MiX Telematics Limited
Q4 2017 Earnings Call Transcript

Published: 25 May 2017

[Operator:]

Good day and welcome to the MiX Telematics Fiscal Fourth Quarter 2017 Conference Call. Today’s conference is being recorded. At this time, I would like to turn the conference over to Paul Dell, Interim CFO. Please go ahead.

[Paul Dell:]

Good day and welcome to MiX Telematics earnings results call for the fourth quarter and fiscal year which ended on March 31, 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 as Joss, he is President and Chief Executive Officer of MiX Telematics. During the call, we will also make statements relating to our business that maybe 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 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’d like to thank you all for joining the call today. We are very pleased with the company’s execution during the fourth quarter, which led to a strong finish to the year. Our ability to exceed expectations across all key metrics was driven by ongoing strength across the portfolio globally. In addition, we continue to see positive contributions from our energy sector customers. During the past year, we have significantly enhanced our market position and continued to establish MiX Telematics as a trusted vendor at the high-end of the market evidenced by the ongoing traction we are seeing with premium fleet customers. I'm very excited about the company's future. As we begin fiscal 2018, we expect to deliver a year of strong subscription revenue growth and margin expansion. Looking ahead, I believe we have the opportunity to create a very large company with a compelling financial profile. We expect to achieve this by driving double-digit subscription revenue growth from the addition of new customers as well as increasing ARPU and enhancing our scalability. And given the momentum we are seeing in the business, we believe that the company is at an inflection point in regards to the margin accretion we expect to realize particularly as we are moving out of the heavy investment cycle into a phase where we are starting to enjoy the returns on these investments. This is evidenced by the steady improvement in our adjusted EBITDA margins throughout fiscal 2017 reaching 22.3% in Q4, up from 21.9% in Q3, 18% in Q3 and 15.9% in Q1. In previous calls, I mentioned that we were tightening our belts and looking to achieve efficiencies throughout the business. Consistent with this view, we made a commitment to board level to continue streamlining our operations, which we anticipate will further accelerate the operating leveraging in the business. I will discuss our strategic initiatives in a moment, but let me first provide a high level summary of our fourth quarter performance. Our subscription revenue of ZAR322 million in Q4, exceeded our expectations and guidance. I want to remind you that the functional currency is the South African rand, which has continued to strengthen against the US dollar and reminds a headwind on our revenues with the resulting muting effect on the quarter. As a result, Q4 subscription revenue growth on a constant currency basis was in reality higher than that reported. Of course for US investors, of which I am one, translating a stronger rand back into US dollars is a positive and on balance, I prefer a strengthening rand cycle. We added 17,000 net new subscribers taking us to a total base of 622,000. This was due to growth in both our premium fleet and asset tracking portfolios. Our results were driven by general strength across the portfolio globally including another quarter of positive contributions from the energy sector. The broad-based momentum is highlighted by the following customer activity during Q4, which included contract extensions with two long-standing key accounts in Australia, one in the energy sector and one in mining, a great upsell to Graincorp, a leading Australian agribusiness, whilst rolling our premium fleet solution to approximately 500 vehicles through our partner Intellifleet, expanded their contract include an additional 300 assets, contract expansions with a global key account in the construction industry for additional services in the United Kingdom and China. In Brazil, we commenced the installation for a strategic new customer in the leasing vertical little for 500 vehicles operating in the sugar and mining industries. We also signed a new contract with a bus fleet via our sales platform for 700 vehicles, who has adopted our premium solution to reduce fuel consumption, maintenance cost through improved driver behavior. And finally, we were pleased to have signed our first paying customer for our MiX Tabs solution in the United States. This is the first commercial sale of the beanie derivative outside of Southern Africa. And while it is not a material deal in dollar terms, from a strategic perspective, this was a big and important win for us. We are extremely excited about the potential of the solution which marries our asset tracking and premium fleet technologies. The fourth quarter marked a strong end to fiscal 2017 and some of the full-year highlights include, our total subscription revenues exceeded expectations as we added approximately 56,000 net new subscribers, two-thirds of which we added in the second half of the year. We were particularly pleased with the progress we made in the Americas during the second half of the year as the subscriber base grew over 11% primarily due to the rebound in the energy sector, most of which occurred during the fourth quarter. You will recall that this fiscal year got off to a pretty rough start, particularly for our Middle East and North American operations, who were most affected by the recent energy crisis. We continue to see a great opportunity to expand in the Americas, driven by number factors, including the adoption of Telematics technology in order to comply with the ELD regulations in the US. As a reminder, the Federal Motor Carrier Safety Administration has stated that there are just over 3 million trucks that are subject to the ELD mandate. I also wanted to mention that Charles Tasker, our COO, and I are taking a more active role in the Americas given its growing importance as well as the fact that Skip Kinford is leading MiX to pursue other opportunities. As you can see by the momentum in the region, the business is in great shape and we appreciate Skip’s contribution to the company over the past three years, we wish him well. Finally, during the year, the company generated ZAR377 million in cash from operations and positive free cash flow of ZAR28 million compared to negative free clash in fiscal 2016 despite the increase in customers adopting for fully bundled solutions. From an