MIX TELEMATICS LIMITED
The following discussion and analysis of our financial condition and results of
operations should be read in conjunction with our consolidated financial
statements and the accompanying notes included in Item 1 of this Quarterly
Report on Form 10-Q.
This discussion contains forward-looking statements that involve risks,
uncertainties and assumptions. Our future results may vary materially from those
indicated as a result of the risks that affect our business, including, among
others, those identified in "Forward-Looking Statements" and Part II "Item 1A.
Risk Factors".
Overview
We are a leading global provider of fleet and mobile asset management solutions
delivered as SaaS. Our solutions deliver a measurable return by enabling our
customers to manage, optimize and protect their investments in commercial
fleets, mobile assets or personal vehicles. We generate actionable intelligence
that enables a wide range of customers, from large enterprise fleets to small
fleet operators and consumers, to reduce fuel and other operating costs, improve
efficiency, enhance regulatory compliance, promote driver safety, manage risk
and mitigate theft. Our solutions mostly rely on our proprietary, highly
scalable technology platforms, which allows us to collect, analyze and deliver
information based on data from our customers' vehicles. Using intuitive,
web-based interface, reports or mobile applications, our fleet customers can
access large volumes of real-time and historical data, monitor the location and
status of their drivers and vehicles and analyze a wide number of key metrics
across their fleet operations.
We were founded in 1996 and we have offices in South Africa , the United Kingdom ,
the United States , Uganda , Brazil , Australia , Romania , Thailand and the United
Arab Emirates as well as a network of more than 130 fleet partners worldwide.
MiX Telematics shares are publicly traded on the Johannesburg Stock Exchange
(JSE: MIX) and MiX Telematics American Depositary Shares are listed on the New
York Stock Exchange (NYSE: MIXT).
We derive the majority of our revenues from subscriptions from our fleet and
mobile asset management solutions. Our subscriptions generally include access to
our SaaS solutions, connectivity, and in many cases, use of an in-vehicle
device. We also generate revenues from the sale of in-vehicle devices, which
enable customers to use our subscription-based solutions, installation services
of our in-vehicle-devices and driver training for fleet customers. We generate
sales through the efforts of our direct sales teams, staffed in our regional
sales offices, and through our global network of distributors and dealers. Our
direct sales teams focus on marketing our fleet solutions to global and
multinational enterprise accounts and to other large customer accounts located
in regions of the world where we maintain a direct sales presence. Our direct
sales teams have industry expertise across multiple industries, including oil
and gas, transportation and logistics, government and municipal, bus and coach,
rental and leasing, and utilities. In some markets, we rely on a network of
distributors and dealers to sell our solutions on our behalf. Our distributors
and dealers also install our in-vehicle devices and provide training, technical
support and ongoing maintenance for the customers they support.
Impact of COVID-19
In December 2019 , a novel strain of coronavirus was reported in China
("COVID-19"). In January 2020 , the World Health Organization ("WHO") declared
this outbreak a Public Health Emergency of international concern and,
subsequently, it was declared a pandemic in March 2020 . The outbreak continued
to spread globally, affecting global economic activity and financial markets. We
are unable to accurately predict the impact that COVID-19 will have due to
numerous uncertainties, including the severity of the disease, the duration of
the outbreak, actions that may be taken by governmental authorities, the impact
on our customers and other factors identified in Part II Item 1A. "Risk
Factors".
Business, employees and operations
Due to extensive measures implemented by various governments, all of our
employees were required to work remotely, with the exception of our staff
working in our monitoring centers, which were classified as an essential
service. We have implemented appropriate safeguards for these centers. In
addition, we have modified certain business and workforce practices (including
extended work from home requirements, suspension of certain business travel and
cancellation of physical participation in meetings, events and conferences) and
implemented new protocols to promote social distancing and enhance sanitary
measures in our offices and facilities to conform to government restrictions and
best practices encouraged by governmental and regulatory authorities.
20
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During the first quarter of fiscal 2021, we implemented various cost-saving
measures, including headcount reductions, deferred salary increases, a hiring
freeze across the business, and significant reductions in discretionary
spending. We expect to realize the full benefit of these actions in the second
quarter and beyond. As part of the headcount reductions in the quarter, we
incurred a $0.8 million restructuring charge as we committed to plans to
restructure certain parts of our business as a measure to minimize the adverse
economic and business effect of the COVID-19 pandemic and to re-align resources
to our current business outlook and cost structure. The restructuring activities
mainly related to the Central Service Organization ("CSO") and the Africa
reporting segment.
