MiX Telematics' (MIXT) CEO Stefan Joselowitz on Q1 2015 Results - Earnings Call Transcript

Aug. 7.14 | About: MiX Telematics (MIXT)

MiX Telematics Limited (NYSE:MIXT)

Q1 2015 Results Earnings Conference Call

August 07, 2014, 08:00 AM ET

Executives

Stefan Joselowitz – President & Chief Executive Officer

Megan Pydigadu – Group Financial Officer

Analysts

Terry Tillman – Raymond James

Bhavan Suri - William Blair

Brian Schwartz - Oppenheimer

Operator

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

Megan Pydigadu

Thank you. Good day and welcome to MiX Telematics’ Earnings Results Call for the first quarter of fiscal 2015 which ended on June 30, 2014. Today we will be discussing the results announced in our press release issued a few hours ago. I’m Megan Pydigadu, Chief Financial Officer and joining me on the call today is Stefan Joselowitz, or as many of you know him as Joss. He is President and Chief Executive Officer of MiX Telematics.

During the call we will make statements related to our business that may be considered forward-looking, pursuant to the Safe Harbor Provisions of the Private Securities Litigation Reform Act of 1995. These statements are subjects 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 actual 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 at www.mixtelematics.com under the Investor Relations tab and filed with the Securities and Exchange Commission.

With that, let me turn the call to Joss.

Stefan Joselowitz

Thanks Megan, and thanks to all for joining us to review our first quarter fiscal year 2015 results MiX has started the year with solid sales momentum in many regions and success to report regards the investment we are making in sales and marketing and research and development. Subscription revenue increased approximately 22% while subscribers grew 23% year-over-year. Subscription revenue came in at the low end of guidance and net subscribers added in the quarter was frankly below our internal plan as we had issues in two regions. Firstly, our South African business which is more than 50% of our total revenue is facing macroeconomic headwinds. The country recently experienced several high profile labor strikes in the mining industry and is suffering high unemployment which has caused a major slowdown in GDP growth.

The negative sentiment in the [Middle East] consumer confidence affected both the fleet and consumer business in the form of fewer than expected contract signings in Q1 and higher than expected slowdown in the consumer operations. Secondly our Middle East business which represents less than 15% of revenue was disrupted by the renewed violence in Iraq. This forced us to remove some personnel from that country and delayed installation and training and therefore revenue recognition on some contracts secured earlier in the calendar year.

I would like to point out that we saw a return to a more normal rhythm on our South African business in July and based on what we are seeing today we believe that we still positioned to achieve our previously stated revenue and adjusted targets for the 2015 fiscal year. We are however mindful that South Africa is more than 50% of our revenue at the time so we are monitoring the macroeconomic environment carefully. But putting macroeconomic issues aside we are focused on execution and controlling the things we can control.

Interest in our state-of-the-art subscription offering is an all-time high. Every two years we bring together our global fleet partners for a summit that we host and our fourth such event was in Cape Town in June this year. The conference was attended by over 100 delegates from more than 30 countries worldwide. Spanning three days the agenda included business and product updates as what as case studies of projects under taken in Australia, Belgium Oman, South African and Brazil. Previous events have been held in Berlin and Eastern Berlin were well attended but attendance has never been higher than this year and support for our solutions was tremendous.

Coming out of this event our confidence in the size of enterprise fleet opportunity and fleet customer readiness to invest in Telematics is further increased. Our global footprint is major differentiator and sales partners from every corner of the globe pay their own way to visit our summit in Cape Town to learn more about our solutions underscores their loyalty to our offerings.

Delegates also had the opportunity to tour our world class R&D facilities in Cape Town and were introduced to our new software platform which received very positive reviews. The new platform provides customers with a more intuitive user interface and some new functionality like a new intra hub which allows customers to more easily manage events by [exception] and avoid missing critical information thus saving time and effort. Using the latest web technologies this platform also provides the foundation on which all of their future fleet management duplications would be will be developed, thus being -- less maintenance and improved speed to market with new innovations. We believe that this will drive further profitability in our business over the longer haul.

Another highlight of our conference was introducing two key new members of our sales organization to our partners. As we announced in the last call we appointed Skip Kinford to the position of President and CEO of MiX Americas. He joined us from a competitor who were not too pleased to lose an executive of his caliber and in reaction they subsequently filed suit against MiX and Skip alleging restraint of trade, theft of trade secrets and the like. While this has been distraction we are fully confident that the allegations are without merit and look forward to our long and prosperous relationship with Skip at the helm of our America sales efforts.

