MiX Telematics Limited
Q2 2017 Earnings Call Transcript

Published: 7 Nov 2016

[Operator:]

Good day. Welcome to the MiX Telematics Second Quarter 2017 Conference Call. Today's conference is being recorded. At this time I would like to turn the conference over to Megan, CFO. Please go ahead.

[Megan Pydigadu:]

Thanks. Good day and welcome to MiX Telematics earnings results call for the second quarter and first part of fiscal 2017 which ended on September the 30th, 2016. Today, we will be discussing the results announced in our press release, issued a few hours ago. I am Megan Pydigadu, Chief Financial Officer and joining me on the call today is Stefan Joselowitz or as many of you know him, Joss. He is the 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 provisions 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 expectation. 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. Also during the course of today’s call we will refer 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 Megan. I would like to thank you all for joining us to review our second quarter fiscal 2017 financial results and outlook. Let me take you through the financial details but let me walk you through some of the Q2 operating highlights and key growth initiatives for the second half of the year and beyond. Our results came basically as expected and was highlighted by our ability to achieve adjusted EBITDA margins of 18% and operating cash flow with approximately R69 million. We also ended the quarter with 585,000 total subscribers, an increase of other 43,000 year-over-year and at approximately 7000 compared to the first quarter of 2017. While that second quarter results continue to reflect currency headwinds and the ongoing contraction fleet size from our premium energy customers. We believe that we may have turned the corner in energy sector evidenced by the recent pickup in activity. This is supported by the restarted rollout to the major US based project that had been put on hold in February. In fact, September was the first month since January where we had seen positive growth in the oil and gas sector in North America. In addition, we continue to see momentum in other sectors globally fall outed by the following customer activities during Q2. Specifically, one two large contracts in emergency service sector in Europe, each in excess with 1000 vehicles. In Brazil, we won four batch contracts totaling over 700 vehicles as we continue to benefit from our expanded dealer network in that country. In North Africa, we secured an order from ATELCO to provide services for a 1200 vehicle fleet. I am pleased to report that we're pretty much reaching end of migrating our entire fleet by some time new DynaMix content platform, which provides us a common foundation on which all applications in the group are developed. As a result, we have significantly improved the speed and quality of our software development and are deploying more frequent releases as evidenced by the free updates we released to our platform during the quarter. We expect to switch our legacy software early in Q4, which will reduce our support in operational overhead. Furthermore, we are pleased with the deployment progress of MiX Lightning, our next gen backend platform. This highly scalable system that leverages leading edge technologies and architectural best practices, it is launched to support exponential growth in our subscriber base. Other highlights of the quarter include hosting our renewable Analyst and Investor Day, during the CTIA conference in Las Vegas in September. This was followed by our fifth bi-annual Global Partner Conference at the same venue which was attended by dealers from all corners of the globe. Before I talk about our growth initiatives, I do want to remind you that our functional currency is the South African Rand which is continued to strengthen against all major currencies. And now remains the headwind on our revenues with a result in reaching effect. Of course, for United States investors of which I am one, translating a strong end back end to US dollars is a positive and on balance our preferred strengthening Rand cycle. In addition, given that mixed operations around the globe, we expect to continue to experience challenges particularly in emerging markets which tends to be more volatility on both upside and downside. That being said, with the geographic cover is the strength of the company and allows us to successfully service our large multinational customers, some of which we expanded their vehicles under subscription in Q2. Now, turning to our key growth priorities for the second half of the year and beyond. We remain well positioned draw our happy customers at the time in a number of ways which will not only benefit subscription revenue growth but also improve our operating leverage and cash generation at the last time of the fleet subscriber. Firstly, we remain focused on extending wallet share of more than 5000 fleet customers. At our recent Analyst Day, one of the primary tech events from the event