Thank you everyone for joining us today on our FY 2022 update to the market. I'm joined today with Graham Stuart, EROAD's Chairman, and Margaret Warrington, our acting Chief Financial Officer. I'll pass over to Graham, who will get us going today, then I'll talk about our operating metrics. Margaret will then talk about our financials. We'll then come back to Graham and myself to talk about our product offering and our priorities and outlook for FY 2023.
Thanks, Mark, and good morning, ladies and gentlemen. Welcome to EROAD's financial results webinar for the 12 months ending the 31st of March. By way of housekeeping, we will have three short presentations from myself, Margaret, Mark, and Margaret, and then followed by a period of question and answer.
If you have a question, either raise your hand or type the question into the Q&A chat area indicated on the screen, and we'll take those questions at the end of presentations. I'll start off discussing the highlights of the year. Mark will then chime in with an operational update. Margaret will follow that with summary of the financial results. Then, Mark and I will conclude by talking about the growth opportunities and the outlook for the year.
EROAD is a business dedicated to creating safer and more sustainable roads. We provide regulatory and specialized telematics services together in a bundle which we describe as a hardware-enabled SaaS business. We have over 8,000 customers in New Zealand, Australia, and North America, who between them have over 200,000 connected vehicles.
EROAD is an attractive business model. We have growing recurring revenue, growing from both new customers and of course increasing revenue and products and solutions being sold to existing customers. We maintain over 90% of our customers on contract renewal. With this model, we expect to grow to at least $ 250 million by March 2025. EROAD employs talented and capable teams in New Zealand, Australia, and North America.
Last year we invested significantly in building capability through research and development and in inventory to fuel future growth, and in the case of inventory, to ensure continuity of service in the light of global supply chain disruptions. We also went through a merger with Coretex in November, in the end of November last year, and this leaves us well positioned to be a leading player in the Australian, New Zealand and North American transport telematics markets.
By way of financial highlights for the year, Margaret will report on these in some detail. The financial result reflects investment and capability and of course, the merger with Coretex. Four months of Coretex revenue has been included in this result. This has been a significant period of transition for EROAD.
Despite challenging macro and economic conditions, the board are comfortable with the progress that EROAD has made. Annual monthly recurring revenue now over NZD 134 million, and our monthly average revenue per unit over $55. Pleasingly, our retention rate in trying, difficult, economic conditions was 93.4%. This means EROAD is well positioned to build growth momentum through 2023 and beyond. This is a year where EROAD's launched its sustainability policies, and in June, we will present our first sustainability report to shareholders.
Through the acquisition of Coretex, we now have penetration into food, construction and industrial waste markets, which broadens the range of environmentally sustainable solutions that we can offer to our customers. Soon we will be launching our heavy vehicle decarbonization tool, which will enable EROAD to further support government's climate change policies. I'll now hand over to Mark to take us through the operational highlights.
Thank you, Graham. I just want to start off on a slide looking at our performance in terms of growth in units over the last financial year. It's been a particularly significant milestone for the EROAD company. We've achieved over 200,000 connected vehicles in FY 2022. That's a deliberate strategy of EROAD in terms of growth. We very much are focused on having scale in the markets that we operate in, and that's in terms of trying to have the scale to be an acquirer, not an acquiree, as we're seeing markets that we operate in undergoing some degree of consolidation in the telematics industry. Our growth was made up by two components. First, as Graham mentioned, we merged with Coretex in November of last year.
That led to over 6,000 units in growth, predominantly in North America, more than doubling the size of our presence in that market. When it comes to organic growth, that was, in terms of composite growth, over 16,000 units, predominantly in New Zealand. We're really impressed by how the New Zealand business continues to grow organically and find new opportunities, and grew by over 11,000 units in the financial year.
North America grew by 1,600 units organically in FY 2022, and we'll dig into some of the details around that further shortly when we talk about the North American market. In Australia, we're particularly satisfied by the capability we're building up in the market and achieved over 3,000 units organically, another over almost 8,000 units inorganically.
That's very much establishing that enterprise capability and skill set for the Australian market, which we'll continue to build on into the future. We've also launched our Clarity Solo product in October of last year, and we're seeing growth across all the markets in that space. On this slide, although we talk about hardware a lot, it's fair to say we're a hardware-enabled SaaS business. It's particularly important to understand the SaaS model that we operate under.
Over 90% of our revenue is recurring based off the leasing of hardware and the complementary service offering that we provide to the market. That's underpinned by two quite strong fundamentals that we have. One is our high asset retention rate, which is over 90% in our markets, and the other is the length of contracts that we enter into with our customers.
Typically, these are for 36 months, albeit for some we have longer in the enterprise space. What that does is it gives us assurance and confidence to continue to invest in R&D and to grow revenue off the back of that investment. Given the focus we're having, moving away from the hardware into more of a SaaS-oriented business, the effectiveness of the measure of total contracted units gets less and less.
From now we'll be moving towards aligning with other technology companies, whereby we'll announce our operating metrics at the half and full year and very much focusing more on our revenue growth that we are achieving. Now, this SaaS model and the growth here is very much underpinned by the expansion we're doing across our customers as well as the total addressable market.
Over the next two slides, I'll talk about some of the products that we are launching or have launched over previous years, which very much increase the total addressable market that we have. It also aids in improving our ARPU or the retention with our customers. On EROAD Clarity Dashcam, we launched last year the solo version of that product as well.