In early July we also announced the appointment of Ken Jackson to the position of Senior Vice President of Global Sales, a new role with responsibilities for aligning sales execution with our expansion strategy. Ken will be leading the charge to expand our footprint within existing multinationals with even at our largest accounts, we have only just begun to penetrate the available opportunity. He will report directly to Charles Tasker, who has been promoted to Chief Operating Officer and I'll discuss this more in a minute. Having injected two critical new sales leaders to our organization we feel well positioned to capitalize on the global opportunity before us.

As a leading provider of card based driver and vehicle management software solutions, subscription revenue is of course the best barometer of the health of our business. Hardware revenues are difficult to forecast and can fluctuate significantly quarter-to-quarter. In the past couple of quarters a higher percentage of new customers have chosen fully bundled deals. This is of course good for the business and is consistent with our strategy as these deals have higher ARPUs and higher margins. And the uptake of fully bundled deals has accelerated perhaps a bit faster than we had anticipated and thus does have the effect of meeting near term hardware revenue which declined on a year-over-year basis in the first quarter.

It also reduces near term adjusted EBITDA and cash flow and in spite of these effects to the model we view this as long term net positive and we will continue to pursue our strategy to increase the proportion of our contracts that are fully bundled deals. As we have said before we do not expect our hardware revenues to go away entirely and they will fluctuate on a quarterly basis.

In our last earnings call I provided an update on our progress with the roll out of the Beam-e business in Brazil. Beam-e is a real-time cloud sourced platform which is proven effectiveness for stolen vehicle recovery and we are seeing its use broaden as it takes us into incremental markets such as trailer container even call back tracking.

Since that last quarter our partner Sascar an established local player in the telematics space has announced that it will be acquired by the Michelin Group with the deal expected to close in September. We continue to believe our contract with Sascar will be implemented as structured with them responsible for network roll-out marketing customer acquisition and servicing of our Beam-e solution while we intend to provide the software platform and are responsible for data gathering, interpretation and effectively providing Sascar with the actionable intelligence required to provide the Beam-e service.

As we have discussed previously we took this low risk partnering approach with the belief that it would enable us to enter the promising Brazilian market far more rapidly and cost effectively then if we attempted to go it alone. While our Beam-e project in Brazil is now entirely dependent on Sascar obligations with the overhang of an ongoing effort by the previous private equity owners to sell their company now behind us, we look forward to working with the new owners to bring our offerings to market in coming quarters.

We continually assess our operating infrastructure and I am pleased to announce that we have recently made a couple of key organizational promotions. Charles Tasker, our Global Head of Fleet Sales has been promoted to Chief Operating Officer and Brendan Horan, who has been Managing Director of the Africa consumer business now heads up both the consumer and fleet business in that regions. This is a reflection of the increasing interdependency and convergence we have seen amongst our solutions.

In summary one new contracts signings with the roll out plan in the first quarter primarily due to factors we cannot control, we still delivered over 20% year-on-year growth in subscription revenue and subscribers. Moreover we currently believe our pipeline is strong enough to drive the 20% plus subscription revenue growth that we have targeted for the full year fiscal 2015. At the same time we continue to look to deliver strong profitability with an adjusted EBITDA margin exceeding 16% in the first quarter despite our increased investments in sales and marketing and R&D.

We are confident we have what it takes to capitalize on the growing demand for fleet management solutions globally. We have both what we believe to be the industry's largest global distribution capability and broadest line of solutions and we intend to maintain our balanced approach to delivering growth as well as solid profitability and cash flow. As I outlined in our previous earnings call we are investing in expansion of our sales channels and we expect this to reach full strength by the third quarter of fiscal ‘15. By the end of fiscal ‘15 we will expect to start realizing top line benefits of our increased investments and we project our profit margins to begin expanding in fiscal ‘16 and beyond.

With that let me turn it over to Megan to offer a bit more details on the results.

Megan Pydigadu

Before I begin I would like to point out that our reporting currency is the South African Rand there for convenience we have translated certain of our results into U.S. dollars using the June 30, 2014 spot rate of 10.6135 Rand to the dollar. In addition our results are presented on an IFRS basis unless otherwise noted.

