Fleetmatics Group's CEO Discusses Q1 2014 Results - Earnings Call Transcript

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 |  About: Fleetmatics Group PLC (FLTX)
by: SA Transcripts

Fleetmatics Group PLC (NYSE:FLTX)

Q1 2014 Earnings Conference Call

April 30, 2014, 5:00 PM ET

Executives

Jenna Marvel - Investor Relations

Jim Travers - Chairman and Chief Executive Officer

Steve Lifshatz - Chief Financial Officer

Analysts

Raimo Lenschow - Barclays

Brad Erickson - Pacific Crest Securities

Matt Hedberg - RBC Capital Markets

Tom Roderick - Stifel

Bhavan Suri - William Blair

Operator

Good day and welcome to the Fleetmatics First Quarter 2014 Financial Results Conference Call. Today's conference is being recorded. At this time, I would like to turn the conference over to Jenna Marvel, Investor Relations analyst. Please go ahead.

Jenna Marvel

Good afternoon and welcome to Fleetmatics' first quarter 2014 earnings call. I am Jenna Marvel, Investor Relations analyst for Fleetmatics. Today, we will be discussing the results announced in our press release issued after the market closed. To access the press release and the financial details, please see the Investor Relations section of our website. As a reminder, today's call is being recorded and a replay will be available following the conclusion of the call.

With me on the call today is Jim Travers, Fleetmatics' Chairman and Chief Executive Officer; and Steve Lifshatz, Fleetmatics' Chief Financial Officer.

During the course of this call, we will make forward-looking statements regarding future events and the future financial performance of the company. These forward-looking statements are subject to material risks and uncertainties that could cause actual results to differ materially from those in the forward-looking statements. We caution you to consider the important risk factors that could cause actual results to differ materially from those in the forward-looking statements contained in the press release and this conference call. These risk factors are described in our press release and more fully detailed under the caption Risk Factors in the company's Annual Report on Form 10-K filed with the Securities and Exchange Commission on March 17, 2014, as updated by a subsequently filed quarterly reports on Form 10-Q, annual reports on Form 10-K and other filings that we make with the Securities and Exchange Commission.

During the call, we will present both GAAP and non-GAAP financial measures. These non-GAAP measures exclude both share-based compensation expenses and the amortization of intangible assets as well as non-recurring items. These non-GAAP measures are not intended to be considered in isolation from, a substitute for, or superior to our GAAP results. And we encourage you to take all measures when analyzing Fleetmatics' performance.

A reconciliation of GAAP to non-GAAP measures is included in today's press release regarding our first quarter 2014 results. In addition, please note that the date of this conference call is April 30, 2014. And any forward-looking statements that we make today are based on assumptions that we believe to be reasonable as of this date. We undertake no obligation to update these statements as a result of new information for future events.

With that, I'll turn the call over to Jim Travers, our Chairman and CEO.

Jim Travers

Thanks, Jenna. Good afternoon, everyone, and thank you for joining us today. We're excited to share the results of the first quarter of fiscal 2014. Today, I plan to cover Q1 results, highlights from the quarter, an overview of our new product release, and an update on our geographic expansion activities. And Steve will follow his financial discussion with our outlook for the balance of 2014.

First let's cover Q1 results. Our vehicles under subscription grew by 33% year-over-year to approximately 472,000 active subscriptions. We continue to be the largest software provider targeting the local fleet, small to medium size market space, as well as the fastest growing subscriber base in the fleet management industry.

Total quarterly revenue grew by 35% year-over-year to $51.9 million. And remember, this is days in quarter sensitive. So we're in line with what we guided here. As you saw, we attained a non-GAAP gross margin of 76.2% for Q1. Our adjusted EBITDA was $13.8 million for the quarter, driven by the investments we described last quarter, including new product initiatives, expanded investments in marketing and geographic expansion. We also generated $20.3 million of operating cash flow. Overall, we are pleased with our results to start the year.

As we shared with you last quarter, we have initiated sales expansion into Mexico, Mainland Europe and Australia. Thus far, we're encouraged by the start we've made in these geographies. As a reminder, we are implementing the same selling and marketing process in a new market as used within our current geographies. At this point, we see no reason that we will not be successful using our current business processes within these new markets. It is important to note that it is early days in these initiatives and given our business model, it will be fiscal year 2015 before we start to see significant unit impact.

