MiX Telematics Limited
Q4 2015 Earnings Call Transcript

Published: 28 May 2015

[Operator:]

Good day and welcome to the MiX Telematics Fourth Quarter and Fiscal Year 2015 Conference Call. Today’s conference is being recorded. At this time, I would like to turn the conference to Megan Pydigadu, CFO. Please go ahead.

[Megan Pydigadu:]

Good day, and welcome to MiX Telematics’ earning results call for the fourth quarter and fiscal year which ended on March 31, 2015. 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, who as many of you know him, Josh. He is President and Chief Executive Officer of MiX Telematics. During the call, we will make statements relating to our business that maybe 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. 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 Josh.

[Stefan Joselowitz:]

Thanks, Megan. I would like to thank you all for joining us to review our fourth quarter and full fiscal year 2015 financial results. In spite of facing some challenging trading conditions throughout the year, we have closed out fiscal year 2015 with solid revenue growth, strong profitability and excellent cash flow. We grew subscription revenue 17%, posted a 20% adjusted EBITDA margin and generated free cash flow of nearly R19 million for the year. Importantly, we grew our base by 61,800 net new subscribers and finished the year with a total of 512,000. We were delighted to breakthrough the 0.5 million subscriber level as few telematics solution providers have achieved this type of critical mass. We are winning important new business as well as signing meaningful expansions with key customers. That said it is worth noting that once we showed strong growth and profitability it was behind our original internal plan and trend conditions are still tough in certain regions. Throughout the year, we made adjustments to our overheard cost structures that we believe are suited for the current market conditions and enable us to maintain our balanced approach to producing growth, profitability and cash flow. These actions have already yielded R5 million in annualized savings and we expect to achieve another R25 million of savings in fiscal year 2016. We have controlled expenses while maintaining investments in key initiatives that support our growth. We have been in the telematics game for nearly 20 years and have navigated difficult cycles before. So, I am proud of the way our team has adapted this year. Megan will take you through the financial details, but let me walk you through some of the highlights for the fourth quarter and full year fiscal 2015. First, in the face of difficult macroeconomic conditions, it’s worth repeating that we posted 17% subscription revenue growth for the year. With the exception of the Europe which grew subscription revenue just under 10%, all of our regions reported double-digit growth. We grew our subscriber base 14% this year and in fact had double-digit increases in every region, with Europe posting 18% growth. We posted a gross margin of 70% in the fourth quarter and 68% for the full year, which is an improvement attributable to our revenue mix shift. We refined our overhead cost structure and posted 23% adjusted EBITDA margin in the fourth quarter and a 20% margin for the year. Furthermore, we believe there is more room for margin expansion over time. Turning to cash flow, we generated R218 million in net cash from operating activities for the year, while investing in R129 million in capital expenditures yielding free cash flow of R88 million, which is up 17% from last year. MiX Telematics posting this kind of financial performance, because we are a premier global fleet management solutions provider with diversified revenue streams. We are one of the industry’s largest and most trusted brands and are hardly differentiated from SNB and regional players, particularly in the premium space. Over 85% of our premium subscriptions are in fleets larger than 50 vehicles. And furthermore, over 60% have over 500 vehicles. For instance, during the fourth quarter, we secured an [indiscernible] contract for 500 vehicles belonging to a large UK regional police force fleet, and there is a potential for this engagement to grow to 2000 vehicles. We have had good momentum of emergency to services, not only in the UK, but our European continent as well and believe there is an excellent opportunity for future growth in this segment. The fleets are large and the benefits of telematics extend well beyond fuel savings. Enterprises are always a challenge to optimize the operations. And while lower gas prices tend to diminish our most tangible ROI story, fuel is only one component of the many savings unlocked by our services and the rest aren’t impacted at all by the fuel price. Improved safety, timely management, lower insurance cost and enhanced rig force efficiency all add up to big savings for customer on top of any fuel savings. For example, we helped Red Bus of New Zealand achieve a 40% reduction in road accidents, whilst also improving passenger confidence saving our maintenance costs. These types of returns make our customers sticky. As I noted about it, we were very pleased with some key renewals we achieved in the fourth quarter. Large enterprises tend to test and select the vendor and then stay the course. We see retention rates well in excess of 90% amongst premium fleet customers. One of our largest European customers is committed to a 3-year contract extension, the second renewal of their contract since first partnering with MiX in 2008. We also signed two major extensions in the Americas, one of our largest U.S. customers, a multinational corporation, had signed a 4-year contract renewal including a technology refresh and converted to our fully bundled offering. We also secured a large contract renewal with another global customer headquartered in the U.S. and look forward to further expansion in the coming year that they convert more of their divisions to our premium solution. These are notable as we not only resisted competitive encouragement, but also achieved higher offering as these customers were due for a hardware upgrade from 2G to 3G. Importantly, we believe that the Americas operation is now also very well positioned for new account growth and reported very promising and critical pipeline of premium fleet management opportunities. That said our opportunities in the Americas extend beyond premium fleets. While our asset tracking offerings are currently sold only in Africa, there is tremendous possibilities globally and particularly in the Americas. In Brazil, we are in the process of negotiating an amicable exit from our disappointing joint venture with Sascar. This will open up the opportunity to either go alone or with a new partner. We also look forward to introducing our spread out solution to other geographies and verticals that are showing exciting potential. MiX Telematics is one of the very few fleet management solutions providers that have scaled their business globally. At the risk of being repetitive, I want to reiterate that we have recently surpassed 0.5 million subscribers, a rarity in this fragmented business. We service customers in over 120 countries in multiple languages through our 11 regional offices and more than 130 channel partners. And while this does expose us to somewhat more volatile economies, multinational clients increasingly prefer to contract with a single vendor versus a dozen regional players. Penetration of telematics solutions overall remain a paltry 10% of the global commercial vehicle fleet and market research indicates that this penetration will likely double in the next 4 to 5 years. It is for this reason we believe our scale, our broad product portfolio and our global reach is a tremendous asset. This scale has also the increasing importance as these global enterprises stick to the liberties of telematics data that we are enabling them to collect to optimize the operations. Although we already deliver actionable intelligence to our customers, we believe our growing real data assets, is amongst the largest of any fleet management player. We are already working together with some of our customers to develop important predictive analytics capabilities that we believe will further enhance the returns our clients achieve from their MiX Telematics solutions. Our track record of innovation is one reason trying to take MiX as their long-term technology partner. And during the year, we commenced the rollout of a fully revamped fleet management software platform. Over 15% of our client base has already migrated and all new customers start exclusively on the new platform. Feedback continues to be extremely to be positive and the flexibility of the platform is allowing us to add new features on a regular basis. In time, we expect these product extensions to drive our ARPU and attract new customers. One recent development is the first phase of an online training management solution for mitigating risk and improving operational health and safety. We have secured a product in the Middle East with a multinational key account and have commenced the rollout. Additionally, we have a number of compelling new offerings expected for release in this year. In conclusion, let me reiterate the following. We remain confident. We have what it takes to capitalize on the growing demand for fleet and mobile asset management solutions worldwide. We are both the industry’s largest global distribution capability. And with our broad range of solutions, we intend to maintain our balanced approach delivering growth as well as solid profitability and cash flows. At this point, let me hand it back to Megan to offer a bit more color on the numbers.

[Megan Pydigadu:]

