As I continue to digest and assess the content of last week’s $WTC Investor Day, while much of the press attention has focused on the implementation of the New Commercial Model, the session that impressed me most was the discussion on AI implementation.

I’ve decided to pull out a separate straw on this, because I think it may be of interest not only to those following $WTC, but also to the wider community interested in how firms are deriving value from AI.

$WTC’s AI philosophy

WiseTech’s AI strategy is built around narrow, specialised agentic AI, deeply embedded into CargoWise workflows, rather than broad, general-purpose models. Guardrails and human-in-the-loop verification are core design principles.

$WTC is scoping many potential AI agents. However, three are already “live” and can be accessed via the new Value Packs with 100% transaction-based pricing:

1. Document ingestion (data entry automation)
2. ComplianceWise – Export Controls
3. Customs Classification Assistant

Each of these was described in detail at the Investor Day and provides evidence of how $WTC’s massive proprietary dataset, combined with LLMs’ ability to structure, process and reason over text-based data, can materially reduce the high labour content in existing freight forwarding, import and export processes.

Let’s look at each in turn.

1. Document ingestion

AI-native document ingestion replaces manual data entry and OCR-based bolt-on tools.

Example impact:

• Commercial invoice ingestion reduced from a ~5–6 minute manual task to near-zero
• At a global freight forwarder level, ~10 million commercial invoices per year equates to ~95 human years of data entry

Accuracy is high, driven by:

• Targeted models tuned to specific document types
• Uncertainty explicitly flagged to human operators
• Accuracy described as materially higher than OCR

From the Q&A discussion: accuracy is improving while labour is being removed, and this improvement is not being traded off against risk.

2. ComplianceWise – Export Controls

Across global jurisdictions, numerous controls restrict parties, locations and categories of goods.

AI agents assess export risk across:

• Parties (denied / sanctioned lists)
• Locations (embargoes, restricted destinations)
• Goods and end-use (dual-use items, munitions)

The AI effectively acts as a virtual compliance officer: jurisdiction-specific, always-on, and capable of scanning all available information against known restrictions and risk factors, flagging issues for human review.

Performance achieved:

• ~96% precision (low false positives)
• No missed red flags relative to expert human reviewers

3. Customs Classification Assistant

A core role of freight forwarders is ensuring goods are correctly classified. This task is exceptionally complex due to:

• The sheer number of codes
• Non-intuitive classification structures
• Jurisdictional differences

As a result, classification remains one of the most labour-intensive parts of the process.

$WTC’s AI agent is now able to complete ~90% of the classification work, leaving brokers to verify and submit (human in the loop).

Industry benchmarks:

• Human-based classification accuracy ranges from as low as ~20% to ~80%
• ~80% is typically considered a strong human benchmark

Pilot results: customers using the $WTC AI agent are reporting ~90% accuracy.

Importantly, narrow agent design and embedding regulatory data from $WTC databases (e.g. BorderWise) materially reduces the risk of AI hallucinations.

Richard White gave an illustrative example of a UPS business unit with 19 human classifiers and 1 supervisor. The AI agent is capable of performing the work of the 19 classifiers, leaving the supervisor to check and verify outputs as the only future required labour for this process.

Other AI applications

As with many enterprise software firms, $WTC is also developing AI-based customer service agents. The WiseTech agent is called ACE, supported by content from the WiseTech Academy.

Although ACE is only one month old (“a baby”, in management’s words), it is already being trained on ~20,000 historical support tickets where humans previously sent specific training materials to customers. Management estimates this could free up the equivalent of ~18 product managers currently involved in this work, allowing them to be redeployed into product development.

Finally, $WTC is also using AI internally to assist with code writing and testing.

These latter applications have quickly become ubiquitous across enterprise software, so there was little basis to assess whether $WTC is meaningfully ahead or behind peers in these areas.

Overall takeaways and management view

Richard White believes that rolling out AI agents within CargoWise and related products has the potential to reduce customer labour requirements by ~50% over two years. This is a bold claim - characteristic of RW’s visionary style - but the examples demonstrated so far lend it credibility. Time will tell.