COVID-19 has disrupted the operations of our customers and channel partners, our
operations and the results of our operations. COVID-19 currently has had and, we
believe, will continue to have an adverse impact on global economies and
financial markets. For example the continued economic uncertainty in the oil and
gas sector has resulted in significant declines in our customer's fleet sizes
whilst similar disruption is evident in our bus and coach vertical following
significantly reduced demand for public transport as a result of various
governmental shut downs in multiple jurisdictions in which we operate in. This
has and will continue to have a negative impact on our revenue and our results
of operations, the size and duration of which we are currently unable to
predict. During the first quarter of fiscal 2021 we experienced a contraction of
30,700 subscribers as a result of the impact of COVID-19 and we expect this net
contraction to continue throughout fiscal year 2021. The net contraction in
subscribers together with certain pricing concessions, resulted in a decrease in
reported subscription revenues.
Cash resources and liquidity
Based on our internal projections we believe that we have sufficient cash
reserves to support us for the foreseeable future. Further details on our cash
resources and borrowings available under our credit facilities are provided in
the liquidity and capital resources section below.
Financial position and impairments
We have taken into account the impact of COVID-19, to the extent possible, on our financial statements as at the reporting date. However, future changes in economic conditions related to COVID-19 could have an impact on future estimates and judgements used, particularly those relating to goodwill and impairment assessments, as well as expected credit losses. We will continue to evaluate the nature and extent of the impact to our business, consolidated results of operations, and financial condition. Key Financial Measures and Operating Metrics In addition to financial measures based on our consolidated financial statements, we monitor our business operations using various financially and non-financially derived metrics. Subscription Revenue Subscription revenue represents subscription fees for our solutions, which include the use of our SaaS fleet management solutions, connectivity, and in many cases, our in-vehicle devices. Our subscription revenue is driven primarily by the number of subscribers and the monthly price per subscriber, which varies depending on the services and features customers require, hardware options, customer size and geographic location. Subscription revenue has increased as a percentage of total revenue due to a reduction in hardware and other revenue. In the three months endedJune 30, 2019 and 2020, subscription revenue represented 87.2% and 94.1% respectively, of our total revenue.
Subscribers
Subscribers represent the total number of discrete services we provide to customers at the end of the period.
Three Months Ended June 30,
2019 2020
Subscribers 766,888 787,750
21-------------------------------------------------------------------------------- As shown in the table above subscribers increased fromJune 2019 toJune 2020 , however as discussed in the Results of Operations for the Three Months EndedJune 30, 2019 and 2020 section below, the number of subscribers decreased by 30,700 during the three months endedJune 30, 2020 . Basis of Presentation and Key Components of Our Results of Operations In the first quarter of fiscal year 2021, we managed our business in six segments which includeAfrica ,Americas ,Brazil ,Europe and theMiddle East andAustralasia (our regional sales offices ("RSOs")), and our CSO. CSO is our central services organization that wholesales our products and services to our RSOs which, in turn, interface with our end-customers, distributors and dealers. CSO is also responsible for the development of our hardware and software platforms and provides common marketing, product management, technical and distribution support to each of our other operating segments. The CODM,who is responsible for allocating resources and assessing performance of the reportable segments, has been identified collectively as the executive committee and the Chief Executive Officerwho make strategic decisions. Segment performance is measured and evaluated by the CODM using Segment Adjusted EBITDA, which is a non-GAAP measure which uses net income, determined under International Financial Reporting Standards ("IFRS") as issued by theInternational Accounting Standards Board , as a starting point. Prior to the publication of the financial results for the year endedMarch 31, 2020 , we published results under IFRS only, which is the reason for the CODM continuing to use a segment performance measure based on IFRS. In determining Segment Adjusted EBITDA, the margin generated by CSO, net of any unrealized intercompany profit, is allocated to the geographic region where the external revenue is recorded by our RSOs. The costs remaining in CSO relate mainly to research and development of hardware and software platforms, common marketing, product management and technical and distribution support to each of the RSOs. Each RSO's results therefore reflects the external revenue earned, as well as the Segment Adjusted EBITDA earned (or loss incurred) before the remaining CSO and corporate costs allocations. Segment assets are not disclosed as this information is not reviewed by the CODM. Revenue The majority of our revenue is subscription-based. Consequently, growth in subscribers influences our subscription revenue growth. However, other factors, including, but not limited to, the