500 vehicles) and big enterprises (more than 500). Solid growth in these two categories helped Fleetmatics finish the fourth quarter of 2014 with 552,000 vehicles under subscription, up 24% from a year earlier.
In a February report, Fleetmatics said that its fourth-quarter 2014 earnings per share jumped 91% from a year earlier, to 44 cents, on revenue that grew 28%, to $64 million. For all of 2014, the company posted EPS of $1.09, up nearly 27%.
The company, which is in IBD's Computer Software-Enterprise Group, has a high EPS rating of 97 out of a potential 99. Analysts polled by Thomson Reuters on average forecast Fleetmatics' EPS growth at 18% for this year and 27% in 2016. Fleetmatics' stock is up 31% this year.
Michael Rindos, an analyst at Aegis Capital, told IBD that Fleetmatics' subscriber growth shows that the company has an aggressive sales force and a sales model that effectively demonstrates how it helps its clients increase efficiency and lower costs. "It's a company with strong momentum in a growth market," Rindos said.
In a March research note, he forecasts that Fleetmatics will add between 110,000 and 115,000 net new subscribers this year. He says the company's current market -- the U.S., Canada, Mexico, the U.K., Ireland, Australia and the Netherlands -- contains 31 million vehicles with low double-digit penetration rates. Globally, there are more than 70 million vehicles.
"It's a land grab for customers right now," Rindos said, particularly in the U.S. but also across the world. He says the fleet market -- from trucks driven by plumbers, for example, to vans operated by cable company technicians -- is vast.
"The depth of the industry is significant," he said.
Rindos calls the fleet-management solutions market "highly fragmented" and notes that competitors in it includeTrimble Navigation ( TRMB ),LoJack ( LOJN )Orbcomm ( ORBC ).Iridium Communications ( IRDM ), TomTom,Ituran (ITRN) andI.D. Systems (IDSY). A Berg Insight report from late 2014 ranks Fleetmatics as the top player in the Americas, then Trimble. In heavy trucks, it calls Omnitracs a key rival and Zonar Systems a strong player.Verizon (VZ) Networkfleet and NexTraq focus on service fleets, it added.
Potential Seen For M&A
Rindos notes that Fleetmatics has "plenty of free cash and maintains a strong balance sheet with little debt." That, he told IBD, puts it in good shape to push for growth both organically and via acquisitions.
The company says it is actively scanning the merger-and-acquisition landscape, with a special focus on Europe. In February it bought France-based Ornicar SAS, a fellow SaaS provider of fleet management solutions. In announcing the deal, Fleetmatics said France is the largest market in Western Europe, with more than 6.5 million vehicles, and is lightly penetrated at about 13%. Ornicar SAS brought more than 15,000 active subscriptions.
Fleetmatics previously expanded into the Netherlands and Mexico.
"Building off our leadership position in North America, we believe Mainland Europe is a logical next step for geographic expansion as it has a larger market opportunity than North America and is slightly less penetrated," Norris said. "Building off our entry into the Mexican market, we also view Latin America as a target longer term."
Aegis Capital's Rindos also said that Fleetmatics has plenty of room to deepen its ties with current customers by selling them "meaningful add-on" services, making the typical customer more profitable.
A client, for instance, may use Fleetmatics' software to monitor fuel consumption by tracking drivers' speed, idling and routes -- finding ways to help reach end locations more efficiently. The client could add on more Fleetmatics' technology to take delivery scheduling into the cloud, for instance, meshing its scheduling with its driver routing.
Analyst Bhavan Suri of William Blair also sees growth potential on this front.
Given that Fleetmatics has the largest customer base in the small-fleet market, it has plenty of opportunity "to further mine this base to add more vehicles and additional products," Suri said in a March report. The analyst added that Fleetmatics gets a "meaningful portion" of sales leads via customer referrals, a cost-efficient method, and "this is a significant differentiator as Fleetmatics' competitors have materially smaller customer bases to mine."
CEO Jim Travers said at a March conference that there will be new ways for Fleetmatics to expand. He says its software helps clients improve driver safety, for instance, as drivers who know an employer tracks behavior more often avoid risk-taking, and that's piqued the interest of insurance industry leaders.
"The insurance industry has been very active in looking at businesses like ours ... because we are collecting real-time data about what's happening," he said. "There hasn't been anything that we have been engaged with yet that we can announce ... but there are some significant interests from those commercial (insurance) providers and how they might leverage our data."
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