industry perspective, the depth and breadth of MiX’s product offering continues to be one of the key differentiators versus the competition. As a reminder, we managed and controlled 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 core 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 consumer experience from end to end and delivers a high-quality solution which is absolutely fundamental to long-term customer retention. It also enables us to constantly drop down our product costs, while also leveraging the financial benefits of having a large highly skilled R&D team based in South Africa, which is a low-cost geography. We continue to leverage the power of our premium fleet base and group product portfolio to generate diversified revenue streams. Customers are able to subscribe to a range of software applications on top of our core solutions such as MiX Vision, Journey Management and Hours of Service, which can each add between $10 and $20 of revenue per vehicle per month. This not only increases ARPU, but also enhances customer retention. On the topic of MiX Vision, earlier in the quarter we released an exciting extension to our integrated camera solution which now supports for two additional external cameras. This was developed in response to strong customer demand and further increase of solution’s ARPU potential. In addition, we continue to expect ARPU to benefit from the growth of bundled deals to our customers which are very accretive to our business and contribute significantly more cash over the average lifetime of the customer of approximately eight years. The expected lifetime cash contribution from a typical bundled premium fleet subscriber is almost $1000 higher when compared to unbundled deal. Given our strong balance sheet, we continue to aggressively promote bundled solutions and now see in excess of 80% of new subscriber adds choosing this option. This has resulted in an increase of bundled premium subscribers to now approximately 20% of our total base, up from 5% over three years ago. Going forward, we expect the trend to continue which would enhance overall ARPU and decrease lower margin hardware revenues. Also noteworthy, full-year subscription revenue of ZAR1.240 billion, now represents 80% of total revenue, up from 67% three years ago, a clear indicator of an important progress we are making towards a pure subscription revenue business. It is also important to note that our retention rates are in excess of 95% with our large premium customers and some of these relationships extend well beyond our average customer lifetime of approximately eight years. This highlights our commitment to customer service as well as our ability to consistently deliver an easy to understand and easy to measure attractive return on investments which also drive long-term customer retention. As we begin fiscal 2018, we believe that MiX is in a position to maintain the momentum achieved in the second half of fiscal ’17. Our confidence is supported by a strong pipeline of firm orders and sales opportunities. For example, we recently signed a contract with a large multinational non-energy customer who is intending to aggressively roll out our premium solution to improve driver safety and fuel efficiency. With operations in over 40 countries globally, and a fleet size of over 20,000 vehicles, this new customer has the potential to become one of our largest global key accounts in the next two years. Our proven track record, broad product portfolio, extensive footprint and ability to effectively service large premium customers across the globe, all contributed to us securing this significant win. And just today we announced a new deal with C&J Energy Services. C&J is a leading service provider to the oil and gas industry and they intend to roll out our premium fleet management solution for their fleet of 3,500 vehicles in the United States. We will help them drop down -- improved efficiencies and safety, while also ensuring ELD compliance. Given that our pipeline of orders and opportunities are booming globally, I look forward to updating you on the progress with other potential new customers during fiscal 2018. As I mentioned at the outset, we are already at an inflection point of margin expansion as we transition out of our investment phase and plan to leverage further efficiencies throughout the entire organization. We expect the margin accretion momentum to continue and are targeting adjusted EBITDA margins of 30% plus in years to come. Furthermore, I want to point out that we expect the improved operating leverage to ultimately flow down to the EPS line. What further supports our long-term view is the investments we have made in next gen platforms, such as DynaMiX and MiX Lightning. Remember that DynaMiX was designed to provide a common software foundation on which all applications in the group are developed. And this was significantly improving the speed and quality of our software releases. We are pleased to say that all of fleet customers have now successfully migrated onto our DynaMiX platform and we have shutdown the legacy software system and an important milestone for our team. In regards to MiX Lightning, this highly scalable back-end platform leverages leading-edge technologies and architectural best practices and is designed to support exponential growth in our subscriber base. Paul will provide our detailed guidance in a few minutes, but in summary, we are targeting and over 300 basis point improvement in adjusted EBITDA margin and double-digit subscription revenue growth in fiscal 2018. We are confident that the ramp up in the topline along with the streamlining initiatives I mentioned earlier should result in our ability to achieve our targeted growth in 2018 and beyond. To summarize, our strategic initiatives for 2018 are not revolutionary, it is really about converting on our strong and growing pipeline of orders and opportunities, while leveraging MiX as strong global brands and reputation, and improving our scalability now that the investments support growth is largely behind us. Although we are confident in our plans, we recognize that we are not immune to external factors such as unexpected global events which are beyond our control. Nevertheless, we truly believe that the business is reached an inflection point and are confident in our ability to achieve our targets and meaningfully increase the company's long-term value. On the topic of value, earlier this week, our board authorized management to undertake a general share repurchase program of up to ZAR270 million. At current levels, we believe this is a fantastic use of our cash. With that, let me hand it over to Paul to run through the details on the quarter.