types of new subscribers we add and the timing of entry into subscription contracts also play a significant role. The price and terms of our customer subscription contracts vary based on a number of factors, including fleet size, hardware options, geographic region and distribution channel. In addition, we derive revenue from the sale of in-vehicle devices, which are used to collect, generate and transmit the data used to enable our SaaS solutions. Our customer contracts typically have a three to five year initial term. Following the initial term, most fleet customers elect to renew for fixed terms ranging from one to five years. Our third party dealers are typically billed monthly based on active connections. Some of our customer agreements, including our consumer subscriptions, provide for automatic monthly or yearly renewals unless the customer elects not to renew its subscription. Our consumer customer contracts inSouth Africa are governed by the Consumer Protection Act, which allows customers to cancel without paying the full balance of the contract amount. Our fleet contracts and our customer contracts outside ofSouth Africa are generally non-cancellable. Cost of Revenue Cost of revenue associated with our subscription revenue consists primarily of costs related to cellular communications, infrastructure hosting, third-party data providers, service contract maintenance costs, commission expense related to third party dealers or distributors (commission is capitalized and amortized unless the amortization period is 12 months or less) and depreciation of our capitalized installed in-vehicle devices. Cost of sales associated with our hardware revenue includes the cost of the in-vehicle devices, cost of hardware warranty, shipping costs, custom duties, and commission expense related to third party dealers or distributors. We capitalize the cost of in-vehicle devices utilized to service customers, for customers selecting our bundled option, and we depreciate these costs from the date of installation over their expected useful lives. 22 -------------------------------------------------------------------------------- We expect that cost of revenue as a percentage of revenue will vary from period to period depending on our revenue mix, including the proportion of our revenue attributable to our subscription-based services. The majority of the other components of our cost of revenue are variable and are affected by the number of subscribers, the composition of our subscriber base, and the number of new subscriptions sold in the period. Operating Expenses Sales and Marketing Sales and marketing expenses consist primarily of salaries and wages, commissions paid to employees, travel-related expenses, and advertising and promotional costs. We pay our sales employees commissions based on achieving subscription targets and we capitalize commission and amortize it (unless the amortization period is 12 months or less). Advertising costs consist primarily of costs for print, radio and television advertising, promotions, public relations, customer events, tradeshows and sponsorships. We expense advertising costs as incurred. We plan to continue to invest in sales and marketing in order to grow our sales and build brand and category awareness. Administration and Other Charges Administration and other charges consist primarily of salaries and wages for administrative staff, travel costs, professional fees (including audit and legal fees), real estate leasing costs, expensed research and development costs and depreciation of fixed assets including vehicles and office equipment and amortization of intangible assets. We expect that administration and other charges will increase in absolute terms as we continue to grow our business. Research and Development For additional disclosures in respect of research and development, technology and intellectual property please refer to "Item 1. Business" in our Annual Report on Form 10-K for the year endedMarch 31, 2020 , which we filed with theSecurities and Exchange Commission onJuly 23, 2020 .
Taxes
During the three months endedJune 30, 2019 and 2020 our effective tax rates were 18.6% and 3.7% respectively, compared to a South African statutory rate of 28%. Taxation mainly consists of normal statutory income tax paid or payable and deferred tax on any temporary differences. Our effective tax rate may vary primarily according to the mix of profits made in various jurisdictions and the impact of certain non-deductible/(non-taxable) foreign exchange movements, net of tax. Further information on this is disclosed in note 7 contained in the "Notes to Condensed Consolidated Financial Statements" included in Part I of this Quarterly Report on Form 10-Q. As a result, significant variances in future periods may occur. Non-GAAP Financial Information We use certain measures to assess the financial performance of our business. Certain of these measures are termed "non-GAAP measures" because they exclude amounts that are included in, or include amounts that are excluded from, the most directly comparable measure calculated and presented in accordance with GAAP, or are calculated using financial measures that are not calculated in accordance with GAAP. These non-GAAP measures include Adjusted EBITDA, Adjusted EBITDA margin, non-GAAP net income and non-GAAP net income per share. An explanation of the relevance of each of the non-GAAP measures, a reconciliation of the non-GAAP measures to the most directly comparable measures calculated and presented in accordance with GAAP and a discussion of their limitations is set out below. We do not regard these non-GAAP measures as a substitute for, or superior to, the equivalent