On net basis, total revenue was R315 million or $50.1 million, which is a 7% increase from R298 million booked for the first quarter of fiscal 2014. The key measure of our success in the market is subscription revenue. Our subscription revenue of R237 million or $22.3 million was up nearly 22% year-over-year. The primary driver of our subscription revenue growth is of course the growth of our subscriber base. We added 12,244 subscribers in the quarter ending with 462,746 subscribers, an increase of 23% year-over-year. As an increase in percentage of our subscribers up for fully bundled structure, hardware and other revenue was R83 million, down 21% from the prior year quarter. This component of our revenue is subject to quarter-to-quarter variability as it is typically recognized on an upfront basis. The size of the customers choosing to pay for the hardware separately also tends to be large making this revenue line subject to significant volatility.

As we have seen a shift towards bundled deals in calendar 2014 we continue to expect hardware and other revenue will continue to decline as a percentage of our total revenue overtime, that it will vary quarter-to-quarter.

Moving down to P&L, our gross profit in the first quarter was R212 million, representing a gross margin of 66.3%, about even with a 66.4% gross margin in the first quarter of fiscal 2014. We expect gross margins to remain in the mid-60% range for the near-term. From a long-term perspective we are targeting gross margins beyond 70% as subscription revenues continues to increase as a percentage of our total revenue and our fixed costs are amortized over a larger base of subscribers.

Our operating expenses were inline with our stated plan to increase our investment as sales and expenses were up over 6% from the last quarter and -- 2% year-over-year coming in at R45 million. This represented about 14% of revenue. We believe there is a significant opportunity to build on the growing momentum of our business and as we have discussed in previous calls we intend to continue increasing our investments in sales and marketing in the coming quarters also weighting these investments towards the north and South American opportunities.

General and administrative expenses were R144 million compared to R127 million last year, as we made an increase in headcount from 940 employees to nearly 1,100. We had also incurred additional costs pertaining to regulatory and reporting compliance requirements for U.S. public companies. Income from operations was R23 million in the first quarter, representing 7.1% operating margin. This compared to operating income of R57 million in the year-ago quarter or a 12.5% operating margins. We remain focused on profitability but we also believe that it makes strategic sales to invest for future growth at this time and as Joss stated we intend to continue spending at a faster rate than usual for the next couple of quarters.

We have always run our business with a focus on operational excellence in order to deliver a balance of growth and profitability. Our success in doing so is evidenced by our long-term growth track record. In addition to the fact that we are delivering strong profit margins which have really built our global infrastructure. To provide investors with additional information regarding our financial results we disclosed adjusted EBITDA and adjusted EBITDA margins, which are non-IFRS measures. We have provided a full reconciliation table in our press release. First quarter adjusted EBITDA was R52 million, representing an adjusted EBITDA margin of 16.3% compared to the year ago first quarter margins of 21.9%.

The company's effective tax rate for the quarter was 32.6% in comparison to 28.2% in the first quarter of fiscal 2014. The tax rate is primarily affected by the mix of profits from our various geographies and will vary quarter to quarter. Profit for the period was R16 million compared to R26 million in the year ago quarter. Profit for the period was R0.02 per fully diluted ordinary share compared to R0.04 per fully diluted ordinary share posted for the first quarter of fiscal 2014. As previously disclosed our board has taken a decision to hold the U.S. IPO proceeds in U.S. dollars since significant investments are being made in the U.S. and the Rand can be volatile. Foreign currency exposure resulted in a negligible loss of a R184,000 in the quarter. To facilitate analysis of our results, without the effect of foreign exchange gains or losses we have reported adjusted profit for the period and adjusted earnings per share.

Adjusted profit for the period was R16 million compared to R27 million reported a year ago. Adjusted earnings per diluted ordinary share were R0.02 compared to R0.04 a year ago.

Turning to the balance sheet we ended the quarter with cash and cash equivalents of R850 million flat with March 15, 2014. From the cash flow perspective in the three months ended June 30, 2014 we generated R6 million in net cash from operating activities and invested R28 million in capital expenditures which equates to negative free cash flow of R22 million or $2.1 million. This compares to a negative free cash flow of R4.4 million or an $0.4 million in the first quarter 2014. Finally I’d like to reiterate our financial target for the full fiscal year 2015.

