MiX Telematics Limited (NYSE:MIXT)
Q4 2016 Earnings Conference Call
May 26, 2016, 08:00 AM ET
Stefan Joselowitz - President and Chief Executive Officer
Megan Pydigadu - Chief Financial Officer
Brian Peterson - Raymond James
Bhavan Suri - William Blair
Michael Walkley - Canaccord Genuity
Brian Schwart - Oppenheimer
David Gearhart - First Analysis
Good evening and welcome to the MiX Telematics Fourth Quarter and Full Fiscal 2016 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.
Thank you. Good day and welcome to MiX Telematics earnings results call for the fourth quarter and fiscal year, which ended on March the 31, 2016. 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 on the call today is Stefan Joselowitz whereas many of you know him as Jose. He is President and Chief Executive Officer of MiX Telematics.
During the call, we will make statements in relation to our business that may be considered forward-looking pursuant to the Safe Harbor provision of the Private Securities Litigation Reform Act of 1995. These statements are subject to a variety of risks and uncertainties that could cause actual results to differ materially from expectations.
For a discussion of the material risk and other important factors that could impact our results please refer to those contained in our Form 20-F and other filings with the Securities and Exchange Commission available on our website at www.mixtelematics.com under the investor relations page.
Also during the course of today's call, we will refer to certain non-IFRS financial measures. There is a reconciliation schedule detailing these results currently available in our press release, which is located on our website and filed with the Securities and Exchange Commission.
With that let met turn the call over to Jose.
Thanks Megan. I would like to thank you all for joining us to review our fourth quarter and full fiscal year 2016 financial results. Let me run you through some of the highlights. We continue to post mid-teen subscription revenue growth, increase our subscriber base by 11% winning some of the industry’s most coveted deals and are doing so while delivering top tier profitability. We generated R240 million in cash from operating activities and finished the year with net cash of R861 million.
To quote Mark Twain, “the reports of the update are greatly exaggerated”. Demonstrating our confidence in our business, we recently entered into an agreement to repurchase all of our shares currently held by Imperial Holdings Limited which equates to about 200 million mix ordinary shares and represents 25% of our issued share capital.
We have agreed to pay R2.36 per share for an aggregate repurchase consideration of about R470 million. It is no secret that I belief that our company is significantly undervalued and we noted at the time that we could see no better acquisition opportunity than investing in our own business. When we announced Imperial deal, we stated that we expected the transaction to be value and earnings accretive for shareholders.
In fact, as you may have seen in our regulatory filing earlier today our pro forma calculations assuming a 12-month impact now show that the uplift to adjusted EPS would have been over 30% for the 2016 fiscal year. The transaction remains subject to shareholder approval and we expect the final vote to take place in mid August.
Moving onto our performance for the quarter and the year, let me summarize by saying that considering our ongoing macro headwinds, we are performing relatively well. For the full fiscal year, we grew subscription revenue 16% and posted a 19% adjusted EBITDA margin. We met our guidance target in terms of revenue and exceeded our targets in terms of profitability.
It’s been a challenging time for companies exposed to the energy and mining sectors that we have been through this topic also before and we now have [indiscernible]. I’m pleased to report that while some of customer continue to contract at fleet sizes, we have still not lost a single key account in the energy sector during this down turn. Our customers are really being on schedule and we have even added major new oil and gas clients during this fiscal year.
Willing Halliburton’s North America business was simply a highlight, but pertaining our most standing key customers and this was a fact that we are a strategic vendor to them. Recall that we see retention rates, well in excess of 95% amongst our large fleet customers. MiX Telematics is a premier global fleet management solutions provider with diversified revenue streams. We are one of the industry’s largest and much trusted brands in are highly differentiated with SMP and regional players, we dominate in the premium fleet space. We love big fleets, with over 60% of our corporate subscriptions belong to fleets larger than 500 vehicles.
Despite the contractions in fleet sizes from our customer in energy and mining sectors, we grew our 53,800 net new subscribers and finished the year with turtle active base of 566, 000. Disappointingly, the contraction we’ve seen is predominantly in the premium fleet space, hence effecting our higher ARPU subscribers. Most of our subscriber growth in recent months is in the asset tracking segment, which is a lower ARPU and has a muting effect on our blended subscription revenue.