[Paul Dell:]

Thanks Joss. Now let me walk through our fourth quarter and full-year fiscal 2017 performance and recall that our reporting currency is the South African rand. For convenience, we have translated our results into US dollars both for the 2017 and 2016 using the March 31, 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 fourth quarter, total revenue came in at ZAR391 million. Of this total, subscription revenues were ZAR322 million and exceeded the high-end of our guidance range. The over performance was due to the continued growth in our asset tracking business combined with ongoing positive traction from our premium fleet customers across our geographies and vertical markets including the energy sector. We ended the fourth quarter with over 622,000 subscribers, an increase of 2% year over year, as we added over 16,700 net new subscribers. Hardware and other revenue was ZAR70 million or down 9% year over year and 23% quarter over quarter. We continue to see significantly more bundled contract, which is a positive for our business longer term as the larger subscription engagements are more profitable. Subscription revenue now represents 82% of total revenue, an improvement compared to 80% in the fourth quarter last year. Looking forward, we expect the ongoing shift towards bundled deals to increase our subscription revenue as a percentage of total revenue, which will provide us with both improved visibility and higher margins. Our gross profit margin in the fourth quarter was 67.7% and in line with our expectations. Operating expenses was 57% of total revenues compared to 62% of revenue in the fourth quarter last year, which highlights our ongoing commitment to cost controls and scale in the business. Recall, that our general and administration costs include research and development cost 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 disclose adjusted EBITDA and adjusted EBITDA margin as well as adjusted profit for the period, which are non-IFRS measures. And we have provided a full reconciliation table in our press release. Fourth-quarter adjusted EBITDA increased 12% to ZAR87 million or 22.3% of revenue compared to ZAR78 million or 20.2% of revenue last year. As Joss mentioned in his remarks, we are very pleased that the steady improvement in our adjusted EBITDA margins during fiscal 2017 and expect the momentum to continue since we have transitioned into a phase where [indiscernible] support to growth are starting to pay off. Adjusted earnings for the quarter was ZAR30 million or ZAR0.05 per diluted ordinary share, which is up from the ZAR29 million or ZAR0.04 per share we posted a year ago. Turning to the balance sheet, we ended the quarter with cash and cash equivalents of ZAR376 million, up from ZAR359 million at the end of last quarter. From a cash flow perspective, we generated ZAR129 million, a net cash from operating activities and made a ZAR75 million investment in capital expenditures leading to positive free cash flow of ZAR54 million for the fourth quarter compared to positive free cash flow of ZAR31 million during the same period last year. Turning to a quick summary of the financial results for fiscal year 2017. Total revenue was ZAR1.540 billion and subscription revenue was ZAR1.240 billion. Both of which were about the high end of our guidance ranges. Subscription revenue growth was driven primarily by the addition of over 55,800 subscribers in the year. During fiscal 2017, adjusted EBITDA was ZAR302 million or 19.6% of total revenue and above our expectations. This was up from ZAR277 million or 18.9% of total revenue last year. Adjusted earnings for the year was ZAR105 million compared to ZAR88 million. Adjusted earnings per diluted ordinary shares was 15.6 South African cents and above our expectations compared to 11.2 South African cents last year. From a cash flow perspective, we generated ZAR324 million, a net cash from operating activities and made ZAR296 million investment in capital expenditures leading to positive free cash flow of ZAR28 million for the full year compared to negative free cash flow of ZAR1.4 million in fiscal 2016. We were very pleased of our ability to generate meaningful free cash flow in fiscal 2017 while increasing investments in vehicle devices due to increased demand for our bundled offerings. Now turning to our financial outlook. We entered fiscal 2018 with very good momentum as our pipeline of committed orders and sales opportunities continues to build globally. As Joss mentioned, we believe we are at the beginning stages of achieving significant operating leverage in the business as we reap those benefits from both the investment cycle we've been in over the past few years and the planned scaling of operations. This combined with double-digit subscription revenue growth is expected to result in ongoing adjusted EBITDA margin accretion. In regards to our expectations for fiscal 2018, we are targeting total revenue of ZAR1.632 billion to ZAR1.662 billion and subscription revenue of ZAR1.401 billion to ZAR1.421 billion, which represents year-over-year growth of 13% to 14.6%. We plan to achieve the subscription revenue growth through a combination of adding new customers, further penetrating existing customers and improving overall ARPU by increasing the percentage of bundled deals as well as add-on sales on top of our core solutions. During fiscal 2018, we are targeting adjusted EBITDA of ZAR364 million to ZAR383 million. At the high end of the range, this represents a margin of 23%, up 340 basis points compared to last year. This highlights the initial margin accretion we anticipate achieving with an expectation of seeing ongoing leverage continuing into the future. In regard to adjusted diluted earnings per share for fiscal 2018, we expected to be in the range of 18.2 to 20.2 South African cents based on 571 million diluted ordinary shares and an effective tax rate of between 28% to 31%. As we have discussed previously, our attention is to focus on annual [indiscernible] as this is how our management is focused and we do not wish to close deals on suboptimal terms in order to achieve quarterly objectives. This is most relevant as it relates to the hardware and other revenue lines [indiscernible] in our profit and loss. The area of revenue where we have high favorable 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 first quarter of 2018, we are targeting subscription revenues in the range of ZAR331 million to ZAR336 million which represents year-over-year growth of 8.2% to 9.6%. On a constant currency basis, this would represent growth largely in line with our annual guidance. In summary, we were pleased with our fourth quarter and fiscal year 2017 results and have entered fiscal 2018 with strong momentum as we are targeting a year of solid subscription revenue growth and margin expansion. 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 sustain profitable growth. I will now hand it back over to Joss for some closing remarks.