What that's enabled us to do is to further help our customers on their health and safety and exoneration journey. In North America, we're particularly seeing, led by insurers, the need for camera technology in the cab to monitor what's going on in the vehicle and to use to exonerate any incidents that happen.
More and more, we're seeing our customers in ANZ with the health and safety journey that they're on talking to us about the camera offering that we have. Another product I'd like to sort of talk about are our mobile SaaS applications, EROAD Day and EROAD Inspect. They particularly help in terms of improving the ARPU and retaining customers. What's unique about these is they're not linked to our hardware products.
Anyone can actually use these services and sign up for them. It helps as an entry point into some new fleets. The Where Mini tags and Where tags that were launched as well can be a feeder into our larger enterprise accounts. During the previous financial year, we've launched a number of products, some of which were very much focused around data insights for our customers.
As we generate more and more data, our customers are seeking greater degree of insight into what we offer. In addition to our usual reporting suite of software, we also have launched our EROAD Analyst product. What that does is allows our customers to create bespoke reporting to understand the efficiency of their fleets and monitor performance of their drivers. That's been very helpful in getting greater granularity for our customers to understand how their businesses operate. We also, during last year, launched our CoreVision product in Australia, and that will launch in North America during this financial year.
It provides to us a full portfolio of camera technology from the entry point CoreVision product, which hooks into our next generation CoreHub offering, to our Clarity family of cameras, which are either connected to our Ehubo devices or the EROAD standalone Clarity Solo product, which is in itself a telematics device, to the partnership we have with Seeing Machines. We're able to give a broad offering to our customers around camera insight.
The merger of Coretex has also enabled for us access to greater technology they have around monitoring temperature with the Coretex product and the array of sensors they have to understand how fleets are operating in greater detail than what previously we had. That's really building on a broader IoT strategy that Coretex brought to the fold.
Now what these products help us do, it helps us maintain the high retention rate that we have. As I mentioned earlier, we have a retention rate of over 90%. That's when we look at Coretex's of the last four months, they're over 98%, which just shows the stickiness of the products that they've built with their customer. During the last financial year, almost 32,000 units were renewed for over 1,000 customers. We saw those customers not only renew their product, but almost 1,000 upgraded the plan that they have at EROAD.
That is, they went to a higher tier of service that we offered or a new generation of a hardware solution, or they also added on additional products and services, whether it's the camera technology we talked about earlier, the logbook or other, or the analyst product and so forth. What we're seeing is sort of a land and expand with our customers there.
That's helped improve our future contracted income as well, which we grew from NZD 149 million in FY 2021 to NZD 190 million in FY 2022. Over the next few slides, I just wanna delve into our markets and highlights in those. Kicking off with New Zealand. New Zealand's had an exceptional year last year. It grew to be over 100,000 units in itself. It was driven significantly by organic growth, as I mentioned earlier.
The organic growth sort of broke into two key areas. One was expanding in our current customers. 70% of our growth was generated from expanding in our current customer segment. We also found 30% growth further into new customers as well. This one shows the continuing opportunities we see in New Zealand as we evolve with our customers.
When we started, we were very much around the road user charging model. Over about five years ago, our customers started on the health and safety journey with us, and we continue to see that as a strong driver of growth. We'll see that particularly around the camera solution that our customers are talking to us at the moment. As we move on, our customers are now talking to us around our ESG offering.
It's very important that we help our customers with the technology they need to sustain themselves on that journey. We're having some pretty exciting and interesting conversations with our customers on that end. When it comes to asset retention rate, we're still maintaining strong asset retention rates in New Zealand. Indeed, we increased over the course of last year.
That includes our continuing partnership with Downer in New Zealand, which we're particularly happy that we are still working with them on, as well as other enterprise opportunities that we increased during the year. We are also adding on additional subscriptions on our logbook and our Inspect products as well. Turning to North America. It's fair to say North America, on a standalone basis, was challenging for EROAD during the last financial year.
That was very much driven by COVID and the uncertainty that it caused for our customers, particularly those in small to medium business space. The other ones were most vulnerable to shocks in the economy. What we saw during the course of the year, building on what we'd seen earlier, was that there's increasing volatility for them, which meant that when it came up through the renewal discussions, some of them were reducing their fleet sizes that they had, which had a consequential impact on the churn in our customer base.
That was largely driven by the 3G, 4G discussions that we had with them, which we are coming to the end of. What we're seeing now is, with Coretex as part of the team, we're actually seeing far better retention rates coming along there as they're more focused on the enterprise side of the equation.
We've introduced a balance into the market with the merger there. That's helped us regain momentum, not only by the fact they are more established on the enterprise space, but their products and their product market fit and sales execution strategy has helped us grow and will continue to grow in this space going forward. Other areas to note are the fact that our EBITDA did reduce slightly during the year.
That was partly a backout of a grant we received from the U.S. government in FY 2021. Going forward, we are talking to customers around the virtualization that we're having, and it's opened up opportunities and pipelines for us. We saw a stronger pipeline than what we anticipated when we completed the merger in November, and we're seeing an open up of opportunities on that front as well.
We're looking to convert those hopefully during the course of FY 2023. Finally, Australia. I mean, with Australia, we're satisfied with the performance during the course of last year. Bringing on Ventia into the company was a particularly strong achievement. We've worked through the rollout of them now. Also with the merger with Coretex, we brought on further enterprise fleets.