However, please remember that we haven’t lost a single key account in energy sector and when the industry does rebound we are effectively [indiscernible] with growth, sum of it at the click of a switch. We expect our customers will start growing the operations again and we will benefit hugely from that side.
A key component of our success during this challenging period is the breath of our product portfolio. We’ve continued to invest in innovations hedged from our confidence that we’ll be well positioned to capitalize on the opportunities when the [time] (Ph) does turn. The power of our software platform enables us to continuously evolve and extend our range of solutions. From our premium fleet management fleet to asset tracking operating, we’ve a solution to meet the needs of our multitude of industries.
Enterprises are always challenged to optimize the operations and while lower your gas process tend to [indiscernible] on those tangible ROI story, fuel is only one component of the many savings unlocked by our services. The risks aren’t impacted at all by the oil price. Employee safety concerns, increasing regulation, rising maintenance cost for the desire to provide an improved service in order to compete more effectively are all driving demand for our solutions and we continue to innovate to meet those requirements.
For instance, in the fourth quarter, we formerly released an extension to our well establish hours of service operating, further enhancing our portfolio at SaaS products that help to improved drive efficiency and road safety. While we had HOS solutions in place in North American and Europe for many years, this side of development extends or expertise into regions with non-regulated driving hours of its version.
Such as the Middle East and Africa, fleet operating [indiscernible] can now easily sit to own driving hour routes and measure activates to reduce fatigue related incidents. We believe there is enormous potential for this up sell, which requires no additional investments in moderated accessories. With the industry’s most comprehensive suite of fleet management and asset tracking solutions and the infrastructure to understand and capitalize on demand globally, we will continue to fund our innovation engine to move the business forward.
At the half year and year-end, we’ll provide a more detailed look at our performance by regions. This year to provide a clearer look at the business momentum in each of our reporting regions, we’ve changed the way we present the segmental data. We’re now treating our Central Services Organization Or CSO as a cost center and representing activities of our regions based on the type of profit that groups makes from customers in that region. It is worth noting that through this lens, all of our regions are adjusted EBITDA positive.
The details are articulated in our press release and we’re showing the restated figures from the 2015 fiscal year to aid analysis. As many of you know, our CSR wholesales our products and services to our regional sales offices, we interface directly with our end users, distributors or dealers. Our CSR is also responsible for R&D, the management of our SaaS platform and provides corporate level marketing, product management, technical and distribution support.
As you will see in the regional segment commentary in the press release, the group has successfully navigated [indiscernible] faced multiple headwinds in our various operations. The South African economy is weak for some time, but we’ve sustained our focus on performance and run and highly successful business year. Our subscriber base increased through 14% year-over-year and we have signed both new wins and expended engagement across the board from premium fleets to consumer applications and asset tracking contracts.
[indiscernible] we added further services to our existing fleet management engagement with Bakers SA Limited. Bakers are one of the South Africa’s large independent - commercial operators and have been our customers for 15-years. Mix Visions and other peripherals groups will now be added to over 350 of their vehicles. We also saw some lost contract extensions and new customer win increasing the subscriber base there, also by about 14% in the year.
In the fourth quarter, we added two best companies in UK and an international transport and logistics firm called Transmec, which is headquartered in Italy. The latter is a great success for our recently appointed in-country partner with [indiscernible] for over 500 of Transmec traders. Our exposure to oil and gas is driving the contractual fleet in the Americas and the Middle East Australia region. So you will not be surprised to see that our subscriber base in each region declined relatively a year ago.
That said, let me reiterate that we are not losing customers. In fact, we believe that the Americas operation is now well positioned for new account growth, we’ve built a very promising and critical path line of premium fleet management opportunities and are well positioned to benefit from the increasing regulatory requirements being instituted in the United States.
Our Australian business has reported with the Middle East region and while our MEA exposures to natural resources in oil and gas sectors mark made for some tough [indiscernible] in the foreseeable future. We have signed four important renewals, including one with the global key count. We have right sized the operation and this is our second most profitable region with an adjusted EBITDA margin of over 30%. Renewals and extensions are testimony to the great value we deliver to our customers across the globe together with great service.
Our Brazil business was real standout in fiscal 2016 and I’m really proud of the way Louise and his team navigated extremely tough economic conditions. We grew our subscriber base 27% year-on-year and posted 42% subscription revenue growth. Although we are continually adding to our partner network there, the majority of sales in the year were done directly on a fully bundled basis. We have recently won five new contracts in the [indiscernible] vertical all of which will roll out in the next few quarters.