[Stefan Joselowitz:]

Thanks. In closing, I would like to reiterate some key points. This is a very exciting time for our company. We are addressing a large multibillion dollar market opportunity and MiX is a recognized industry leader. The pipeline of firm orders and opportunities are growing across all geographies and we are well positioned to achieve double-digit subscription revenue growth. And we are in inflection point in regards to the margin accretion, particularly as MiX is now transitioning [indiscernible] we have been in over the past few years. As we look ahead to fiscal 2018 and beyond, we are confident in our ability to build a very large company with a compelling financial profile that we expect will meaningfully increase the company's long-term value. With that let me turn the call over to the operator to begin the Q&A session.

[Operator:]

[Operator Instructions] And we will take our first question from Brian Peterson with Raymond James.

[Brian Peterson:]

Good morning, gentlemen and nice job on the quarter. Jose, just wanted to get a little more perspective on the 20,000 vehicle win you referenced. Obviously, this is a big win for you guys. Anything you can share about how that came through the pipeline, what region that started in and maybe what products they’re purchasing and as we think about the model, how should we think about that ramping over the course of fiscal ‘18.

[Stefan Joselowitz:]

Thanks, Brian. We’re -- clearly, the customers preferred to remain confidential. We are very proud of the win. It’s a large multinational, it was a competitive bid and we are very happy with the outcome. The solution that they’ve selected is a premium feed solution, so we’re pleased with that. It is a deal that’s pretty much more complex than running out in a single geography. And we are working with the customer to figure out really our timeframes, schedules, et cetera, et cetera. So it’s a fantastic win for us. As I mentioned, we believe it could ultimately grow into one of our largest key accounts, our year is not dependent on it. So it’s really part of a layering effect and we’re going to work hard to make it a success.