measures calculated and presented in accordance with GAAP or those calculated using financial measures that are calculated in accordance withU.S. GAAP. 23 -------------------------------------------------------------------------------- Adjusted EBITDA and Adjusted EBITDA Margin Adjusted EBITDA and Adjusted EBITDA margin are two of the profit measures reviewed by the chief operating decision maker ("CODM"). We define Adjusted EBITDA as the income before income taxes, net interest income, net foreign exchange gains/(losses), depreciation of property and equipment including capitalized customer in-vehicle devices, amortization of intangible assets including capitalized internal-use software development costs and intangible assets identified as part of a business combination, stock-based compensation costs, restructuring costs and profits/(losses) on the disposal or impairments of assets or subsidiaries. We define Adjusted EBITDA margin as Adjusted EBITDA divided by total revenue. We have included Adjusted EBITDA and Adjusted EBITDA margin in this Quarterly Report on Form 10-Q because they are key measures that our management and Board of Directors use to understand and evaluate its core operating performance and trends; to prepare and approve its annual budget; and to develop short and long-term operational plans. In particular, the exclusion of certain expenses in calculating Adjusted EBITDA and Adjusted EBITDA margin can provide a useful measure for period-to-period comparisons of our core business. Accordingly, we believe that Adjusted EBITDA and Adjusted EBITDA margin provide useful information to investors and others in understanding and evaluating our operating results. A reconciliation of net income (the most directly comparable financial measure presented in accordance withU.S. GAAP) to Adjusted EBITDA for the periods shown is presented below. Reconciliation of net income to Adjusted EBITDA for the period Three Months Ended June 30, 2019 2020 (In thousands) Net income$ 4,996 $ 2,422 Plus: Income tax expense 1,140 92 (Less)/plus: Net interest (income)/expense (73) 70 (Less)/plus: Foreign exchange (gains)/losses (47) 105 Plus: Depreciation (1) 3,277 2,836 Plus: Amortization (2) 975 792 Plus: Stock-based compensation costs 111 293 (Less)/plus: Net (profit)/loss on sale of property and equipment (316) 1 Plus: Restructuring costs - 844 Adjusted EBITDA$ 10,063 $ 7,455 Adjusted EBITDA margin 27.7 % 27.1 % (1) Includes depreciation of owned equipment (including in-vehicle devices). (2) Includes amortization of intangible assets (including intangible assets identified as part of a business combination). Our use of Adjusted EBITDA and Adjusted EBITDA margin have limitations as analytical tools, and you should not consider these performance measures in isolation from, or as a substitute for, analysis of our results as reported under GAAP. Some of these limitations are: •although depreciation and amortization are non-cash charges, the assets being depreciated and amortized may have to be replaced in the future, and Adjusted EBITDA does not reflect cash capital expenditure requirements for such replacements or for new capital expenditure requirements; •Adjusted EBITDA does not reflect changes in, or cash requirements for, our working capital needs; •Adjusted EBITDA does not consider the potentially dilutive impact of equity-based compensation; •Adjusted EBITDA does not reflect tax payments that may represent a reduction in cash available to us; •other companies, including companies in our industry, may calculate Adjusted EBITDA differently, which reduces its usefulness as a comparative measure; and 24 -------------------------------------------------------------------------------- •certain of the adjustments (such as restructuring costs, impairment of long-lived assets and others) made in calculating Adjusted EBITDA are those that management believes are not representative of our underlying operations and, therefore, are subjective in nature. Because of these limitations, you should consider Adjusted EBITDA and Adjusted EBITDA margin alongside other financial performance measures, including operating profit, profit for the period and our other results. Basic and Diluted non-GAAP net income per share Non-GAAP net income is defined as net income excluding net foreign exchange gains/(losses) net of tax. We have included non-GAAP net income per share in this quarterly report because it provides a useful measure for period-to-period comparisons of our core business by excluding net foreign exchange gains/(losses) from earnings. Accordingly, we believe that non-GAAP net income per share provides useful information to investors and others in understanding and evaluating our operating results. Reconciliation of net income to non-GAAP net income Three Months Ended June 30, 2019 2020 (In thousands) Net income for the period$ 4,996 $ 2,422 Net foreign exchange (gains)/losses (47) 105 Income tax effect of net foreign exchange gains (532) (698) Non-GAAP net income$ 4,417
$ 1,829