What that's done is start establishing our credibility with customers in the enterprise side of the business. As we continue to develop and integrate our product solution between EROAD and Coretex during the course of this year, we'll start seeing those solutions flow down from North America into Australia, which will further open up opportunities in the construction side in particular.
In the meantime, we're focused very much on continuing to talk to our customers around our EROAD Clarity products and the health and safety benefits that brings, as well as our asset tracking solutions, EROAD Where and EROAD Where Mini tags. I might pass over to Margaret Warrington now to talk about our financial results.
Oh, thanks, Mark. Hi, everyone. I'm Margaret. Do you wanna pop to the next slide for me, Mark?
No worries.
Thanks. We've seen revenue grow this year. It's in part to do with Coretex being in there for four months and EROAD in there for the 12, but it's also underpinned by the strong year that New Zealand's had. They've had a stellar year, and that's seen their revenue for that segment grow NZD 10 million. Because of that four months + 12 AMRR, which is our annualized monthly recurring revenue, it casts forward a view 12 months of where our recurring revenue sat in March.
That metric at NZD 134.6 million has taken a step up and reflects Coretex and EROAD on our current customer base for a full year. We are likely to see revenue profile become a little bit lumpier. To the point both Graham and Mark have talked about, where we've got large enterprise customers that we're focusing.
They have a longer lead time, so a 12-month lead time. Then they, once they come in, clearly they have a big impact into our revenue once the units are all installed. The other new aspect Mark touched on is, in the other slide, is the hardware revenue. With the merger of Coretex, we've got a new product that or a new commercial term that we hadn't had previously at EROAD, where hardware has been sold historically outright. There's no cash impact of this, but the revenue recognition is up front. Our reported EBITDA is down 32%. In part, that's to do with the one-off transaction costs and integration costs in it and some one-off acquisition revenue. When we normalize for both those elements, the drop is 5%.
That's due to the growth in our OpEx costs, some of which is the inclusion of Coretex and some is increased spending in areas of investment. We've looked at key teams and lifted our marketing in preparation for growth. We'll explain and talk more about that in the OpEx slide. Our free cash flows are -$47.9 million.
That's normalized for the payments for Coretex. This is reflective of three key areas of investment. One's in inventory, the second is in increased R&D, and the third is the increased OpEx I've already noted. The first one was about risk management. The second two have been about building towards our long-term strategy and future. Thanks, Mark. This slide talks about EBITDA by region.
As we've mentioned, New Zealand had a stellar year and off both organic growth and the acquisition of Coretex. EBITDA for New Zealand grew 16%. The Coretex merger has driven most of the increase in our revenue base in North America. EBITDA, while it drops in North America, as Mark mentioned, that's to do with the one-off grants we got last year from the U.S. government around COVID.
We've also seen in North America some pressure on our margins related to TMU 1500, which is one of the Coretex products. That product's gonna be replaced in FY 2023, apologies, by the CoreHub Xtreme, we expect that to be a short-term pressure. Australia's EBITDA positive for the first time this year, and that's off the back of both the Coretex acquisition and the rollout of Ventia.
Overall, our margins have been impacted by those one-offs that we've talked about, the TMU 1500 costs, and the investment in operating costs. Thank you. AMRR that I signaled at the start has seen a step-up following the acquisition of Coretex. It's also underpinned by growth in our units and increase in ARPU in New Zealand.
Future contracted income, it's increased by [inaudible] through the Coretex acquisition as well, but actually it's also as much about the renewals that we're seeing in the New Zealand market. We've renewed almost 29,000 vehicles with revenue base of about NZD 50 million. We've also been doing this 3G upgrade program in North America, which as part of that, we've been rolling customers onto longer-term contracts. R&D spending is up NZD 10 million.
That's in part the integration investment, but it's also investment in our future product set for our growth. We've grown the size of our engineering team, and we've also taken the opportunity to use third-party contractors, so we can flex up and down as required. ARPU. ARPU's dropped NZD 55.57. There's a number of factors sitting behind that. The Coretex ARPU is lower than EROAD's historically. That actually reflects their historical selling model.
When I mentioned before the outright hardware sales, that what that does, it doesn't change cash, it changes the recognition of that transaction within the financial statements. So they recognize it up front often, and then the ongoing SaaS revenue is lower as a result. We've also seen the mix of in-cab and trailers change with the acquisition of Coretex.
Ultimately, our underlying ARPU will grow with the interaction with our ancillary products, the Solo, the dash cams, the PCT, the add-on products we're selling. Asset retention is the only measure you'll see in here that's EROAD standalone. The reason for that is it's a 12-month metric that measures something from the beginning of the year to the end of the year. We have added in the Coretex four-month metric, if you like.
The drop in that asset retention, as Mark mentioned, was to do with some of the churn we saw happening in North America with some of our small to medium business customers being impacted by COVID and driver shortages. Our cost to acquire as a percentage of revenue stayed relatively static, so I'm gonna talk to our cost to acquire per unit. This year, we've had a change in our methodology.
Previously, we've been looking at our cost to acquire over our net growth. We've changed that this year and, to be more in line with what the market does, and we're now looking at over our gross sales. One thing to note in here, though, is this includes activity on both renewals and new sales 'cause it's the same team across EROAD that do both activities.
Part of the reason for the growth has been we've had staff, the same sort of level of staff in North America, but lower unit growth, and we've also started increasing marketing spends in that region to help support future growth. Our cost to serve metric has gone up, which in part reflects the fact we brought two teams together, and we're still working on the efficiencies to bring that back down. It also reflects an investment we're doing in some.