We continue to target total revenue of R1,385 million to R1,410 million, which would represent year-over-year growth of 9% to 11%. We continue to target subscription revenue of R1,020 million to R1,030 million which will be year-over-year growth of 20% to 21%. We continue to target adjusted EBITDA between R295 million and R305 million. This would lead to adjusted earnings per diluted ordinary share of R0.17 to R0.18 based on 810 million diluted ordinary shares and a tax rate of between 27% and 31%, at a ratio of 25 ordinary shares to one ADS and using the August 1st spot this would equate to earnings per diluted ADS of $0.40 to $0.42.

Given the slightly slower start to the year we are now targeting subscription revenue in the range of R240 million to R243 million for the second quarter of 2015 which would represent year-over-year growth of approximately 16% to 17.5%. We expect our subscription revenue growth to increase in the second half of the year of the year. As a reminder Joss pointed out we have very recently seen a more normal rhythm to our African business. In addition we expect our increased investments in the business to start driving improved performance in the back half of the year, particularly when combined with the positive impact of our strengthened executive team in global sales in the Americas.

In summary, despite the macro challenges we are confident we have the right products and increasingly the right team to capitalize on the growing market for fleet and mobile asset management solutions. Operator we are now ready to begin the Q&A session.

Question-and-Answer Session

Operator

Thank you. (Operator Instructions). We’ll go first to Terry Tillman of Raymond James.

Terry Tillman – Raymond James

Thank you. Good morning or good afternoon depending on wherever you guys are today. Thanks for taking my questions.

Stefan Joselowitz

Hi Terry.

Terry Tillman – Raymond James

Hey Joss, you hit a bunch of stuff early on the call and hit it head on, so appreciate that but I would like to delve a little bit more in to a couple of things you talked about. In the consumer side of the business you talked about -- I guess a markedly higher rate of churn. Could you dive a little bit more into that and I guess also what have you been seeing that until July and even more recently?

Stefan Joselowitz

So it’s clearly a common effect that we’ve seen before in the slowdown of consumer confidence, it becomes affordability issue. So these aren’t the churn that we’re referring to here is not end of term kind of contracts. They are really affordability issues and it’s not in terms of scheme of our group it’s not a dramatic uptick at this stage in time. But compound effect obviously of a slowdown in the growth from the subscriber side and a uptick in the churn in the business has obviously a net effect which is a lower number than we were hoping and for planning for and anticipating for that matter. We’ll report on churn again in detail at the half year and the full year as we -- is our policy in our group.

Terry Tillman – Raymond James

In the consumer business though which mostly just South Africa right now, have you assumed a higher level of churn for the rest of the year or what’s baked into the guidance, the overall guidance for the business around this issue.

Stefan Joselowitz

We [offer] the year going forward obviously we’ve re-jig our plan as based on our current knowledge and our best judgment at this point in time and that’s obviously reflected in our plan going forward so on through this.

Terry Tillman – Raymond James

Okay, and then on the micro issues that are more in the commercial and the fleet business, just a little bit more color on that in terms just deals not closing, smaller scope and you did talk about July where there some of the transactions, is it just feel like people want to have more conversations now or was that actually some closed business in July that gives you some greater confidence.

Stefan Joselowitz

What we’ve seen in July is we had a bit of rhythm in the business. So the business our contract growth in our business was certainly back in the right direction. So clearly it’s only one month and it doesn’t make a year but it certainly in the right direction and that’s what we’ve seen has been built into the plan. So to answer your question it’s better business not just conversation but translating into contracts signings.

Terry Tillman – Raymond James

Okay, and you also did talk about the Brazilian opportunity on the consumer side or the Beam-e opportunity there I should say. Have you all been able to interact with the new owner of Sascar and is there anything in the FY15 model that suggests traction in Brazil on the Beam-e side.

Stefan Joselowitz

We’ve made an attempt to interact with Michelin and I haven’t been able to. So the deal hasn’t closed yet, we are obviously very eager to have a discussion with them and to hear it from the horse’s mouth so to speak. I’m very happy finally that there is a long term strategic owner in place for that business. So of course it gives me a higher level of confidence going forward but haven’t interacted yet and based on the effect that we’ve seen on the project we’ve pretty much taken out any benefit from the Beam-e project in Brazil for this financial year certainly.