In summary, we are prompt beneficiary of the shift to cloud based solutions and have seen a dramatic increase in the uptake of fully bundles subscriptions. While this transition does mute near-term revenue growth, the fully bundled [indiscernible] are larger and yield higher margins overtime, so we are very pleased with this trend. As one of our fully scaled global providers, MiX has a great portfolio of blue chip multinational clients and future engage with a single premium provider rather than a small regional players.
Penetration of Telematics Solution overall remains very low, less than 15% of the global commercial vehicle fleets leveraging Telematics today. Market research indicates that this penetration is expected to double in the next four to five-years. We are continued to be pleased with the performance of our team in these times. We are managing our operating costs, navigating the revenue mix shift of our business towards more fully bundled deals, launching innovative solutions unmatched in the industry today and building important new relationships with key customers and partners.
At this point, let me hand it back to Megan to offer a bit more color on the numbers.
Thanks Jose. Let me walk you through our fourth quarter and full-year 2016 performance across each of our key operating metrics as well as our new revenue and earnings progress. Bear in mind that our reporting currency is South African Rands. For convenience, we have translated our results into U.S. dollars both for the 2016 and 2015 period using March 31, 2016 spot rate. You can find these conversions in our press release. In addition, please note that our results are presented on an IFRS basis unless otherwise noted.
Let me also note that as we have discussed throughout the fiscal year in addition of the macro headwind we are facing, our business is undergoing a transition to significantly more bundled contract. This is positive for our business as the larger subscription engagement are more profitable over the longer term, but it has have a negative short-term impact on our growth rate, profitability and free cash flow.
As we have said in the past, we are happy to absorb the near-term [indiscernible] based and we believe funding outline costs is an excellent use of cash as we retained our various chapters. With this conscious in mind, let me run through the results. Total revenue for the quarter was R384 million, this is a 4.4% increase from the year-ago fourth quarter. Our fourth quarter subscription revenue of R307.1 million was up 15.3% year-over-year and within our guidance range.
We added 15,400 subscribers in the quarter and now have 566,000 subscribers for an increase of 10.5% year-over-year. hardware revenue was R76.9 million which is a 24.1% decrease from the year ago fourth quarter. As noted, the shift towards more bundled deals is a [indiscernible] but additionally our hardware and other revenues was impacted by lower sales activity in the oil and gas sector. Subscription revenue now represents 80% of total revenue.
Looking down the P&L, our growth coverage in the fourth quarter was R285 million representing a growth margin of 74.2% up 400 basis points. The primary driver of - margin expansion - via higher percentage of revenue from subscription. However, during the quarter, we also had the add sale effect from the reversal of product development amortization. Our annual review of the useful - of product development cost [indiscernible] was performed by the Central Services Organization segment.
While these reviews did not guarantee a results in meaningful changes. This year it was the benefit to the gross margin, it was an extension of the useful life of second - across our hardware, software and firmware and a consequence there was a R6.4 million reduction in the product development amortization expense charged to cost of sale. Depending on the revenue mix, we expect gross margins to run in the range of 70%.
In terms of our operating expenses our [indiscernible] costs were up 33.7% when compared to the fourth quarter last year. This line item now represents 15.9% of revenues slightly higher than our stated progress of between 11% and 12% of revenue. This is a function of our investments in the Americas. Our business model conditions are now hardly settles. We still believe there is an opportunity to build on the current momentum of our business and market globally and as we are seeing stronger change in our efforts we will continue to make innovative investments in sales and marketing initiatives for the time being.
General and administrative expenses were up 17.6% year-over-year and represent 48% of revenues. G&A costs include development costs [indiscernible], which show an increase of R6.4 million. We believe that overtime as the business becomes fully scaled, this should reduce to below 40%. Operation profit was R45.7 million representing a 7.9% operating margins, which was down from an operating margin of 7.1% posted in the fourth quarter last year.
To provide investors with additional information regarding our financial results, we disclosed the adjusted EBITDA and adjusted EBITDA margins as well as adjusted profit for the period, which are non-IFRS measures. So we have provided a full reconciliation table in our press release. Fourth quarter adjusted EBITDA was R77.6 million down slightly from R89.8 million last year. This represented a margin of 20.2% down from 24.4% posted in the year ago fourth quarter.