In North America, the sales continue to be strong, particularly at the SMB level, which drove our overall total customer counts almost 23,000. We continue to see add-on subscriptions from a number of our enterprise customers, including over 1,300 additional subscriptions in the quarter from Johnson Controls, bringing their total orders to over 5,500 subscriptions and several hundred or more each from Comcast and Time Warner Cable.

We also added a significant new enterprise customer in United Kingdom, Lafarge Tarmac, a construction solutions provider, for an initial order of 800 subscriptions. Both Lafarge and Johnson Controls will be implemented on our new software platform.

Our efficient web selling model continues to drive a considerable percentage of our net new subscriber growth, sustaining our ability to outpace the growth of the overall market. In this past quarter, for instance, we saw 76% of our total new subscribers during Q1 driven through our web channel. This is an increase over previous quarters, as we continue to see leverage from our SMB marketing campaigns. And we saw less impact from larger fleet deals during the quarter. As we have discussed, larger enterprise deals are more difficult to forecast. So this percentage will fluctuate from quarter-to-quarter.

Once again, over 20% of our new subscriptions consistently came from existing customers adding on new vehicles, which continues to validate the continuing and increasing value our customers receive from our service.

We also continue to build our big data asset, collecting 5.1 billion data points during the quarter, continuing to facilitate our vision of quantifying the best practices we observe within and across our customers' industries and geographies in order to create accurate and reliable benchmarks to present through our product in a meaningful and actionable way.

We continue to take advantage of our customers' historical fleet information. As you may have seen, we recently released our new FleetBeat Report. FleetBeat is an industry first report that was developed by scientifically analyzing a big data pool from hundreds of thousands of real world service vehicles from our customer base that generated tens of billions of data points over a five-year period via their onboard Telematics units. The report outlines the economic impact of Telematics adoption by commercial fleets and provides benchmarks for fleet upgraders along with quantifiable benefits of business intelligence-driven fleet management.

As the fleet management industry continues its rapid growth, it is our objective that with such a large pool of future buyers, FleetBeat will serve a resource to show business owners the immense impact this technology can have on their bottomline. We have seen significant interest with this report to our website.

We released our new software platform earlier this month, Fleetmatics REVEAL, featuring several industry-first capabilities and a significant upgrade to our user interface along with all those features developed over 10 years in both our Fleetmatics and SageQuest offerings. This will enable us to meet the needs of all levels of the market through a single code base. The new platform contains our newly branded offerings REVEAL for smaller fleets, REVEAL+ for larger fleets and Fleetmatics WORK, which was formerly Connect2Field for field service management.

This release has enabled us to concurrently move to a single brand for our sales and marketing activities. The solution offers expanded analytics, facilitates driver-centric views and provides a number of new and industry-first features such as reporting and monitor units, a simplified timeline view and our new patented automated Geofences, all of which we believe to be transformative to the local fleet operator.

Fleetmatics WORK will be fully integrated into REVEAL, which will give us the ability to integrate and match location-based data with work order information. This will be a powerful combination for our current and future customers. We urge you to take a look at the product on our new website to provide more insight into what was delivered.

On the marketing side, we launched a new national radio campaign in March to bolster our new single brand market awareness and continue with several other new digital marketing programs, as well as initiated programs in the newer geographies, all focusing on further promotion of the Fleetmatics name, which has become synonymous with the leading provider of fleet management solutions not just in North America, but throughout our served markets.

Before I close, I also want to comment on the market consolidation that we have seen over the past 12 months and will continue to see in 2014. The value on return of investment of our fleet solution like Fleetmatics delivers is now validated. This validation has led to significant M&A activity with new investors coming into the sector. Based on what we have seen thus far, we believe consolidation is a positive movement for both Fleetmatics and the industry. We have experienced very little negative competitive change as a result of the consolidation we have seen thus far.

We will continue to look at all companies that may be up for sale. However, our primary focus will continue to be on acquiring complementary product applications as well as acceleration of penetration within our targeted geographies, which is consistent with our longer-term strategic plan.

