MIXT - MiX Telematics Results Flatten As Headwinds Mount
2023-06-23 17:03:10 ET
Summary
- MiX Telematics Limited reported its FQ4 2023 financial results on May 25, 2023.
- The firm provides an array of fleet tracking and telematics products and services worldwide.
- MiX Telematics' financial results have been leveling off amid increasingly challenging macroeconomic conditions.
- I remain Neutral [Hold] on MiX Telematics stock in the near term.
A Quick Take On MiX Telematics
MiX Telematics Limited ( MIXT ) reported its FQ4 2023 financial results on May 25, 2023, missing both expected revenue and EPS estimates.
The company provides vehicle and other mobile asset tracking and management software and systems globally.
I previously wrote about MIXT with a Hold rating.
Given the firm’s exposure to South Africa and its depreciating currency vs. the US dollar, plateauing financial results and continued exposure to slowdowns in large customer uptake, I remain Neutral [Hold] for MiX Telematics Limited in the near term.
MiX Telematics Overview
South Africa-based MiX Telematics Limited was founded in 1996 to provide fleet and mobile asset management products and services to companies worldwide.
The firm is headed by founder and CEO Stefan Joselowitz.
The company’s primary offerings include:
-
Fleet Manager
-
Asset Manager
-
Matrix
-
Beam-e
-
AI Dashcams
-
Driver Apps.
The firm acquires customers via its direct sales and marketing efforts as well as through partner referrals.
MiX Telematics’ Market & Competition
According to a 2019 market research report by Allied Market Research, the global market for automotive telematics was an estimated $50.4 billion in 2018 and is forecast to reach nearly $321 billion by 2026.
This represents a forecast CAGR of 26.8% from 2019 to 2026.
The main drivers for this expected growth are advances in solution options for organizations and a strong demand for increased transportation efficiencies.
Also, below is a chart showing the expected growth pattern by segment within the larger vehicle telematics market:
Automotive Telematics Market (Allied Market Research)
Major competitive or other industry participants include:
-
Verizon Connect
-
Karoooo
-
WebFleet
-
Masternaut
-
Fleet Complete
-
Tracker
-
Netstar
-
Ctrack Inseego.
MIXT’s Recent Financial Trends
-
Total revenue by quarter has grown slightly; Operating income by quarter has plateaued in recent quarters:
Total Revenue and Operating Income (Seeking Alpha)
-
Gross profit margin by quarter has fallen YoY; Selling, G&A expenses as a percentage of total revenue by quarter have dropped year-over-year:
Gross Profit Margin and Selling, G&A % Of Revenue (Seeking Alpha)
(All data in the above charts is GAAP.)
In the past 12 months, MIXT’s stock price has dropped 26.02% vs. that of Karooooo Ltd.’s ( KARO ) rise of 6.82%, as the chart indicates below.
52-Week Stock Price Comparison (Seeking Alpha)
For the balance sheet , the firm ended the quarter with $29.9 million in cash and equivalents and $15.3 million in total debt, all of which were categorized as "Short-Term Borrowings."
Over the trailing twelve months, free cash flow was only $2.1 million, during which capital expenditures were a hefty $19.8 million.
Valuation And Other Metrics For MIXT
Below is a table of relevant capitalization and valuation figures for the company.
| Measure [TTM] |
| Amount |
| Enterprise Value / Sales |
| 1.0 |
| Enterprise Value / EBITDA |
| 5.5 |
| Price / Sales |
| 1.1 |
| Revenue Growth Rate |
| 1.2% |
| Net Income Margin |
| 3.1% |
| EBITDA % |
| 18.7% |
| Net Debt To Annual EBITDA |
| -0.5 |
| Market Capitalization |
| $163,560,000 |
| Enterprise Value |
| $149,420,000 |
| Operating Cash Flow |
| $21,950,000 |
| Earnings Per Share (Fully Diluted) |
| $0.01 |
(Source - Seeking Alpha.)