was highlighting the depth and breadth of MiX's product offering. One of the key differences between ourselves and most of our competitors is that we manage and control the entire ecosystem of our product range. Although, we primarily focus on the software and don’t manufacture our hardware, we do architect and develop all elements of our co-product platforms, including hardware and firmware design, as well as most of the applications that run on them. This gives us complete control of the customer experience from end-to-end and deliver the hard quality solution which is absolutely fundamental to long-term customer retention. It also enables us to leverage the power of our premium fleet base to generate diversified revenue streams. For example, our VE platform is a true -- service and currently generates approximately $10 million a year for the group and is growing at a healthy 30% compounded annual growth rate. This product didn’t even exist five years ago, and its performance would not have been achievable had we been using a third part hardware platform. Extending this innovation to a further opportunity, we recently announced a MiX Tabs solution. This effectively nudge our tracking and premium fleet technologies into an exciting opening on --. Ending ended our premium fleet customers. By MiX Tabs opt within a single digits in US dollar terms, the margins are similar to what we make in our most expensive service and we see it as a much higher volume opportunity. Customers are able to subscribe to a range of software applications on top of our cox solution, which not only increases the revenue per vehicle but also enhances customer retention. [Indiscernible] include MiX Vision, MiX Go, turning management out of service, which can each add between $10 and $20 per vehicle per month. Some of these are pretty new innovations and we expect them to steadily enhance ARPU as traction increases at the time. We also expect outreach benefit from the growth of bundle deals to our premium fleet customers which are very accretive to our business and contributes significantly more cash of the average customer life time is approximately 8 years. As a reminder, the expected life time cash contribution from a typical bundle premium fleet subscriber is almost $1000 higher when compared to an unbundled deal. Turning to our balance sheet, an increased demand for our bundled solution, we continue to see an excess of 80% of new subscriber heads not choosing our bundled option. This has resulted in an increase of bundle premium subscribers to now approximately 15% of our total base from only 5% three years ago. Going forward, we expect this trend to continue which will enhance overall ARPU and decrease lower margin hardware revenues. We continue to have a retention rate in excess of 95% with our large premium fleet customers and some of these relationships extend well beyond our average customer lifetime of approximately 8 years. This highlights our commitment to customer service as well as our ability to consistent deliver and easy to understand and easy to measure attractive return on investment which also drives long term customer retention. Another key long term debt priority is to expand and style our geographic presence particularly in the America, which highly represent a 11% of revenue during fiscal '16. We continue to see a great opportunity to capture new subscribers where adopt telematics technology to comply with the ELV regulations in the US. According to the federal motor carrier safety administration, we are just over 3 million trucks that are subject to the ELV mandate and we continue to see pipeline growth across the diversity of the verticals. Just this past Monday, the US court appeals ruled unanimously that the mandate of these electronic login devices is good to go, hopefully illuminating any lingering gaps of its future enforcement. We believe that MiX well remains well positioned to capitalize on this opportunity out to the next several years, given the importance of compliance for customers and the need to work with a trusted reputed partner that has a strong history, relevant experience and strong referenceable accounts. Finally, we now remain committed to sustaining profitable growth without sacrificing investments in sales or innovation. During the second quarter, we expanded our European sales team and computed the development of an hours of service solution for Australia. This is in addition to the announcement to our new MiX Tabs solution and release of three updates to our software platform that I mentioned earlier. So, in summary, we remain very optimistic about MiX's ability to reaccelerate growth in the second half of the year and beyond, despite some ongoing headwinds. The combination of our strong balance sheet along with the investments we have made in operations and product development is starting to pay off, which we expect to translate into increasing ARPU's and improved overall returns. With that, let me hand it back over to Megan to run through the details on the quarter.