Thanks, Josh. Let me walk through our fourth quarter and full year 2015 performance across each of our key operating metrics as well as our new revenue and earnings targets. Bear in mind that our reporting currency is the South African rand. For convenience, we have translated our results into U.S. dollars both for the 2015 and 2014 periods, using the March 31, 2015 spot rates. 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. Leading to our fourth quarter results, total revenue was R368 million, which is a 5.5% increase from the year ago fourth quarter. Our fourth quarter subscription revenue of R266 million was up 14.5% year-over-year. This was above our guidance range of R253 million to R263 million. We added 16,977 subscribers in the quarter and now have 512,344 subscribers for an increase of 14% year-over-year. Hardware and other revenue was R101 million, which is a 12.5% decrease from the year ago fourth quarter. Over the course of fiscal year, we saw a shift towards more bundled deals in our business. While this shift as we adjust our medium revenue growth, the long-term annuity is at the higher ARPU, and over time will give us more visibility as subscription revenue becomes a more significant component for total revenues. So, we are pleased with the shift. The hardware components of our revenue, is subject to quarter-to-quarter variability as it’s specifically recognized on an upfront basis. The size of the customers choosing to pay for the hardware [indiscernible] to be large making a plan subject to significant volatility. There is no change to our view that hardware and other revenue will continue to decline as a percentage of our revenue over time, but this will vary quarter-to-quarter. Moving down the P&L, our gross profit in the fourth quarter was R257 million, representing a gross margin of 70%, up from 69.2% last year. Gross margin is the primarily driver to the higher percentage of revenue from subscriptions. Subscription revenue represented 72.4% of total revenue in the quarter, which is up from 66.8% from the year ago quarter. While we are pleased with the recent increase, it remains difficult to predict where the enterprise customers were upped for pre-bundled contracts in any given quarter. Therefore, we expect gross margin to remain in the mid to high 60% range for the near term. From a long-term perspective, we continue to expect gross margins to move beyond 70% as the mix of revenue continues to shift towards subscription and we gain further efficiency to scale. In terms of our operating expenses, our sales and marketing costs were down 2.6% relative to the fourth quarter last year. This line item now represents 11.3% of revenue. We believe there is an opportunity to build on the current momentum of our business and market opportunity and we will continue to maintain investments in sales and marketing initiatives at around 11% to 12% of revenue mark. General and administrative expenses were up 14% year-over-year. Part of the increase came from the Compass acquisition, while the weaknesses in the rand also contributed. Operating profit was R59 million, representing 16.1% operating margin. This compares to an operating margin of 17.5% posted in the fourth quarter last year. To provide investors with additional information regarding our financial results, we disclosed adjusted EBITDA and adjusted EBITDA margin as well as adjusted profit for the period, which are non-IFRS measures. So, we have provided a full reconciliation table in our press release. Fourth quarter adjusted EBITDA was R84 million, down slightly from R85 million last year. This represented a margin of 22.8% down from 24.3% posted in the year ago fourth quarter. As Josh noted, we have made significant progress towards streamlining our operations, while holding steady on our investments in strategic areas by sales and marketing as well as R&D. And I am pleased to be achieving adjusted EBITDA margin of greater than 20%. The margin has also shown progressive expansion from Q3 and we believe there is further room for growth over time. Profit for the period, which includes a significant unrealized foreign exchange gain of about approximately R22 million, was R52 million, up 3.4% from the year ago quarter. Profit for the quarter was driven by that consent with fully diluted ordinary share compared with R0.06 in the prior year quarter. As previously disclosed, we held the New York IPO proceeds in U.S. dollars as the rand has been volatile. Adjusted earnings for the quarter and adjusted EPS exclude the FX effects of all foreign exchange gains and losses. Adjusted profit for the period