We've got staff in this area working on some projects that will help reduce this in the future and help improve our billing and automate some of our customer service. OpEx. That's grown to NZD 32.7 million. It's grown more than revenue in FY 2022. It would include. I'm gonna start at the right-hand side of the bridge for a moment.
We've included Coretex as a separate bar, in part to provide some context. It also is worth noting there are costs across this that once we merge, we've treated as group costs, and we haven't pulled out, so they're set within the EROAD cost base. Some examples of that include, we've renegotiated some of our software agreements as a group agreement to get a better outcome for both entities. However, we haven't met that.
We haven't recharged those Coretex. You will see some of the costs in other bars, but we would have been able to have pulled it out. The bars to the left of that is our acquisition and integration costs. Now I'm gonna pop back to the left-hand side, which is around personnel. Personnel cost growth reflects a number of things. I've talked about the fact we invested in some teams, particularly engineering team, but also our global supply chain team.
That team has been under immense amount of pressure this year, dealing with all the issues that many organizations have been dealing with, accessing components and managing risk. We've seen wage inflation pressure with the borders closed, so we have seen increasing expectation around labor markets and what we'll be paying people, and that's a big part of that growth as well.
The underlying regional teams has grown. In North America, it was for the 3G swap-out program. In New Zealand, it's been to support the ongoing unit growth that we're experiencing there. We've also seen that hits this line as well. With lockdowns, particularly in New Zealand, our staff haven't been taking their annual leave that they might have in another year, and that's driven on some additional cost.
The SaaS platform costs reflect our growth in customers and units. The subcontractors reflect us backfilling for churn, but also supporting some of the projects we've described. The software systems, about half of this cost relates to an accounting adjustment for some guidance on cloud-based systems and how we treat the one implementation related to those.
The rest of it, as I've talked about, reflects the larger group, along with some new systems we're putting in place to support the larger entity. The drop in other primarily relates to bad debts, where we did some provisioning in FY 2021 to reflect the risk associated with COVID that we haven't needed to do in FY 2022. It's fair to say we would expect to see OpEx costs through FY 2023 continue to be impacted by integration and by our ability to bring teams together rapidly. We're focused unashamedly on the sales teams and making sure they have the systems to bring together and to deliver to our customers. What that means is the back office teams are still running off the multiple systems, and we'll see that through FY 2023.
We do expect as we grow and finish integration that through into FY 2024, we'll see increased leverage. Property, plant, and equipment. The story here is really around inventory. We have got the acquisition of Coretex, which accounted for NZD 9.2 million. As I've talked about, we've made a conscious decision to increase our investment in inventory to address the market and global risks we're currently seeing.
That's seen inventory grow to the level of NZD 12 million. Intangibles, all about the Coretex acquisition. In terms of the numbers at least, NZD 174.2 million, which reflects the acquisition and investment in the development of the brand, the customer contracts, the goodwill. The R&D that we talked about, the increased R&D for our future growth was added NZD 37.4 million.
Sorry, Mark, I'm done. Thank you. We talked about R&D on the left already. On the right, it's just giving you a sense of the quantum of the movement in the intangibles. We are gonna see a growth in amortization. Those intangibles I talked about that we brought in as part of the Coretex acquisition, they, other than goodwill, they are amortized.
We will continue to see that amortization grow as we have a full year of Coretex within our numbers. Free Cash Flows. This is giving you the cash view of what I just talked through, so I'll just explain. In terms of the numbers, you can see the increase in inventory sits within our hardware and assets under construction. That's NZD 11.8 million. Then you can see the R&D development to support our growth.
The CapEx side of it sitting within the NZD 26.5 million in development assets. The OpEx part of that would be sitting within the corporate EBIT on that measure. We've noted the purchase, the cash part of the purchase of Coretex separately, and it's down that right-hand end with acquisition of subsidiary of NZD 72.4 million. With that, I'm gonna hand it back to Mark and Graham.
Margaret, I was just there in person with Margaret, so unfortunately like many in our community at the moment, I'm home with COVID, with my family, so I'm joining remotely today. In this part of the presentation, we're gonna look at growth opportunities and outlook. I'll first talk about our products and the products we've been bringing on during last year and what they're gonna do to unlock our growth for this year before turning over to Graham to talk about our FY 2023 priorities and outlook. In terms of how we operate, if you look at the left-hand side, at the core, we have hardware products which are in cab, which help enable us to collect data to provide additional services.
EROAD has very much been focused historically on its Ehubo products on the left-hand side, and last year we launched in October our standalone Clarity Solo dash cam, which combines camera technology for capturing what's happening in the cab and on the road, together with a telematics componentry that historically is in Ehubo.
The Coretex team had historically the Coretex TMU1500, and that's now been replaced by the CoreHub technology, which we'll talk about shortly. In addition to those core hardware components, there are additional products and services we spoke about earlier. What they do is they enable us to open up a broader addressable market for our customers, while allow us to penetrate more deeply into them providing additional services.
Critically there, what it enables us to do is to visualize all of the vehicles, all of the customer's assets onto one platform, so they can see all of the key areas of the business together in one area. That's important because our customers have a range of problems that they seek to solve. Productivity is getting greater and greater as they're struggling to find more drivers and vehicles. They need to utilize the assets more effectively and efficiently and for a longer period of time, so we're able to give them good insight as to how they maximize the use of the assets. We still have to help our customers monitor their regulatory compliance activity.
