Derive Systems Revenue (2024)

hey folks my guest today is john o'shaw he's the ceo of derivet systems now he may look familiar because he's been on the show many times with a different company swift page we'll get that story in a second he's now focusing on vq efficiency for engine calibration slight difference slight difference from swift page john are you ready to take us to the top i'm ready man good to see you so how do you go from swift page to engine calibration you know the underlying factor there is technology right so as long as you come out whether it's crm or auto tech you know it's all it's all about bits and bytes uh you know for sure but uh yeah i know i mean we were script page for a long time and really really had a lot of fun growing uh growing that business we sold that off to sfw capital and uh at like mid 2018 i kind of stayed on as ceo for about a year and a half to help with the transition we put steve auriola in in the in the seat there and then i transitioned over to uh to the board uh officially at the end of 2019 and because i i just can't sit still nathan i i had to you know do something else i ran into a private equity firm called global environment funds gef and they had derived systems and um they uh somehow convinced me to uh to come on board and as we were talking earlier my first day on the gig march the 16th 2020 and if everybody remembers that that's you know that's when we said hey everybody lock ourselves in a room and three for three weeks and we'll flatten the curve uh so i walked in the door and everybody said hey i'm john everybody go home let's unpack this story here real quick so 2018 you sold swift page now were you writing swift page on behalf of a private equity firm or did you own a majority of that business um we we were running uh yes we were running at on on behalf of a private equity firm a couple a couple firms uh excel kkkr jump capital uh were were the main players in uh in swift page at that time and so just to close out that story what did you guys sell it for to sfw um i can't give you the exact number but i will tell you that everybody was extremely uh extremely extremely happy can you give me a massive range that won't get you in trouble above or below 100 million uh let's just say uh 100 million is yeah yeah the answer is yes yeah somewhere in there okay all right so you're in that role yeah so john you're super active in the colorado sort of startup ecosystem is that how you came across gef how'd they find you you know uh they they found yes i mean i i'm connected with uh the startup world uh for sure i'm connected with a ton of private equity uh firms and and as a very ancestral kind of uh group uh you know one firm will be talking to another firm and said hey you need to talk to this uh you know to this guy etc uh and that's how i ran into uh into gef so they why do they make a connection and say well this ex-crm and on sales automation guy will be a great thing to put on derived systems how'd that connection happen you know it's about leadership uh quite frankly uh you know if you look at drive systems derived system has been around for a long time so it's not a startup it's probably not much it it actually uh gef launched this in 2013 it was a combination of a couple different companies coming together so i'll i'll give you that uh story here in a second but um you know it had gotten to a point where it had lost its way and you know what i'm known for is a leader that comes in rapidly understands what's going on rapidly understand what what needs to be done to fix it and then more importantly rapidly putting in place a plan to grow it uh and and increase value and so you know that that's how they came up across me and they said you know are you up to the challenge and i said oh my god absolutely uh this this is uh this a lot of fun but um you want to want me to give you the 30-second uh history on on well let's talk about the product though quickly first because you have three product lines that this sct product a thing called bully dog and then derived vq just i guess who first who is the buyer who is buying this stuff so let me let me give you a quick lay to land derive think of drive as a company with two business units and three brands our two business units are the enthusiast business unit so that's any car enthusiast so if you've got a mustang or you know a jeep or a pickup truck etc and you want to tune it and get more power out of it etc that's what's called a car enthusiast and so that's one business unit and then the other business unit is the enterprise business unit which is more corporate fleets and fleet management etc and then as you mentioned the three brands sct who would be that what's an example of corporate for like mcdonald's delivering like trucks you could do that but you know our one of our largest customers is comcast right they have 26 000 vehicles in their fleets you probably see them driving all around the the xfinity uh little vans and pickup trucks that you know etc uh verizon is another one safe flight yeah you know you can kind of think about that amazon's got huge deals your product they're using it to get better gas mileage or better route plan or what so in in the enterprise space um the vq platform the brand vq platform has three applications that hang off of it vq efficiency which is one that we're getting the most traction in the market right now um vq telematics and then vq safety so let's let me talk about vq efficiency and what we do there is we actually tune the engine to get the maximum fuel efficiency and the maximum uh carbon reduction we can also set speed limiters and and things along those lines so a company like comcast is got you know that that portion they've got our entire platform but just on that portion alone they're saving eight and a half million dollars a year on fuel but more importantly there's 24 000 metric tons of carbon that they're eliminating from the atmosphere uh or from the environment every single year so you're hoping to meet their esg targets then absolutely you know you know who's our buyer most of the time on that side is it's the fleet operator but we're also getting you know the corporate risk officer and the chief sustainability officer that uh you know are contacting us to to help them out efficiency vq telematics are you familiar with telematics i mean that's been around for forever right i mean yeah we're not a televised player we don't have telematics software what we do is we integrate with all the big telematics players out there the geotabs experience the fleetmatics etc we actually use them as a channel to