So to recap, we delivered another solid quarter to begin the year and our results emphasize the continued demand for our SaaS fleet management solution for local fleets as Fleetmatics continues to grow faster than the overall market. Revenues were up 35% year-over-year. Adjusted EBITDA was up 25% year-over-year. And we generated $20.3 million of operating cash flow, which once again shows the power of our model to generate cash even during investment period.

As we just discussed, the market launch of our new software platform was a significant milestone for the company as we continue to invest in new features and applications such as Fleetmatics WORK to extend their value proposition to customers of all sizes. Our geographic expansion continues to gain traction and we continue to invest in driving Fleetmatics market message as the clear category leader.

So with that, let me turn it over to Steve to provide additional commentary in the quarter and on our guidance. Steve?

Steve Lifshatz

Thanks, Jim. Well, today I'll cover our overall business financial performance for the first quarter, followed by our outlook for Q2 and the remainder of 2014. As Jim mentioned, we successfully launched and rebranded our Software as a Service platform, which underscores the progress we are making with our strategic initiatives and further positions Fleetmatics to expand market share globally.

Now regarding our specific results and turning to the income statement, total revenue was $51.9 million, up over 35% year-over-year and above the midpoint of our guidance range. The driver of the growth continues to be net additions to vehicles under subscription, which grew more than 32% year-over-year to approximately 472,000 revenue generating subscriptions. As you're all aware, we recognize revenue on a days sales basis and there were 90 days in the first quarter compared to 92 days for the previous quarter. And just to remind you, the average daily revenue within the quarter was $577,000 each day.

While we continue to serve local fleets of all sizes, our customers remain predominantly smaller local fleets. As expected, there were no new multi-thousand unit enterprise sales during Q1 as we had seen with likes of Comcast in Q1 of 2013. We ended the quarter with close to 23,000 unique customers.

Our quarterly net churn rate was 1.3% in the first quarter, consistent with the first quarter of 2013, as we continue to add more vehicles from existing customers than we lost from those customers. And during the quarter, our gross churn rate was 1.6% or 6.4% annualized, an improvement over the first quarter of 2013 gross churn of 2.2%, validating the continued stickiness of our product. And we continue to see over 20% of our net adds come from existing customers. So that's an important trend, which has not changed.

Now turning to expenses and profitability for the first quarter on a non-GAAP basis, our total gross margin was 76.2% during the first quarter compared to 74.2% during the same period last year. The year-over-year improvement was primarily driven by continued reductions in telecommunications program cost. And as a reminder, we viewed Q4 as a near-term peak in gross margins and continue to believe that we can achieve significant leverage during 2015 and into 2016.

In terms of our operating expenses, while we hired a little slower than planned, as we outlined on the last call, we continue to invest heavily in sales and marketing, which we'll continue throughout the year. During the first quarter, non-GAAP sales and marketing expense increased 41.1% over the prior-year period to $16.9 million, representing 32.5% of revenue. Marketing incurred new cost related to our brand messaging as well as our new radio and media campaigns.

In sales, the increase was continued investments in our sales forces, which included additions to our existing North American web sales activities, our recent expansion into new geographies and our development at a new sales organization for the former Connect2Field or Fleetmatics WORK product. As we've stated, our focus in 2014 is to invest across the business to expand our distribution and product capabilities in order to further position the company for growth longer term.

The non-GAAP research and development expenses increased to $3.8 million or 7.3% of revenue compared to $2 million or 5.3% of revenue last year, reflecting our investment in new product releases as well as expanding the functionality of our platform and solutions. And of course, we capitalized $416,000 of R&D during the quarter, consistent with the $400,000 capitalized a year ago, both of which are excluded from these numbers.

So on a like-to-like basis, we're looking at approximately 72% growth year-over-year, taking into consideration capitalization for both periods and indicative of the strong investments we've been making in our product.

Non-GAAP general and administrative expenses in the first quarter were $9.8 million compared to $6.7 million last year. The year-over-year increase was primarily due to the increase in personnel and infrastructure associated with the growth of the business domestically and internationally.

Non-GAAP operating income was $9.1 million for the quarter compared to $7.9 million during the first quarter of 2013. Non-GAAP adjusted earnings per share for the first quarter $0.19 based on 38.4 million weighted average diluted shares outstanding. And this was above the high end of our guidance range and compares to $0.15 per share based on 36.2 million weighted average diluted shares outstanding in the year-ago period.

