MiX Telematics Limited
Q1 2018 Earnings Call Transcript

Published: 5 Aug 2017

[Operator:]

Good day, everyone, and welcome to the Mix Telematics' Fiscal First Quarter 2018 Earnings Conference call. Today's conference is being recorded. At this time, I'd like to turn the conference over to Paul Dell, Interim Chief Financial Officer. Please go ahead, sir.

[Paul Dell:]

Good day and welcome to MiX Telematics' earnings results call for the first quarter of fiscal year 2018, which ended on June 30, 2017. Today, we will be discussing the results announced in our press release issued a few hours ago. I'm Paul Dell, Interim Chief Financial Officer; and joining me on the call today is Stefan Joselowitz or as many of you know him, Joss. He is President and Chief Executive Officer of MiX Telematics. During the call, we will make statements relating to our business that may be considered forward-looking pursuant to the safe harbor provision of the Private Securities Litigation Reform Act of 1995. These statements are subject to a variety of risks and uncertainties that could cause actual results to differ materially from expectations. For a discussion of the material risks and other important factors that could affect our results, please refer to those contained in our Form 20-F and other filings with the Securities and Exchange Commission available on our website at www.mixtelematics.com under the Investor Relations tab. Furthermore, we will also be referring to certain non-IFRS financial measures. There is a reconciliation schedule detailing these results currently available in our press release, which is located on our website and filed with the Securities and Exchange Commission. With that, let me turn the call over to Joss.

[Stefan Joselowitz:]