[Megan Pydigadu:]

Thanks, Joss. Let me walk through our second quarter fiscal year 2017 performance across each of our key operating matrix as well as our revenue and earnings target. They remind that our report in currency is a [indiscernible]. For convenience, we have translated our results into US dollars thus for the 2017 and 2016 period using the September 30th, 2016 spot rate. You can find these conversion in our press release. In addition, please note that our results are presented on an IFRS basis unless otherwise noted. Let me also remind you that as we have discussed throughout fiscal 2016, and that’s far in fiscal 2017, in addition to the macro headwinds we are facing. Our business is entering a transition to significantly move bundle contract. This is positive for our business. As the larger subscription engagement are more profitable as with the longer term. But it does have a negative short-term impact on our growth rate; profitability and free cash flow. As we have said in the past, we are happy to absorb the near term Analyst Day. And we believe funding the upfront cost is an excellent use of our cash as the returns are very attractive. With this transition in mind, get new one traffic and quarter result. Total revenue was R368 million which is a 3% increase from the year-ago second quarter. Our second quarter subscription revenue of R301 million was up 6% year-over-year. This was basically in line with our expectation, we updated at our Analyst Day in September. We also added 7000 subscribers in the quarter and now have 585,000 others with an increase of 8% year-over-year. -- Revenue was R67 million which is a -- decrease from the year ago second quarter. As noted, the shift toward more bundled deals remains a place now. As additionally, our hardware and other revenue continue to be impacted by lower sales activity in the energy and mining sector. Subscription revenue is now 82% of our total revenue, which is up from 80% a year ago. Moving down the P&L. our gross profits in the second quarter with R253 million with venting a gross margin of 68.8%, up from 67.3%, posted in last year second quarter. As we have noted, we believe our current model supports total gross margins in the high 60s. We continue to believe we can achieve our long term target to deliver gross margins in excess of 70%. We had been outperforming net target recently, as our infrastructure cost have been running lower level. As we mentioned last quarter, the group commenced a transition from legacy datacenters earlier this year, where we own session equipment to AWS. This has had approximately 120 basis points impact on our subscription gross margin or about a 100 basis points on the total gross margin. In terms of our operating expenses, our sales and marketing cost were up 2% relative to the second quarter last year. This line item now represents 13% of revenue, slightly higher than our stated target of between 11% and 12% of revenue. This remains the function of our business model, transition and lower hardware and overall flex sell. General and administrative expenses were at 7% year-over-year and represents 48% of revenue. Recall that our G&A cost include -- capitalized. For those of you interested to see our historical capitalization and development cost fixed spend, we have provided a table in our earnings press release. Currently fluctuation is currently a headwind for us, as the ramp strengthens. We still believe that other time as the business becomes fully scaled, this should reduce to below 40%. Operation profit was R26 million representing a 7% operating margin. This was down 0.5% from the margin posted in the second quarter last year. As highlighted in our press release, the operation margin decline relates to an increase in operating expenses, primarily as a result of inflation re-cost prices predominantly in South Africa. This offsets the improvement in gross margin described earlier. To provide in this with additional information regarding our financial results, we disclosed adjusted EBITDA and adjusted EBITDA margin, as well as adjusted earnings for the period which are non-IFRS measures. So, we have provided full reconciliation tails in our press release. Second quarter adjusted EBITDA was R66 million up from R64 million last year. This represented a margin of 18% at a few basis points from the margin posted in the year-ago second quarter. IFRS profit for the period, which includes a significant unrealized foreign exchange loss of R8 million before tax, was R23 million down from R80 million in the year-ago quarter. This included a R92 million unrealized foreign exchange gain. IFRS's profit for the quarter was R0.04 per fully diluted ordinary share, compared with $0.10 contained in the year-ago quarter. Adjusted earnings for the period were R20 million which was up from the R19 million profit we posted a year ago. Ignoring the impact of next foreign exchange gains and losses and the related tax consequences, the effective tax rate which is used in calculating our adjusted earnings were 30% compared to 36% in second quarter of fiscal 2016. Adjusted earnings to diluted ordinary share were R0.03 compared to $0.03 in the second quarter a year ago. Turning to the balance sheet. We ended the quarter with cash and cash equivalence of R311 million down from R846 million at the end of last quarter. From a cash flow perspective, we generated R69 million in net cash from operating activities and made R85 million in basement in capital expenditures, leading to a negative free cash flow of R16 million for the second quarter, compared with free cash flow of R11 million for the second quarter of fiscal year 2016 as bundle deals continue to increase. The year-over-year growth and capital expenditure reflects the ongoing increase towards bundle deals and as Joss mentioned in his remarks, we are very pleased with this trend, given the higher cash return. Finally, I'd like to share our financial progress for the full fiscal year 2017 and the third quarter. As we noted in the press release, our financial progress are sensitive to exchange rate fluctuation. Particularly volatility related to the Rand versus the Dollar. We arrived at our guidance assuming an average exchange rate of R14.20 to the dollar compared to an average exchange rate of R15.80 use in Q1. Which reflects the strengthening Rand during the quarter. For the full-year, we expect to deliver total revenue of R1 billion R501 million to R1 billion R525 million, which includes the 3% to 5% constant currency adjustments to total revenue guidance we announced at our Analyst Day in September. We're also targeting subscription revenue of R1 billion R220 million to R1 billion R250 million which was the year-over-year growth of 5% to 6%. As Joss mentioned in his remarks, by the strengthening Rand remains a headwind on our reported revenue, the United States in this contemplating a stronger Rand that can US dollars as a positive. As a result, our updated guidance we're perceiving some increase in US dollar terms compared to our prior expectation. This of course assumes that the Rand remains actually strongly labeled or better. We're targeting Adjusted EBITDA between R270 million and R290 million. This would lead to adjusted earnings to diluted ordinary share of 11.8 to 13.8 but as a constraint based on 632 million diluted ordinary shares and an effective tax rate of between 32% to 34%. For the third quarter of 2017, we are targeting subscription revenue in the range of R303 million to R308 million which will represent year-over-year growth of 3% to 5%. Operator, we are now ready to begin the Q&A session.