The effective annualized GAAP tax rate was 29.8% compared to 41.6% from the year-ago period. Excluding discrete items, it was 23.9%. And for 2014, we continue to expect to drive towards an overall tax rate of approximately 20% to 22%.

Our first quarter adjusted EBITDA increased 24.6% year-over-year to $13.8 million compared to $11.1 million for the same period last year and was above the high end of our guidance range. As a percentage of revenues, adjusted EBITDA was 26.5%, also above our guidance.

On a GAAP basis, first quarter earnings of $0.09 per share based on 38.4 million weighted average diluted shares outstanding. Now this compares to GAAP net income per share of $0.08 based on 36.2 million weighted average diluted shares outstanding for the first quarter of 2013. A reconciliation of GAAP to non-GAAP financial measures has been provided within the financial statement tables included in our press release.

Now turning to the balance sheet, we ended the quarter with $148.2 million in cash and $23.8 million in debt compared to $137.2 million in cash and $23.8 million in debt at the end of Q4 of 2013. Now during the first quarter, the company generated $20.3 million in cash flow from operations and invested $8.6 million between capital expenditures and capitalized software. And that resulted in free cash flow of the positive $11.7 million. Now remember, a portion of this is catch-up resulting from our Q4 accounts receivable growth and corresponding Q1 collections. And as expected, we had strong accounts receivable collections, ending the quarter with a net balance of $18.5 million compared to $20.2 million in Q4 of 2013. As we mentioned on the last earnings call, we continue to expect to further drive down accounts receivable by the end of the first half of 2014.

Our deferred revenue balance of $34.5 million was up $5.5 million compared to the year-ago period and up $4.3 million from last quarter. And for context, a majority of that increase was associated with certain customers with annual or quarterly billings. Now we ended the quarter with just over 720 employees on March 31st, an increase of about 60 employees since December 31st.

Now I'll finish with some thoughts regarding our financial outlook for 2014, starting with the second quarter. As we've shared, many of our investment expenses are front-half loaded. We're targeting total revenue of $54.5 million to $55.4 million, a growth of 28.2% to 30.4% year-over-year. We're currently targeting adjusted EBITDA of $13.1 million to $14.1 million for the second quarter, representing an adjusted EBITDA margin of 24.7% at the midpoint. And our non-GAAP adjusted earnings per share, which excludes share-based compensation expenses, the amortization of intangibles and other things, is expected to be in the range of $0.15 to $0.17 per share based on approximately 38.4 million weighted average diluted shares outstanding.

Both adjusted EBITDA and non-GAAP EPS reflect the deferred hiring from Q1 that I mentioned earlier.

Now from a full year perspective, we are maintaining our guidance range of $228 million to $230 million, which represents a year-over-year growth of $29.1 million at the midpoint. We continue to expect 2014 adjusted EBITDA of $61 million to $62.5 million, which represents an adjusted EBITDA margin as a percentage of revenue of 27% at the midpoint of that range. And we expect full year non-GAAP adjusted earnings per share, which excludes share-based compensation expenses, the amortization of intangibles among other things, to be in the range of $0.80 to $0.85 based on approximately 38.6 million weighted average diluted shares outstanding.

And as we said to you the last time, capital expenditures for 2014 continue to be expected to be approximately $46 million, with about $6 million specifically relating to R&D activities surrounding infrastructure investment for our products, about $1.5 million for standard PP&E throughout the business and the remaining $38.5 million being a combination of capitalized in-vehicle devices for both new customers as well as continued activities surrounding the 2G to 3G conversion activities, which if you recall, we plan to have complete by the end of 2016.

So in summary, we're very pleased with our first quarter execution and ongoing momentum of the business. Fleetmatics remains in a position to extend its leadership role and grow market share through our Software as a Service fleet tracking platform by continuing to provide measurable value to our customers each and every day.

And so with that, we'll be happy to take any of your questions at this time. Operator?

Question-and-Answer Session

Operator

(Operator Instructions) And we'll take our first question from Raimo Lenschow with Barclays.