was R59 million, which was down from the R47 million profit we posted a year ago. This was affected by normally high tax rate of 37% in the quarter compared to 26% from the year ago quarter. The tax rate will vary primarily as a function of geographic origin of the revenues and whether that region was profitable. Adjusted earnings per diluted earnings share were R0.05 compared to R0.06 in the fourth quarter a year ago. Turning to the balance sheet, we ended the quarter with cash and cash equivalents of R945 million, up from R876 million at the end of last quarter. From a cash flow perspective, we generated R19 million in the cash from operating activities and made R32 million investments from capital expenditures leading to free cash flow of R58 million for the fourth quarter, up from the free cash flow of R51 million for the fourth quarter of fiscal year 2014. Turning to our full year results, total revenue for the full fiscal year of 2015 was R1.389 billion, an increase of 9.3%. Subscription revenues was R998 million, up 16.9%. Subscription revenue growth was driven primarily by the addition of over 61,800 subscribers in the year. Operating profit was R150 million for margins up 10.8%. This compares to R172 million or 13.5% operating margin last year. The decrease in the margin was as a result of investment in sales and marketing, which were up 16.2% from last year and now represents 12.4% of revenue, up from 11.6% for fiscal 2014. The group also includes additional one-time costs that reduced the margin by 1.4%, mainly litigation and settlement costs related to our North American operation and restructuring costs, including the EMEA and Africa operations. Adjusted EBITDA was R275 million, down marginally from R282 million a year ago. The adjusted EBITDA margin was 19.8% for the year versus 22.2% posted last year and as a result of the investment in sales and marketing and lower hardware revenues. Profit for the year was R149 million compared to R152 million last year. Earnings per diluted ordinary share were R0.19 compared to R0.20 last year. Adjusted profit for this year was R102 million compared to R124 million and excludes unrealized net foreign exchange gains of R74 million for the year. Adjusted earnings per diluted ordinary share were R0.13 compared to R0.16 last year. I would also note that as expected, the Compass acquisition has been modestly accretive to both the top and bottom line. Our global structure continues to provide us with a natural currency hedge. Outside of Southern Africa, we are primarily exposed to U.S. dollars, euros and British pounds. Our costs are primarily in rand, but by design, the cost of our regional offices, are incurred in local currencies. At the bottom line, the mix effect to us, our exchange rate volatility remains negligible less than $20,000. Finally, I would like to share our financial progress for the full fiscal year 2016 and the first quarter. We are targeting total revenue of R1.523 billion to R1.558 billion, which would represent year-over-year growth of 10% to 12%. We are targeting subscription revenue of R1.148 billion to R1.168 billion, which would be year-over-year growth of about 15% to 17%. We are targeting adjusted EBITDA between R306 million and R327 million, which would be year-over-year growth of about 11% to 19%. This would lead to adjusted earnings per diluted ordinary share of R0.133 to R0.151 based on 807 million diluted ordinary shares and a tax rate of between 30% and 34%. At the ratio of 25 ordinary shares to 1 ADR and using the May 26 spot rates, this would equate to earnings per diluted ADR of $0.28 to $0.32. Our intention was to focus primarily on annual targets as this is the time management is focused and we do not wish to close deals on suboptimal teams in order to achieve quarterly uplift. This is mostly relevant as it relates to the hardware and other revenue line item in our P&L. The area of revenue where we have had the highest level of visibility and predictability is our subscription revenues, but as we discussed, it’s the largest, fastest growing and highest margin components of our business. For the first quarter of 2016, we are targeting subscription revenues in the range of R270 million to R274 million, which would represent year-over-year growth of 14% to 16%. Before we take questions, let me remind you that we are currently trading under the cautionary status as our board is exploring strategic alternatives. When or if we have something material to report, we will do so broadly. Until then, we will not comment on the process. Operator, we are now ready to begin the Q&A session.