As a reference, a relevant partial public comparable would be Karooooo Ltd.; shown below is a comparison of their primary valuation metrics.
| Metric [TTM] |
| Karooooo |
| MiX Telematics |
| Variance |
| Enterprise Value / Sales |
| 3.8 |
| 1.0 |
| -72.8% |
| Enterprise Value / EBITDA |
| 10.1 |
| 5.5 |
| -45.3% |
| Revenue Growth Rate |
| 27.7% |
| 1.2% |
| -95.7% |
| Net Income Margin |
| 17.0% |
| 3.1% |
| -81.7% |
| Operating Cash Flow |
| $61,350,000 |
| $21,950,000 |
| -64.2% |
(Source - Seeking Alpha.)
The Rule of 40 is a software industry rule of thumb that says that as long as the combined revenue growth rate and EBITDA percentage rate equal or exceed 40%, the firm is on an acceptable growth/EBITDA trajectory.
MIXT’s most recent Rule of 40 calculation was 19.9% as of FQ4 2023’s results, so the firm has produced slightly worse results compared to FQ2 2022, per the table below.
| Rule of 40 Performance |
| FQ2 2023 |
| FQ4 2023 |
| Revenue Growth % |
| 2.3% |
| 1.2% |
| EBITDA % |
| 18.7% |
| 18.7% |
| Total |
| 21.0% |
| 19.9% |
(Source - Seeking Alpha.)
Commentary On MiX Telematics
In its last earnings call ( Source - Seeking Alpha ), covering FQ4 2023’s results, management highlighted surpassing one million subscribers to its various products for the first time.
However, the year just ended has been a challenging one as the firm contended with macroeconomic headwinds, inflation and supply chain challenges.
Also, leadership noted continued "challenges that may arise" in the period ahead, and general market conditions worsen due to a rising cost-of-capital environment.
Management did not disclose any company or revenue retention rates but said churn was "as expected" for subscribers to its FSM product.
Total revenue for FQ4 2023 rose by only 2.2% year-over-year, and gross profit margin decreased by 2.7 percentage points.
Selling, G&A expenses as a percentage of revenue dropped by 1.7%, a positive signal of increasing efficiency, but operating income dropped 7.7% YoY.
The Board approved an increase in the quarterly dividend from 4 South African Rand cents per share to 4.5 cents per share.
Looking ahead, management expects "mid to high single-digit ARR growth and full-year adjusted EBITDA margins north of 25%," but did not provide specific revenue guidance.
The company's financial position is only moderate, with some debt, all of which is short-term and a small positive free cash flow generation in the past twelve months.
MIXT’s Rule of 40 performance has deteriorated slightly and is well below where it should be.
From management’s most recent earnings call, I prepared a chart showing the frequency of key terms mentioned (or not) in the call, as shown below.
Earnings Transcript Key Terms Frequency (Seeking Alpha)
I’m most interested in the frequency of potentially negative terms, so management or analyst questions cited "Uncertain" two times, "Challeng[es][ing]" three times, and "Macro" seven times.
Analysts questioned company leadership about the macroeconomic challenges the firm is facing in its various markets, resulting in lengthening sales cycles, especially with larger fleet prospects.
Regarding valuation, in the past twelve months, the firm's EV/EBITDA valuation multiple has ended the period little changed, as the chart from Seeking Alpha shows below.
EV/EBITDA Multiple History (Seeking Alpha)
The firm is also exposed to South African Rand [ZAR] currency risk compared to USD due to having significant operations in South Africa. The ZAR has dropped nearly 15% in the past 12 months, as the chart below indicates.
ZAR To USD One Year Chart (XE.com)
Given the firm’s exposure to South Africa and its depreciating currency vs. the U.S. dollar, plateauing financial results and continued exposure to a slowdown in large customer uptake, I remain Neutral [Hold] for MiX Telematics Limited stock in the near term.
For further details see:
MiX Telematics Results Flatten As Headwinds Mount