IFRS profit for the period which includes a significant unutilized foreign exchange loss of R27.9 million before tax, R13.8 million compared with R52.1 million in the year ago quarter. [indiscernible]. Adjusted profits for the quarter were R28.8 million, which was down from the R38.7 million also posted a year ago. This was affected by a tax rate of 29.6% in the current quarter compared to 37.1% in the year ago quarter. Our quarterly tax rate can be quite volatile as they are determined by the geographic mix of our profit and losses. Adjusted earnings per diluted ordinary share for R0.04 compared to R0.05 in the fourth quarter a year ago.
Turning to the balance sheet. We ended the quarter with cash and cash equivalents of R877.1 million compared with R945.4 million at the end of the fourth quarter. From a cash flow perspective we generated R107 million in this cash from operating activities and made R76 million investments in capital expenditures. We reached free cash flow of R31 million for the fourth quarter down from free cash flow of R57.8 million for the fourth quarter of fiscal year 2015.
Turning to our full-year results. Total revenue for the full fiscal year of 2016 was R1.465 billion an increase of 5.4%. Subscription revenue was R1,158.2 million up 16% subscription revenue growth was driven primarily by the addition of over 53,800 subscribers in the year. Operating cost was R139.1 million with a margin of 9.5% this compared to R149.9 million or a 10.8% operating margin last year.
The decrease in the margin is the result of innovative investment in sales and marketing and shift to the fully bundled contracts, which reduces our [indiscernible] adjusted EBITDA was R277.2 million down marginally from R282 million a year ago. The adjusted EBITDA margins was 18.9% for the year, versus 20.4% by the last year. Profit for this period was a R182.5 million compared to R159 million last year. Earnings per diluted ordinary share were R0.23, compared to $0.19 last year. Adjusted profit for the year was R87.6 million compared to R102 million and excludes the net foreign exchange gain of R144.0 million for the year. Adjusted earnings per diluted ordinary share of R0.11 compared to R0.13 last year.
Finally, I would like to share our financial target for the full fiscal year 2017 and first quarter. for the full-year, we’re targeting total revenues of R1,575 million to R1,606 million which represents year-over-year growth of 8% to 10%. We’re targeting subscription revenues of R1,311 million to R1,306 million which would be year-over-year growth of about 13% to 15%.
We’re targeting adjusted EBITDA between R317 million and R337 million, which will be year-over-year growth of our 14% to 20%. This would be to adjusted earnings for diluted ordinary share of R0.11.3 to R0.13.1 based on a R765 million diluted ordinary shares. Sorry, can you continue Jose.
Megan is fighting with some residual throat issue which she is recovering on, so apologize for that. Let me start with the EBITDA reference. We’re targeting adjusted EBITDA between R317 million and R337 million, which will be year-over-year growth with a 14% to 22%. This would be adjusted earnings and diluted ordinary share of R11.3 to R0.13.1 based on R765 million diluted ordinary shares and an effective tax rate of between 29% to 33%.
As we’ve discussed previously our intention is to focus on add new products and this is how as mentioned in this focus and we do not wish to close deals on set of optimal turns, in order to achieve quarterly objectives. This is most relevant as it relates to the hardware and other revenue as in our P&L. the area of revenue were we have the highest level of visibility and predictability is obviously in our subscription revenue, which as we’ve discussed is the largest, fastest growing an highest margin comparatively our business.
For the first quarter 2017, we’re targeting subscription revenues in the range of R303 million to R309 million, which will represent year-over-year growth of 11.5% to 13.7%. If the specific repurchase of shares from Imperial is completed by mid August 2016 as expected. Our EPS guidance would be affected. The new adjusted earnings per diluted ordinary share guidance for the full-year fiscal 2017 would be R0.13.5 to R0.15.7 based on 640 million diluted ordinary shares in issued.
Operator, we’re now ready to begin the Q&A session.
Thank you, [Operator Instructions]. We will take our first question from Brian Peterson with Raymond James.
Hi thanks for taking the question. Jose, you mentioned earlier that you are seeing a contraction with some your premium fleet customers, I wanted to hit on that a bit, is that particularly related for oil and gas or is that a broader dynamic and curious what is you assuming as we lookout into fiscal 2017?