[Operator:]

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

[Brian Peterson:]

Hi, good morning. Thanks for taking the question. So, Joss, wanted to hit on your comments about the oil and gas sector, definitely a positive with that improving in the America's in September. I'm curious, should we see that trend continue in October and what sort of expectations do you have for that customer segment as we think about the next couple of quarters here?

[Stefan Joselowitz:]

Thanks, Brian. Yes, it did continue, has continued into October and so far so good. The pace is not where we had liked it but at least it's in the right direction and there is activity. In terms of what the macro is going to do, we simply don’t know. That we are planning of course in the view we've taken that we have an expectation that there is going to be this improvement over the next couple of quarters and beyond of course. And that's without expecting or anticipating a dramatic revolver. Well, let's just give out investment starting to we made a gain in that sector and we have seen that over the last couple of months. So, that's a good sign.

[Brian Peterson:]

In just maybe dive into that a little deeper, is that mostly with your existing customers, kind of the revenue opportunity or are there opportunities potentially out there with new customers that has kind of been put on hold given what's going on in that sector?

[Stefan Joselowitz:]

Yes, it's a combination. So, the biggest negative effect that we faced over the last three four quarters was this contraction which was obviously from existing customers. So, as much as we were selling to new customers, we were seeing happy existing happy customers, we saw this contracting and in most of those. And so, many of the instances that reflect straight on out has a negative impact on our revenue line. So, the first, I guess, priority for us is to see that stabilize and we have seen it. So, of course it's out of that control but for now we're not seeing that contracting a bit and we're getting the benefit of investment from both existing customers which of course is a major source of revenue for us and is part of our business strategy with these large multi nationals as to grow with our customers. And as the circle turns around, we're starting to see that happen again. And we've got some new customer activity. Certainly a lot of new customers or potential new customer topline which we're working on and that topline was in effect particularly inhibited by the current conditions or by the market conditions at the time. So, the conversations again are becoming much more positive from being pretty negative a couple quarters ahead.

[Brian Peterson:]

Good to hear. And maybe one for you Megan. Just wanted to understand the MiX with the bundled deals, because it looks like the hardware and other revenue, the implied guidance for fiscal '17, that actually went up and I would think that what would have gone down a bit, just want to make sure I understand the dynamics there.

[Megan Pydigadu:]

So, in terms of that, on the hardware revenue, we do obviously have a backlog in what in our pipeline. So, in Q3 we are expecting higher levels of hardware revenue. So, that should play the in terms of the revenue guidance.

[Brian Peterson:]

Thanks, Joss.

[Stefan Joselowitz:]

Thanks, Brian.

[Operator:]

And we'll move for our next question, and it comes from Bhavan Suri from William Blair.