[Brian Peterson:]

Got it. Understood. And just on the Americas segment, obviously the sub numbers in the back half were pretty strong, up 11%. Just curious any commentary you can give on the expansion with existing customers, driving that or potentially new customers that are improving that as well?

[Stefan Joselowitz:]

Yeah. Very clear combination of both. So we’ve seen large existing customers, expanding fleets. So really a reverse phenomenon that you’ll recall we were in a far quarter long cycle of negative contraction, that’s now well behind us and we’re seeing now the reverse impact from existing customers. At the same time, adding new customers and continue to do so and so the combination is particularly exciting.

[Operator:]

And we will now hear from Matt Pfau with William Blair.

[Matt Pfau:]

Hey, guys. Thanks for taking my questions. Jose, just wanted to first start out on your comment about you and Charles taking a more active role in the Americas regions, maybe you can just give some more detail on that comment, what does that look like and then in terms of maybe gaining some success in the Americas, outside of the oil and gas verticals, what does that mean in terms of progress of that?

[Stefan Joselowitz:]

The progress is happening already. So we’re pleased with the shape the business is in at the moment. I mean, clearly, we’ve got a long way to go. I mean, you’re aware that our occupied building that US operation is situated in, Charles Tasker, our COO has recently moved to United States and the two of us intend playing a much more active role in our local business there and to be clear, Charles is taking Director responsibility for that operation. He knows our product range and offerings better than anybody else on the planet. He knows the customers well, he knows the local opportunity verticals well and based on where we are as an organization, we believe that the time is right for us to be playing a more active role in our Americas operation, which in my view still represents our biggest forward going opportunity.

[Matt Pfau:]

Got it. And then maybe to dig in on the MiX tab win that you had, just any additional details in terms of what vertical was this customer in and maybe about how they’re using the product?

[Stefan Joselowitz:]

It’s in the energy vertical that we’re using exactly what that process was designed for that got a large installed palette base with us, so they’ve got a large fleet of motorized vehicles driving around and around the areas of operation that got many, many thousands of unpallet [ph] assets that they’re looking to keep better control over. And they ran a trial and now turned the trial into a commercial commitment on a relatively small percentage number, in terms of what the potential of assets we could be monitoring on. So I guess, they’re taking a step at a time. As I said, it’s in dollar terms, not a significant win for us, but in milestone terms, I’m as excited about this deal as any of the much higher dollar revenue deals that we’ve secured in the last couple of quarters. So it’s just a, it’s a step in a great direction as we, for the first time, see a derivative being commercially used, outside, not only outside of South Africa, but in a first world country, which is awesome.

[Operator:]

And we will now go to Mike Walkley with Canaccord Genuity.

[Joshua Reilly:]

This is Josh for Mike. So looks like the guidance is really strong, could we get some color on the pipeline and how it’s balanced across the regions and verticals, is there any region in particular that you see doing better in the next fiscal year and then I noticed in the commentary you mentioned that you’re restructuring the Middle East, similar to what you did in the Americas. Do you expect better leverage in that region in fiscal ’18?

[Stefan Joselowitz:]

So to the first part of your question, we’ve got a pipeline, which is really has, it’s, we’re starting the year in as good a shape as I can remember. So we’ve given you some color of some of the larger deals that we’ve signed and clearly C&J, 3,500 vehicles is all United States deals. So that one is clear. The other one that I mentioned is potentially longer term a much larger opportunity, but it’s a multinational opportunity spend over the many different countries, 40 different geographies. So it gives us a nice balance amongst many of our different regions and as I said, we’re not exclusively relying on that specific deal. We’ve got a nice pipeline of committed orders, number one, going into the year and a good looking pipeline of opportunities that we continue to mind. And all of our regions are for different reasons, reporting reasonable level of confidence in each of the operations. So as always, we take the feedback, we apply a level of conservatism to it where necessary, we use our best judgment and we’re coming out with an outcome and it’s now up to being the team to, we’ve given our best view of the future world. We’ve now got it right in audit and executing it. In terms of your second question, I think regarding the Middle East, the Middle East has had a tough, MEA operation has had a tough run of it and we’re [indiscernible] when this required, we have to catch up plus to meet our circumstances and we’re seeing some opportunities to improve the efficiencies in our operations and in this instance, in that region, particularly and we’ve taken, we’ve run audit at getting sorted out. So we’ve taken it on the chin, included in our reported numbers as some restructuring costs or provision for some restructuring costs that will incur in the next coming month or two, but we’ll start seeing benefit from that straight off the guide, because we’ve taken it on the chin in terms of provisions.