Raimo Lenschow - Barclays

A couple of questions from my side. First, you had a good quarter, but was there any impact from the tough winter you had in North America?

Jim Travers

Look, I would say that we had very slight impact. The impact that we would have had would have been on southern storms moving from one month to the other, but it really didn't affect the quarter, overall perspective. So we were able to manage that pretty effectively. We saw a little bit of compression in movement from January and February into March as an example. But it's not something I would point to as being highly significant.

Raimo Lenschow - Barclays

And then well done on getting new product out, I think, ahead of time. Can you just talk a little bit about the implications that that kind of brings to you now that it's like one combined product go from an opportunity in terms of like selling more functionality into the smaller base, because they have more [ph] usage for functionality, but also maybe from a risk perspective in terms of migration and migrating maybe this on customer base is over?

Jim Travers

Look, it was a very significant milestone for the company. It allows us to unify the code basis I mentioned in my talking points, which over time will give us very good leverage and efficiency on a global development basis. To your point, we intend to convert our customer base over time. We look at that as we see it now as likely a 12 month effort. This is not going to be a forced march. We're going to take our existing customers over as they would decide to do so. And that's something I think we can manage pretty effectively. The net effect of the new platform in the near term is going to be our ability to provide our sales force more competitive advantage relative to how we'd go off and deliver unique value to the customer we're selling to.

So we've very optimistic about that. And again I want to emphasize it's early, we released the platform in the second week of April to sell, so we're early into it. But we have some indications that some of the features and functionality we believe are truly industry differentiated, are providing us some good value from a competitive standpoint as we go off and looking to engaging with customers. So we think it's going to be very significant to us as we move throughout the back half of the year.

Raimo Lenschow - Barclays

And then last question from me. You mentioned that hiring in Q1 was maybe at a slightly slower pace. Can you talk a little bit about what you see in the quarter? Did you kind of struggle to find the right people, or what happened there? And is that going to be all in terms of the catch-up in Q2, or is that kind of more spread out for the year?

Jim Travers

I think more of it was leaning towards our sales force particularly. In terms of the hiring, that was across functions. And I think it was just a situation that getting the right people in, going through our system and getting onboard was a little bit slower than we anticipated. That said, we had a pretty aggressive amount of new people to add within the quarter. So we kind of knew that. So I think that will play itself out here as we move throughout the second quarter and probably get us back on track before we leave the quarter.

Operator

And we'll take our next question from Brad Erickson with Pacific Crest Securities.

Brad Erickson - Pacific Crest Securities

First on the gross margin, looks like it came in a little bit ahead of what we had been forecasting during the quarter. Can you talk just kind of what happened there? And then obviously as it seemed like it has the potential to maybe trough in Q2 and then come back. Any color on just kind of how we should be thinking about gross margin as we move through 2014?

Steve Lifshatz

Just to kind of reiterate, we had said that Q4 was really kind of the peak that we would see from the near term and that we would build it back over the time and particularly as we get through mid-15, we'd start to see some more incremental opportunities there. The thing that really continues to help us is the reduction in overall telecommunications and infrastructure cost. And we've been continuously making sure that we're getting the right value for ourselves and for the company here. So we were able to get a little bit ahead of some of the value that we expected this past quarter. I don't think we'll see significant movement as we move towards the next quarter. Certainly I can't see it troughing significantly in Q2. And then if you think about the way the business runs as the volumes increase, we should actually see a little bit more expansion towards the end of the year.

Brad Erickson - Pacific Crest Securities

And then just on the WORK product particularly, can you just kind of talk about the go-to-market strategy on that as well as pricing for both the integrated as well as being sold on a standalone basis? And I know it's early, you've mentioned, but just any update on kind of initial thoughts on how that's going would be helpful.

Jim Travers

We are going to focus primarily on a dedicated sales team and marketing team with Fleetmatics WORK. It is a little bit of a different application, as we've discussed in previous calls where we're getting into workflow inside the customer again kind of summarizing what the application does. It allows field service worker through a mobile device to convert a work order, which again is important in terms of starting the billing process with a service business and converting that work order into a billable event to facilitate cash flow, increased cash flow and improved productivity. So it is a little bit of a different sales. So we're going to dedicate a sales force, which I've already started to put together both in North America and other markets to really focus and sell that product.

