MiX Telematics Limited
Q1 2022 Earnings Call Transcript

Published: 31 Jul 2021

[Operator:]

Thank you for standing by. This is the conference operator. Welcome to the MiX Telematics Fiscal First Quarter 2022 Earnings Results Conference Call. As a reminder, all are in listen mode, and the conference is being recorded. I would now like to turn the conference over to John Granara, Chief Financial Officer. Please go ahead.

[John Granara:]

Thank you, and good morning, everyone. We appreciate you joining us to review MiX Telematics earnings results for the first quarter of fiscal year 2022, which ended on June 30, 2021. Today, we will be discussing the results announced in our press release issued a few hours ago. I'm John Granara, MiX's Chief Financial Officer, and I'm joined by Stefan Joselowitz, or as many of you know him, Joss. He is President and Chief Executive Officer of MiX Telematics. During today's call, we will make forward-looking statements related to our business, which are subject to material risks and uncertainties that could cause our actual results to differ materially.

[Stefan Joselowitz:]

Thanks, John, and thanks to all of you for joining the call today. MiX began fiscal 2022 with improved financial and operational results that were ahead of expectations on both the top and bottom line. The highlight for the quarter was our return to year-over-year revenue growth and sequential expansion of our subscriber base. While conditions remain challenging in certain markets due to the continuing impact of the COVID-19 pandemic, we are now confident that the worst is behind us. Returning to growth is our primary focus in fiscal 2022 and based on our first quarter performance and outlook for the remainder of the year we feel good about our ability to achieve this objective. We are increasingly confident that we can steadily return to our long-term financial targets of 15% to 20% constant currency subscription revenue growth and adjusted EBITDA margins of 30%-plus in a normalized economic environment. How quickly we'll be able to do so remains hard to gauge given the continued uncertainty in the market. I will begin by quickly summarizing our financial and operational results for the first quarter. We returned to positive subscriber growth, adding close to 9,000 subscribers to end the quarter with a total base of 753,000. Subscription revenue was $31.1 million, a 3.5% increase year-over-year in constant currency. Notably, our annual recurring revenue ended the quarter at $125.6 million, up 2.5% sequentially. Adjusted EBITDA was $8.3 million at a 23.8% margin, which was well ahead of our expectations and reflects better than expected revenue performance and good cost discipline across the business. As we've noted in recent quarters, we have a healthy and growing pipeline of enterprise opportunities which continued the same trajectory in the first quarter. We signed several large and important wins across different verticals and geographies and these successes reinforce our positive outlook as economic conditions continue to improve. I'd like to provide some more color on these new contracts secured during the quarter. We signed 2 sizable wins in the United States with utility companies that were close to $1 million in ARR. Firstly, Qualtek, a provider of technical labor and program management to the renewables, recovery and telco industry signed a deal for more than 2,000 subscribers. This was a highly competitive process where our technology set us apart from other vendors.

[John Granara:]

Thanks, Joss. I'd like to reiterate our excitement on returning to subscriber and subscription revenue growth in the quarter. I'd now like to turn to our financial results for Q1. Please keep in mind that all figures refer to the first quarter of 2022 in all comparisons for the year-over-year changes, unless I say otherwise. As a reminder, the majority of our revenues are derived from currencies other than the U.S. dollar. The South African rand strengthened by 21% against the U.S. dollar compared to the first quarter of fiscal year 2021, contributing to a 17% increase in our reported revenues. Starting with the P&L, total revenue came in at $34.9 million, and subscription revenues were $31.1 million, an increase of 9.6% and 3.5% on a constant currency basis, respectively. The year-over-year increase in subscription revenue was primarily due to the increase in ARPU, which was attributable to the change in the mix of our subscriber base in the pandemic discounts and pricing concessions provided in the prior year. We ended the quarter with over 753,000 subscribers, a sequential increase of 8,800.

[Operator:]

Our first question comes from Matt Pfau of William Blair.

[Matt Pfau:]

Good to see the subscriber base start to expand again. On the fleet contractions, Joss, just was wondering, have you started to see any customers that contracted their fleet start to come back and expand those fleets?