Weighted average number of ordinary shares in issue Basic 562,060 547,124 Diluted 579,241 558,702 Constant Currency Information Constant currency information has been presented in the sections below to illustrate the impact of changes in currency rates on our results. The constant currency information has been determined by adjusting the current financial reporting quarter's results to the prior quarter's average exchange rates, determined as the average of the monthly exchange rates applicable to the quarter. The measurement has been performed for each of our currencies, including theU.S. Dollar and British Pound. The constant currency growth percentage has been calculated by utilizing the constant currency results compared to the prior quarter results. The constant currency information represents non-GAAP information. We believe this provides a useful basis to measure the performance of our business as it removes distortion from the effects of foreign currency movements during the period. Due to the significant portion of our customerswho are invoiced in non-U.S. Dollar denominated currencies, we also calculate our subscription revenue growth rate on a constant currency basis, thereby removing the effect of currency fluctuation on our results of operations. The following tables provide the constant currency reconciliation to the most directly comparable GAAP measure for the periods shown: 25 --------------------------------------------------------------------------------
Subscription Revenue
Three Months Ended June 30,
2019 2020 % Change
(In thousands, except for percentages)
Subscription revenue as reported $ 31,638 $ 25,875 (18.2) %
Conversion impact U.S. Dollar/other currencies - 3,833 12.1 %
Subscription revenue on a constant currency basis $ 31,638
$ 29,708 (6.1) % Hardware and Other Revenue Three Months Ended June 30, 2019 2020 % Change (In thousands, except for percentages) Hardware and other revenue as reported $ 4,645$ 1,622 (65.1) % Conversion impact U.S. Dollar/other currencies - 91 2.0 % Hardware and other revenue on a constant currency basis $ 4,645$ 1,713 (63.1) % Total Revenue Three Months Ended June 30, 2019 2020 % Change (In thousands, except for percentages) Total revenue as reported $ 36,283$ 27,497 (24.2) % Conversion impact U.S. Dollar/other currencies - 3,924 10.8 %
Total revenue on a constant currency basis $ 36,283
$ 31,421 (13.4) % 26
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Results of Operations
The following table sets forth certain consolidated statement of income data:
Three Months Ended June 30,
2019 2020
(In thousands)
Total revenue $ 36,283 $ 27,497
Total cost of revenue 12,228 8,578
Gross profit 24,055 18,919
Sales and marketing 3,581 2,746
Administration and other 14,786 13,491
Income from operations 5,688 2,682
Other income/(expense) 375 (98)
Net interest income/(expense) 73 (70)
Income tax expense 1,140 92
Net income for the period 4,996 2,422
Net income attributable to MiX Telematics Limited
stockholders 4,996 2,422
Net income attributable to non-controlling interest - -
Net income for the period $ 4,996 $ 2,422
The following sets forth, as a percentage of revenue, consolidated statement of income data:
2019 2020
(Percentage)
Total revenue 100.0 % 100.0 %
Total cost of revenue 33.7 31.2
Gross profit 66.3 68.8
Sales and marketing 9.9 10.0
Administration and other 40.8 49.1
Income from operations 15.7 9.8
Other income/(expense) 1.0 (0.4)
Net interest income/(expense) 0.2 (0.3)
Income tax expense 3.1 0.3
Net income for the period 13.8 8.8
Net income attributable to MiX Telematics Limited
stockholders 13.8 8.8
Net income attributable to non-controlling interest - -
Net income for the period 13.8 8.8
27-------------------------------------------------------------------------------- Results of Operations for the Three Months EndedJune 30, 2019 and 2020 Revenue Three Months Ended June 30, 2019 2020 % Change % Change at constant currency (In thousands, except for percentages) Subscription revenue$ 31,638 $ 25,875 (18.2) % (6.1) % Hardware and other revenue 4,645 1,622 (65.1) % (63.1) %$ 36,283 $ 27,497 (24.2) % (13.4) % Our total revenue decreased by$8.8 million or 24.2%, from the first quarter of fiscal year 2020. The principal factors affecting our revenue contraction included: •Subscription revenues decreased by 18.2% to$25.9 million , compared to$31.6 million for the first quarter of fiscal 2020. Subscription revenues represented 94.1% of total revenues during the first quarter of fiscal 2021. Subscription revenues decreased by 6.1% on a constant currency basis, year over year. The decline in constant currency subscription revenue was primarily due to the impact of pricing concessions granted to customers combined with contraction in our subscriber base as a result of economic conditions attributable to the COVID-19 pandemic. FromMarch 31, 2020 toJune 30, 2020 , our subscriber base contracted by 30,700 subscribers primarily due to significantly lower gross additions. In addition, we experienced fleet contraction in a number of key verticals such as the oil and gas vertical and the public transport vertical which impacted both our subscriber-count and subscription revenue line. The majority of our revenues and subscription revenues are derived from currencies other than theU.S. Dollar. Accordingly, the strengthening of theU.S. Dollar against these currencies (in particular against the South African Rand) following currency volatility arising from the economic disruption caused by COVID-19, has negatively impact our revenue and subscription revenues reported inU.S. Dollars. Compared to the first quarter of fiscal year 2020, the South African Rand weakened by 25.0% against theU.S. Dollar. The Rand/U.S. Dollar exchange rate averaged R17.97 in the current quarter compared to an average of R14.38 during the first quarter of fiscal year 2020. The impact of translating foreign currencies toU.S. Dollars at the average exchange rates during the first quarter of fiscal 2020 led to a 12.1% reduction in reportedU.S. Dollar subscription revenues. •Hardware and other revenue decreased by$3.0 million , or 65.1%, from the first quarter of fiscal year 2020 primarily as a result of a global economic slowdown following the disruption caused by the COVID-19 pandemic. As shown in the table below hardware and other revenue was lower across all geographical segments.