[Operator:]

Certainly. [Operator Instructions] And we will take our first question from Terry Tillman with Raymond James.

[Terry Tillman:]

Hey, guys. Nice job on the quarter and thanks for taking my questions. Josh, first question and it’s kind of a tough question, but I would think it would be relevant, particularly with your enterprise business, in your press release talking about analyzing – the Board is analyzing strategic alternatives. Is that something that your customers or prospects ask about and how do you get over that or how do you get customers shift, the customers are wondering, what might happen in the mix going forward in terms of us that are between the company or not? So, what I am getting at is this something that is the talking point of sales cycles, does it extend sales cycles, and how do you get around that kind of a subtype for potentials in your competitors?

[Stefan Joselowitz:]

Terry, it’s – I am aware of one query, which I had with a customer that we haven’t completed a deal with. And so it hasn’t been a large talking point, so to answer your question.

[Terry Tillman:]

And the U.S. business and the annuity market business, could you maybe give us even more in-depth update in terms of what are some of the actions going on in the U.S., in particular, to extend where you have some early leadership in oil and gas? What is your CEO in the U.S. doing there? Is it adding more feet on the street? Is it just getting the branding improved, so people know you are outside of oil and gas? Just trying to get maybe a report called on how do you feel about, in particular, the U.S. business?