As they are driving more and they need to use the assets more, it's really important that they do so within the work time rules and do so safely, paying their appropriate level of taxes. Road safety gets greater and greater as well, and that's sort of led us to our camera technology and other products that enable our customers to get insight around the driver's activity and how to train and monitor what they're doing to improve safety outcomes on the road.
With the merger of Coretex, we've also unlocked the ability to solve customers' problems around food safety, refrigerated products, as well as other products which need refrigeration, such as vaccines. Our products help enable customers to monitor and record how they are being transported to ensure that there's assurance around the safety of those products when they reach the destination.
Proof of service is getting more and more acute for our customers as well. Our customers and their customers want to know better the effect of delivery and the timing in order to meet either contractual obligations or other concerns that their customers might have. We seek to certify the quality of the products that they're delivering.
We've got solutions to help our customers enable that. I talked before about CoreHub being the next generation platform. This is a graphic that sort of shows how it interacts with the various solutions that we have. At the heart in the cab, the CoreHub is a next generation IoT device, which is very advanced with edge computing and power, which enables more to be done in the vehicle and quicker visualization and realization to the driver.
That's displayed on the left-hand side on the driver device in the vehicle. Not only can the driver use that to manage their regulatory obligations, whether that's around work time with an Electronic Logging Device or ensuring that the vehicle is fit for purpose with a DVIR. It also helps them understand routing and navigation to ensure they're efficient and effective during their workday.
That CoreHub can then be connected with camera solutions, whether it's an entry-level CoreVision or the more advanced Clarity cameras to better understand the risk the driver's under on the road. We've also added IoT tags and sensors to our products as well, and that enables us to reach into different verticals with the CoreHub.
It may be around understanding and monitoring for the civil and construction side, concrete and how the quality of the concrete is being made by understanding the rotations that are happening in the vehicle. To measuring the sensors in refrigerated vehicles around maintaining appropriate temperature for the goods inside it. All of that is visualized back at home base on the MyEROAD 360 Enterprise solution.
What it unlocks for us, it unlocks a huge range of solutions for our customers and which deal with the customer problems we talked about earlier. As you can see, we have a pretty comprehensive product offering around SaaS, around road safety, regulatory compliance and productivity. Some of those are very much directed at helping our customers around understanding what's going on in the vehicle. From our perspective, they also help us in terms of retaining customers and growing ARPU.
We are also helping our customers on the ESG journey as well. Those icons which are in green, those are ones which enable our customers to understand the carbon impact that they're having or be more efficient and effective in their daily business to reduce their impact on the environment. Across the bottom, you can see the build-out of our technology across the verticals that we operate in.
We continue to invest in these verticals because we do believe these are a key area of growth going forward to enable us to reach NZD 250 million in revenue by FY 2025. As we continue to grow with our customers, we'll continue to invest with them by providing solutions for them. If we look a bit more deeply into our verticals, there are four main verticals which we're targeting at the moment.
EROAD has historically been in the in-cab professional transportation vertical for a long time. EROAD's regulatory technology complements the more advanced technology stack that Coretex brings to the table from the merger. We're quite excited about getting deeper and broader in the professional trucking area. In terms of refrigerated transportation, that's an area of the U.S. that is growing, and we are investing more in there, and the CoreHub solution helps unlock and enable that market, as well as new CoreTemp products that we have launched in that area as well.
EROAD has been historically strong in construction, particularly in New Zealand. Teaming up with Coretex has helped us get more strong in the North American market, the range of products that they offer up there, as well as introducing waste and recycling into our product set. With the teaming up with Coretex, we've also better balanced our business as well. We've got a better balance between the markets, so the U.S. has increased from 28% of the units by market to over 40% now.
It de-risks us in terms of impacts in the economy in different areas. As one grows and other contracts, we are insulated to a degree there. It's also been critical in terms of the scale it provides us. That increased scale increases our reputation with our customers in terms of giving them credibility around us as an operator. They do like to know who our largest customers are and what industries we are in to give them confidence that we're the right technology partner for them.
Teaming up with Coretex has increased our ability in the scale and the reference customers that we bring to that as well. As you can see, we've got a better balanced industries that we operate in together as well. We will continue to invest in these areas and off the back of this to grow our revenue in the market.
Finally, I just wanna talk about our status of the integration. We are making significant progress on our integration. As Margaret mentioned before, a critical area that we've been working on is our supply chain. As we've all seen globally, many companies are impacted by supply chain challenges, that we're included as part of that. When it comes to the increase in different types of product sets that we have, that does increase our exposure in the supply chain risk.
We have very much invested and worked together and combined the supply chain team quickly to make sure we're on top of the risk in the area, and we're satisfied with the progress they've made in terms of addressing the risk we have in that area. Sales activities are well integrated across our markets as well. There's been good cross-training of our sales folks, and they are very much focused on their various verticals they're working on with that training.
We are aiming to have our key products and platforms fully integrated by the end of this year, and we're seeing good progress in that area. Our 3G to 4G upgrade program is almost complete, so the underlying trend we're seeing from the back of that should abate as we finish that swap-out program. I might pass over to Graham to talk about our priorities for this financial year.