Thanks, Paul. I would like to thank you all for joining the call today. I'm very pleased with our execution during the quarter. This was highlighted by our ability to grow subscription revenue more than 15% on a constant currency basis, as well as expand our adjusted EBITDA margins to over 23%, both of which with highest mixes achieved during the past few years. These strong results are further evidence that our branding strategy and cost investments in the business are paying off. As a result, we remain confident in our ability to maintain the momentum for the remainder of fiscal 2018 and beyond and achieving our longer term adjusted EBITDA margin target of 30% plus. Turning to a summary of our first quarter performance. Our subscription revenue of R335 million grew over 15% year-over-year on a constant currency basis. This was driven by the ongoing demand from our higher RP premium fleet customers globally across all verticals, including over 50% subscription revenue growth in our U.S. business. Compared to the comparative quarter last year, the rand strengthened approximately 12% versus the dollar, which was a headwind to our top line results. We also ended the quarter with a total base of over 625,000 subscribers, up by over 3,500 compared to last quarter. To put this into context, our growth edge, we're in line with our expectations, and we saw strong growth in our premium fleet business. The disappointing net number was caused by larger-than-expected contraction of some 8,000 subscriptions from a few car rental customers in South Africa. This was a seasonal issue and although we have historically seen compression in this vertical at this time of year, this time, the numbers were higher than anticipated due to challenges in the South African economy. On a positive note, I can mention that in July, we saw some net additions from these very same customers. Furthermore, this has again demonstrated the strength of our diversified product portfolio. Despite the contraction from these low ARPU subscribers. It was a negligible impact on our subscription revenue. To highlight the traction we have seen from our premium fleet customers across the globe, including South Africa, net adds from these customers in Q1 was almost equal to the cumulative edge achieved from this portfolio in the first three quarters of last year. One is the rule we don't intend to provide the breakdown of net subscribers by customer type. We thought this additional detail would be helpful this quarter given the current dynamics of our asset tracking business. As a reminder, our higher ARPU in lower trim premium fleet business represents close to two-thirds of our total subscription revenue. Given the strong pipeline of committed orders and sales opportunities globally, we remain confident in our ability to maintain our momentum. During the quarter, we secured some notable wins, including new customers, contract extensions and expansions in our premium fleet business. At our last earnings call, we announced that we just secured a large contract with C&J Energy Services in the U.S. Converting that order into subscriptions, as well as deploying other large contracts secured before the start of the fiscal year has been the primary focus of our U.S. operation in this period. In Australasia, Praxair, a global key account in the construction industry, added more subscriptions, including MiX Vision. The same customer won the European Industrial Gases Association's Safety Innovation Award last quarter, partially as a result of working with our solution. Furthermore, through large key accounts in the energy sector, both extended their contracts with us. In Brazil, the bus and coach vertical continues to yield success, and we signed up three sizable customers, totaling several hundred subscribers, which will roll out next quarter. We are also starting to see success in the transport and logistics vertical there, as the economy starts to show signs of improvement. In Europe, our longstanding customer [indiscernible] continued to expand their fleet. As a global logistics giant, we're excited about their potential to become a significant global key account in future. Further afield, our partner in Kazakhstan added over 800 subscriptions in the oil and gas sector. And in South Africa, despite the tough economy, our fleet business continues to perform well. We grew our [indiscernible] premium fleet portfolios, including securing two additional municipal customers. In terms of the progress we have made in driving efficiencies in our operations, we successfully deployed four updates to our SaaS platform dynamics, releasing enhancements to many of our key product lines, including MiX Fleet Manager, MiX Go, Journey Management and our mobile apps. We also completed the move of our U.S. data center today to AWS and aim to complete the transition from legacy data centers by the end of the calendar year. During the quarter, we leveraged the power of our premium fleet base and product portfolio to generate diversified revenue streams. Both ARPU and customer retention from MiX continues to be enhanced, as customers subscribe to a range of software applications on top of our core solution. As a reminder, products such as MiX Vision, Journey Management and Hours of Service can each add between $10 and $20 per vehicle per month. And in addition, ARPU is benefiting from the growth of bundled deals to our premium fleet customers as we continue to see in excess of 80% of new subscriber adds choosing this option. These clients contribute approximately $1,000 more over the average age of customer lifetime in the typical bundled subscriber and is very accretive to our business. Furthermore, the retention rates with our large premium fleet customers are approximately 95%, which highlights our commitment to customer service, as well as our ability to consistently deliver an attractive return on investment. Paul will provide more detail in a few minutes, but we are reiterating our fiscal 2018 subscription revenue guidance given the strong pipeline of firm orders and sales opportunities. In addition, we are increasing our adjusted EBITDA guidance range to reflect the strong Q1 results and the expectation of the margin accretion to continue, given the efficiencies we are achieving through the organization. As a result, we remain confident in our ability to achieve our long-term targeted adjusted EBITDA margins of 30% plus in the years to come. Finally, I'm pleased to say that during the quarter, we repurchased close to R19 million of our stock in June under our general share repurchase program. We believe this is a great use of our cash and highlights the value we continue to see in our business. So in summary, our strong first quarter results are further evidence that MiX has reached an inflection point in regards to margin accretion in the previous fiscal year. As a result, I continue to believe we have the opportunity to create a very large company with a compelling financial profile, driven by double-digit subscription revenue growth and enhanced scalability. With that, let me turn it back over to Paul to run through the details on the quarter.

[Paul Dell:]