Terry Tillman – Raymond James

Okay and just my last question is just related to the guidance for the year, so subscription revenue pretty much inline in the quarter, so that was good see and your [carting] the idea of being able to grow at least 20% or more in subscription revenue, so that’s good. The thing I don’t understand quite enough is on the hardware side you’ve missed my number on hardware, last couple of quarter and I guess why not maybe take another look at the full year total revenue guidance and be more conservative on the hardware side, particularly if maybe this ongoing shift occurs to bundle deals.

Do you see something in the pipeline around maybe some large fleet rollouts that just feels a sure thing or otherwise it’s seems like maybe this could be an opportunity you could even take more of harder stance on that hardware assumption. Thanks.

Stefan Joselowitz

Thanks Terry and on that basis we’ve obviously we re-jigged the plan and based on our current pipeline we believe that number is achievable of course with the efflux of time we’ll adapt that plan. So I think you alluded to it towards the end of your question whether it’s some big deals. So certainly with the move to bundled deals we still expect that many large enterprise fleets who have lots of cash on their balance sheet and cheaper access to capital than we do will resist bundled deals and many of those larger deals that we’ve got in our pipeline we are projecting to be non-bundled deals and of course that’s why we can see significant variability in the quarter. If we do land one of these [inaudible] when we do land a while you can see a dramatic shift for a number quarters in the hardware percentage. Of course I do recognize and fully accept that these are risk is heart crossed problem and I said risk because it’s not necessary negative. In fact it’s long-term positive to the business but there is this risk in inverted commas that one of these large fleets that are currently with dealers currently being structured around that been picking-up up the upfront tab, kind of could move towards a bundled basis and close on that basis and we would see the opposite effect but what we would see is we would see obviously a ramp-up in growth in subscription revenue and improvement we will see the needle move from an ARPU perspective.

So at the moment the plan is based on our best judgment, Terry.

Terry Tillman – Raymond James

Okay.

Stefan Joselowitz

And obviously we are monitoring it carefully. We are monitoring the macroeconomic situation carefully and if we need to tweak our guidance going forward we will tweak it. So right now we are happy to leave it where it is.

Terry Tillman – Raymond James

Well thank you and good luck in the quarter. Thank you.

Stefan Joselowitz

I appreciate it, Terry, thank you.

Operator

Thank you. We will take our next question from Bhavan Suri of William Blair.

Bhavan Suri - William Blair

Hey guys thanks for taking my question.

Stefan Joselowitz

Hello Bhavan.

Bhavan Suri - William Blair

Just to follow-up on Terry’s question a little bit so obviously subscription you have taken it down a little bit for next quarter, below sort of that high teens kind of number and you have kept the full year roughly where it was. Just sort of as you think about that playing out most of it is backlog and so you have got some good visibility in that. What sort of visibility do you have to the full year subscription number today and sort of just give us a sense of sort of the confidence level of what you are adding to make sure that you feel good about maintaining the full year guide.

Stefan Joselowitz

Thanks Bhavan. So the visibility that we have going forward is like in most businesses we have a top line and it’s a top line of certainly in our instance let’s ignore the consumer business which is just a day-to-day run rate of steady business where we do hundreds of new subscribers adds typically on a day and that typically rolls over and we did see that number lower in the first quarter but if we just talk about our top line our planned pipeline which is the pipeline that we know is the deals that we have we have a very level of confidence in closing with [inaudible] and of course some of those are closer to fruition than others and it’s is really a judgment call using our best judgment of when we are going to close them and hence when there is likely going to be contribution.

So we are a subscription business, we are a SaaS business we do have this very nice shock absorber obviously of an existing base, and we have got a high level of certainty of that base going forward as the new contract signings that we have to take a view on and again it is based on best judgment and some of those larger deals can have a significant impact on our plan depending on when they fold. If I fold earlier than anticipated obviously it’s a big benefit and if they fall than anticipated it’s a negative in our plan.

The contract signings for the first quarter from a subscription revenue perspective are not ideal. We in the subscription we understand clearly the layering effect of subscribers the earlier you bring them on the quicker you know the bigger the benefit as you move forward. But the visibility we have got is a large pipeline of a bunch of deals ranging from small to very large enterprise deals and we evaluate that pipeline on ongoing basis and right now we think that it’s still enough to meet our forward guidance.