It is difficult to overstate the complexity of freight classification and compliance. In another Investor Day session, Anthony Hardenburgh (Product Portfolio Leader, Global Trade Management) noted that across markets and products, $WTC handles ~73 million regulatory and data updates annually, all of which must be incorporated into its systems. This scale is far beyond what humans can manage alone and is precisely the type of problem suited to AI. It appears $WTC is leaning into this opportunity in earnest.

$WTC’s approach centres on carefully scoped, narrowly defined AI agents, tightly integrated into workflows. Management described a common AI agent architecture with an abstraction layer that allows A/B testing of different LLMs and rapid swapping as models improve and leap-frog each other.

Early labour reduction from AI is expected to occur primarily in lower-skill roles, many of which logistics firms have already offshored to shared-service centres. Remaining staff, employees of $WTC’s customers, will become more skilled and more valuable as supervisors of AI agents.

There was discussion around whether customers could build their own AI layers and bypass $WTC’s products. Management acknowledged this was possible and that some customers might see benefits. However, CEO Zubin emphasised that software development and workflow integration are WiseTech’s core expertise, and that embedding AI directly into CargoWise should deliver superior outcomes, because only $WTC has access to the source code and databases. That confidence seems reasonable, though real-world results will ultimately decide.

My assessment

AI adoption across large enterprise SaaS companies has become a central part of the investment thesis for my technology holdings over the past few years. The use cases showcased by $WTC are exactly the types of applications I was hoping to see, and it is encouraging that early solutions are now "live" with customers - particularly the 95% of largely small customers who have gone "live" on the new Value Packs, potentially a strong incentive for the LGFFs to follow quickly!

It will be particularly interesting to track adoption and realised benefits over the next one to two years.

This also underscores why $WTC had to move from “seat plus module” pricing to per-transaction pricing. Despite the noise surrounding the transition, there was really no alternative. Labour hours per shipment are about to be materially reduced, while shipments-per-seat should increase dramatically as these capabilities are adopted by customers. $WTC had to get ahead of that curve.

Overall, I was very impressed by the presentations, the examples, and indeed the presenters themselves. I was glad to see that $WTC are indeed doing what I expect them to be doing. It was good to learn the facts, rather than just hold the thesis!

Disc: Held

Ok WTC down heavily this morning on all that bad media. Is this over sold? I'd be interested in all Straw peoples thoughts here. The bull and bear case.

This morning I sold my entire RL holding of $WTC for $96.00. The basis of the change in my valuation is set out separately in my valuation post. (I admit to feeling a bit foolish in having got caught up in the group think of the many recent analyst upgrades, which caused me to overlook some things in plain sight.)

I consider $WTC to be one of the best companies on the ASX, however, my assessment of valuation risks to the downside of the price received this morning, meant that my criteria for selling (set out recently in the "When to Sell" forum) was triggered. While I am aware of the potential folly of selling your winners, this is the fourth time since 2016 that I have done this for $WTC and the decisions to date have all been sound and turbocharged my returns. Of course, I might be completely wrong this time. Only time will tell.

Put simply, with a forward p/e of 118x (and this is a firm that is well past the inflection point), but only having achieved 15% organic revenue growth in the latest half over pcp, it would not take much for a material correction to the SP. History indicates there is a high likelihood of that happening - of course the past is no guarantee of the future.

It was a hard decision to take, but ultimately I am driven by my analysis and assessment of risk-reward.

Disc: No longer held. On watch list

I’ll kick off by correcting the introductory remark in my straw this morning. Although revenue was a modest beat to consensus at (+3%), EBITDA and EPS were strong beats, with EBITDA +14% better than consensus. Hence the strong SP response, ending up over 11% on the day at the close.

As ever, it was a joy to hear Richard White talking about the business. So, rather than go through more detailed analysis of the results, I’ll focus on three big themes.

1.     The Acquisitions and how they play into the strategy

2.     Customer Value - proof?

3.     Machine Learning/AI

1.     The Acquisitions and how they play into the strategy

In one year, $WTC has taken a decisive set of steps in landside logistics, focused on North America.

