MiX Telematics Ltd ADR

Greetings and welcome to the Mixed Telematics fiscal fourth quarter 2021 earnings call. At this time, all participants are in the listen only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, John Granara, Chief Financial Officer for Mixed Telematics. Thank you. You may begin.

Thank you, and good morning, everyone. We appreciate you joining us to review Mixed Telematics earnings results for the fourth quarter of fiscal year 2021, which ended on March 31st, 2021. Today, we will be discussing the results announced in our press release issued a few hours ago. I'm John Granara, Mix's Chief Financial Officer, and I'm joined by Stefan Joselovits, or as many of you know him, Jos. He is President and Chief Executive Officer of Mixed Telematics. During today's call, we will make forward-looking statements related to our business, which are subject to material risks and uncertainties that could cause our actual results to differ materially. For discussion of the material risks and other important factors that could affect our results, please refer to those contained in our Form 10-K and other SEC files, all of which are available on the investor relations section of our website. We will also be referring to certain non-GAAP financial measures. There's a reconciliation schedule detailing these results currently available in our press release, which is located on our website and filed with the SEC.

And with that, I'll turn the call over to Jos. Thanks, John, and thanks to all of you for joining today's call. Our fourth quarter results once again reflected strong execution by the entire MIX team. Our top and bottom line results for both the quarter and the full year were well ahead of our expectations as we continued I want to thank everybody at MIX for their extraordinary efforts during fiscal 2021 under very challenging circumstances. I will quickly summarize our financial and operational results for the fourth quarter and the full fiscal year, which John will review in more detail later. For the fourth quarter, subscription revenue was $30.8 million. a 4% decrease year over year in constant currency. Adjusted EBITDA was $11.3 million at a 33% margin, which was well ahead of our expectations and reflects better than expected revenue performance and good cost discipline across the business. Pre-cash flow was $5.2 million, our fourth consecutive quarter of strong cash flow. We ended the quarter with over 744,000 subscribers, which was a decline of 5,000 compared to Q3 and the smallest quarterly decline in fiscal 21. For the full year, subscription revenue was $113.8 million, a 6% decrease year-over-year in constant currency. Adjusted EBITDA was $37.2 million at a 29% margin, which easily exceeded our initial expectations for the year. and free cash flow of close to $30 million, which was a record year of cash generation. Overall, our performance in the fourth quarter continued on the path we experienced for much of the year, with modest sequential improvements in subscriber trends in many of our key markets. While we are encouraged by this improvement, new subscriber additions remain below historical levels. Similar to what we've seen in recent quarters, overall demand and customer engagement remains high across our portfolio and in each region, but some customers remain cautious on spending in the near term. We are confident we will be able to accelerate the conversion of our growing pipeline of opportunities over time as economic conditions improve. An important transaction signed during the quarter was a multi-year renewal with our largest energy sector customer that extends its exclusive use of our services for several more years. During the quarter, this customer paid us approximately $1.5 million to modify its prior agreement and gain the flexibility to sign a renewal that gives them the ability to dynamically contract their fleet in accordance with the downturn in prevailing market demand and then expand again as and when conditions improve. We believe this is a tremendous validation of the strategic value MIX provides our clients. This customer is making a multi-million dollar upfront investment while continuing its six-figure monthly subscription commitment to us as it manages through challenging market conditions. We also view this renewal as an encouraging step forward for our oil and gas business as it provides near-term clarity on contraction trends. We're of the opinion that we have experienced most of the potential contraction in this vertical, even as Mars-driven, which is a proxy for activity level, remains 15% to 20% below pre-pandemic levels. We are still confident that conditions in the oil and gas industry will improve as economies reopen and that we will start to see customers expanding their fleet operations again. Having navigated multiple up and down cycles in this vertical in our 25-year history, we know how to best position Mix to benefit when the market turns again. Overall, we continue to see strong renewal activity and signed important new agreements with customers in a number of geographies. I'd like to highlight a few key wins from the fourth quarter. Reading Buses, a leading UK-based public transport operator, renewed its agreement with Mix for three more years. Reading utilizes Mixer solutions to monitor driving performance and continually improve operational efficiency. Imperial, a leading provider of integrated market access and logistics solutions in South Africa, and a longstanding Mix customer, is expanding the adoption of Mixer's premium solutions to improve risk management. Until recently, MIX's penetration of Imperial's fleet was around 65%, with some of their divisions still utilizing other telematics solutions. They conducted a group-wide evaluation of its four independent telematics providers and chose to consolidate their entire fleet on MIX due to the superior value we provide. Imperial is also subscribed to some of Mix's value-added services, including Mix Vision as part of its program to ensure safer vehicles and driving operations. In Australasia, we signed multi-year contract renewals with three large fleet customers in the logistics, mining, and energy