Thanks, Joss. Let me walk through our first quarter fiscal year 2018 performance and recall that our reporting currency is the South African rand. For convenience, we have translated our results into U.S. dollars, both for the 2018 and 2017 period using the June 30, 2017 spot rate. You can find these conversions in our press release. In addition, please note that our results are presented on an IFRS basis, unless otherwise noted. In the first quarter, total revenue came in at R406 million. Of this total, subscription revenues were R335 million, up approximately 10% and towards the high end of our guidance range. On a constant currency basis, subscription revenues grew over 15%, and as Joss mentioned, was the highest quarter-over-quarter growth rate in over two years. This strong performance was driven by the ongoing positive traction from our premium fleet customers across all geographies and vertical markets, including the energy sector. Note that subscription revenue during the quarter was impacted by the strengthening of the rand and would have exceeded our guidance range, excluding the [indiscernible]. Hardware and other revenue was R70 million or down 4% year-over-year. We continue to see significantly more bundled contract, which is positive for our business longer term, as the largest subscription engagements are more profitable. Subscription revenue now represents 83% of total revenue, an improvement compared to 81% in the first quarter last year. Looking forward, we expect our ongoing shift towards bundled deals to increase our subscription revenue as a percent of total revenue, which will provide us with both improved visibility and higher margins. Our gross profit margin in the first quarter was 66.9% and in line with our expectations. Operating expenses were 57% of total revenue compared to 62% of revenue in the first quarter last year. This highlights our ongoing commitment to cost control the scale in the business. Recall that our general and administration costs include research and development costs not capitalized. For those of you interested to see our historical capitalization and development cost expense, we have provided a table in our earnings press release. To provide investors with additional information regarding our financial results, we disclosed adjusted EBITDA and adjusted EBITDA margins as well as adjusted earnings for the period, which are non-IFRS measures, so we have provided full reconciliation tables in our press release. First quarter adjusted EBITDA increased 55% to R94 million or 23.1% of revenue compared to R60 million or 58.9% of revenue last year. As Joss mentioned in his remarks, we are very pleased with the strong improvement in our adjusted EBITDA margin, highlighting our commitment to achieve margin accretion in the business. Adjusted earnings for the quarter was R31 million or 5 South African cents per diluted ordinary share, which is up from the R17 million or 2 South African cents per share we posted a year ago. From a cash flow perspective, we generated R18 million of net cash from operating activities and made R82 million investments in capital expenditures, leading to a negative free cash flow of R64 million for the first quarter compared with negative free cash flow of R34 million during the same period last year. The increased use of cash includes the ongoing investments in the in-vehicle devices, driven by the demand for our bundled offerings. Now turning to our financial outlook. With regards to our expectation for fiscal 2018, we are reiterating our guidance of total revenues in the range of R1.632 billion to R1.662 billion and subscription revenue of R1.401 billion to R1.421 billion, which would represent year-over-year growth of 13% to 14.6%. We remain confident in our ability to achieve this, given the momentum in the first quarter, as well as a strong pipeline of firm orders and sales opportunities. In terms of adjusted EBITDA, we are increasing our guidance given the strong Q1 results and expectation of the margin accretion to continue. Specifically, we are now targeting adjusted EBITDA of R375 million to R395 million in fiscal 2018, up from our previous guidance of R364 million to R383 million. At the high end of the new range, it represents a margin of 23.8% or up 420 basis points compared to last year. With regard to adjusted diluted earnings per share for fiscal 2018, we are increasing the range from 19.7 to 21.8 South African cents from our previous guidance of 18.2 to 20.2 South African cents. Our new guidance is based on 567 million diluted ordinary shares and an effective tax rate that's between 28% and 31%. As we have discussed previously, our intention is to focus on annual targets, as this is how our management is focused, and we do not wish to close deals and sub-optimal trends in order achieve quarterly objectives. This is mostly a result as it relates to holding other revenue line items in our P&L. The area of revenue where we have the highest level visibility and predictability is our subscription revenue, which, as we have discussed, is the largest, fastest growing and highest margin component of our business. For the second quarter of 2018, we are targeting subscription revenues in the range of R339 million to R344 million, which would represent year-over-year growth of 12.5% to 14.2%. In summary, Mix has gotten off to a good start in fiscal 2018. We're very pleased with the subscription revenue growth and improvements in our adjusted EBITDA margins in the first quarter. Looking ahead, we believe that Mix is well positioned to continue the momentum in fiscal 2018 and beyond, given our industry-leading integrated fleet management platform, product diversification, ongoing traction in key verticals and geographies and commitment to sustained profitable growth. I will now hand it back over to Joss for some closing remarks.

[Stefan Joselowitz:]

Thanks, Paul. I'd like to take this opportunity to thank our global team for their hard work, passion, and commitment to Mix Telematics. In closing, we executed very well during the quarter, highlighted by our ability to grow subscription revenue more than 15% on a constant currency basis, as well as expand our adjusted EBITDA margins to over 23%. These strong results are further evidence that our strategy is working, and we remain confident in our ability to maintain the momentum for the remainder of fiscal 2018 and beyond. Our team is fully focused on continuing to drive top line growth, while also accreting adjusted EBITDA margins towards our longer-term target of 30% plus. With that, we will turn the call over to the operator to begin the Q&A session.

[Operator:]

Thank you. [Operator Instructions] And we'll take our first question from Brian Peterson with Raymond James.

[Brian Peterson:]

Good morning gentlemen and great job in the margins this quarter. So Joss, first one for you. So, the subscription revenue growth, I think you said 50% in the U.S., that's pretty impressive. I know that's been a focus for you guys. Just wanted to see what kind of trends or is there anything that you can say about the pipeline or bookings or where you guys are seeing success in the U.S. market and to what extent is the ELD mandate driving any of that?