Thank you, Mark and Margaret. The merger with Coretex accelerated our growth strategy, and particularly in North America. In the coming months, we'll be undertaking a refresh of our strategy to reflect that. In this year, though, we will have three priorities. The first priority is to build momentum in our growth strategies in both North America and the New Zealand market. The second priority is to maintain an engaged culture that's aligned to the vision of the merged company.
We refer to this company as EROAD version two point zero. We're doing this in a time when the unemployment market is hotly contested, and the war for talent is as vicious as it's ever been. The third priority is, as Mark's indicated, to deliver on the key product and platform integration by the end of this calendar year.
Capitalizing on the merger with Coretex, we expect to deliver key products and platform integration that will enable enhanced SaaS products for further growth. What does this mean for our outlook in the coming year? We expect that growth momentum will further build through the year with the successful conversion of our North American enterprise pipeline opportunities and our New Zealand pipeline opportunities.
Underpinning this expectation across all of our markets, we currently have 18 pilots with enterprise customers that represent some 30,700 units and 10,000 micro tags. However, revenue growth in 2023 financial year will reflect the lumpy nature of enterprise sales and the phasing of some of our hardware and software rollouts. In addition to growing revenue, there are a number of enterprise customers that will renew their contracts during the year.
We anticipate that revenue will be between NZD 150 million and NZD 170 million, reflecting the contribution of a full year of Coretex and the continued growth across all the markets and the realization of the investments that we've made last year and we continue to make this year. The last year has been a year of significant investment and capability.
This is in preparation for growth, and this investment will continue into 2023. As a result, we're targeting a normalized EBIT of between a loss of NZD 5 million to breakeven in the coming year. We expect in the following year we will start seeing the benefit of operating leverage and that the bottom line result will improve.
As I've mentioned earlier, in the longer term, we're targeting to deliver ongoing strong growth in revenue to at least NZD 250 million by 2025. At this point, I'd like to conclude the formal part of these presentations and open the floor up for questions.
Thank you. Sure. We've got some questions from the call. I'll let Hamish Murray. I see you've got your hand up. Do you wanna turn your microphone on and ask the question?
[inaudible].
Oh, Hamish, before I forget to add, I might take some other questions. The question was, given where consistent earnings were, was any consideration given to providing guidance to the markets prior to the results? I will start with that. I might then hand over to you there, Margaret, off the back of that.
Me.
You, Graham, as the case may be. Graham, did you wanna start?
Yeah. I think, you know, the board is very conscious of our continuous disclosure obligations, and we, you know, we regularly review progress. Given that there was a wide range in this forecast, and this year, you know, we. Bearing in mind we've withdrawn guidance on the merger with Coretex. This year there were a number of material accounting judgments and a number of items normalizing that made it difficult for us to be in a position to be able to give any further guidance prior to the release of this result.
Another question was, do you have the right people in the U.S. key positions apart from CEO and CFO that needs filling? I can take that, and Graham, you're more than welcome to add to that if you wish to do so. Absolutely, we do have the right people in the U.S. We've actually got a really strong team in the U.S. that we are really confident in terms of delivery.
Akinyemi Koyi as the North American President is deeply experienced and worked with Coretex for eight years, so a very deep understanding of the North American market and technology solutions and concerns that the customers have there. In the rolling out of the verticalization model they've had historically across the EROAD business there, he's leading and we've complete confidence in there.
He's supported strongly by a leadership team made up of EROAD and Coretex team members, many of whom have been in the U.S. for quite some time and understand the customer concerns they have there. We don't anticipate any positions in the U.S. that need filling, and equally, apart from the CEO and CFO, we're comfortable with where we are with the leadership bench as well. Graham, is there anything you'd like to add to that?
No, you've covered it very well. Thank you, Mark.
Sorry. We had a question from Joshua Dale. I think will begin on the call might open up his microphone so we can talk. Do you wanna do that, Josh?
Here we go.
Can you hear me okay, Mark?
We can, Josh. Thank you.
Brilliant. Thank you. First question, just to clarify, if I heard correctly, you're not going to provide quarterly updates going forward. Did I hear that right?
That's correct.
Okay. Second question. Can you give us an indication of how much revenue Coretex contributed for the last four months of FY 2022?
Margaret, would you like to?
Sure. Of the growth, about 10% of it came from EROAD's business, and the remainder was as part of the acquisition of Coretex.
Thank you. Just on the FY 2023 outlook, roughly how many enterprise units are up for renewal this coming year?
Sorry, what was the question again, Josh?
For FY 2023, in your outlook statement, you sort of do provide a bit of caution around enterprise units that are coming up for renewal. How many of those units are coming up for renewal?
We have a proportion up for renewal. Not gonna get into the exact details. We don't want our competitors to know how many we are gonna be renewing, but we have some of our larger enterprise accounts are up for renewal this year. Out of the proportion, generally, they're not the bulk of our enterprise customers that we have.
Okay. Are they primarily Coretex customers or primarily EROAD?
They're mixed, yeah.
Okay.
We can say that our growth expectations are met.
Correct.
Okay. Thank you. Just while still on the topic of FY 2023, you have eight enterprise customers in the North American pipeline. Are the products they're trialing more on the Coretex side or the EROAD side?
Predominantly, we're in four verticals now, so predominantly across those verticals. Less so on professional tracking, more so on others. There's a bit of a mix there.
I think, Mark, it's fair to say they're predominantly Coretex.
Yes.
Sure. Thank you. Just on your target for normalized EBIT of -NZD 5 million to break even, I'm assuming the normalization you expect is integration costs. Is there any steer you can give us around the quantum of those?