The impact of translating foreign currencies to
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A breakdown of third party revenue is shown in the table below:
Three Months Ended June 30,
2019 2020 2019 2020 2019 2020
(In thousands)
Total Revenue Subscription Revenue Hardware and Other Revenue
Africa $ 19,067 $ 14,524 $ 17,686 $ 13,923 $ 1,381 $ 601
Americas 6,548 4,330 5,662 4,175 886 155
Europe 3,344 2,984 2,787 2,850 557 134
Middle East and Australasia 5,884 4,590 4,261 3,881 1,623 709
Brazil 1,378 1,054 1,217 1,031 161 23
CSO 62 15 25 15 37 -
Total $ 36,283 $ 27,497 $ 31,638 $ 25,875 $ 4,645 $ 1,622
In the Africa segment, subscription revenue declined by $3.8 million , or 21.3%.
On a constant currency basis, the contraction in subscription revenue was 3.0%.
Subscribers increased by 4.0% since July 1, 2019 . Pricing concessions granted
due to COVID-19 combined with lower ARPUs due to economic conditions in South
Africa resulted in the decline in subscription revenue compared to the three
months ended June 30, 2019 . Hardware and other revenue declined by $0.8 million ,
or 56.4%. Total revenue declined by $4.5 million , or 23.8%. On a constant
currency basis, the total revenue decline was 6.5%.
In the Americas segment, subscription revenue declined by $1.5 million , or 26.3%
due to contraction, pricing concessions and lower ARPUs in the oil and gas
vertical. Subscribers decreased by 9.1% since July 1, 2019 due to the
contraction in the oil and gas vertical. Hardware and other revenue declined by
$0.7 million , or 82.6%. Total revenue declined by $2.2 million , or 33.9%.
In the Europe segment, subscription revenue growth was $0.1 million , or 2.3%. On
a constant currency basis, the growth in subscription revenue was 4.7%. Despite
subscribers decreasing by 5.2% since July 1, 2019 , the segment has added a
significant number of high ARPU bundled premium subscribers since July 1, 2019 .
Total revenue decreased by $0.4 million , or 10.8%, due to a decrease in hardware
and other revenues of $0.4 million compared to the three months ended June 30,
2019 . Total revenue declined by 8.6% on a constant currency basis.
Subscription revenue in the Middle East and Australasia segment declined by $0.4
million or 8.9%. On a constant currency basis, the decline in subscription
revenue was 4.9% and was impacted by lower ARPU in the oil and gas vertical.
Subscribers increased by 4.5% since July 1, 2019 . Hardware and other revenue
declined by $0.9 million or 56.3%. Total revenue declined by $1.3 million or
22.0%. Total revenue in constant currency declined by 19.0%.
In the Brazil segment, subscription revenue declined by $0.2 million or 15.4%.
On a constant currency basis, subscription revenue increased by 15.9%. The
increase was mainly due to an increase in subscribers of 11.5% since July 1,
2019 . Hardware and other revenue declined by $0.1 million , or 85.4%. Total
revenue declined by $0.3 million or 23.6%. On a constant currency basis, total
revenue increased by 4.7%.
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Cost of Revenue
Three Months Ended June 30,
2019 2020
(In thousands, except for percentages)
Cost of revenue - subscription $ 9,295 $ 7,349
Cost of revenue - hardware and other 2,933 1,229
Gross profit $ 24,055 $ 18,919
Gross profit margin 66.3 % 68.8 %
Gross profit margin - subscription 70.6 % 71.6 %
Gross profit margin - hardware and other 36.9 % 24.2 %
Compared to a decrease in total revenue of$8.8 million or 24.2%, cost of revenues decreased by$3.7 million , or 29.9%, from the first quarter of fiscal year 2020. This resulted in a higher gross profit margin of 68.8% in the first quarter of fiscal year 2021 compared to 66.3% in the first quarter of fiscal year 2020. Subscription revenue, which generates a higher gross profit margin than hardware and other revenue, contributed 94.1% of total revenue compared to 87.2% in the first quarter of fiscal year 2020. During the first quarter of fiscal 2021, hardware and other margins were lower than in the first quarter of fiscal 2020, mainly due to the geographical sales mix and the distribution channels. Hardware sales via our dealer channel generate lower gross margins. Sales and Marketing Three Months Ended June 30, 2019 2020 (In thousands, except for percentages) Sales and marketing $ 3,581$ 2,746 As a percentage of revenue 9.9 %