The significant Blume and Envase acquisitions in early 2023 extend Cargowise capabilities from the port into import/export container haulage and rail. Blume is a leader in North America in internodal rail and Envase covers all aspects of container movements including trucking companies, port, depots and warehouses. These acquisitions further penetrate the supply chain, stepping beyond the original focus of the freight-forwarder and customs clearing, providing more of the solution onwards to end customers.

Later in the year, the smaller acquisition of Matchbox, complemented these capabilities. Matchbox allows operators working on the platform to swap container assets, thus significantly reducing the haulage from destination back to the base depot, yielding potentially significant cost savings to customers.

The next piece is the November acquisition of Sistemas Casa, the Mexican customs and international freight software solutions provider.

Richard briefly pointed out the growing importance of Mexico as a major trade partner to the US. What he didn’t dwell on, is that with increase risk perception around China, a lot of manufacturing investment is now heading into Mexico. So the time is right for $WTC to be building out its capabilities in landside logistics, to position itself for the growth in tradeflows within North America.

With this step change in capability, it is hardly surprising that $WTC is ramping up its R&D spending – now at 35% of revenue. Product development is 62% of $WTC’s headcount! This, added to the margin compression resulting from including the lower margin acquired businesses. I am curious to understand whether the deep integration of Blume and Envase is underway, given that the initial plan was to run them alongside Cargowise for a period until the understood better how to integrate. (I didn’t get the chance to ask this today, as I was in listen-only mode. One for next time)

There was a clue that serious integration is happening, because of the discussion about delays to the next release of Cargowise into FY25. This would make sense if there was serious effort underway to incorporate deeper landside capabilities in the next release. It also explains the lower revenue growth reported for Envase and Blume, as staff will have been focused on integration into cargowise, and not selling the legacy platform (Hey, Bucephulus, feel like round 2?).

Without giving guidance, RW indicated that the next release will drive strong revenue growth, as it will make several new revenue streams available. New features, new automations, and other customer efficiencies. These major releases will take place towards the end of the FY and feature in FY25. So, a key marker will be to understand how revenue growth evolves from FY24 into FY25 and into FY26.

2.     Customer Value

The following slide attracted a lot of discussion on the call. It is a benchmarking slide prepared by Armstrong and Associates. It shows that of the Top 25 Global Freightforwarders that have Cargowise “In Production”, container volumes grew 82% between FY11-FY23. Whereas for the remainder of the Top25, growth was only 12%. (Note: $WTC now has 13 of the Top 25 global freightforwarders as customers, and six were or  transitioned into production during the benchmark period).

Richard held this up as $WTC’s key calling card, predicting that with them now having 13 of the top 25 freightforwarders as customers, they may have reached the point where Cargowise has become the defacto industry standard.

Now, at this point I remind myself that correlation is different from causation. Indeed, industry consolidation will be one driver of growth of leading enterprises. However, Richard is clearly arguing that part of the difference is the value that Cargowise delivers its customers in terms of efficiency and differentiated ability for them to serve their end customers. However, what I think is irrelevant, and there is no doubt that this slide will be used by the sales and marketing team over the coming years!

3.     Machine Learning and AI

Richard always gets asked about what $WTC is doing in big data, ML (machine learning) and AI. To date, he has resisted engaging in hype, other than to say they have always applying machine learning and AI, because ultimately Cargowise handles many tens of billions of transactions over time, giving the firm unique insights into the movement of materials account the world. Indeed, the business and its solutions cover jurisdictions and modes accounting for 55% of global trade with products in development extending this to over 70%.

Today for the first time, he made more of a feature about this talking to the slide below.

He linked this to the earlier material on product development, making it clear that they are aggressively applying these capabilities to their products, whether to the data itself, to coding, to training staff and customers, or to recruiting talent.

As an example, they’ve used generative AI to produce the results video in French, German, Spanish and Mandarin.

https://www.wisetechglobal.com/news/1h24-results-briefing-presentation-ai-generated-avatars/

Overall Takeaways

$WTC have been a little crafty. They took the hit six months ago to re-set margin guidance because of the impact of the acquisitions, and today they solidly beat that guidance.