I'll jump in here. We said to the market we thought integration costs would be between NZD 12 million and NZD 15 million, and we're still on track for that sort of range. It'll likely be the upper end of that range, with the majority in FY 2023 being capital. It reflects the business systems investment we need to do and the investment in the customer-facing platforms and products.
Okay. Thank you. Just to clarify, like, just for argument's sake, say you the integration costs were NZD 15 million. We can subtract, I think it was NZD 7.5 million from FY 2022 from that to get an idea of the FY 2023 number?
Yeah. I think you'll find this year's is closer to NZD 5 odd million, but when you add the capital and operating together. Yeah, general principle is correct.
Okay. Thank you. Just last question from me. On your FY 2025 target of at least NZD 250 million of revenue, is that organic or do you need M&A to help you get there?
That's organic.
Yeah. Organic. Okay. I guess optically, you know, it does imply growth rate well above what's currently being delivered. Just curious if you've got any comment around, you know, how you've built up to that number in your own modeling?
We have reasonable predictability around our New Zealand business. We, you know, we know the accessible market and we know our product range. That New Zealand core is reasonably straightforward. If you look at the North American market, the market itself was growing somewhere in the range between 15% and 20% in the years leading up to COVID. COVID has sort of impacted that quite significantly and probably halved that.
Most of the reads are somewhere between 7% and 10% growth in the underlying market. We're expecting that the underlying market growth, once we shake off the effects of supply chain and COVID, will go back to close to what they were pre-COVID. We're sort of dealing with an underlying market growth in the mid-teens.
We look at our pipeline, and we look at the features that we're building and with the investment we're putting into R&D and the, you know, our targeted accessible markets for those. We think that an overall growth rate of slightly over 20% year-on-year, which is what that represents, is a realistic target in that context. Bearing in mind, you know, we've also annualized the contribution from Coretex. You're seeing in our 2022 result only four months of Coretex revenue.
Sure. That's helpful. Thanks very much, everyone.
Thanks, Josh. Another question we've had is, what feedback have we received from our enterprise pipeline U.S. around the resignations of Steve and Alex? Has it resulted in a change of decisions or fears for enterprise pipeline? No, they haven't impacted at all on the enterprise pipeline. I was up in the U.S. twice now over the last two months, and there's been no concerns or pushback raised by those customers around those resignations.
We've got a very strong team in North America who have continued conversations with those customers, so we don't have any concerns there. Guy asked a question around one-off integration OpEx in FY 2023. We've sort of touched on some of that. Anything else, Margaret, you want to add on there?
Apologies, which one are we on?
One-off integration OpEx.
No, I think it's covered off from Josh's question.
Yep. The question around what further detail will be disclosed going forward to what a SaaS business reports and its associated metrics. I can start and hand over to Graham and Margaret. As Graham mentioned before, we are going through a strategic refresh during the next few months. We will be looking as part of that around how we best look at the metrics in terms of our performance. It'd be fair to say that certainly revenue and AMRR will be components of that. Is there anything, Graham, you'd like to add to that?
No, I think, you know, I referred earlier to the acquisition of Coretex as advancing our strategy a couple of years. It's also brought forward the complexity of having such a wide range of products and solution offerings to customers. You know, Starview has always been easy to characterize. That's by the number of units or installed units in cabs and on trailers.
That's becoming far more complex because that's not as reflective of our revenue base as it has been historically. We'll go through that refresh process, and we'll reset the metrics, and then we'll come back and present those and talk to the market about, you know, how we think we'd best reflect the performance of the business.
Thank you. Here's a question from Mark Williams. What level of cash burn are we expecting in FY 2023, and can the balance sheet support the business through to our future cash flow positive position? As part of that, another question to touch on in terms of do we have sufficient cash to get us through the next two years?
Do you want me to jump in, Mark?
Go for it.
Thanks. Short answer is yes. We've just renegotiated a facility that is NZD 90 million, and based on our modeling, we feel that facility is sufficient. I'd love to have the regional teams land a whole heap more whales, so we've got to go back to the banking syndicate and say, "We need some more to fund the inventory growth to support those customers." Both banking syndicate members have indicated they're happy to support that. At this stage, we think that the investment we have to do in inventory will start to level off in terms of risk and will be sufficient within that facility to fund the growth we've got planned.
Thank you. Question, do we expect any working capital unwind in FY 2023, Margaret?
Sorry, I haven't been keeping up with your questions. Apologies. No, I would expect it to improve.
Hard assets have increased by NZD 26 million. How much of these are inventories and how much is deployed with customers? Can you walk us through the movement given the impact it's had on cash?
Sorry.
Can you say the question one more time?
Can you repeat it please?
Yeah, I know. Apologies. I was just working. I've got four on the screen, so I was just not sure which one we're talking to.
Third from the bottom.
Apologies. You'll see in the slide deck actually the split between which we disclose, hardware asset movement excluding inventory. That is in the slide deck. I would expect the majority of that inventory to start being deployed out to customers over the course of the next 12 months. Some of it has been around managing our supplier risk as well, so ensuring we had a variety of suppliers to help and continue with that product. It's clearly had a big impact on cash this year.
It will continue, but inventory purchases often have a long lead time at the moment to make sure there's a bit of a balancing act for our global supply chain team between the cash they're investing and the price they're getting it for. The time price situation. We do have forward orders that'll continue to come through over the next six or so months, but some of that includes basically stock that we then expect to unwind.