[Stefan Joselowitz:]

Sure. We had a pretty disappointing start to the year in that business, specifically with a lot of distractions, which put us out of action pretty effectively for a while. So, if I look at – that’s all behind us now. So, if I look at where we have come from since then over really relatively compressed timeframe, I am feeling pretty bullish about the business. It’s from a team that made a lot of moves, I am happy – certainly I am involved on an ongoing basis, happy with the move that have been made. We booked a strong pipeline and more importantly, it’s being – not only strong, it’s a critical pipeline. I am feeling good about the business going forward. I am not going to get specific about the moves. It is a combination of feet on the street of really good diversification of relationship building with key accounts and obviously exploring how you can add more value to existing customers. That’s a broad – it’s a broad range of things, and remember, it’s also a different approach depending on whether we are talking about North or South America, so also very bullish about our asset tracking technology and process for not only South, but North America as well. So, there is a bunch of stuff going on. And I think watch the spikes, I think the U.S. business, that business particularly, is going to be a strong contributor going into the future.

[Terry Tillman:]

Okay. And my last question just relates to, I mean, you can see what the guidance suggest in terms of growth rates for subscription and just the total revenue. And how do we think about as we are looking at our models and updating our models for subscribers, should we assume just a good correlation in terms of subscriber growth or should we think about subscriber growth being higher? And maybe there is also a greater mix of kind of the low R&D type product? I am just trying to understand how we should think about building our models for subscribers throughout the year? And again, thanks for taking the questions.

[Megan Pydigadu:]

And Terry, in terms of the answer to that generally, our subscriber growth correlates with the growth in subscription revenues. Obviously, as Josh said, Terry, we signed a big contract in the U.S., one of our largest customers there and we have got uplift in terms of our subscription revenue there as have gone to bundled deals. So, we do need to take that into account when looking at it.

[Stefan Joselowitz:]

But of course, you get the counterbalance of the lower ARPU kind of growth, which will come out of our Beam-e products as well. So, there is a bit of a balancing effect. I would imagine that from a modeling perspective, it’s hard to call the product mix, so it’s probably that the correlation would be the best way to model.

[Operator:]

And we will take our next question from Bhavan Suri with William Blair.

[Bhavan Suri:]

Hey, Josh. Hey, Megan. Congrats and nice update on the numbers in terms of subscriber growth.

[Stefan Joselowitz:]

Thank you.

[Bhavan Suri:]

Yes. Just Josh starting off at a high-level, when you look at what the OEMs are doing with large vehicles and large fleets, have you seen any of these guys say they want to embed the hardware themselves? And do you think that, that’s something that we see, if we aren’t seeing it yet, over the next, I don’t know, 3, 5 years?

[Stefan Joselowitz:]

Well, it’s certainly not a new phenomenon. So, some of the OEMs and you talk about large vehicles, particularly some of the truck manufacturers, have their own offerings available to customers. We have both competed against those and collaborated with those. It’s a further mixed bag in terms of both the second opportunity really for many years. The big advantage that we have is most of our fleets, in the vast majority of instances, operate multiple vehicle brands. And they operate multiple vehicle trucks. They have got some large trucks and then a whole bunch of luck there. So, I am just citing an example. And very few of them or a single vehicle truck, so it makes it, under those conditions, pretty difficult for an OEM offering to compete without becoming effectively an off-market player. So, it puts us in a strong position, a customer, and that’s how we have positioned ourselves and managed to win consistently over the years. Customers, obviously, doesn’t help them getting back to it from one branded vehicle if any consolidated featuring one centralized formats and incomes to back office systems. And that’s exactly the space we played to. So, it’s not a new thing. It’s been around and it will continue to be around going forward.

[Bhavan Suri:]

Great. And then I guess have you explored to the partnering and saying whoever take one of the large OEMs saying, hey, we could be your aftermarket platform for this sort of information management inventory? Because it would be greater for them to get access to some of the data you guys have around just even fleet management to help them prepare for inventory and servicing and everything else?