10.0 %
Sales and marketing costs decreased by$0.8 million , or 23.3%, from the first quarter of fiscal year 2020 to the first quarter of fiscal year 2021 against a 24.2% decrease in total revenue. The decrease in the first quarter of fiscal year 2021 was primarily as a result of savings of$0.3 million in employee costs,$0.2 million in bonuses,$0.2 million in travel costs and a$0.1 million decrease in advertising spend. In the first quarter of fiscal year 2021, sales and marketing costs represented 10.0% of revenue compared to 9.9% of revenue in the first quarter of fiscal year 2020. Administration and Other Expenses For the three months ended June 30, 2019 2020 (In thousands, except for percentages) Administration and other $ 14,786$ 13,491
As a percentage of revenue 40.8 % 49.1 %
Administration and other expenses decreased by$1.3 million , or 8.8%, from the first quarter of fiscal year 2020 to the first quarter of fiscal year 2021. The decrease mainly relates to savings of$0.9 million in salaries and wages, bonuses of$0.5 million primarily due to lower subscription revenue growth being achieved as a result of COVID-19, travel costs of$0.2 million and other decreases of$0.1 million , none of which were individually significant, offset by restructuring costs of$0.8 million and increases in expected credit loss provision of$0.3 million . 30 --------------------------------------------------------------------------------
Taxation
For the three months ended June 30,
2019 2020
(In thousands, except for percentages)
Income tax expense $ 1,140 $ 92
Effective tax rate 18.6 % 3.7 %
Taxation expense decreased by $1.0 million , or 91.9%. In the first quarter of
fiscal year 2021, the income tax expense decreased due to lower profitability
and also included a $0.7 million deferred tax credit on a U.S. Dollar
intercompany loan between MiX Limited and MiX Investments, a wholly-owned
subsidiary. During the first quarter of fiscal 2020, the income tax expense
included a $0.5 million deferred tax credit on a U.S. Dollar intercompany loan
between MiX Limited and MiX Investments. Ignoring the impact of net foreign
exchange gains and losses net of tax, the tax rate which was used in determining
non-GAAP net income below, was 30.2% compared to 27.4% in the first quarter of
fiscal 2020.
Critical Accounting Policies and Estimates
Our consolidated financial statements are prepared in accordance with GAAP.
Management believes that the Notes to the Condensed Consolidated Financial
Statements have had no significant changes during the first quarter of fiscal
2021 as compared to the items that we disclosed as our critical accounting
policies and estimates in the Management's Discussion and Analysis of Financial
Condition and Results of Operations in our Annual Report on Form 10-K for the
year ended March 31, 2020 , which we filed with the Securities and Exchange
Commission on July 23, 2020 .
31
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Liquidity and Capital Resources
We believe that our cash and borrowings available under our credit facilities
will be sufficient to meet our liquidity requirements for the foreseeable
future. We have minimum liquidity risk due to the recurring nature of its income
and the availability of the cash resources set out below.
The following tables provide a summary of our cash flows for each of the three
months ended June 30, 2019 and 2020:
Three Months Ended June 30,
2019 2020
(In thousands)
Net cash provided by operating activities $ 5,731 $ 9,357
Net cash used in investing activities (5,147) (2,120)
Net cash used in financing activities (2,150) (1,069)
Net (decrease)/increase in cash and cash equivalents (1,566) 6,168
Cash and cash equivalents, and restricted cash at beginning of the period
27,838 18,652
Effect of exchange rate changes on cash and cash equivalents, and restricted cash
376 450
Cash, and cash equivalents and restricted cash at the end of the period
$ 26,648 $ 25,270
The accounting policies applied in the first quarter of fiscal 2021 are consistent with those accounting policies applied in the preparation of the previous consolidated financial statements.
We fund our operations, capital expenditure and acquisitions through cash generated from operating activities, cash on hand and our undrawn borrowing facilities.