As you suggest, it's early from a standpoint of the pricing and packaging. We actually are testing a few different concepts that we want to test out in our different geographies to see how the customer aligns itself to adoption. We are encouraged and we believe that from a revenue standpoint, this application on a monthly basis can generate very close to the same revenue we're seeing from GPS based on a per vehicle. So it'll be user-based packaging type of pricing structure. So we haven't thought on exactly what that model is, because we're doing a little bit of testing, as I said. But our end game here would be to do this over a 12-month contractual commitment and will be based on a user-based pricing model as opposed to vehicle.

Operator

And we'll take our next question from Matt Hedberg with RBC Capital Markets.

Matt Hedberg - RBC Capital Markets

You talked a lot about international expansion. I guess I'm wondering can you give us a sense for maybe what do the sales cycles look there and maybe how you look at the international pipeline for large deals, say, similar to a Comcast.

Jim Travers

The sales cycles that we're seeing, as we've entered those three specific markets, are very consistent with what we've seen in the US. So again, to refresh everyone's memory, we're selling over the web, primarily into the Netherlands, Australia and Mexico using our web-centric model. So what we've seen so far, and again it is early in terms of what we're seeing in those markets, the sales cycles are fairly consistent to what we've seen in North America and the UK and Ireland.

On the enterprise side, we continue to focus primarily on our current markets with larger fleet. That said, now that we've got our new platform REVEAL launched, we're going to selectively start to sell into larger fleets into those same markets. That will be something we'll do again selectively as we move throughout the year. The timing is really around the new platform, because that's what we want to sell to larger fleets. We are language converting that new platform as we speak into at least four languages. So that will be something that we will look to do as we look at the markets and time them in the back half of this year.

Matt Hedberg - RBC Capital Markets

And then I'm curious on the radio ads. We saw a lot of them recently in several channels. Can you maybe talk about the early success from that campaign and who you're targeting for that?

Jim Travers

Yes. Again, as I mentioned, we did roll out a national radio campaign here in the US in the late March. The early indications are that we are moving the needle in terms of the unaided awareness to that target customer, which again is very focused on what is our core customer today, which primarily is in that 5 to 100 vehicle range. Again, if you think about a service worker that manages a 20 vehicle plumbing or construction company, they tend to be in a vehicle a lot, managing their business. So we think radio is a good way of getting to that target customer. And so far, early indications are we're starting to see some good movement in terms of awareness coming in. So we'll keep you revised as we go. Again, it is early, but so far, I would say we're encouraged.

Operator

And we'll take our next question from Tom Roderick with Stifel.

Tom Roderick - Stifel

Let me start with a high-level question. I mean fairly consistently over the last several quarters prior to this one, you guys have been pretty aggressive beat-and-raise mode. And this quarter sort of fits into that, in line with your expectations, in line for the year with how you previously expected. Did anything occur during the quarter that caught off-guard, whether it was additional competition, more pricing pressure out there, rising cost of acquisition that sort of encouraged you to stay out of the market aggressively, so not the dropped prices? Just sort of curious if anything sort of took you by surprise during the quarter here?

Steve Lifshatz

A couple of things. No, none of those activities actually occurred. I think one of the things that Jim alluded to earlier is that while there was a little bit of back-end loading on some of the installations during the quarter. And I think you're familiar with our revenue recognition where we focus on customers being fully installed and each quarter we have a number of customers that are sort of in the queue and not fully installed. So this past quarter, we happened to have a number that will see that revenue begin in the following quarter just to kind of give you a sense of how that works. There is no go open go on that. You start recording the revenue ratably for that total amount over the remaining term. So it's not a one-time tick-up. So that has a little bit of effect and that varies quarter-by-quarter. I'm not suggesting that that's a big aberration, but that's a little bit.

As far as our history of beat-and-raise, again, I also want to point out that there were no new large enterprise customers during this past quarter that really would have moved the needle. Compare that to last year, where we consistently saw a lot of activities, particularly in the first half of the year, from Comcast and Time Warner and then the installs over the next several quarters. So there's a little bit of a difference there. This quarter predominantly smaller local fleet customers probably order of magnitude average size 15 or so 14, 15 and you think about those customers, it's a lot of activity you saw that we grew our customer count by 1,000 roughly quarter-to-quarter. So just a good solid quarter of the basic customer set.