[Stefan Joselowitz:]

We've certainly starting to have some conversations, positive conversations with customers, I'm referring specifically to the energy sector. So we're certainly seeing a much more bullish sentiment from those customers. The feedback we are getting is that they are viewing that industry is at the beginning of a multiyear growth cycle. And what we do know is that there's always a lag from -- we know from previous cycles that we've been through with them that there's often a lag between the industry turning around and the investments that they make. But I will make it clear that we are expecting a tailwind at some point.

[Matt Pfau:]

And just from a geographic perspective and some of the geographies you operate in, they've certainly opened up more and perhaps become more normalized while others have gone backwards a bit from a COVID perspective. Maybe it would be helpful if you could just give some details if that's had any impact on the customer conversations in those various geographies.

[Stefan Joselowitz:]

As you've summarized that it is a mixed bag and the best we can do is play the hand that we dealt. So we've done that. And I think that was reflected in our results. Certainly, some geographies performed better than others. What we're extremely pleased about is -- and you've heard from some of the deals that we've announced that, I've been referring in earlier calls that we've been seeing our pipeline steadily building and we're delighted to now see that some of the big deals are starting to pop out at the bottom of the front in the form of contracted deals. So that's pretty exciting. And that's not related to a particular geography, even in some of the geographies that have been harder hit by COVID. In South Africa as an example, we've announced some significant deals in the quarter that we're reporting on. So, overall, we're pleased with that.

[Matt Pfau:]

And last one for me just on the light fleet segment. So you mentioned that you've seen consistent improvement there. Is that more macro driven or are you starting to sort of hit your stride in figuring out how to properly address that segment from a sales perspective?

[Stefan Joselowitz:]

I think it's probably the latter. We're certainly continue to see improvements in our digital lead generation in the quality of those leads and in the close rates. So we're pleased with the trend. We're -- we still not yet at the pace that we intend to get to, but we definitely made some step change improvements and we're happy with that.

[Operator:]

Our next question comes from Mike Walkley of Canaccord Genuity.

[Mike Walkley:]

I guess, John, maybe you can help us just the linearity of the quarter for the sub-additions. It's great to see the return to growth. And do you expect subs to grow again in the September quarter? And just to clarify on the energy vertical, are you seeing it stabilize in terms of -- we're no longer losing subs or are they still kind of activating some subs or is that vertical starting to maybe return to growth so slowly?

[John Granara:]

So the first part of your question in terms of the quarter and the cadence, we did see a subsequent improvement as the quarter went on. So, June, our net growth was higher than we saw in April. And we actually saw from a activity perspective, when we look at our customer usage and fleet usage, we did actually see sequential improvement. So, that was in line with what we saw in terms of the net growth as we exited the quarter at a higher rate. As Joss alluded to earlier, we are expecting this to be a growth here. We are expecting to continue the growth. What remains difficult, Mike, is the pace at which and the amount which is we will grow. So it's uncertain as to how much or whether or not the growth would be significantly higher or lower than this quarter, but we are, in fact, planning to grow. So I can't say that with certainty. But I did caution in my prepared remarks that, because we do have a tough compare prior year Q2 will be a tougher compare than we had in Q1 we are not expecting the year-over-year subscription revenue growth on a constant currency basis to be significant. And so from that perspective, still planning to grow, but the year-over-year compare will be a difficult one, so minimal growth. With regards to the oil and gas subscriber activity, we have seen that stabilize. In fact, we've seen somewhat of a steady improvement over the last quarter or so. However, I would say that they're still much lower than where they were in terms of the pre-pandemic levels. Higher than last year, but last year their activity was quite lower. The one thing I should mention, I do want to mention because we do talk a lot about the energy sector, and we should because it's one of our top verticals. But with regards to the other verticals, transportation, logistics, construction, utilities, consumer goods, retail, field services, all of those are back or above pre-COVID levels. So we are able to -- we have a good balanced portfolio. And so I did want to mention that from that perspective.

[Mike Walkley:]

And maybe just a follow-up question for Joss. Just given the asset tracking business in South Africa the low ARPU, is the unrest in South Africa also impacting this business in the near-term or maybe you can just discuss kind of what's going on in the asset tracking business, the competitive dynamics in that business, maybe it returns to see better growth for you?