[Stefan Joselowitz:]

Yes, thank you. So we're pleased with the pipeline, obviously, continuing to work very hard at improving all the time in all of our regions, including United States. But certainly, happy with the committed order pipeline that we’ve got, as well as the potential new deals that we're working on, and we’re working frantically to convert potential into commitment. ELD mandate is playing a role. It's definitely a tailwind, as far as our industry is concerned and as far as we are concerned. So there’s no doubt that we've seen an increase in interest and conversation as a consequence of ELD. Thankfully, it's not everything as far as our business is concerned. So we're seeing strong uptake from our traditional core vertical, the energy sector, which has certainly played a role in that. Of course, very happy with the 50% year-on-year subs revenue growth, in fairness is coming off a low base. We had a really tough Q1 last year. We were still in the midst of the crisis then. And so we are comparing a particularly weak year to a strong year, but nonetheless, happy with the performance and pleased with the efforts the team is making here to take this business to the next level, and we're making progress, we're certainly getting in the right direction.

[Brian Peterson:]

Got it. I appreciate the color you referenced on some of the asset tracking customers and the seasonal patterns there, but can you speak to maybe any customer concentration in that business. I'm just trying to potentially size the impact so we can maybe model that correctly going forward.

[Stefan Joselowitz:]

So this impact, we do see it seasonally. This impact was caused by the - exclusively by some contraction in the car rental industry in South Africa from a very few - from a small number of customers, but they are all large customers of ours. So there are customers that have several thousand vehicles installed with us in one instance, certainly into more than 10,000 vehicles. So we saw a larger than expected contraction. It's not shown, I'd like to stress that because there are existing customers that remain happy with us and I did mention I gave you some additional color that in July, which is a first quarter event, the month that we just put behind us, we've seen uptick from these same customers. So some expansion again out of those fleets, not the kind of expansion that will make up for the 8,000 that we lost in one month, but nonetheless, additions. And yes, the South African economy is very slow growth at the moment, so really below 1% by all estimates. However, there are some encouraging data points; the car sales figures for July were up 4.1% on the previous year. Those have just come out, and that's generally a good indicator for our industry in that region. So that's reasonably encouraging. But we're not paid to make excuses as a management team, we're paid to operate through good times and bads, and we've been through these kind of shock waves many time before, and we'll continue to do the best we can to never get them.

[Brian Peterson:]

Got it. And maybe one more if I can sneak it in here. Obviously, you bought back some shares this quarter. Just any updated thoughts on how you look to deploy your capital?

[Stefan Joselowitz:]

Yes. So we've got a mandate from our board up to - close to plus R280 million. I think it was off the top of my head. We've spend R20 million of that. So we've got a long way to go, and we certainly view value in our stock. It's no secret to anybody that knows me that I believe our stock despite the progress that we've made in recent months is significantly undervalued. The prior gap comparison remains unacceptable to me, and I will continue to work diligently to close that gap, but we've got a great business. And if I could buyback my whole company at these levels, I would be so in a heartbeat. Clearly, we know that, that's not feasible, but I couldn't think of a better use of that cash right now than our own stock at this valuation level.

[Brian Peterson:]

Understood, thanks guys.

[Stefan Joselowitz:]

Appreciate it.

[Operator:]

We’ll take our next question from Bhavan Suri with William Blair.

[Bhavan Suri:]

Hi guys. Thanks for taking my questions.

[Stefan Joselowitz:]

Hi, thank you.

[Bhavan Suri:]

I guess, Joss, one thing you've done on a quarterly basis is talk about sort of the various geographies and the results, not because vis-a-vis your expectations of budget, just some color there. Obviously, U.S. strong of a low base, but sort of where you expecting that and then sort of as you thought through economy in South Africa and region sort of, just in sense of how things played out geographically, vis-a-vis your expectations.