[Bhavan Suri:]

Hey, Joss, hey Megan, thanks for taking my questions.

[Stefan Joselowitz:]

Hi, Bhavan.

[Megan Pydigadu:]

Hi, Bhavan.

[Bhavan Suri:]

Hey guys. So, just to start off with a high level here, Joss. Obviously the energy sector macro has been weak and sort of we see in the contraction. Well, I like to understand as strategically think to that you've added new product, MiX Tabs, the Journey product etcetera. Have you sort of thought about maybe think, hey we should enter a different market, a different vertical. And so how do you think through that process as you look at sort of the portfolio you have today and the area that we can try to offset by with areas where you might have strength. So, just strategic, how do you and the team think through that?

[Stefan Joselowitz:]

Bhavan, yes. It's in as you would expect, it’s a simple answer. We're actively working on drawing many verticals. So, this is not be geographic specific now, but globally we've been successful in many different verticals and the energy sector happens to be one of them. So, we're certainly not an energy company, it's 20% plus or minus, all about revenue. So, it is our biggest vertical but in my view doesn't represent an over exposure. But the contraction really muted a lot of the positives that we're having in other sectors of course. So, because we report obviously net growth, so if a customer cancels one vehicle with us, that cancelled out effectively, an existing customer cancels, that once we have cancels out -- a new vehicle so a new subscribers out to it, to new customers. So, that's been a muting effect of some reasonable performance in other verticals. And we continue to grow. We all risk of this, we do like diversity, we do like diversified revenue streams. So, we got to focus on many different verticals, continually try to grow that. And we've made some investments some of those, still need to pay off some of those, we're very happy with the progress. Others were disappointed with the progress. It's tweaking --. It's very clear that we are not a single vertical focused organization. And when comes to United States, we need to achieve that same diversity that we have in just about every other geography in the world.

[Bhavan Suri:]

Yes, okay. Now, let get that leads to my next question. So, you touched on some of the pipeline off from the previous question in the oil and gas structure. But maybe a little color on the pipeline. Largely, someone in the US but even globally just with the bus and trucking verticals were just six verticals, so do how those pipeline is looking and then maybe a little bit on sort of competition and closer and so how those going out, off these are the expectation?

[Stefan Joselowitz:]

Sure. So, clearly I've mentioned other verticals. We've seen the transportation sector growing as there is last year, it's now very close second size wise to the oil and gas sectors now, almost 20% of that revenues. So, we see growth pretty much in almost all geographies. Out of that sector we see strong growth, out of bus and coach, we got a very strong pipeline of mixed fleets, different kinds of fleets in different kinds of specialized industries that we've seen good growth in the emergency services vertical. Some two very large winds press recently back in Europe, but we're working on that vertical in other opportunities as well. And some of the deals we're working on are really large transactions that could potentially move the needle. But we don’t rely on those. We try and build that a general flow of mass sized deals and when the big ones come, they had a lot of creams at the top. So, we're working on some of those as well. And hopefully will have some good news to share in the not too distant future on some of these deals.

[Bhavan Suri:]

That's great color, Joss. And I want a quick one before I just turn on to Megan. You guys talked a lot about sort of the electronic log at the Analyst Day. Did that help it on the quarter, you see that helping Q3 Q4, or is that something that's going to take a little longer to be impact with the business?

[Stefan Joselowitz:]

Yes. It is definitely a marked increase in activity. So, and conversation and topline evolvement etcetera, we have seen, it's been awaiting game and this appeal that was heard earlier this week and that was here was ruled on earlier this week. It was heard I believe a couple of months ago. I think it's probably a significant milestone for the mandate because I think there were many fleets that were taking a latency approach on whether this is actually going to be enforced and this likes us the ruling from the court appeals is a significant was an unanimous ruling in favor of the mandate. So, the only place I guess object to what to go now, there's only one more stop and that's if that is sort of take up that's to the Supreme Court. But we'll have to see the place up. So, a lot of lots, we should remember we've got a larger fleet focus. So, we're not engaged with many small fleets but the larger fleets that we're engaging with lot of conversation but we've been seeing this latency approach. And I think this like this really much stock shaking some of that news. Have we planned in for any future activity in the next couple of quarters? We haven’t. If some recent activity starts happening, it'll be fantastic.