[Stefan Joselowitz:]

It is early days. We did observe some unrest affecting in this month. It was dealt with relatively quickly. It's probably worth mentioning that the situation was triggered by a positive event, a very clear demonstration by our government that it's serious about tamping down on production. They've also exercised remarkable restraint in dealing with unrest and bringing it under control. So we're, just from an observation perspective, pleased about that. It did clearly disrupt the country for pretty much a week. And things have settled kind of back to normal now. We were extremely busy over that period. So whilst we as an organization weren't directly impacted by any of the writing, many of our customers that are significant transport operators and logistic operators in the country were. So we have a heightened demand for our services. And I've mentioned this before, there is a contra-cyclical element to our business services that this event has triggered at number of conversations with customers that recognize the valuable services that we provided during the event and we're having conversations, in fact, about expanding services. So, we might even see a bit of a tailwind over the medium term. But the short answer to your question is that the impact on the economy is probably too early to tell at the moment. We'll have to see that impacts over the coming months.

[Mike Walkley:]

And just last question for me, it sounds like you've been able to use your strong balance sheet to secure components. Do you feel like with all the supply constraints out there that you have enough telematics devices to support your growth initiatives for the remainder of the year or have you seen some bottlenecks in still getting components?

[Stefan Joselowitz:]

Based on where we are today, Mike, we do believe that the purchases that we made this quarter will get us through the rest of this year. But I should mention that it is a very fluid situation. And obviously, we're monitoring the situation very closely. So, as of today we think we are covered through the rest of the year. But we will, if necessary, make strategic purchases in the future if we feel that we have to.

[Operator:]

Our next question comes from Brian Peterson of Raymond James.

[Brian Peterson:]

Congrats on the strong results. So, Joss, I wanted to follow-up on something that you just mentioned in terms of the diversity of the end markets. Could you talk about the pipeline and maybe what you're seeing in terms of some of those markets like -- are we seeing healthy demand there or sales levels there? And I'd also be curious what you're seeing in terms of the pricing environment from some of your premium fleet deals.

[Stefan Joselowitz:]

We're very pleased about the diversity in our pipeline and we're seeing in -- that diversity in our deal flow. So in the major significant deals that we've contracted in the recent period, some of which we announced it's a nice diverse bunch of customers. So, it's in the logistics transportation field, energy field or utility field and public transport I'm not sure whether everybody was getting that feedback. And did you get the full trust of my response to that?

[Brian Peterson:]

I did, Joss. I don't think that was on my end. I hope not. But Joss maybe just a follow-up question. Look, if I'm reading that the tone right, it sounds like things are definitely better from an overall macro perspective. I know we're still in somewhat of an uncertain environment. But any update on an M&A efforts or just thoughts on really making increasing the size of that in some markets, just given where we are here. Just curious to get your thoughts on that, Joss.

[Stefan Joselowitz:]

In the pandemic year that we reported, I guess, a quarter ago, the full year, we made it clear that our focus then was on cash conservation and shoring up our balance sheet and making sure we could get to what we knew was going to be an extremely difficult period as strong as we possibly could and I think that was the right strategy, and we did do well in terms of preserving cash, in fact, we almost tripled our cash balance between the start of the year, the end of the year. So we ended in a pretty strong position. Our focus now is clearly very different. We are investing in growth, in organic growth and that I think you're starting to see the -- it starting to bear fruit on some of those investments. We've also clearly in a phase that we would love to bulk up the business. We have a pipeline of M&A opportunities that we're looking at. And some of them are certainly of an interesting size for us and the potential fit looks good. So we have been keeping our color right now to see if we -- if the appropriate bulk up opportunity comes along that we can execute. And there's nothing that's clear and present as we're speaking, but we're certainly looking at things and we're keeping both eyes opened in that regard.

[Operator:]

This concludes the question-and-answer session. I would like to turn the conference back over to Joss for any closing remarks.

[Stefan Joselowitz:]

Thank you, Ariel, and thank you all for joining the call today. We will be attending the Canaccord Conference week after next, I think it is, and we look forward to speaking to some of you then. In the meantime, please all stay safe and look forward to getting to you soon.

[Operator:]

This concludes today's conference call. You may disconnect your lines. Thank you for participating, and have a pleasant day.