verticals, securing over 7,000 premium fleet subscriptions across the region. These customer renewals are great examples of our consistently high retention rates and the significant opportunity to drive growth from our existing customers. It is worth noting that in most years, our existing customers typically generate about one-third of our overall growth. Although this was obviously not the case in fiscal 2021 due to the contraction experienced in many fleets, going forward, we believe there's a meaningful growth opportunity embedded within our existing customer base. as their businesses improve and fleet sizes start growing again. As we close out fiscal 2021, I am pleased with how the company managed through the most challenging environment in our history. We spent the year focused on three core goals and we have executed exceptionally well against each. The first was to focus on customer success and strengthen our position as a strategic partner. Many of our customers faced significant challenges in their operations in the past year and needed vendors they could trust and rely upon more than ever. Our willingness to work with our customers to ensure the best long-term outcome for both parties is essential to how we do business at Mix. I'm confident this philosophy will accrue to our benefit in the coming years. The second objective was to preserve profitability and maintain a strong balance sheet. By every metric, we were phenomenally successful in this regard. Due to prudent and proactive measures we took to manage our expense structure, we were able to modestly expand and adjust our margin in fiscal 21, even as revenue declined. While some of this benefit was temporary in nature due to COVID-19 cost savings, our ability to manage expenses while continuing to invest for growth is an excellent example of the scalability of our business model. Our strong profitability performance helped drive a record year of cash generation with nearly $30 million of free cash flow. We exited fiscal 2021 with a cash balance of close to $46 million, which is up two and a half times from the prior year. Finally, our third objective was to continue investing in the business to maximize our long-term opportunities. We made significant progress throughout the year, investing in key sales and marketing initiatives, as well as in our product development roadmap. Most recently, we launched Mixed Vision AI, an extensive update of our video telematics offering. By leveraging machine vision technology, Mixed Vision AI can significantly improve driver and road safety by monitoring numerous potential hazards inside and outside the cab in real time. so that corrective action can be taken before an incident occurs. We believe this product is a great example of how we can leverage emerging technologies to enhance the value we deliver to customers, and we're already seeing strong demand. In fact, subsequent to quarter end, we secured our first mixed vision AI deal for a fleet of 2,500 vehicles, which will roll out over the coming quarters. While fiscal 2021 was challenging, we have come through at a stronger, more resilient company. We enter fiscal 2022 with the worst hopefully behind us, focused on returning the business to growth and progressing towards our long-term financial targets of 15% to 20% subscription revenue growth and adjusted EBITDA margins of 30% plus in a normalized economic environment. I will repeat that our primary focus in fiscal 2022 is returning the business to growth. We are leaning into the possibilities ahead of us and investing in several areas to capitalise on our substantial market opportunity. First, we will invest in our sales and marketing and distribution efforts throughout the world. We see great potential in making high return sales and marketing investments, including expanding demand generation projects, growing our sales team further extending our indirect channels and enhancing our customer retention efforts. We believe there is growing interest amongst light fleet and premium fleet operators for sophisticated telematics solutions and we are well placed to benefit from this trend. Secondly, we will continue to invest in product development and expanding our solution portfolio. We had great success bringing new products to market last year with the release of MyMix Tracking and MyMix Vision AI, and we have a robust pipeline of innovation we are working towards. The feedback from our customers is that they are looking for more ways to harness actionable, data-driven insights to achieve even greater efficiency and safety gains in their feet operations, and we are ideally positioned to do this for them. Our role as a trusted partner puts Mix in a great position to expand our footprint with our customers. And lastly, we will continue to take a balanced approach to investing for growth and profitability, and we have a proven track record of doing this over many years now. This discipline has served us well and is a core operating philosophy for the business. At a high level, we believe that we will generate mid to high single digit constant currency subscription revenue growth in fiscal 22 and low double digit annual recurring revenue growth, even as we continue to manage through the lingering impact of COVID-19. The timing of when sales activity will show more meaningful improvement is still tough to estimate, but our recent performance makes us increasingly confident we will benefit when it does. We also expect to deliver another strong year of profitability with adjusted EBITDA margins in the low to mid 20s. As John will outline later, profitability in 2022 will reflect some cost normalization as we move beyond COVID-19 and trigger incremental investments in support of our growth initiatives. To wrap up, we are incredibly positive about the opportunities ahead of us. We enter fiscal 22 with strengthened customer relationships and increasingly extensive portfolio of value-added solutions and an improving economic outlook. We are excited about what lies ahead of us and our ability to generate significant value for shareholders. I would now like to turn the call over to John to review our financial results. John?