It is currently our policy to pay regular dividends, and we consider such dividend payments on a quarter-by-quarter basis. OnMay 23, 2017 , our Board approved a share repurchase program of up to R270 million (equivalent of$15.6 million as ofJune 30, 2020 ) under which we may repurchase our ordinary shares, including ADSs. We expect any repurchases under this share repurchase program to be funded out of existing cash resources. During the three months endedJune 30, 2020 , there were no additional share repurchases. Refer to "Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases ofEquity Securities " in our Annual Report on Form 10-K for the year endedMarch 31, 2020 , which we filed with theSecurities and Exchange Commission onJuly 23, 2020 , for information regarding our share repurchase program. Operating Activities Net cash provided by operating activities during the three months endedJune 30, 2019 consisted of our cash generated from operations of$5.8 million , net interest received of$0.1 million and taxes paid of$0.2 million . Net cash provided by operating activities during the three months endedJune 30, 2020 increased to$9.4 million compared to$5.7 million in the three months endedJune 30, 2019 , which is primarily attributable to improved cash generated from operations of$3.4 million , lower net interest received of$0.1 million and decreased taxation paid of$0.3 million . The improved cash generated from operations is primarily as a result of improved working capital management of$6.0 million (specifically an improvement in accounts receivables of$7.4 million and foreign currency translation adjustments of$0.6 million offset by accounts payables of$2.1 million ), offset by lower net income (after excluding non-cash charges) of$2.6 million . Net cash provided by operating activities during the three months endedJune 30, 2020 consisted of our cash generated from operations of$9.2 million , net interest received of$0.03 million and taxes refunded of$0.1 million . 32 -------------------------------------------------------------------------------- Investing Activities Net cash used in investing activities in the three months endedJune 30, 2019 was$5.2 million . Net cash used in investing activities during the three months endedJune 30, 2019 primarily consisted of capital expenditures of$5.1 million . Capital expenditures during the quarter included purchases of intangible assets of$1.3 million , and cash paid to purchase property and equipment of$3.8 million , which included in-vehicle devices of$3.6 million . Offset by proceeds on sale of property and equipment and intangible assets of$0.03 million . Net cash used in investing activities in the three months endedJune 30, 2020 decreased to$2.1 million from$5.1 million in the three months endedJune 30, 2019 . Net cash used in investing activities during the three months endedJune 30, 2020 primarily consisted of capital expenditures of$2.1 million . Capital expenditures during the quarter included purchases of intangible assets of$1.0 million and cash paid to purchase property and equipment of$1.1 million , which included in-vehicle devices of$1.0 million . The$2.6 million decline in in-vehicle device purchases during the three monthsJune 30, 2020 is primarily due to lower lower sales activity following the disruption caused by the COVD-19 pandemic. Financing Activities In the three months endedJune 30, 2019 , the cash used in financing activities of$2.2 million primarily consisted of dividends paid of$1.6 million and the repayment of short-term debt of$0.6 million . In the three months endedJune 30, 2020 , the cash used in financing activities of$1.1 million includes share dividends paid of$1.2 million offset by proceeds from the increase in the bank overdraft of$0.1 million . Credit Facilities AtJune 30, 2020 , our principal sources of liquidity were net cash balances of$22.0 million (consisting of cash and cash equivalents of$24.5 million less short-term debt (bank overdraft) of$2.5 million ) and unutilized borrowing capacity of$2.2 million available through our credit facilities. Our principal sources of credit are our facilities with Standard Bank Limited and Nedbank Limited. We have an overdraft facility of R64.0 million (equivalent of$3.7 million as ofJune 30, 2020 ), a working capital facility of R25.0 million (equivalent of$1.4 million as ofJune 30, 2020 ) and an unutilized vehicle and asset finance facility of R8.5 million (equivalent of$0.4 million as ofJune 30, 2020 ) with Standard Bank Limited that bear interest at South African Prime less 1.2%. AtJune 30, 2020 ,$2.5 million was utilized under the overdraft facility. We use this facility as part of our foreign currency hedging strategy. We draw down on this facility in the applicable foreign currency in order to fix the exchange rate on existing balance sheet foreign currency exposure that we anticipate settling in that foreign currency. Our obligations under the overdraft facility with Standard Bank Limited are guaranteed by MiX Telematics Limited and our wholly-owned subsidiaries,MiX Telematics Africa Proprietary Limited andMiX Telematics International Proprietary Limited , and secured by a pledge of accounts receivable by MiX Telematics Limited andMiX Telematics International Proprietary Limited . During fiscal year 2020, we entered into a R25.0 million (equivalent of$1.4 million as ofJune 30, 2020 ) working capital facility from Standard Bank Limited that bears interest at South African Prime less 0.25%. As ofJune 30, 2020 , the facility was fully utilized. We use this facility for working capital purposes in ourAfrica operations. During fiscal year 2014, we entered into a R10.0 million (equivalent of$0.6 million as ofJune 30, 2020 ) facility from Nedbank Limited that bears interest at South African Prime less 2%. As ofJune 30, 2020 , the facility was undrawn. We use this facility for working capital purposes in ourAfrica operations. Our credit facilities with Standard Bank Limited and Nedbank Limited contain certain restrictive clauses, including without limitation, those limiting our and our guarantor subsidiaries', as applicable, ability to, among other things, incur indebtedness, incur liens, or sell or acquire assets or businesses. These facilities are not subject to any financial covenants such as interest coverage or gearing ratios. 33 -------------------------------------------------------------------------------- Off-balance sheet arrangements We do not engage in any off-balance sheet financing activities. We do not have any interest in entities referred to as variable interest entities, which include special purpose entities and other structured finance entities which are not consolidated. Tabular disclosure of contractual obligations
As a "smaller reporting company", we are not required to provide this information.
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