[Stefan Joselowitz:]

Yes, absolutely. And as I mentioned earlier on, it’s by far again an opportunity. And we have some relationships in terms of collaboration and I think those opportunities will continue and potentially even accelerate. We have identified as an organization that it’s certainly getting better at it from our side is an opportunity for us to grow our business. It’s – telematics is a space that’s not easy to get a grasp on and particularly for the premium fleets, which have sophisticated requirements and it often becomes a distraction for OEMs, who kind of frame that space. So, it’s definitely an opportunity that we could be growing and in fact accelerating further.

[Bhavan Suri:]

Yes, yes. And then a couple of quick competitive questions from me, on the couple of renewals you have, where you won against the competitive environment, who are the competitors that you saw sort of playing that tried to push the customers or win against you?

[Stefan Joselowitz:]

Yes. Our customers aren’t always specific about who those enriching, so infamous I couldn’t with any confidence onset on to that question from a naming perspective, but it is worth noting that we – our customers are generally pretty sticky particularly in the premium fleet space, where we have had many, many years of experience and we have been doing this for nearly 20 years, some of our customers moving into the fleet space, we probably did it aggressively about 12 years ago and many of our customers that we signed [indiscernible] customers are out today. Your point of maximum vulnerability is when you have to do a technology refresh, which is a very, very rare exercise for us particularly. So, our partner has a lot of longevity and we have kept customers up-to-date by over-the-air basically firmware updates. And without having to attach the vehicle, we were in a pretty exposed position for a while in the U.S., because the U.S. networks and particularly AT&T are shutting down the 2G network. And it’s got 18 months to go that we have to – we have got a large number of customers on 3G devices that we had to physically get into position to upgrade. And that is vulnerable, but what I am very pleased with, without any exception, every one of our large customers, have now resigned long-term contracts with us, including technology refreshments in most instances, having looked at the competitive environment, because once they are going to the logistical hassle of having to catch any vehicle that might as well see what else is out there. And having a look at what else was out there, we have signed, as I said, without exception, every one of them. And we have done it with a technology that will be giving some more features and getting after enhancements in the process. So, that’s exciting.

[Bhavan Suri:]

That’s really good to hear. One last thing for me, when you look at what Pete Allen skipped and folks are doing in the U.S., you seem pretty bullish about the U.S. opportunity. Obviously, the main verticals have been coaching carriage and all that buffers in oil and gas, you guys exploring any new verticals?

[Stefan Joselowitz:]

Yes, absolutely. I alluded to it earlier and then as part of kind of – until we have got the success in the vertical, I am not going to make some guidance about it, but part of the moves that we are making – we know we have to make in the U.S. is to have vertical expansion in the territory and that’s been the success factor in all of our other businesses. We can’t be a one vertical business. And we love the vertical within there and we will continue to grow and expand it. It’s – we have got to grow beyond just that and it’s a big part of what the team is focusing on.

[Bhavan Suri:]

Okay. So, we will expect this [indiscernible] in the couple of quarters. Thanks for taking my questions guys.

[Stefan Joselowitz:]

Thank you. I look forward to it. Thank you.

[Bhavan Suri:]

Thanks.

[Operator:]

And we will take our next question from Siddharth Sinha with Canaccord Genuity.

[Siddharth Sinha:]

Hi, thanks for taking my questions. Just staying on the U.S. market, Josh, you talked about the large deal pipelines and there is one large contract that’s going to contribute revenue in ‘15/16? Could you just size these opportunities? I mean, in terms of unit potential or ARPU accretion you said, it will be accretive to your ARPU, how much would that be versus where you are on a blended basis right now? And then just lastly, given the boots on the ground that you have in the U.S., what capacity do you have to in terms of installing hardware equipment on these – for these contracts and before they get done and start contributing subscription revenue?