In fact, today, by leaving the guidance unchanged, it is likely the FY guidance will also be beaten – almost certainly at the EBITDA level (which CFO Andrew Cartledge as much as admitted).

Digesting larger acquisitions than usual, with the step up in revenue, organic revenue growth is softer than we’ve seen recently, despite many global freight forwarders underway with their global rollouts. Of course, the last few years have been challenging in the global supply chains, and so I wonder whether that has played into the rate of deployment? There was no discussion on this, and only time will tell.

Clearly, $WTC are investing heavily in building the platform to be capable of delivering more functionality, capability and efficiency to customers. Over $1bn has been spent in the last 5 years in R&D alone, delivering 576 new cargowise product suite enhancements in 1H24 alone, taking the total in the last 5 years to over 5,500.

So with the next big upgrade and release of Cargowise put back to FY25, we’ll need to wait 12-18 months to see whether all this investment drives an uptick in organic revenue growth. (This was the case after the M&A spree of 2016-2019).

I’ve updated my valuation for $WTC. As with any company on such a high multiple, the range of uncertainty is high. My thesis is predicated on continued strong revenue growth far out into the future, with progressive margin improvement at all lines of the P&L progressively over time.

I’ve settled on a central valuation of $86, generated from scenarios ranging from $70 all the way up to $111. This time, I’ve discarded some of the valuations that rely on sustained higher growth rates for longer, until we see what FY25 and FY26 can deliver.

With today’s close at $88.75, the market is already ahead of me by a whisker, but given the potential upside, I’m very happy to hold $WTC and glad I topped up on the SP weakness that followed the results 6 months ago.

$WTC is now my second largest RL position, second only to $ALU (sniff).

Global logistics SaaS provider $WTC released their 1H FY24 Results this morning.

ASX Announcement

Overall, the results are strong, with a minor bea tof consensus on revenue, EBITDA, and EPS. Deciphering the results is a bit messy, because we now have the pull period impact on the Blume and Envase acquisitions, which flatter the PC revenue comparison, but degrade costs and margins, due to these business being smaller and less profitable. Recall, the market got the first look at this at FY23, which resulted in a 35% correction to SP over 3 months, which has largely reversed. So who knows how the market will react today, as SP has pretty much recovered to around consensus.

Their Highlights

• Total revenue of $500.4 million, up 32% (up 15% organically) on 1H23

• CargoWise revenue of $420.7 million, up 40% (up 19% organically) on 1H23, driven by recent M&A and customer growth including new Large Global Freight Forwarder (LGFF) rollouts

• 46% EBITDA margin ahead of expectations

• Organic EBITDA up 16% to $230.6 million, with increased product investment for future growth contributing to flat organic EBITDA margins of 53%

• Underlying NPAT2 of $128.4 million, up 5% on 1H23; with statutory NPAT of $118.2 million, up 8%

• Strong free cash flow of $155.3 million, up 13% on 1H23

• Interim dividend of 7.70cps, up 17% on 1H23; representing payout ratio of 20% of Underlying NPAT

• Over $1 billion invested in product development over the last five years, delivering more than 5,500 new product enhancements to underpin revenue growth

• Further enhanced CargoWise Landside Logistics capability with acquisition of MatchBox Exchange, extending and strengthening WiseTech’s position in one of its six key development priority areas

• CargoWise customer penetration momentum continues with LGFF wins – Sinotrans 3 (Top 25), APL Logistics and Yamato Transport

My Initial Analysis

15% organic revenue growth is lower than we've seen over recent years, however it is still a strong result.

46% EBItDA Margin is ahead of expectations, which were knocked back at FY23 as a result of the acquisitions. If history is repeated, we'll see $WTC progressively grind out the efficiencies and restore margins over the 2-3 year period.