[Bhavan Suri:]

Got it. And then one quick last one for Megan. Megan, obviously the shift to AWS really nice for gross margin. Could you give us some sense of how much longer term you could shift to AWS and what sort of that could to do gross margins for the business, subscription business three to five years out. How does that potentially look, assuming it often feels to be quite successful and delivers uptime etcetera?

[Megan Pydigadu:]

So, I think in terms of our shift to AWS, I think we sort of taking the remainder of this fiscal financial year and then having a impact on our margins. And as it's been as also being either auctions at play in terms of the contraction we're seeing. So, we need to get our gross up when the scale up and with that few margins increase. So, I think over time we would expect to see an improvement in our gross margins as we leverage off AWS infrastructure.

[Bhavan Suri:]

Great. Thanks for taking my questions, guys. And hopefully we will continue to see strength in oil and gas going forward. Thanks.

[Stefan Joselowitz:]

Thanks, Bhavan.

[Megan Pydigadu:]

Thanks, Bhavan.

[Operator:]

And our next question comes from Michael Walkley from Canaccord Genuity.

[Michael Walkley:]

Great, thank you. I was wondering if you could just share kind of some of the progress you're making upselling to your premium fleet customers, some of the products you highlighted at the Analyst Day such as MiX Fleet Manager, MiX Go, MyMiX those type of services. And what that might do to ARPU trends longer term if you're successful in upselling your customers?

[Stefan Joselowitz:]

Thanks, Mike. Certainly, we developed this range as I've highlighted MiX Vision is has shown a lot of good traction particularly in recent quarters. So, that's definitely becoming a decent ARPU enhancement. It's also been a not an add-on for existing customers but it's helped us to attract some new customers. And we, the subscriber base for MiX Vision is now heading towards the 10s of 1000s as opposed to the sales in the mark. So, it's certainly heading in the right direction and we're pleased with the traction. Some of the others, turning management etcetera, it's much earlier days as things currently stand right now. I'm personally disappointed with the current traction, but very mind this product, was initially developed with the energy sector in mind that has got applications in other sector. Then we are driving in each other sectors. But much to our initials trials for turning management, we're very enthusiastic customers at the time in the energy sector. And that enthusiasm for new services dried up over the last, I guess, the last year or so and it's coming back now. So, sometimes these things that take longer than we anticipate. In the case of Journey management, I think we just had a lot of on pricing discussion in tech in this past week over that particular service. And operators remain confident that the high year would be on plan but going forward it's going to be a meaningful and profitable service for our business. And others are again they're in a process of evolvement, not yet where we'd like them to be, but we're adding on subscribers in that or adding to the subscription revenue line and we constantly working on improving the way we take those services package them and take them to market.

[Michael Walkley:]

Okay, thanks. And just building our side. If we look out a year to with a better mix of bundled deals and if energy and some of your higher end customer bases starts to turn. Should we expect to see that ARPU trends are to increase overtime or it obviously new services are just kind of offsetting normal price declines if customers come back and re-negotiate? Just trying to think about ARPU longer term as you go about our model?

[Stefan Joselowitz:]

No, you can expect to see ARPU accretion by product line. So, we're certainly not using those kind of services to offset post pressure. We do lots of functional and new feature set development in an ongoing basis on our product, on your product line. Most of those are simple software enhancements that in some of them we had -- yes, we try and get in a couple of hedged bucks but we do know that when it comes to a renewal negotiation you need to sometimes throw in a couple of things to close the deal. Having said that, we're very confident that we will continue to see ARPU accretion, we are confident that that will be made up or the convo is made up with in fact is a combination of these ARPU enhancing editions and more importantly in fact this significant trend towards bundle deals. You remember in Vegas, we fight with other first time really gave some insight into the bright make up of our subscriber base. So, for the first time you could talk like that in average ARPU for the product sector as opposed to having relying on a blended ARPU which can go up or down depending on the product mix in a particular sales mix in a quarter that in terms of a particular sector we expect to see good accretion in the years going forward.