[Stefan Joselowitz:]

Sure. We tend to give a bit more color at the half year and the full year on geographies, but happy to give you a sense of my feeling of the quarter at the moment is that all of our geographies delivered performance to our expectations for the quarter. The Middle East is still slower than we would like and so the rebound that we've seen in the U.S. energy sector, we haven't seen the same rebound out of that sector in that region, which is an important component for us there. So we think there is some pent-up opportunity there as the industry settles down. As to our other geographies, with the one exception of the wrinkle in our asset tracking business caused by one particular sector, as I said, our growth edge, according to expectation, we've been pretty satisfied with our performance in all the instances are the tracking our own internal plan or in some instances ahead of that plan. And just a reference again on - just a bit more color on South Africa, I think I mentioned in the earnings call, but our fleet business there continues to perform well despite a tough economy. So we grew both our premium fleet and our lot [ph] fleet portfolio during the quarter in that region, which is pleasing, and the data that I've seen coming out of July, going to get ahead of myself and start talking about the Q2 just yet, we've got a way to go, but certainly encouraging. So overall, Bhavan, I'm feeling good about the start we got off to the year and feeling good about the balance of the year and beyond, clearly understanding we've got normal challenges that we have to deal with, and we'll work hard to navigate those.

[Bhavan Suri:]

Yes, that's helpful. You've been pretty bullish about pipeline last couple quarters, not overly, but sort of having gone through the transition in the Energy Services space and everything else, I think, sort of starting to see nice growth of businesses. I guess have you seen pipelines, especially in the U.S., that's going to be a focus for you guys better than deployment sales cycle, have they shrunk, [indiscernible] same, what's duration of sort of sales cycles and then sort of the size and quality of the pipe [indiscernible], again not quantitatively, but just qualitatively?

[Stefan Joselowitz:]

Yes. The nature of our focus, which is large fleets, does trend towards longer sales cycles. And having said that, we've seen the sales cycles shortening, which I guess is typical in an improved macro environment. So, we are thankfully not seeing the dragging up that we saw over that five quarter spell that we went through since fiscal 2016/2017, that kind of overlap. So long sales cycles, but shorter than they were. And some of them have gone - some of the deals that we've concluded have gone surprisingly quickly, and we did a very large one in the U.S., took us less than, also top of my head, less than two months from the first contact to end. And so that's very exciting from our perspective. But nonetheless, these large fleets are generally more complex. They have pent-up bureaucracy in their business, a lot of different boxes you have to check to get through different departments, et cetera, et cetera, but we're pleased that it seems to be going now back in the right direction. And the pipeline generally is - we are pleased about the way it's filling up, both - as I said, both from a committed order perspective, and we got two kinds of pipelines in our business, because these large fleets, once you've signed them, that's just the start of the challenge, the rollout is often a complex logistics exercise and tactual of time and effort, and we've got a whole team of people that specialize in that. And then, of course, the pre-order pipeline, the potential that we want to convert in to committed orders is an ongoing exercise as well.

[Bhavan Suri:]

Yes, that's helpful. I am going to squeeze in one, maybe two quick tactual questions. One, obviously you talked about the rollout. How is the rollout of that large 20K customer going? And then, two, are you seeing any benefit yet from the acquisition of InSync? That's it, thanks guys.

[Stefan Joselowitz:]

Yes, I will answer the second question first, benefit from the acquisition of InSync. So it's probably a loaded question. So, clearly, we didn't require InSync, so you probably view that as a benefit in itself, but I can only reach between the lines on that one, but I think it's probably too early to determine how that one is going to play up. Clearly, we're in a changing landscape and this M&A activity is very active, and this is just one component of that changing landscape. My general observation is that acquisitions cause initial distractions. So we would expect probably a bit of an advantage over the early stages of any competitors' acquisition while the new owner figures out the business and how to debt it down, et cetera, et cetera. So we'll keep a tight eye on that one. I'm trying to recall what's your first question was, Bhavan.

[Bhavan Suri:]

The rollout of the large 20K customer.

[Stefan Joselowitz:]

Yes, and I'm pleased you asked that question because we saw it - we're still in a very early planning stage on that one, and it is more complex than most, and we saw next to no benefit from that customer in our opening quarter. So that's actually good news because there's clearly a bunch of pent-up potential still built into that one, and we delivered a strong quarter with no help from that one.

[Bhavan Suri:]

Great. Thanks for taking my questions guys.