Jim Travers

We had not seen any change competitively, as I said in my talking points. So from the competitive landscape perspective, things have been very stable, no significant change there. So I wouldn't worry about anything on that front.

Tom Roderick - Stifel

And, Steve, you brought up something interesting with respect to no large enterprise wins this quarter. And last year, you had several big ones, including Comcast and Time Warner. I know this is a little bit of a trickier thing to project out, but as you look at that pipeline, how robust does the enterprise pipeline look versus what you get in a pretty steady flow on the web sales model?

Steve Lifshatz

Well, web sales model of course is relatively short-term conversion from identity through close, whereas we're always working a number of these larger enterprise customers and they can take anywhere from six months to over a year to close. So we've always got a reasonably strong pipeline of that activity. There's been really no adverse change. In fact, we've grown that organization over the last couple of quarters to prepare for what we do plan to do in the future. So as we've said all along, the large enterprise customers are terrific when you get them, but they make for tough compares.

Tom Roderick - Stifel

Last question from me, talking about international and certainly you had advertised effectively the investments going into the international markets. Are you still thinking about perhaps Q4 end of this year as the quarter when we could start seeing some of the benefits of those investments? And as we start to see that occur, how should we think about the trajectory of ARPU? I'm guessing the price points in some of these regions might be lower, but not sure by how much.

Steve Lifshatz

Yeah, I think we've consistently suggested that it's probably about six quarters out from initiation until you start seeing the impact from these new investments. So that really puts us mid-2015. If things accelerate, we'll all be pretty excited. Having said that, just to get to your ARPU question, what we've seen so far is that ARPU is actually pretty strong in one particular geography. We've actually seen it north of what North American rates would be. So far, we're very optimistic by the ARPU. And remember, our model is often very different than what other folks are selling into those geographies. We've got an all-in-one model and competitors often are charging for hardware upfront. So it makes a little bit different of a sales process.

Operator

(Operator Instructions) And we will take our next question from Bhavan Suri with William Blair.

Bhavan Suri - William Blair

I'm just going to follow up on Tom's question a little bit. If you look at the vehicle adds in the quarter, obviously way ahead of what we were thinking, but revenue sort of was roughly in line. And so I'm just trying to reconcile the ARPU comments you just made, Jim, with the strong vehicle adds and then the in-line revenue. And I understand obviously it flows through the year, but was there tremendous ratability towards the end of the quarter? You seem to indicate that wasn't the issue. So I'm just trying to understand how those two tie together.

Steve Lifshatz

As Jim had mentioned earlier, any of the delays that we saw in January and February were made up for in March as far as installs. I'll go back to the point that we do recognize revenue on a day sales basis. So until that customers installed, we're not recognizing revenue on that customer. So I think that has some level of impact, but I wouldn't necessarily put too much focus on that.

Jim Travers

So I think what Steve is saying is, is that probably if you looked at our quarter on a linear basis, we had more movement towards the last month of the quarter than what we would have historically. So the quarter integrity was maintained, but we definitely saw a little bit of movement for some reason due tot the weather impact in January and February specifically.

Bhavan Suri - William Blair

So is there a way you could sort of just say percentage-wise breakdown sort of vehicle adds monthly or is that too hard to do?

Steve Lifshatz

I don't think that's something that we want to share. I mean look, we focus on quarters as we share the materials with everybody. Obviously internally, we're focusing on a weekly basis and monthly and quarterly. So we're managing the business. A lot of it really comes down to when can you get to that vehicle, when is that customer available. It's something that happens each and every quarter where we've got some number of customers where you are delayed because of how busy they may be with other activities. So it's not something that is fully controllable from our perspective. We push it pretty hard. I think we probably push it harder than anybody else in the industry. And of course, that does determine then when we begin revenue recognition. And as I shared with you, there is no tick-up when you get that revenue. It's then spread over the remaining term with that customer.

Bhavan Suri - William Blair

So that's fair, but then I look at the Q2 revenue guide, which seems roughly in line with what we've been expecting. And I guess maybe we're being conservative. But I guess I'd expect an uptick then, not a huge uptick, but certainly a little bit of an uptick throughout Q2 given that ratability. I guess I'm just trying to reconcile those two pieces together, right?