[Michael Walkley:]

Great, thanks. One last question from me and I'll pass it on. Just as you look at your, go to market with I think it's 80% of your new premium fleet customers coming direct and as you're chasing these deals. How should we think about operating expense potential growth over time? Thank you.

[Megan Pydigadu:]

So, in terms of operating expense growth over time, we really look at it as a percentage of really here. And I think so in marketing we said that we like it to be back-to-back a 11% to 12% mark. I think in terms of general and administrative expenses, they are probably running much higher than we had like them to be. And over time we like to see those below 40%. So, we constantly we look at our expense base and our cost structure and we visit an adjusted matrix. So, I think over time we'd like to see that falling down.

[Michael Walkley:]

Okay, thank you.

[Operator:]

[Operator Instructions] Our next question comes from Brian Schwartz from Oppenheimer.

[Brian Schwartz:]

Yes, hi Joss and Megan. Thanks for taking my question here this morning. Joss, I wonder ask you how the hiring is going for the business. Actually very interested in the hiring here today in your newer gross market, especially at year-end in the America. And I'm just wondering if you're on target with the hiring here, year-to-date, or if you think you have an up sales capacity right now, does it need the growth coverage that you're putting out right now. What do you think additional investments are going to be necessary here to onboard additional folks to achieve the targets that you're putting out this morning? Thanks.

[Stefan Joselowitz:]

Yes. Thanks for your time, thanks for your question. It's been adjacent an unusual year because we've had to depth particularly in the market you've asked the question on which the United States which is a market in our instance our business there has been highly focused around that energy sector and a lot of activity. In other sectors that's been currently our economic engine as far as that business is concerned. And with the macro situation we've found ourselves with a bunch of sales people, in net vertical that should be didn’t have a lot of those will not come, but I know that those will not come in that vertical but they were getting a lot of a warm reception, not because customers or potential customers didn’t like our product, is that is they had many other things to worry about and we went high on that priority list. Just starting to ship now. But so we did refocus some of those personnel, some of those resources on trying the verticals which did help us, of course. We had on boarded a few more and then in the process of course you never really finished with the exercise because it's you got to tweak you're keen with the flux of time. Some work out very well, some don’t work out. And so, it's an ongoing process of tweaking to adapt to emerging strategies and opportunities. So, it's an ongoing process but I wouldn’t say that it's been a year of endless hiring, that's for sure. We've been using resources and shifting them around.

[Brian Schwartz:]

Thanks, Joss. And one follow-up question that I want to ask. Great to hear all the positive commentary on the uptick here I the energy factor. Just wondering the mining sector also was experiencing some shrink heads and pressure out there. And I'm wondering if you're seeing any sort of green shoots or anything in that mining factor that maybe looks like it could be tracking what you're starting to see the improvements in the energy factor. So, I was just wondering if anything's going on there that given you a little bit more optimism in the mining sector that we're starting to see play out here in the oil and gas factor. Thanks again for taking my questions here today.

[Stefan Joselowitz:]

I appreciate it. Frankly, no, we haven’t in the mining sector is resources generally in terms of expenditure, certainly nothing spectacular happening, it is sorts one of our verticals, it's not a huge vertical for us but it remains a very cool that we have extra customers in and what we continue to work those and continue to build on them. But it hasn’t been the most active spice in certainly in the last 12 months. And with all of these things I got to circle, this circle will turn with them like with everything else. And we'll have to see how that play out over the coming quarters and the years ahead.

[Brian Schwartz:]

Thank you.

[Operator:]

And it appears we have no further questions at this time. I'll turn it back to our presenters on the conference.

[Stefan Joselowitz:]

Thanks very much. I got to just again thank you all for joining us here today. We really appreciate your attention and your insight for questions. We will be presenting at the upcoming Raymond James conference in New York in the first week of December. So, if any of you are going to be or planning to be around New York City, would love to catch up. Other than that, we look forward to talking to you over the course of the quarter and when we talk about Q3. Thanks again for your time.

[Operator:]

And that will conclude today's conference. And we appreciate your participation. You may now disconnect.