[Stefan Joselowitz:]

Appreciate it.

[Operator:]

And we'll take our next question from Mike Walkley with Canaccord Genuity.

[Josh Reilly:]

Hi there, this is Josh for Mike. So my first question, the guidance for subscription revenue implies some pretty healthy trends, it looks like an ARPU. Is that more a function of the increasing mix of premium fleet subscribers or is it growing add-on products in premium fleet? What's more the driver there?

[Stefan Joselowitz:]

It's a combination. Remember, our asset tracking business doesn't have any add-ons. So, we are certainly seeing a dramatic improvement in our new add ratio of premium fleet to asset tracking, and those are much higher ARPU subscribers. Not only are they higher ARPU subscribers, but of course, they have the potential for add-ons, which our asset tracking business doesn't. And remember, during the fiscal - the previous two fiscal years, that's five quarters that are referenced where we really saw a lot of contraction out of the energy sector, and those are all premium subscribers, our net add ratio was weighted towards our asset tracking business. We're now seeing a return to a healthier mix and certainly, over the last couple of quarters, we've seen - and particular quarter we're reporting on, we've seen a much higher contribution from our premium fleet business, which bodes well toward the blending, not only for the portfolio ARPU, but it bodes well for the blended ARPU of the business going forward.

[Josh Reilly:]

Okay. And then just two quick model questions. It looks like the tax rate was lower than guidance this quarter, and how should we think about OpEx trends for the rest of the year?

[Stefan Joselowitz:]

I will hand it over to Paul.

[Paul Dell:]

Sure. I think the tax rate was affected by certain foreign exchange movements. So if you look at our tax rate at adjusted earnings per share level, I think the tax rate came in at 31%, which was in line with our guidance. And I think our operating expenses, we continue - as we said in our call, we continue to be focused on controlling those costs and trying to manage them partly. So we're not expecting significant increases in them, although in South Africa, in the next quarter, we do give some certain salary and increases of the market are more steeper, but we are going to continue to monitor those closely and don't expect major changes going forward and then resulting in the improved adjusted EBITDA margins that we've got in our guidance.

[Josh Reilly:]

Okay, great. Thanks guys.

[Stefan Joselowitz:]

Thank you.

[Operator:]

And we'll take our next question from Brian Schwartz with Oppenheimer.

[Brian Schwartz:]

Hi, thank you. I've got two questions for you. One for Joss, one for Paul. Joss, just want to ask you kind of moving forward here, real nice job in the quarter. As you look at the pipeline just in the U.S. business, how is it shifting and shaping in terms of the mix between the opportunities with - for premium fleet solutions out there versus your asset tracking?

[Stefan Joselowitz:]

In the United States business?

[Brian Schwartz:]

Yes, in the United States specifically.

[Stefan Joselowitz:]

Yes. So it's almost 99% premium fleet asset tracking adventures in the U.S. We do have our first paying customer on MiX Tabs, which is a asset tracking. It's a derivative of our surfing and Beame solution, but clearly being driven off the customers' premium fleet installed base with us, so that creates the virtual network to deliver that service. And we're excited about that ARPU-enhancing potential of MiX Tabs. We certainly have other customers engaged in discussions, and there is a big uptick in interest, and we expect it to become an important component to this business. But as things stand right now, we are, in the United States and with most of our other, I guess, global regions outside of South Africa, pretty focused on premium fleet almost exclusively.

[Brian Schwartz:]

And then, Paul, the question I want to ask you just is on the investments moving forward here. You're moving out of your heavy investment cycle. Do you think, as we look out towards the rest of this year, your investments will be weighted more - where would they be waited more to? Are they going to be made - weighted more towards your sales and marketing, your distribution or are they going to be weighted more towards your engineering in development or are they going to be weighted more towards opening up facilities and your G&A? Just curious how you're thinking about the growth investments here over the rest of the year. Thanks.