[Joshua Reilly:]

Okay, great. And then one final question from me, you talked about the increased focus on the Americas and seeing improved results there, can you talk about what other verticals besides oil and gas are going to be a focus going forward?

[Stefan Joselowitz:]

Yeah. We’re right now not being, we’re not being picky. So it’s still a work-in progress. We are securing deals in other verticals, none of them to, not enough in any one to start claiming a particular stake in the ground. So if you don’t mind, we’re going to keep on working at that and as I said, we’re focusing once we what’s specifically working and what’s not working. I mean, we do know, if we look at the Americas as a broad opportunity, North and South America, we’re seeing bus and coach transportation evolving as a very strong growth vertical for us. So obviously there is a big focus on that. We’ve seen great performance in relative terms obviously off a lower base. Our Brazil operation, we’re seeing some reasonable wins in that space, in Mexico, et cetera. So that’s clearly a very focused vertical for us and as far as United States is concerned, we know what we have to do. We can’t be reliant forever on one vertical, despite the fact that it’s a great vertical for us. We will continue to tap that vertical, but we need to continue to spread our wings and that’s what we’re focused on doing.

[Operator:]

[Operator Instructions] We will now hear from David Gearhart with First Analysis.

[David Gearhart:]

My first question, I kind of wanted to dig in, just wanted to dig in a little bit on the add-on module traction, I know you’re looking at it to help expand ARPU. Just wondering if you could just color around the different products and some of the traction that you’re seeing, particularly in acquisition.

[Stefan Joselowitz:]

Yeah. Sure. It’s going in the right direction. I always get, I want things to happen faster. But it’s definitely, most of them are proving to be solid contributors now. The MiX provision offering is now a global opportunity. We have customers, active customers in all parts of the globe. You’ll recall we started running trials originally in Southern Africa and then we expanded that beyond, but we’ve got active customers just about everywhere now. We’re reaching a point where we count that product in tens of thousands in terms of active subscribers, and I look forward to a day where we’re hopefully counting in the hundreds of thousands, but we still got a way to get there, but it’s taken on nicely. A lot of our bids, not all of them, so [indiscernible] we’re getting good traction out of, journey management still a little bit disappointing at this stage compared to what we’ve invested in it, but we still believe in its potential. But and we’re continuing to work that potential and the day might come when that becomes a great, a much stronger contributor as well. But I’m relatively pleased where we are in terms of the bids we’ve made, the investments we’ve made in ARPU enhancing opportunities and as I said, we’ve started to enjoy a return on investment on those early bids that we made and that will contribute towards our, both our ARPU accretion and our margin accretion.

[David Gearhart:]

Okay. And if you could talk a little bit about the mix of subs added in the quarter, in relation to fleet and SVR. I know one of your competitors announced results recently and was talking about weakness in execution issues in South Africa, so wondering if you saw any issues in SVR asset tracking relative to the fleet business?

[Stefan Joselowitz:]

No. We’ve, I’m proud of our South African team that’s executed extremely well and continue to do so. Both of the top line and the bottom line, so and I know it’s a tough competitive market and I’ve always been maintaining that they’ve been, they’re probably doing it through growing market share and that appears to be what they’re doing. So we didn’t see, the South African economy is not in the most buoyant shape I’ve seen it in. So I think that’s clear and that’s apparent to everybody. But our business there has performed and contributed well. The quarter’s results were really good contributions from all regions and both from the asset tracking side, which is primarily as you know is Southern African currently opportunity and good contribution from the fleet side. So, we do have, remember, a premium fleet subscriber is generally 10-fold in dollar terms, what an asset tracking subscriber is. So we’re not, in terms of our subscriber ads, we’re not yet at a 50-50 level, which is nearly where I want to be, because then we would really see our subs revenues skyrocketing to the levels that I want to get them to, but the balance is, we’re starting to see a restored balance, because we’re not seeing the contraction that we were seeing in the previous fiscal year and in the first two quarters of the fiscal year we’re reporting on. So all-in-all I was pleased with the balance.