Bhavan Suri - William Blair

Okay, helpful Joss. And when you look at that pipeline and you look at the large deal activity would you say that the large deal activity has trended up in terms of the number of deals you are involved or the number of deals are participating and the quality of those deals vis-à-vis say a year ago.

Stefan Joselowitz

Yes. This might add that it’s a combination of things so it’s often a -- things, there’s some very large industry deals that are now back in the shackle I guess where they are looking at these kind of at what they’re doing in the space of managing their safety and efficiencies and we have seen a trend up in the number of large yields that we’re either receiving request for proposal from or we’re in active mid to late stage discussion with.

Bhavan Suri - William Blair

Okay and then is Charlie on the phone too?

Stefan Joselowitz

He is, I think he is dialed in, but he’s not a speaker.

Bhavan Suri - William Blair

Congrats Charles, yeah no I was going to talk a little bit and see if he can give us a little color about the Americas with the new head of North American sales ramping the sale hires there just how’s he progressing against the plan to hire folks here in the States and then sort of you didn’t break it out but sort of some color on how the growth was in the Americas would be helpful.

Stefan Joselowitz

Thanks Bhavan, it’s very early days Skip came on board pretty late in the quarter and we have had a few distractions with the litigation that I mentioned. So he certainly hasn’t yet hit the ground running but we are making progress and we’ve certainly made the leadership appointments that we intended to make and that’s from our perspective a great starting point and now it’s starting in getting more feet on the street than we’ve already got. And that’s why I think in terms of the progress, our U.S. business is still nowhere near we intend to get it. So the progress at this stage is no dramatic movement to the needle from that business and I wasn’t expecting it in this quarter by the way. So if I can say it’s going according to plan it is, but remember it will be coming off a lower base.

Bhavan Suri - William Blair

Sure great guys that was helpful, thanks for taking my questions.

Stefan Joselowitz

Thank you Bhavan.

Operator

Thank you. We’ll go next to Mike Walkley of Canaccord Genuity.

Unidentified Analyst

Hi this is Sid on for Mike. Thanks for taking my question. Joss I know you gave the regional metrics, sales and EBITDA metrics on your half year results but just directionally maybe could you talk about where the strengths from were for the different regions and on your full year guidance, I mean are you, what kind of trends are you expecting in some of the other -- in these regions in the back half of the year?

Stefan Joselowitz

Yeah so very briefly we do as you already pointed out we give breakdown twice a year. So we don’t expand on it at the end of Q1 but we’ve clearly given you some color around the regions that we found that’s disappointing which was our Middle East and our South African business. Our Australia business was running according to plan and our European business was running according to plan. It was really the two problem areas were the ones that I mentioned.

Guiding forward in terms of what we expect in the second half of the year and we are monitoring the situation very carefully both from a macroeconomic perspective, from a Southern African perspective and of course we know what we don’t know and we don’t know what the economy is going to do there so we’re keeping a close eye on it.

The Middle East situation are certainly going to be the [inaudible] space and to try and predict what’s going to happen in a few quarters there but remember it’s a tough neighborhood that we’ve been operating in for many, many years and we are used to having regional disruptions where it doesn’t always go according to plan. So we know how to deal with it, and we know how to adapt to it and based on our -- again based on our best judgment and the information available to us at the moment, the visibility that we have in our product line, the investments we’ve made remember in sales and marketing some of which is already in place. We would expect to see benefit start flowing and it's showing in the top line. So it's not unreasonable expectation, we would expect to see benefit in the latter half of the year and that's what we are mainly focused on controlling what we can control.

Unidentified Analyst

Okay. Great. Thanks. And then just with the bundling deals I think last quarter you had shared some metrics in terms of the percentage of enterprise and consumers who go for these deals, I think it was 20% for enterprise deals and 75% for consumers. Has that changed markedly or is it incremental increases, I guess from these numbers?

Megan Pydigadu

It is in the space you see it's like -- it’s like ratcheting up in terms of the number of subscribers going for bundled but I think in the last call I did elaborate that Sid, we are seeing an increase but when you start looking at the total basis it's really less than 10% of the total fleet base and then in the consumer space it's considered and continued at consistent pace.