[Paul Dell:]

Sure. I think the three investment areas that we can highlight for you, I think sales and marketing we've touched on in our 20-F filing, we have noted that we expect our sales and marketing costs to be about between 11% and 12% of revenue towards that over the course of the next year. And we're - also with certain development across that, we are planning to keep those around at about the same level that they're currently at, and we're not planning to reduce those at all. As you can look in our press release for details of the level of research and developments across that we've incurred. And then I think the other investments which we will be doing is continuing to invest in bundled devices because of the huge cash flow benefits associated with the bundled offerings that we discussed in our earnings release. [Indiscernible]

[Stefan Joselowitz:]

No, I think you've covered the three main focus areas. And of course, in terms of deployment of our cash, we will continue to view our stock as a major opportunity, unless a suitable earnings-accretive third-party acquisition opportunity comes along, and we remain vigilant for something like that. So, we certainly keep our eyes out for that, but as we’ve demonstrated over the past three years, we're pretty patient when it comes to - we got the use of that cash pretty jealously.

[Brian Schwartz:]

That’s helpful. Thanks to the additional color.

[Stefan Joselowitz:]

Thank you.

[Paul Dell:]

Sure, thank you.

[Operator:]

And we'll take our next question from David Gerhardt with First Analysis.

[David Gerhardt:]

Good morning Joss, good morning Paul. Thanks for taking my questions. My first question, I was wondering if you could dive in a little bit into the traction or take rates of the add-on module, specifically MiX Vision, Go, Hours of Service, if you will? Just an update there would be helpful.

[Stefan Joselowitz:]

Sure. Definitely seeing increasing traction from many of our add-ons, so becoming meaningful components in some instances of our business, particularly MiX Vision and probably Hours of Service are the two bigger wins for different reasons. So MiX Vision, we're seeing global take up. In various territories, we've got significant customers that have been trying it out, both existing customers that have been trying it out and are now upgrading so to speak, and we announced some of them during this quarter, Praxair being a good example in Australia. And House of Service being driven off safety concerns and federal regulations, so ELD being a good example in our drops, the uptake of that kind of thing. And we'll continue to invest in ARPU-enhancing add-ons. Not all of them have been spectacularly successful, so we haven't - we've made some bets that still need to pay off. I mean, Journey Management has been, I guess - here we've got some customers using it, but the uptake has, up until now, been simply based according to our internal plan, a disappointing - uptake hasn't justified the development cost yet. So we'll - we keep on driving it, and we continue to believe that it's got potential to wash its face so to speak, but - and we've got a couple in development that we're excited about, and hopefully, at least some of those will pay off. We don't always get it right and probably wouldn’t always expect it, but we are a tech business, and we have to be innovative. And I'm pleased to say mostly nine times out of ten; our innovations deliver returns for our investors. So I'm pretty pleased with that track record.

[David Gerhardt:]

Okay. And then the last question from me is just on the pipeline. Last quarter, you characterized it at being at levels that it's probably the strongest it has been in quite a while. Just wondering if any deals have fallen out of the pipeline in terms of new opportunities, material opportunities that have kind of fallen out of that pipeline or is it directionally stronger from the level or similar to where it was last quarter?

[Stefan Joselowitz:]

Yes. I think it's similar. We get stuck at it in all of the time. We had successes which obviously are the reason that we are driving in the first place. And occasionally, we have some that drop out, either in early stages, and that's what happened, and it's more often than not in early stages, we found that our success rate where our closing ratio is much higher, the deeper we can get into a client engagement and have the opportunity to demonstrate the efficacies of our product. But remain pleased, David, with the pipeline, as I mentioned last quarter and I'll repeat this quarter, it's certainly much healthier than it's been in some time, and of course, I mean, historically, we've been through cycles. So, I am comparing it obviously against the comparative period, it was a pretty weak period. So the comparison remains easy, but by any measure, it's coming together quite nicely and pleased with where we're going directionally.

[David Gerhardt:]

Okay, that’s it from me. Thanks for the color.

[Stefan Joselowitz:]

Appreciate it David. Thank you.

[Paul Dell:]

Thanks David.

[Operator:]

And we'll take our next question from Michael Vermut with Newland Capital.

[Michael Vermut:]

Hi Joss, good morning. Good start to the year.

[Stefan Joselowitz:]

Thanks Michael.

[Michael Vermut:]

Couple of quick questions for you. On the types of deals we are looking at, has anything changed on the size of them, the types of deals we're looking at? I have heard some very large fleets are out there looking for Telematics. Has the size changed, has there anything grown or could you give some us some look into that?