[Stefan Joselowitz:]

Yes. The first part of the question is we have given guidance and we are not in a position to give guidance outside of the information we have already provided from that perspective. But we have, as mentioned – as Megan mentioned, we have resigned a bunch of our top customers. In fact, all of our top customers in the U.S. and we are in the middle of this process in terms of the technology refresh and we are really excited about that. And it’s a good part of our business. But our main focus, of course, is on top of that growing – attracting and growing new customers in this. I guess what our pipeline is about. And as I said, I am excited about the pipeline. It’s got a lot of credibility and I am pleased about what the teams have done there. In terms of your second part of your question regarding the installations that we have done to hardware installations ourselves, we have obviously got a process that we coordinate and manage that process and we have done that many times over in multiple countries around the world using a combination of some in-house expertise, more for training purposes than anything else and project management purposes. And then that the primary feet on the ground is using external expertise, which is ample available in the U.S. to satisfy the projects that we have earmarked for this year.

[Siddharth Sinha:]

Okay. And then just on the Brazil initiative, you mentioned that the Sascar joint venture has been and have kind of walked away from it. So, how far along are you in terms of turning the strategy for that market, whether doing it alone or exploring some other partners?

[Stefan Joselowitz:]

Yes. As I stated that we are in the process of what we think is going to be an amicable exit from what has been a disappointing joint venture with Sascar and that frees us opportunity to do two things, to do it alone or to do it with a partner – that we do have a small operation in Brazil. So, we have got some good people on the ground there in Sao Paulo. We do have a dealer network. And at the appropriate time, once we have finally wrapped up, I mean, obviously, there are some contractual issues that we are busy with right now. So, I can’t say too much more than that. But once we have wrapped that up, we will make our decision, not to say that we haven’t been in parallel with that process. We are considering what our options are.

[Siddharth Sinha:]

Thanks. And just one last one for me and I will pass the line. In terms of the $25 million cost savings that’s targeted for fiscal ‘16, 500 right if that’s the number and is the cadence of that linear? Is that how we should model it, I guess?

[Megan Pydigadu:]

It is linear, but it probably started a little bit slower in Q1. So, if you still have certain costs that we are eliminating in the Q1 of 2016, but from then on, you should see it happening relatively linear.

[Siddharth Sinha:]

Great. Congrats on the good results and thanks for taking my questions.

[Stefan Joselowitz:]

Thank you. Thank you for being with us. Appreciate it.

[Operator:]

[Operator Instructions] We will take our next question from Brian Schwartz with Oppenheimer.

[Brian Schwartz:]

Hi, Josh and Megan. Thanks for taking my questions here this morning. I just will add congratulations on the good quarter results and good subscription revenue growth guidance. How are you guys doing?

[Stefan Joselowitz:]

Thanks, Brian. I appreciate you joining us. Thanks.

[Brian Schwartz:]

Terrific. I just had – I have two questions. Wanted to follow-up on Terry in really the topic this morning about the U.S. operations, Josh, can you maybe talk a little bit and share what you have seen in terms of win rates for new fleet subscription deals in the U.S. maybe looking back over the last fiscal year, but looking more recently, I guess in Q4? And then talk about how the new leadership with Pete Allen joining the team and the investments that you have made over the last fiscal year, how you think win rates should trend this fiscal year in the U.S. operations? And then I have a follow-up question for Megan. Thanks.

[Stefan Joselowitz:]