Unidentified Analyst

Okay. Great. And then just one last one from me. In the Brazil market do you see any perceptible slowdown and adoption for these telematics solutions post the World Cup?

Stefan Joselowitz

Thank you. If we look at Brazil from a fleet telematics solution we operate directly in that market and we've only been in place -- we have only had an operation there really for the last year, so it’s that is moving off a, growing off a -- really starting from scratch. So pretty low base of course and it's going pretty much according to plan so but take that from somebody an organization that hasn't had a huge amount of experience on what the demand and uptake is. So it's difficult for me to guide whether we are seeing an uptick or a downtick. I think from a Brazilian economy perspective the economy is not as strong as it was a couple of years ago, but there is no doubt that the demographics, the economic situation Brazil is similar to Africa where they do have a high demand for security. So there is much higher -- there is high incentive for our kind of solutions for customers to install our kind of solutions, there is in first of all countries where we don't have the added demand of having to deal with a security situation.

So the return on investment demonstration is often easier in these kind of territories. And we are brand new in that territory and we are seeing strong interest in our products and we sign some nice deals and our top line is looking reasonable for a small start-up business and we are building it from there.

Unidentified Analyst

Great. Thank you.

Operator

Thank you. We'll go next to Brian Schwartz of Oppenheimer.

Brian Schwartz - Oppenheimer

Yeah. Thanks for taking my question here today.

Stefan Joselowitz

Hi Brian.

Brian Schwartz - Oppenheimer

Hey one quick follow up, just again on comfort for all of us on the annual guidance, maybe another way of kind of thinking about the uptake in the subscription revenue guide in the second half, do you have any large fleets that are planning to go live or going into production in the second half that maybe gives a little boost in that confidence that, that growth is going to come throughout?

Stefan Joselowitz

Yeah again it's in the top line and we look at it on an ongoing basis and the short answer is we have a number of large deals that we are in a mid to late stage negotiation with. So any of these guarantees, they are not guarantees but we have varying level of confidence from deal to deal on how we are looking within those deals and certainly we -- that's why we are so comfortable to, certainly at this stage maintain our full year guidance that we have enough gas in the tank to deliver on it. Of course we're in business and we face inherent risks and time will tell. So we constantly tweak it, we constantly interrogate our plan and our top line and if our view is going to change going forward we will take a different view on our guidance, either dropping it or lifting it depending on what the case may be but for the moment Brian it’s -- we feel that we’ve got sufficient opportunity in our pipeline to fulfill where we projecting we are going to end.

Brian Schwartz - Oppenheimer

Great, Joss switching directions here can you talk a little bit about the new platform that you highlighted here in the summit that you held during the quarter. Just curious if that’s been rolled out yet to the installed base if you turned the switch on or that’s still ahead of you. And then the main question I wanted to ask you is that if you could talk about the monetization opportunities that are potential with the platform upgrade.

Stefan Joselowitz

Sure, we’re very excited about the platform. It represents internally recorded dynamics. It represents a very large and long term investment for us that’s been ongoing. It’s our current platform [FMware] which has served us extremely well, is built on old architecture and has evolved over many, many years to the point where it’s a big bulky platform that’s become increasingly harder to maintaining new developments on because there is so many lines of code and the architecture is not nowhere near as modern as what’s available today.

So dynamics is completely built on very latest architecture, it puts us in a position where there is much more code reuse and makes us much more nimble from an organizational perspective, we can roll out cool and compelling new products to our customers much quicker than we could do in the past and furthermore it enables us when fully rolled out to move a large percentage of our development team that are involved in the maintenance of the FMware platform on to developing the new and compelling stuff that speeds up the process even further.

So we’re early in the software, we’ve launched the platform we’ve customers using it and those that are started it’s early phase of their process are delighted with what the new functionality that running the project. Of course we’re now going into a phase of steadily rolling out to our -- ultimately our full customer base because the intention is to switch of the old platform. We don’t want to keep two platforms running in parallel because you talked about monetization.

One of the monetization opportunities is to switch off the legacy platform and that will save us a bunch of cost and enable us to deploy our resources more effectively. So it’s not an over marked prices to move the size of base that we got onto the new platform but in the same -- is that intuitive user interface and we don’t expect the process to take years. We expect to do it in a number of quarters and that process has started.