get to the customer um and uh and so we're we're kind of an open platform on that side we have a very light telematics platform that if somebody doesn't have something you know we can put in place but we're that's not where we really compete and then vq safety is really going after two other big issues that these fleets have and that is speeding and distracted driver and so we have a distracted driver prevention application and we have a dynamic speed control where based upon where you are like if you're a fleet operator you say hey i don't want my uh fleets to go any more than 10 miles over speed limit no matter where they're at um and we're able to dynamically understand where you're at to be a gps understand what the speed limit is and then set it so that your vehicle if you go over that 10 miles it's a very very annoying uh thing for for the driver to kind of quickly break down the importance of these two cohorts car enthusiasts and enterprises in terms of your your top line revenue last year what was the revenue split between the two um so revenue is 75 25 right now so think of it think of the enterprise 75 enthusiasts 25 uh enterprise right so just to give you an idea um we're this year we're on track to be about a 55 million dollar uh company and that split is still going to be the same of 75 25 this year um the challenge is is that uh you know the enterprise business is a rapidly growing business uh and that's going to take off like crazy right so what is it if you do 55 this year joel what would that be up from last year uh we are going to be right now first half of the year we're up 35 percent year over year i'm sorry i was just on with another founder named joel and i obviously knew john here but so up 35 so what you finished last year at around 40 40 million something like that yeah a little bit yeah a little bit more than 40 million but yes and how much that is software um almost all of it is uh is software uh we do have devices that we sell that but the device is only used to deliver our software so on the enthusiast side we sell these devices right um and you use that to plug into your obd2 port but that downloads the software and it's a piece of hardware i'm sorry how much is that piece of hardware how much is this is the hardware yeah if a car enthusiast wants to use your software they have to buy the hardware how much is the hardware it ranges anywhere from 299 to 499. 299 yep to 499 interesting and do you make all that money or is mainly that you're selling it at cost to getting the software no we're we're actually make uh a gross margin on the enthusiast business is about 61 right so just the hardware including the software revenue uh and that includes everything that includes what's the margin on just the hardware um yeah the the i got to be careful here because i got a big distributor network uh that that i gotta we we make uh pretty good we make pretty good money on on the hardware got it okay got it so you yeah i i guess we don't know your actual numbers but in theory what you were saying is uh you are focused on making money both on the hardware sale and the software sale you're not using the hardware as a loss leader to get the software installed correct and so if you if you look at the businesses so the two business units very very different business we actually run them very separately the enthusiast is a b2c play right where we have a big distribution channel as well as direct uh and e-commerce etc but it's primarily a one-time sale uh nathan so you know people get we're trying to figure out ways to get that into the recurring world but it is a one-time sale the enterprise totally different right it's mainly software um and it's uh all uh you know uh sas basis subscription based recurring revenue uh et cetera and so that you know two very very different business models the you know just to give you an idea the the enterprise business which is the really the fast grower uh it grew first half of the year 43 44 year over year um and then the enthusiast business grew about 30 percent year over year now the challenge is the enthusiast business it's really growing 20 and 21 i really turned the business around and grew it a lot it the enthusiast business is probably more like a an eight to ten percent top line grower with a 30 to 35 percent ebitda margin so it's a it's a very steady eddy business that throws off a lot of cash flow out of ebitda and then you've got you know this fast growing sas based model over here and the way that we did it is we took the technology so the technology is is really the secret sauce of this business in the enthusiast world what do we do we read from the end the engine's ecu which is the computer on the engine we understand you know what are all the uh what's the data we make changes to that data and then we write back to the engine again right so we re we do that and on the enthusiast side you're doing that to get more speed power torque etc then we took that technology and we said hey there's an adjacent market for this and that's really the the enterprise business if we took that technology and instead we read from the from the engine we make changes but just to do the opposite to make it more fuel efficient and more carbon friendly um and that's really the secret sauce in the enterprise fleet management space nobody's doing that everybody's reading from the ecu to do telematics and all that other kind of stuff nobody is really writing back to it so that's why we have this really interesting cool you know vq efficiency uh that's going on i got a crap load of numbers i'm going to throw at you here in just a couple minutes but i'll let you get a couple words in well yeah so tell me on the sas side on the enterprise side what's the average enterprise customer paying per month um that at ranges anywhere from 14.99 uh per vehicle per month up to 29.99 per vehicle per month depending on what package of eq efficiency vq safety you know etc got 1500 per car per month um no 14 14 and 99 cents to 29.00 right so this is the biggest no-brainer in the world right if you think about you know if com comcast and i'm paying you know 21.99 a month i'm saving 35 dollars a month on that be on that video that's a 400 000 a month contract i mean you probably have some volume discount but in theory yep there you go and we do all kinds of other stuff so they're they're one of our largest customers they're yeah small time now how many total do you have there oh in the enterprise side we're probably getting close to that 50 range now 50 and how many total vehicles are made managed through your platform on a paid service so on