[David Gearhart:]

Okay. And also one for me, if you look at the guidance and what it implies, hardware, there is a more meaningful stepdown in the hardware revenue for the year that’s expected and I know a lot of that’s due to the bundled plans, but is the shift to bundled plans accelerating or you’re expecting it to accelerate this year and can you kind of give some color on why that could be for this year?

[Stefan Joselowitz:]

Well, it’s looking forward, I expect it to diminish. I think we’re well on our way to building a pure subscription revenue business, which is in everybody’s interest, it’s certainly as wearing my shareholder cap or management cap, it’s a great place to be. The margins improved and it’s much easier story to tell. If I look at our pipeline, the two deals that I mentioned, the two large, the mega deals, and those deals don’t come along every month or every quarter for that matter. They are significant deals, but both bundled deals. So with the visibility we’ve got into our order pipeline, it’s certainly very heavily weighted towards bundled. We still continue to see the large deal come through, but we’re certainly not counting on them and David, I believe, we’re heading towards a world in the not-too-distant-future, where it will hardly be any relevance in our life to the point where we made, take some preemptive action to stop the option, but we’re not quite at that point yet.

[Operator:]

And our next question comes from Mike Vermut with Newland Capital.

[Mike Vermut:]

Great quarter and excellent start to the year it seems like. Also it’s great to see the new buyback. I assume there’s not much better to buy than our stock at these levels. So in the US, it seems the focus is excellent there, but there could be, from everything I gathered, a mad rush into the end of the year for the mid-size and smaller fleets on the yield side and telematics has started adopting as it’s expanding there. It’s great going after the large fleet and I think that we do a phenomenal job on that, how do we intend to approach and capture our fair share on the mid to smaller sizes, is there a partnership, do you go to the service providers, how do we look at that, because it’s such a huge opportunity out there?

[Stefan Joselowitz:]

Yeah. Mike, there is a huge opportunity and at the same time, we’re certainly an outsized business. We recognize we can’t own the world. We are a large fleet player. That’s the space that we do very well in pretty much, almost every bit that we compete in that space. We are a very strong contender and more often than not a winner. We are, and not all of our deals, widely stretched imagination are that mega fleets, so what do we call a mega fleet is, let’s call it, we call 500 plus, but it’s even extended that into the 1000s. We’re very happy to do mid-size deals, couple of hundred, very happy with that. We’re not very efficient at the, in the small fleet space in terms of rolling out our current existing solution. That might change in the future, but it’s not going to, with some tweaking we’re doing in our business, it’s not going to change in enough time for us to be a major player in this calendar year for argument sake. So we’ve got to pick out awards and where we play and we dream that and my view is that we’re going to build a phenomenal business with that focus and in future years, we may broaden our focus into different areas, but right now, we just play to our strengths.

[Mike Vermut:]

Excellent. And then when looking out a year to three years, what’s the balance you’re looking to achieve US versus maybe rest of the world, or US, Europe and then rest of the world?

[Stefan Joselowitz:]

Strategically, it’s probably not a secret and if it is, let me deduct the secret out today is that I see it as ultimately a US company. So I would ultimately like to see our US revenues being the most significant, at least the most significant component of our business, if not more than 50% of our business. Ultimately, I would like to for investors to be our company as an American company with great local exposure, rather than a South African company with great global exposure. And that’s what we’re aiming to do. That’s why we moved to United States. That’s why we’ve moved Charles to the United States that’s why we’re serious about building that piece of our business, not just losing focus on any of the other regions, it’s, I want to achieve that, whilst other regions continue to grow. So we have to try and get our United States business or Americas business more broadly to grow at a significantly higher rate than the rest of our regions and that’s what we’re aiming to do.

[Operator:]

And with no further questions in the queue, I will now turn the call back over to management for any additional or closing remarks.

[Stefan Joselowitz:]

Yeah. Just a quick one. Thanks to everybody for joining us today. We really appreciate your attention and your questions. We will be present at the William Blair Conference in Chicago in mid-June and we’ll also be hosting investor meetings with Raymond James in New York City a few days afterwards. So really if any of you’re going to be in either of those cities and look to catch up, love to have a cup of coffee. Appreciate your time and focus and enjoy the rest of the day. Thank you.

[Operator:]

And once again that concludes our conference for today. Thank you for your participation. You may now disconnect.