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Driving revenue growth at Xata Corp.
An Eden Prairie company turned an intermittent flow of system sales into the revenue stream of monitoring.
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More from Gene Walden
Although the slowing economy has put the brakes on the growth of the trucking industry, Xata Corp., a small Eden Prairie-based operation that specializes in truck-monitoring software systems, has seen its revenue grow by 91 percent.
While some of that growth was the result of a recent acquisition, the company did log a 33 percent increase in revenue from organic growth in its fiscal first quarter, which ended Dec. 31. Xata (pronounced "ZATE-a'') hasn't turned a profit since 2000, but its executives expressed optimism that positive earnings could be coming soon.
Founded in 1985, Xata was fighting for its life in the competitive truck-monitoring industry until a new management team transformed the business model. "The business was stagnant, revenues were flat and the company was losing money," recalled Jay Coughlan, Xata chairman and CEO.
In the past, Xata primarily sold onboard monitoring hardware and software for long-haul trucks. But once the systems were installed, Xata's job was done.
The new management team has changed the business model to produce a continuing stream of revenue. Coughlan came to Xata in 2006 after serving as CEO of Lawson Software. Mark Ties, Xata chief financial officer, joined the company in 2005 after serving as CFO of Velocity Express, a Connecticut trucking firm.
After evaluating the company's business approach, the new management team made a dramatic change in the way Xata served customers. Instead of equipment being sold to customers, it's leased through a subscription agreement. That enables customers to buy in at a low cost, and it provides Xata with regular revenue.
"Instead of [their] buying the software and hosting it on their own computer, we host the software and the companies can access their information at any time through our system," Ties said. The company has 1,200 customers with more than 66,000 trucks in its system.
Now, instead of spending thousands of dollars to buy the equipment, trucking companies pay Xata about $1,500 to $2,000 per truck to have the systems installed and a monthly fee of $40 to $50 for services and support. "Because of the savings our monitoring systems provide, companies can usually recoup their initial investment within about six months," says Ties.
The savings come in several ways. On-board software systems monitor a variety of items including fuel use, trip route, idling time, braking and clutching information and compliance data. "Our customers can grab real-time information from a truck that's going 60 miles an hour down the highway," Ties said. "Our systems allow trucking companies to reduce cost, improve production and ensure regulatory compliance."
Not only has the new business model helped customers monitor their trucks and truckers more efficiently, it also has helped reduce the ups and downs of Xata's balance sheet. "It gives us a very stable and predictable business model," Ties said. The company had revenue of about $53.7 million last year, and much of it was from recurring revenue.
In fiscal 2008, organic growth totaled about 29 percent and total growth including income from an acquisition grew about 75 percent. Xata reported a net loss for the year of 44 cents per share compared with a 99-cent loss the previous year. In the first quarter of fiscal 2009, the company reported a loss of 8 cents per share, compared with a loss of 14 cents a year earlier.
The company plans to keep the pedal to the metal to continue the growth of its customer base and revenue stream. Coughlan said the company continues to sign up new fleets and might have some acquisitions down the road. He also hopes to expand services by adding more functions to the company's monitoring systems, such as trailer or emissions monitoring. By doing so, he said, "we'd like to see our subscription income go from $40 or $50 per truck to $60 or $70."
"When you look at the wireless market, the trucking market, the SAS [statistical analysis software] market, we're in some pretty explosive markets," adds Coughlan. "And that will be particularly true when the economy starts to come back."
Xata shares closed Friday at $2.50, up 64 percent from its Dec. 19 low of $1.52. Most of that increase came after the release of first-quarter numbers. The stock hit its 52-week high of $3.95 in Aug.
Gene Walden lives in the Twin Cities and is the author of more than 20 books about business and investing. Send questions to gwalden100@comcast.net.
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