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To some employees of its customers, Fleetmatics may be viewed as something like Big Brother (that is, the societal-control regime in the Aldous Huxley novel Brave New World, not the current reality television show).
The $230 million, publicly held company is in the fleet-management business. It makes software that collects and reports on data from GPS tracking devices placed in vehicles owned by companies that employ mobile service professionals like cable technicians, plumbers, electricians, and roofers. Other customers include distribution companies, delivery services, taxi companies, and even ambulances, street sweepers, and horse-drawn carriages.
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Such businesses use the information Fleetmatics provides to keep an eye on driver performance and safety, when drivers start and end their work days, whether they’re using the vehicles for moonlighting purposes, how long they spend at customer sites, whether they’re going to be late to their next appointment, and any number of other purposes.
The company currently tracks about 625,000 vehicles for some 29,000 different companies in the United States, Canada, Mexico, the United Kingdom, Ireland, France, The Netherlands, and Australia. It’s collected about 87 billion data points about location, time, distance, idling time, speed, and driver performance. “We can help an electrician group in Chicago, say, understand whether their people are as productive as other electricians in the Chicago area — or in the Midwest, the United States, or the world,” Lifshatz says.
The company’s finance chief since 2010, Lifshatz recently spoke with CFO about Fleetmatics’ business model and his role. An edited transcript of the discussion follows.
Do your customers’ drivers typically know that the tracking devices are in the vehicles they’re driving?
Yes, but some of are customers don’t tell the employees at first. They look and see what’s going on with the drivers and vehicles, and then let them know that they’re going to be tracked and what the company is trying to achieve. Usually that’s reducing idling time, improving driver safety, and [enhancing] timeliness.
One customer, a very large cable company, watched their drivers for a couple months then started a program where they gave awards for the largest reductions in idling time and other things. It was gamification — they made it into a contest. It changed entirely the way they ran the business.
When I think of “idling,” I imagine a taxi running up the fare while stopped in traffic. How can a driver reduce idling time and why is that important?
Idling occurs when a vehicle is left on when it’s stopped at a coffee shop or a convenience store, or during a delivery. The air conditioning is blasting during the summer, and the heat is running in the winter. It’s one of the more obvious and easy-to-correct problems that our customers face.
How do you improve driver safety?
We don’t just collect location data, but also driving-style data and vehicle data such as engine diagnostics. Over time we can track how safe or aggressive a driver is. And we recently released a driver app, allowing drivers to get information on where they rank against other drivers on safety, how many speeding instances they had, and their idling time.
Does Fleetmatics manufacture the tracking devices?
No, we buy them from third parties. There are quite a few companies that manufacture them. That’s not the competitive differentiation. It’s all about software, reporting, and the user interface.
We’ll get to a point where everyone is talking about connected cars and embedded telematics. I think you can expect that at that point the auto manufacturers will build the [tracking] equipment into vehicles, and people could subscribe to services like the ones we provide.
What is your focus on as the CFO?
Companies evolve. When I got here, the business had been around for about five years and had focused on building a sales organization and a very solid product. It was a little light in the back-office and accounting area, so the first thing I had to do was spend time building up a competent staff and hardening the books, if you will, to makes sure we were ready to go public.
The business continues to evolved, and the customer base continues to evolve. For our average customer we’re probably tracking between 14 and 18 vehicles. With enterprise customers, we used to be extremely opportunistic, targeting select ones for which our base product fit their needs. Now we have enterprise functionality on top of our base offering, which has enabled us to expand our addressable market.
That means I’m often involved with the sales organization in negotiating with the customer set. We’re looking at different business models to make it easier for [potential] customers to do business with us. We’ve [already] transformed what used to be a very manual process into one with electronic signatures, online credit card acceptance, and [automatic subscription] renewals.
What does that focus mean for finance organization?
We and the whole executive team are trying to figure out how to spread the word. The market is about 49 million vehicles in the markets we serve today, and it’s about 17% penetrated [by Fleetmatics and its competitors]. There is a lot of room to grow. We’re just breaking into Europe. In the rest of Europe and Latin America there are 45 million more vehicles that are only 10% penetrated. So we’re figuring out how to get potential customers to realize that this can help them make money.
With a subscription-based revenue model, your revenue is probably very predictable. How important is that to you?
We go into a quarter with roughly 90% of the revenue in hand on Day 1. We also know that roughly 20% of what we sell during the quarter will come from our existing customer set. And our churn rate is also very predictable. As a result, we tend to give guidance in a pretty tight range.
What’s your pricing model?
We’ve always sold on value rather than price, but we charge a flat fee for a 36-month initial term with a 36-month evergreen renewal, so our customers know they’re not getting nickel-and-dimed — it’s a very predictable cost stream for them. We charge their credit cards on a monthly basis.
You have a number of competitors. How are you differentiated?
We have a number of industry firsts. For example, geo-fences [defined geographical boundaries drawn in a software program using GPS or radio frequency identification] are an important building block of any vehicle-tracking solution. They make location data more relevant and useful. But many customers don’t invest the time to create geo-fences, and if they do, they often draw the fence incorrectly. We make it easy by automatically creating and categorizing geo-fences, and then, through a patented “hot spot” algorithm, suggest corrections to the fences based on customer driving activity.
Think of hot spots as locations that one or more of your employees regularly visit. You, the business owner, don’t know about them and so haven’t marked them as a point of interest. But maybe you should. Maybe it’s a restaurant. Maybe it’s a parts depot, in which case you might figure out that you should coordinate that and send one truck once a week. Or it could be someplace, like a bar, that you don’t want your employees at.
Something that plays well on the large-customer side is that we can follow individual drivers regardless of what vehicle they’re in. Each driver gets a unique key fob for journey. When the vehicle is turned on, the driver presents the key fob into a key reader installed on the dashboard.
Also, we have money-based metrics. For example, rather than telling a customer that we saved them two hours of idling time on a vehicle on a particular day, we show that it saved $9 of fuel costs.
And we have a mobile app that allows dispatchers to update last-minute changes to work orders so that field-worker drivers can remain focused on getting jobs completed and not have to worry about catching up with paperwork. It also helps eliminate duplicative work orders that may be out of date or get lost in the field.
We also have a mobile field service management solution designed to manage customers, jobs, schedules, invoices, and fieldworkers, helping customers save time and money while improving productivity and customer service.
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