Jim Travers

Yeah, I think we're taking the right approach based on what we're seeing either way I would answer it.

Bhavan Suri - William Blair

And then just on the international opportunity, we've seen when you bought the Australian acquisitions, certainly that seemed like an interesting opportunity out there. And I was just wondering what you saw with specifically the traction of the Fleetmatics solution in that market now that you have that for a couple of quarters into the Connect2Field base there.

Jim Travers

As we've been discussing, I think we're really focused on getting Connect2Field into the family and really pointing towards this new release, which again we've now rebranded it Fleetmatics WORK to really start putting much more aggressive sales and marketing effort behind it now that it's truly part of the family. So I would say that, look, it's an early stage application business for the company. We're very encouraged with both the size of the market opportunity that we have. I can tell you up to this point that we are ahead of our budgeted numbers relative to that application, but they're small numbers. So I would say so far, based on where that business is, we'd be encouraged that that can be a significant revenue generator for the company over time.

Operator

And we'll take our next question from (inaudible) with Bank of America.

Unidentified Analyst

I wanted to ask you guys about the competitive environment in the field service market and also the international markets you have entered recently, Mexico, Australia and The Netherlands.

Jim Travers

The field service market is a significant market opportunity for the company. The size of that market is fairly close proxy to what the vehicle count is as we'd been discussing it publicly, people Frost & Sullivan, they are quoting it. So if you think about it, there is at least one service worker per vehicle for most of the companies. So if you look at the actual size of the market, it would be certainly equal to the size that we've been talking about over the last 12 months to the current market that we're serving. So it's a large market opportunity. We're pretty under-penetrated at this stage. So we see it as being early, especially in the lower end of the market. If you look at the penetration so far in the traditional field service management market, you would definitely be skewed towards larger fleets, again where enterprise versions of application providers providing that capability as opposed to us really focused on taking Fleetmatics WORK and providing on a mobile app tied to location for that core 500 to 100 type of vehicle type of customer, which really fits into our core. So it's early in that market, but it is a significant market opportunity as we do go.

Same to be said for the international market opportunity as we would see it, specifically if you talk about Mexico and Mainland Europe to specifically Australia is really roughly a little bit smaller in Canada in size. So the real two big market opportunities that we have are Latin America, Mexico specifically entering Latin America and as well as Mainland Europe. And that markets are significant in terms of numbers penetrated roughly around that 12% range as we've been quoting it from people like Frost & Sullivan. So we think there is a great opportunity for us to take our current product and our current web model into those markets. And obviously, it will take time to build, but at this stage, we still think that that's significant growth opportunity again for the company over time.

Unidentified Analyst

And the second question I had was around the new analytics module, Fleetmatics REVEAL and REVEAL+. Are you charging separately for those, are you monetizing them, or that's part of the overall package?

Jim Travers

Right now, it's implicit in the actual product itself. So if you look at both REVEAL and REVEAL+, both the lower end in the enterprise version, we have specific analytical capability within both versions that at this stage we're very focused on providing that competitive differentiation that we talked about going forward than it is truly monetizing it separately. That said, we continue to look at new ways of how we can monetize that data. We're not announcing anything at this stage. But on the product level, we continue to look at potential ways we could package it. At this stage, not announcing anything, but I can tell you that's a thought that we still have actively within our product management group.

Unidentified Analyst

And my last question is how should we think about the lifetime value per customer now that you have the WORK product. Presumably the customer acquisition cost should be lower with the WORK product. Is it like we're talking about doubling the LTV for those customers that choose the field service product or it's less than that?

Steve Lifshatz

I think it's pretty close to double, but it would be slightly less than that. I mean if you think about in terms of what that revenue per customer would be on the WORK product, it's going to approach the level that we're seeing out of fleet management, but it probably won't get right up to that level. So slightly less than double.

Operator

That concludes today's question-and-answer session. At this time, I will turn the conference back to management for any additional or closing remarks.

Jim Travers

Well, thank you, everybody, for joining us today. We appreciate your time. Thank you.

Operator

This concludes today's conference and thank you for your participation.

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