Thanks Brain, thanks for taking the time. Yes it’s mainly related to oil and gas by far the vast majority of what we’ve seen is amongst our large premium oil and gas customers, a little bit as well amongst our larger resource mining customers. Those are the two sectors that have tracken a significant I guess due to the process of their commodities and their products over the past year. So we've seen a steady adjustments as the year progress.
As its going forward, [indiscernible] bottomed out, so however the macros signs particularly as it relates the energy sector are simply looking more favorable, we’re engaged with our customers on an getting basis, if not daily simply on a weekly basis of the reactivity, what opportunities are and where we’re heading. So that’s hard to core, we’ve taken a pretty conservative view for the next couple of quarters, but we do have a top-line to support growth for the balance of the year and we’re going to have to wait to see how they that pans out.
That actually leads to my next questions on the pipeline. Any help on how that’s changed in some of yours I would say expanding markets, its maybe in Americas, in Brazil have you seen a significant increase in the size of those pipelines?
You know I think it varies by regions. Certainly a big increase in the United States mainly driven around the ELB mandates which we believe is definitely going to drive growth in the industry over the next two to three-years and we certainly expect to be a beneficiary of that and we are seen its reflected in the number requires and the number of engagements that we’re having.
In terms of top-line activity for other regions, it dependent upon the economy, [indiscernible] doing a fantastic job driving home the fact that there is a great return on investment opportunity with our products and they are using of course the bad economy to help future prospects or convince future prospects. But in fact, we’re not [indiscernible] where an ability to provide a ability to effect state money and hence increase or improve their bottom-line.
Got it. Understood. And last one from me, the adjusted EBITDA look some nice margin expansion there. Any help on what line items should be the largest contributors there?
Yes, I will hand you over to Megan on that. If she can get a few words in.
Alright. In terms of that is really been driven by unexpected additional hardware revenue that we did in the last quarter that we weren’t expecting which has benefitted the margin and then obviously we’ve been driving our cost quite hard within the business and we feel good cost savings coming through in the last quarter, which improved our adjusted EBITDA margin.
Okay. Thanks guys. Feel better Megan.
We’ll take our next question from Bhavan Suri from William Blair.
Hey guys and nice update and thanks for taking my questions. Hey Megan. So just as to start-off with you did talk about sort of the contractions of verticals that we’d expect it to be obviously oil and gas et cetera mining but can you talk about some of the other verticals, obviously some nice wins in the bus and transportations base. First sort of how is the pipeline for those looking and how have deal sizes and fleet sizes that you are winning look in those verticals?
Yes, we’ve seen a lot of activity in that specific sector as you mentioned [indiscernible] in the quarter under review we’ve signed deals in that sector already all over the globe, Europe, Brazil as some of the examples that I mentioned. So clearly there are verticals that transportation et cetera that are growing in fleets, so it’s not just a one-way street. I guess we’ve been through in this past year is that we’ve got two regions that are very exposed to one sector being the energy sector.
And they don’t enjoy same cushioning effect that sort of shock absorber that we are have in some of the other regions which have broader sector focus and broader portfolio deployment. But of course we’re working to change that. And we’re making progress in that regard, but clearly this year exposed our vulnerability particularly in the United States and we need to work, harder and faster to give us multiple sector exposure so that we do have shock absorbents when you get one or two industries taking a big hit as we’ve seen in this year.
Alright. That’s helpful Jose and then when you look at the potential ARPU end market enhancing products and cross sell you talked about the couple before such as turning off and things like that. What are you seeing in terms of adoption of those ARPU enhancing products, what are people liking to bundle with the core offering today, what sort of the patterns there to help understand how the potential of ARPU expansion might be there.
Yes, sure. We are really excited about what we’ve got, I mean you’ve been following us since the beginning, mix event is not a new product but it took us a while I guess to get it matured and its now in full adoption in multiple prints of the globe and customers really like it and it is adding lots of value and it’s got a long way to go in terms of the penetration rate as far out reaches are concerned. But we are signing deals on a daily, weekly, monthly basis on mix region with not only existing customers but with new customers as well.