the enterprise side we just got these numbers yesterday we're just hitting around 900 000 vehicles uh so it's uh it's it's really really exciting uh all total um across we've got over two million vehicles that are running our technology throughout throughout the years including enthusiasts plus the enterprise now john if you have 900 000 vehicles obviously there's volume discounts here because at 15 bucks a month to pop that's like 13.5 million a month in revenue yeah so here's the problem right when i stepped in the they were not doing this as a subscription base they were they were selling this as a one-time uh they were selling it anywhere from you know one-time shot of 200 bucks to 150 bucks or whatever uh so the so the model is uh was way off so um so yeah we're we're not uh we're not 13 million in uh a month in revenue yet but we'll we'll get there we'll get there yeah yeah i mean it sounds like you're you're closer to something like four and a half five million a month right now in revenue if you're gonna finish this you're at 55 million dollar run rate is that accurate uh yeah acro across both business units yes yeah well we know enterprise is 25 of the 5 million a month so about a million and a half or a million ish is coming from the enterprise side based off that's the numbers brother you've got that absolutely and is this pretty sticky people don't churn once they pay for the hardware get it all installed right correct correct um and we we have uh you know in fact it's so sticky that as these enterprises are buying new vehicles because what you have on these fleets is that old vehicles go off new vehicles come on you know they're bringing in new vehicles we're getting uh you know those vehicles as well now you're obviously backed by private equity here so so uh i mean are you are you guys thinking about raising additional capital how much has the business rate since 2013 um so the business has raised um you know it's it's uh it's difficult to say because gef came in and the way that they uh formed this business is they acquired sct which was a standalone company and that was based out of florida so we have big offices and uh two big offices and right outside of orlando and then they acquired bully dog which uh was uh based in idaho so we have an office in idaho and that formed derived systems the enthusiast side of the business um and you know they they put in a a lot of capital to to do that uh and then um put in a few more uh some more capital over the years to kind of spin off the enterprise business but when i came in i refinanced the debt uh very very quickly uh we we took out uh the player that we had in there i brought in uh energy impact partners or eip as a debt provider so if you think about it i've i haven't i now have an esg debt provider and an esg uh you know private equity how much they're worrying 20 million okay got it and cost capital under 9 interest uh yes okay cool like library plus like one or two under five percent yep yep that's good pretty darn good we have a very good deal very good that's a good deal yeah what's team size today uh about 170 75 we'll have 175 and just you know we got broomfield colorado uh idaho pocatello idaho and in uh sanford uh uh florida very good john we're out of time here but hell of a story let's wrap up with the famous five number one favorite book uh hey the one we're reading right now i actually got two the ceo test and if you've ever read it it's really really cool um it's uh it's a book that you know you kind of look at and you know test yourself as where am i at as a ceo so it's pretty good the other one is called biology and embay is spelled buy so it's a marketing uh marketing play there so that's that's a cool book too number two is there a founder you're following or studying so this is weird you know i'm all over the place but right now i'm really into elon musk number three what's your favorite online tool for building a business so right um this one right now is is emma as microsoft teams um it saved my life quite frankly um as a as a new ceo coming in and trying to get to know everybody in the organization if i didn't have that that online tool we would not have been able to do that and it's something we use every single day to stay connected as we're all working remotely now number four how many hours of sleep date every night i get uh seven hours of sleep that's correct situation married single kid married four kids five grandkids wow and how are you john 59 take us back someone you wishing you when you were 20. when i was 20 years old i wish that i would have uh been more like uh the bill gates is you know when i was 20 years old it was 1982 so you probably weren't even born back then no but you know i wish i would but more like an entrepreneur i was i was actually a sophomore in college i was i was the quarterback of the football team and i was thinking i was going in the nfl i uh but then i really said no i gotta go into corporate america i wish i would have went more entrepreneurial back then guys there you have it sold swift page to sfw capital mid 2018 sat on the board in 2019 then got bored and ended up getting uh in sync with a new private equity firm uh who owned a company called derived systems that was gef he's now running derived systems the business did about 40 million bucks in revenue last year 75 on their consumer business another 25 on their enterprise side enterprise growing very quickly though they sell hardware but then really what they do is they then upsell software that enables you to get better engine performance speedometer comcast can make sure their trucks don't drive faster than 10 miles per hour and certain zones are scaling quickly with 50 enterprise customers and over 5 million bucks in mrr hoping by the end of the year this year john thanks for taking us to the top thanks nathan good to see you again bud thanks man take care one more thing before you go we have a brand new show every thursday at 1 pm central it's called shark tank for sas we call it deal or bust one founder comes on three hungry buyers they try and do a deal live and the founder shares back end dashboards their expenses their revenue arpu cac ltv you name it they share it and the buyers try and make a deal live it is fun to watch every thursday 1pm central additionally remember these recorded founder interviews go live we release them here on youtube every day at 2 p.m central to make sure you don't miss any of that make sure you click the subscribe button below here on youtube the big red button and then click the little bell 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