Brian Schwartz - Oppenheimer

Thank you and one other question I had on the summit that you held during the quarter the attendance being up sounds great. Can you talk maybe a little bit about how the pipeline changed before and after the summit? I guess what I’m trying to understand since this my first summit here, is the summit event do you view it more as deal closure event, kind of the end of sales cycle or do you view it more as a pipeline build as a regeneration for the business here moving forward.

Stefan Joselowitz

It’s a combination of things, Brian and we talked about pipeline build I think we’re getting better results and certainly with the news making with having a Global Sales Director in place somebody who is taking a -- orchestrating a more worldwide view of the opportunities and how we maximize the opportunities in terms of different verticals and most important in terms of case studies and what we had a very big focus on this year is that and I have alluded to in the call was that we picked half a dozen different case studies from different verticals from different countries and presented those to the delegates. And it was very enthusiastically received because many of the delegates had on opposite side of planets hadn’t considered that.

That’s a great case use opportunity use case opportunity. I need to go and see how to apply it to my home market. So I mean it sounds obviously and as I said we are getting better as we evolve as an organization. So there is no doubt that the focus was on using this kind of opportunity to plant seeds to ultimately to introduce our new sales leadership to the organization and ultimately to use it as a pipeline building tool.

You know it wasn’t that long ago so, you know the conference ended maybe this quarter a month, so I can’t honestly say that that we have seen any direct effect on our pipeline, the short answer is no and also bear in mind our visibility into our dealer pipeline which a number of these remain a third party dealers is not as solid obviously as our visibility into our own in-house platform although another one of our objectives is to get our dealers on the same pipeline reporting tool that we use, our third party dealers and it’s certainly one of the winning news that we have got on the agenda for this year. So we get that deeper visibility into what our third party distribution partners are doing as well.

Brian Schwartz - Oppenheimer

Thank you. Last question for me here is it looks me like business I think you have talked about it you know this year is very much a transition year it’s an investment year you got new leadership being on board and as always get some spurts here quarter-to-quarter. But when you look out maybe a little bit more fiscal year ‘16 and beyond the intermediate term, can you talk about what you think is the right normalized growth rate for the business when you are through the transitions and investment cycle that’s taking place this year. Thanks.

Stefan Joselowitz

Thanks Brian, maybe you reiterate our longer-term kind of guidance.

Megan Pydigadu

Sir I think from a long-term perspective I don’t think we see it being maturity difference to what we said when we listed and where we are targeting subscription revenue growth in region of 20% and we seeing the trend and I mean it’s coming through in our business in terms of bundled deals. So we do think that our subscription revenue as a percentage of total will migrate to over 75% and as a result of that we should stop seeing our gross margin shifting towards 70%, that’s what we are targeting and then operating profit we expect to see that at greater than 20% and our adjusted EBITDA at greater than 30%.

Brian Schwartz - Oppenheimer

That’s real helpful.

Stefan Joselowitz

I just want to add to that that you know we haven’t these are in terms of our internal plans we are not [preceding] on ourselves, we are hard internal task masters. We do believe that this business has got the inherent characteristics to grow -- to show foster growth rates in 20% and longer-term we are pushing very hard to see that grow into the higher 20’s and maybe even beyond that. But those are plans and as I said I think we can demonstrate that we certainly have the core characteristics to do it but we have to obviously execute on a lot of thing in our business. We are going through a transition. We are adapting to our new life as a U.S. listed organization and that as comes with its own challenges and but it also adds opportunities and we are excited about the long-term prospects of this business.

Brian Schwartz - Oppenheimer

Thank you for that color and taking my questions here today.

Stefan Joselowitz

Well I think on it’s appropriate then for me to conclude by saying the following that -- on Q1 we did post in excess of 20% year-on-year growth but in terms of subscription revenue and subscribers but really no matter how you slice it we’re disappointed with the net new subscriber ads that we saw in the quarter. With Africa being around 50% of our business we are monitoring macroeconomic issues and in the meantime we’re focusing on what we can control, which is executing on our strategy to invest but in our sales channel and of course in continued innovation and we have a series of compelling product launches scheduled for the remainder of the year. This of course kicked off with the release of our new software platform in June and Megan and I look forward to meeting with investors next week at both Oppenheimer and Canaccord Conferences in Boston. With that ladies and gentlemen I’d like to thank you for your time today. Thank you.

Operator

That does conclude today’s call.

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