Expenses increased significantly, partly as a result of the full period effect of the acquired businesses, but also because product development has been ramped up. After initially announcing a "wait and see" intent to run the acquired landside logstics software alongside Cargowise, it looks as though RW is going for it and driving integration into Cargowise - this at the expense of not focusing on short term revenue growth from the new businesses. I think this has to be the right strategy, and it will be interesting to hear if RW talks to this in further detail on the call shortly. He is not shy about this, calling out the slower growth of Envase and Blume in the presentation slides.

The bottom line is weak, with reported NPAT growth of only 8.4% - a cold shower compared with the 41% see at the prior 1H report.

However, all the drivers of this were well-signalled at the FY23 and AGM, and the SP tooks its pain then.

Guidance for the FY is re-affirmed, which will see FY24 passing the 1bn revenue mark.

Cash generation was strong, with FCF of $155.3 (excluding smaller the Matchbox acqisition which occurred during the period).

FY23 larger acquisitions has seen $WTC take on some debt, but if was good to see $25m of the $200 LT debt paid off in the half. Net debt is now very modest and strong cashflows will rapidly reduce this to zero.

My Key Takeaway

Hard to precisely track where $WTC is against my model, given the inevitable muddying of waters that comes in the year or so after M&A. However, broadly the strategy appears on track, guidance being held to is good, and the beat to consensus is no bad thing.

I'll update after the call if there is anything significant to add. As the above is just a quick read out.

Disc: Held in RL and SM

From Morningstar

This is one I sold too early and am struggling to overcome my anchoring bias to buy back into. Rationally, I know it’s reasonably priced currently, but…..sigh

In its full year results, WiseTech’s (ASX: WTC) guidance on its margin growth and earnings for fiscal 2024 disappointed the market, spurring a 20% fall in its share price on the day of its profit announcement.

However, there was plenty to like in its results. WiseTech reported a 30% lift in net profit while its margins grew 28%. The company also reported a 31% increase in its final dividend.

It’s a business that Morningstar analyst Roy van Keulen has been bullish on and has previously highlighted even describing it as a “kingmaker”. With the company a little sombre on its outlook, is the future still rosy for the logistics software business?

Consistent high investment returns

Despite the disappointing guidance, what impressed van Keulen most about its fiscal result was WiseTech’s “continued ability to generate high returns on its investments”.

In his analysis on WiseTech’s fiscal 2023 result, the Morningstar analyst calculated the payback time on the company’s investments “remains among the best in the world and continues to exceed our expectations”.

In particular, WiseTech spent $226 million on sales and marketing and product design and development in fiscal 2022, which resulted in $152 million in incremental organic revenue for fiscal 2023. On van Keulen’s calculations, this exceeds his expectation of a 1.6 year payback.

“We are unaware of any publicly listed SaaS businesses with similar business efficiency.”

Based on management guidance, the Morningstar analyst estimates that WiseTech’s payback period for fiscal 2024 will again be “world-leading”, at around two years. This is despite recent purchases in North America of Envase Technologies and Blume Global

“The slower payback period reflects the larger share of WiseTech’s acquired businesses, which have lower business efficiency compared with WiseTech’s in-house developed CargoWise business”.

Exemplary capital allocation

This exceptional return on investment goes hand-in-hand with WiseTech’s “exemplary capital allocation skills”. Capital allocation is key for businesses, minimising unnecessary spend, ensures investors get a good return on their investment.

“Throughout its history and especially since the COVID-19 pandemic, WiseTech has demonstrated a remarkable inclination toward investing countercyclically, which has been antithetical to the broader tech sector,” van Keulen said.

“Whereas the broader tech sector hired aggressively after the onset of the pandemic, at elevated salaries, and acquired businesses at high multiples, WiseTech stopped its M&A activity and held its operating expenses flat through 2022.”

However, when interest rates began inching upwards and tech companies started selling off and laying off staff, “WiseTech, acting in line with the saying “buy when there is blood on the street” resumed its M&A activity, making its two largest acquisitions to date, and expanded headcount in product design and development by 80% through fiscal 2023”.

van Keulen expects this acceleration in product investment to continue delivering high returns for WiseTech, as a product-led company, both from improvements to its current product suite as well as from new product launches, such as the newly released CargoWise Neo and Warehouse Suite