Thank you. Can we talk about cash expectations? It's the bottom question. Given FY 2023 estimates EBIT expectation of -NZD 5 million to break even, plus integration costs itself, it could be close to NZD 7.5 million.
Look, don't forget everything's underpinned by we'll have 12 months of Coretex in the results and 12 months of cash generation from Coretex. Yes, we'll have some pressures on our cash through this year with the decisions to invest in the areas we have, but we will have increased cash flow coming from operations through FY 2023 and growing into FY 2024.
Thank you. We've got another hand up, Clyde D'Souza . Perhaps if we can turn on your microphone, Clyde. Please bear with us for a second. Just see if his microphone's on or not. We're still having issues, sorry. Clyde, if you could turn on your microphone. If you could maybe type your question into the Q&A chat. Apologies. That would be useful. Sam , do you mind typing your question in as well? Apologies for the technology issues at the moment.
Hamish, I might just add to that question on cash. There's two uncertainties. One is the exact amount of the contingent payment on the final settlement of the Coretex, which will occur in the next five months. The other one, of course, is we don't know around that lumpiness of the enterprise pipeline. You know, if we land a big customer towards the end of the year, that's gonna result in a significant buildup in working capital and inventory.
Sam, thanks for typing your question. Okay, just been answered. Thanks, Sam. Clyde, hopefully you can type your question. Apologies. Can't seem to get your microphone going at the moment. Would you discuss and quantify where possible employee cost inflation? I can touch on, Margaret can build on that. Obviously, like many people at the moment, we are having inflation around our employee cost base.
It's been driven to a degree by the closed borders, but just generally cost of living is increasing everywhere. Employees are certainly talking to us about that. We've been actually having quite in-depth conversations with our staff, and it's not just necessarily on remuneration, but our entire employee value proposition around the reason why they come to work and working for EROAD.
A number of people are linked here with the purpose, so it's not necessarily just here for rem. We are talking to them about a broader value proposition, whether it's New Zealand, Australia, U.S., to address those inflationary pressures, the ways of working, why they wish to work for a company like ours, and we're having good discussions on that front. Obviously, there's some costs do flow through to us, however, so I'll pass over to Margaret around the actual costs we're seeing.
Sure. In terms of that $8-odd million that are sitting on the OpEx bridge, I would say 40%-50% of that relates to remuneration growth. Remembering that part of it is also just our normal remuneration cycle, but there's also the inflationary pressures we've seen in terms of attracting new staff and retaining the staff that we've got.
Clyde, your next question around whether the U.S. total market weakness is impacting on demand. Predominantly the demand impact's being driven more so from COVID and really access to people. Historically, fleets were concentrated on moving things A to B as opposed to just stopping their fleets and having new installs done. That's changing to a degree.
It's maybe a bit early for capital market impact to see that flow through to impact on demand at this point in time. We haven't seen anything yet. It's just predominantly been historically just due to COVID, and it's just general impact on business operation as opposed to demand per se at the enterprise end of the market. Christian from Owen. Coretex ARR, maybe. At the time the acquisition was for NZD 2 million, we cover EROAD Coretex of NZD 95 million. Can we help them understand the reported NZD 135 million, Margaret?
Yes. Owen, this is a pro forma that we did at the time. We knew what we knew at the time and was subsequently when I described to you the previous commercial terms, where some of the stuff was sold outright versus our rental model for EROAD, that materially affects the ARR and also materially affects what in terms of the ongoing stuff.
As I said before, it doesn't actually impact the cash of the transaction. It impacts when it's recognized. Those accounts at the time were pro forma accounts with some underpinning assumptions around the mix of that that has proven to be more weighted towards outright sales. We are seeing a mode shift, though, across the Coretex customer base, so we're seeing it shift from their outright hardware sales through to the rental model over time.
Next question from Clyde. The IFRIC decision on customer behavior. Not quite certain, Clyde, what you're getting at there, Margaret, is there something you can.
It's by IFRIC decision, I think we're talking about the cloud.
Right.
Adjustments. In effect, what that did was shift your ability to capitalize some of those costs associated with third-party software when you're doing implementation of third-party cloud software. It shifted it from an amortization line into effectively software costs or professional services. We've seen it shift from below EBITDA into EBITDA this year.
With that decision, it required some restatement, which we've disclosed all the way through the financial statements. There's a combination of restatement of history, and then that'll be the impact move. The impact moving forward is we'll see less of that third-party activity able to be capitalized and more of it being expensed in the year it's incurred.
Thank you.
I suspect, Margaret, the other half of that question is, will that change in accounting treatment change the way our customers might view purchases of our solutions?
Their own stuff? I think that where I see it impacting is where there's a large investment required to implement our solutions, and for a big majority of our customers, I would suggest they don't have a large investment. It's reasonably low, and so that they won't have the same issue.
Largely ours is a subscription service that would be expensed in the normal course through the P&L, and there'll be a very low level of configuration that may be required to be.
Mm-hmm.
Sorry, Graham. In terms of expensing that's what they've been doing up until this point. The IFRIC decision doesn't impact it.
Yes.
Okay. Any other questions from the attendees?
Well, Mark, it's probably at the stage of proceedings where we thank everyone for attending.
Mm-hmm.
Some of you look forward to talking to you over the next few days. The team are all looking forward to an exciting year in front of us.
Thank you everyone for attending today's call.