Sure. Well, win rates, in particular in our U.S. business, it’s no secret that it’s been up until now pretty much a one vertical kind of business with – as you know, with primarily, well we have got diversified revenue streams in many of our operations. In the U.S., we are exclusively a premium fleet player as things currently will have stood in the past and bear in mind that globally as a group, close to three quarters of our revenue comes from our premium fleet business in any event. So, it’s a very important part of our business and in the U.S., it’s really 100%. So, we were, with time, expect some of the other product lines to also be a contributor in our asset tracking product, which is a lower ARPU opportunity. But in the premium fleet space, I could give you some kind of color earlier on that we are dealing with very large fleets and in fact, if I talk just the U.S. as an example, our average fleet size runs probably into the thousands as opposed to into the hundreds, so very substantial fleets that we are chasing. We like that side of the business. It’s got a lot of advantages. The disadvantage of course is that it’s a pretty slow cycle business at the best of times even ignoring times of processes as we have experienced obviously in the oil and gas base. So, it’s not a high volume of deals that we are working on. Again, I am specifically from the U.S. business, it’s very different to effort that way that we have these diversified products with maybe multiple hundred of thousand win rates in terms of subscriber growth. So, there, it’s pure and far between. So, it’s not a meaningful measure of our business. What is meaningful is of that business, what is meaningful is that the pipeline and the credibility of that pipeline and where I think we are in the face of some of those deals, I am pretty bullish about. And getting back to the team, the team had done a great job in a compression period in putting all the right moves in place to take this business, to take the U.S. and ultimately the group to a different level. And as you know, with the leadership time is the ultimate scorekeeper, so the internal moves everything that sticks and in terms of enhancing the strength of the team improving the D&A of our overall technicality, we are putting more feet on the street, the vertical eyeball or the standing of the vertical opportunity starting to put what we need to do in place to win those opportunities. All that kind of stuff has been put in place and I am pretty happy with that. And now ultimately, the results will, very soon, start speaking for themselves. And one way about it and I think it’s going to be a positive story.

[Brian Schwartz:]

Thank you for taking my questions to that.

[Stefan Joselowitz:]

Thanks, Brian.

[Operator:]

And there are no further questions...

[Stefan Joselowitz:]

I feel pride to mention you might have had to pull that question for Megan, but...

[Brian Schwartz:]

Hey, am I still on the line?

[Operator:]

Brian, you are on.

[Brian Schwartz:]

Okay, I will ask that question if there is time left. Megan, I just wanted to say if you comment at all in quantifying the investments for the U.S. operation, because you guys sound very bullish on what you are seeing in the pipeline, what you are seeing in the recent deal activity here in the U.S., which is great. The question I wanted to ask is I guess if you think about the overall spend, the rate of growth of the overall spend this fiscal year in U.S. operations, do you think that, that should grow at a faster rate than your subscription revenue growth guidance for the company? So, I guess that mid-teens guidance overall.

[Megan Pydigadu:]

So, are you specifically referring to our subscription revenue growth as opposed to the investment in the business from a cost perspective?

[Brian Schwartz:]

Yes, I am just – I am trying to get a sense of how much gas, how much investments you are going to be leaning into, into the U.S. operations to drive the bookings ahead for the year here in the U.S.? Thanks.

[Stefan Joselowitz:]

Yes, Brian, if I could may be just comment on that. We have learned that we are not going to get ahead of ourselves from an investment perspective. So, we have made ourselves marketing investments already that we believe we need to make, bit of tweaking here and there, a few more feet will add on, but nothing that’s kind of significant we move the needle. Right now, the overhead growth is going to be driven by sales growth. So, it’s very dependent on, obviously – and it’s pretty easy to turn that element of our business on ARPU and a lot of it is variable cost when we are running out of deals, we are using external parties to do installations, etcetera, etcetera depending on what that cycle is looking like. So, a lot of that will be driven as I said the growth in sales will drive the [indiscernible]. And we are not going to give – we are not going to make the mistake of getting ahead of that line.

[Brian Schwartz:]

Hey, thanks a lot for sharing the extra color on the investment side to reach out. Thanks for taking my questions.

[Stefan Joselowitz:]

I appreciate it. Thanks, Brian. Thank you. Any further questions, operator?

[Operator:]

There are no further questions at this time.

[Stefan Joselowitz:]

Well, maybe then let me just finish by saying thanks for joining us today to review the 2015 results. We look forward to further discussions with you in the coming days and weeks. And of course, Megan and I will be presenting on June 9 for William Blair Conference in Chicago and I hope to see some of you there. So, if you could make the trip, it would be great to see you. And in the meantime, thanks for joining us and have a great day. Thank you.

[Operator:]

And that does conclude today’s conference. Thank you for your participation.