So the effective [indiscernible] that’s going to drop ARPU journey management regarding couple of now of active customers of other big fleet that we’ve got it on trial. We’ve got a positive ARPU enhances that coupled with bundling, the bundling impact which is clearly accelerating. We should see a trend going forward of ARPU accretion, our ARPU is going up even on a blended basis. So not only on a per grams basis, but even on a blended basis, because they often impact of both bundling and this I guess these pretty expensive or other costs peripherals in the premium piece basis going to provide us eventually an overweight growth to our ARPU calculation.
Got it, got it. And then one quick one on large fleets especially given you have sort of talked about some of that, you touched on Halliburton any color on just sort of how DHL relationship is playing out and sort of and you have seen expanse within that account to I know you might not be able to give a ton of color but love to hear a little bit on that? And then a quick for Megan, just on gross margin. I’m sorry Megan I know you are suffering there, but you hit 70% was kind of the target you are 74% how should we think about that sort of even linearly a little bit next year just to sort of understand how that might payout?
[indiscernible] gross margin for the quarter I think we could see [indiscernible] coming through from the amortization reviews of with R6.4 million in the TSO. So I think we are going forward on a liner basis, I think we expect to see closer to 70% and I think this [indiscernible] event.
There is obviously - in terms of your first question the DHL relationship yes we’ve seen expansion but within what is now existing fleet and in some new territory, I don’t have the data specifically in front of me, but I can certainly answer yes to the question.
Super. Thank you, guys thanks for taking my question. I appreciate it.
We will now take our next question from Mike Walkley from Canaccord Genuity.
Oh, hi this is [Jus] (ph) in for Mike. A couple of quick questions.
One, have you seen any change in the competitive dynamics in the marketplace and I know you mentioned the challenging macro, but I’m just wondering if there is any change on that front as well? And then two, with oil prices coming back is there it seems there are probably a pretty direct correlation an increase in oil prices and increased activity in that segment, is that the right way to think about or is there is a little bit of a lag effects in that?
Yes, I think based on past experience it’s not the first time that I effectively navigated this negative oil and gas cycle. And the EBITDA correlation but with a lag and these decisions that these very large corporations - bear in mind we left big customers as I mentioned and I’m repeating it. A lot of oil and gas customers happen to be amongst the biggest of our customers, they are what we would consider mega size fleet even in the contracted form. So even though some of our fleets have probably kept their active base by 20%, they are strong mega fleets to us.
The advantage of that focus on huge fleets don’t insulate us somewhat from losing customers to bankruptcy, so we don’t deal with a lot of the small players in that space and a lot of those small players have gone, potentially they have gone out of business. So we’re not exposed to that which is a good thing, most of our customers are blue chip - a definition of the word and we have certainly survived the cycle and we will be around for many decades to come.
So, the other thing the macro picture is looking better, are we seeing a direct correlation as we speak in terms of a linear growth in our customer’s fleet? We aren’t and I didn’t expect to be. As I have said they make decisions, probably once I made the decision that slowly put into implement and so I put into turn that [indiscernible]. So we expect that same things happen yet, what we’re seeing is a lot more activity, calls from customers, what is your availability for deployment if we need to deploy in this region or that region? So there is a lot more active discussion around roll up kind of discussion, which we haven’t seen for quite a few quarters prior to this.
Okay, great. And then just globally in 2016 is there one region in particular that have you excited right now and for any particular reason?
No, we’re executing our plan and all of our businesses strategic components of that plan we, our plan is multi faceted, it’s focusing on our existing operations, controlling what we can control. So a lot of stuff is right now unfortunately out of our control, macro situation et cetera, but cost of the big focus and that’s how we navigate these kind of [indiscernible] and that will be continue to receive laser focused going forward simply through this year and beyond. Not to say we don’t [indiscernible] some prospect, but whilst other factors are completely out of control, it’s got a heavier waiting from our prospective, but each of our regions have got exciting plans in their own life with some differences depending on the geographic opportunities. So we just got to execute from our plan and we will continue to build the right business.
[Operator Instructions] moving now to our next question from Brian Schwart from Oppenheimer.
Yes hi thanks for taking my question and I could came over there Jose and Megan. Have a one question has really two part, just kind of looking forward as we entered the new fiscal year and then looking beyond that. So in terms of the new fiscal year Jose, I’m wondering what area of the business you are most excited about or may be said another way, what areas of business gives you the greatest opportunity of may be upside to you annual target that you are putting after for next year and then a little bit longer term beyond next year, on that you can talk about some of the, you are newer growth investment that it has planned here for the new fiscal year, that on, could give the business a little bit of a bump year as we look beyond in the next 12-months and little bit more towards the medium term? Thanks.