[Stefan Joselowitz:]

Yes. We recognize that our focus on very large fleets has its pros and cons, Charles, our COO is quite focused on broadening our drive into what he would term more bread and butter, quicker sales cycle, medium-sized fleets, so there is some investment both in time and money to expand our focus beyond just the large fleets, and we are seeing some improvement. We're seeing some change in our pipeline dynamics as a consequence. And remember, when I talk about this kind of focus, I'm talking about our non-South African business. Our South African business is a pretty multifaceted, it's a business of scale and it's a mature business with very well established brands. So it has ongoing success in the three primary portfolios, the lot [ph] fleet, the premium fleet and the asset tracking portfolio and the asset tracking portfolio, where most of our international businesses are weighted towards one portfolio only, and that's our premium fleet portfolio. So I guess where Charles is planning to take the business is, obviously, with my support is, in those international operations outside of South Africa and increasingly bigger focus on the lot [ph] fleet portfolio, which hopefully will add up faster run rate as time progresses to pipeline closing endeavors.

[Michael Vermut:]

Excellent, excellent. Another one here, when you said you're looking at some M&A, really I guess our valuation gap hasn't changed at all, right? Our EBITDA has been moving up nicely and the valuation gap, when you look at the group at 20x plus EBITDA and asset 6, what are the return metrics that you're looking at that need to be achieved to move into that M&A campaign to do an acquisition, when we're trading where we are?

[Stefan Joselowitz:]

When we're trading where we are, it's really difficult to do an acquisition. So it's particularly an acquisition in the United States environment. So, we recognize that and the reality is that we are not going to pay 12x, 13x, 14x EBITDA for a less attractive asset than ours. This business is run by shareholders. Our board has got a big shareholder focus, and we're not going to do a stupid transaction. So the only deal I guess we could do is potentially a merger and acquisition of some client with - and we've looked at a couple of opportunities from time to time where we do an off-book valuation of an organization where we apply some of the valuation metrics to both businesses and then work out a transactional deal based on the same valuation metrics. So, if you're going to be valued at - you want to be valued at that 14x EBITDA, okay, but you need to apply the same valuation to ourselves and see if we can come up with a deal on that basis, a combination cash stock deal or whatever it is. But there's nothing clear and present. We will continue to look at a couple of things. We've recognized that we have to close this valuation gap to put us in a better position to be able to do acquisitions. In the meantime, we're extremely focused on organic growth. We are awash with opportunities, and we need to unlock those opportunities.

[Michael Vermut:]

Excellent. And then last question, redomiciling to the U.S., thoughts on that. Will that happen eventually in a potential time frame?

[Stefan Joselowitz:]

Yes. It's clearly something that - we've recognized that we are boxing - we're a flyweight boxing in a heavyweight complexity division with regards to compliance listing multiple currencies et cetera, et cetera, and I think I've said it before to anybody who wants to listen that if I had a magic wand, I would be - I would structure the business differently going forward, potentially a single listing, potentially in the United States, but I must stress that there is no current plan on the table to achieve that objective with the board or anything else. It is something that we talk about from time to time, it's not a simple exercise, and we're shifting, not discounting or excluding the possibility if the right environment came about to, to drive in that direction, we would certainly do it, and it might be driven from an M&A project at some stage, who knows. We'll have to see.

[Michael Vermut:]

Okay. Excellent. Well great start to the year.

[STEFAN JOSELOWITZ:]

Appreciate it Mike. Thank you.

[Michael Vermut:]

Thanks.

[Operator:]

And at this time, I'd like to turn the call back to Stefan Joselowitz for closing remarks.

[Stefan Joselowitz:]

Yes, thank you all for joining us today, really appreciate it. We appreciate your attention and of course your questions. Just a reminder, we will be presenting at the Oppenheimer and Cannaccord conferences in Boston next week. Any of you that are in the neighborhood, we'd love to buy you a coffee and talk more about our great business. Until then, for those who that don't make it, look forward to chatting in a few months' time when we talk about Q2. Thanks, everybody.

[Operator:]

Thank you. And that does conclude today's conference. Thank you for your participation. You may now disconnect.