Sure thanks Brain. To answer the second part of your question, we've simply got a couple of exciting investments in growth initiatives, but it’s going to be a short answer, I can’t put anymore color on it right now for competitive reasons. You know we've got some stuff that we are excited about that would provide as you say growth initiatives, not so much in this fiscal year, although one of them is expected to provide at least some uplift towards the later part of this year, bit it’s not significant and nothing too much to worry about. But certainly designed to fiscal 2018 and beyond.
In terms of picking out what gives me the most excitement in terms of the year ahead, I guess what will make a significant difference on the upside is a recovery in - big recovery in either oil or minerals or ideally both and we don’t need both. One of the would be good, and if I had to pick one I would probably pick oil. The reason that - most obviously is that we have large fleets that are exclusive to us and [indiscernible] deployed.
So they are being cut back to tailor the effect of current market conditions and if we see those fleet start expanding and you would note sales if we get to immediate benefit. So that’s probably a [indiscernible] is what would excite me to spend. But we can’t control what we can’t control and we are excited about the various components of our business. We've got a plan for the year, irrespective I guess of what happens in the current macro situation, hopefully it doesn’t deteriorate from where it is right now.
Moving now for second last question from David Gearhart from First Analysis.
Hey Jose, hey Megan. Just for a quite curious, what the current arrangement is around [indiscernible] and what traction you are seeing there and when you expect it to contribute some material revenue to the front line?
Sure thanks appreciate it. You have, I mean it’s already a significant contributor so and in fact as I alluded to in the earnings call, it was a lot of what carried us from a growth perspective over the last couple of quarters where we were getting punished by the shrinkage we were seeing in some of our premium - from the contracts that we're seeing from big customers. So it’s a huge contributor, it’s not only from that direct subscription prospective.
But in Africa it’s used extensively not any as a [indiscernible] in conjunction with other devices as we've seen it opening door with fleet start at that device and then call us back in for more sophistically deployments. So we've got many customers that have dual contracts with us, I guess what are we doing about nationally in the last earnings call I did alluded to some progress with May in Latin America and we’re trying to sort out what we think as a small regulatory issue in terms of a frequency licensing and if we can resolve that we will see revenue in this financial year from [indiscernible] outside of Africa, which would be pretty exciting for us. So it’s a great part of our portfolio.
And then you know, next last question from me is, just on the consumer side, if you kind to give an update, I know Megan mentioned in here in the comments a little bit about consumers, but just curious how consumer is holding up just given the current backdrop, I think last call you mentioned that you know consumer has been holding up surprising well, curious if that continues and that’s it.
Yes it does absolutely, thank you. It’s a relative small component of our business in isolation but nonetheless a component and it is holding up well. We saw close to 14% growth close to mid-teens growth out of that segment in the year-end review and that’s all aspects of consumer both [indiscernible] or the more advanced side of that business. So in the face of a pretty difficult economy, it’s our team, [indiscernible] team are doing a great job in terms of in gaining market share, sustaining a decent growth rates and we have a really nice offering and we expect that to continue.
Okay. Thank you.
And at this time, I would like to turn the conference back over to Jose for any additional or closing remarks.
Thanks. Just a quick one. Thanks for joining us to review our results today. It’s clearly been a tough year, but we are focused on controlling the things that’s all within our control. We’re retaining key customer relationships, we’re winning new major accounts and we are confident that we can persevere through the cycle sustaining a solid subscription revenue growth and top tier profitability.
We intend to maintain our focus on the initiative that have made us a global leader in fleet management and driver safety, which includes continued investments in our sales and marketing programs and our innovation engine. As I shared before, we are weathered these cycled in the past and we are in a better position today than ever before to benefit when the demand environment improves.
Thanks for your continued interest in MiX Telematics. We look forward to catching up with many of you by phone, any person in the coming weeks and months. We will be presenting at the William Blair conference in Chicago in mid-June and at both the Oppenheimer and Cannacord Conferences later this summer. Thanks again for joining us and have a great day.
Thank you. That will conclude today’s conference. Again we thank everyone for their participation.
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