MiX Telematics' (MIXT) CEO Stefan Joselowitz on Q1 2017 Results - Earnings Call Transcript

| About: MiX Telematics (MIXT)

MiX Telematics Limited (NYSE:MIXT)

Q1 2017 Earnings Conference Call

August 04, 2016, 08:00 ET

Executives

Stefan Joselowitz - President & CEO

Megan Pydigadu - CFO

Analysts

Brian Peterson - Raymond James

Bhavan Suri - William Blair

Brian Schwartz - Oppenheimer

David Gearhart - First Analysis

Operator

Welcome to the MiX Telematics First Quarter 2017 Conference Call. Today's conference is being recorded. At this time I would like to turn the conference over to Megan Pydigadu. Please go ahead.

Megan Pydigadu

Good day and welcome to MiX Telematics earnings results call for the first quarter of fiscal 2017 which ended on June the 30, 2016. Today, we will be discussing the results announced in our press release, issued a few hours ago. I am Megan Pydigadu, Chief Financial Officer and joining me on the call today is Stefan Joselowitz or as many of you know him, Joss. He is the President and Chief Executive Officer of MiX Telematics.

During the call, we will make statements relating 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 subject 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 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 and filed with the Securities and Exchange Commission.

With that, let me turn the call to Joss.

Stefan Joselowitz

Thanks Megan. I would like to thank you all for joining us to review our first quarter fiscal year 2017 financial results and outlook. Let me start with the most recent news. We're extremely pleased to announce that at our general meeting earlier this week, Shareholders approved our repurchase of all of the MiX ordinary shares held by Imperial. While the resolution was adopted by 99% of the MiX Shareholders, the Company expects that the sentence have a period of 10 business days to apply to Court for a review of the transaction. That said, it is important to note that a court would only agree to review the transaction if facts emerged supporting a claim of unfairness to a class of Shareholders or that the vote was materially tainted. We're confident these conditions will not be met and therefore expect a final consummation of the transaction by end of this month.

As we have stated previously the transaction represents a buyback of around 25% of our stock and is immediately accretive to Shareholders. We currently see no better use of our cash than to invest in our own business at this valuation.

Let’s move to the first quarter results. We again posted double-digit revenue growth and Adjusted EBITDA margins as well as solid operating cash flow for the quarter. I am proud of our team's ability to execute in challenging times. I wish I was in a position to say the worst is behind us, but disappointingly we continue to see energy sector customers [indiscernible] of their fees. Additionally, some of our mining customers in Northern and Central Africa have been reducing fleet charges. Naturally, the Brexit news has added a veil of uncertainly in Europe and the UK which represents about 11% of our business. This region had regained its footing and was frankly on the rocks when this news hit. We can only assume the business climate in Europe will be challenging for the foreseeable future and of course which has stirred up further currency volatility.

Our functional currency is the South African Rand which has strengthened against all major currencies and has therefore become a headwind on our revenues. Of course, for U.S. Investors, translating a stronger Rand back into U.S. dollars is a positive. While some of our customers in energy sector have reported that they believe the bottom has been reached, it would be premature to claim that there has been a meaningful rebound in the oil and gas sector. That said, I'm pleased to share that we have still not lost any headcounts in the sector and the conversations with our customers are more positive than they have been in a while. It's also worth reiterating that many of our contracts specify that our solution must be used on all of the customers' active fleet vehicles.

The long tenure and strength of these relationships gives me confidence that as the energy sector returns to business as usual, we will achieve rapid reacceleration of subscriber growth and therefore accelerated subscription revenue growth. But remember that energy sector companies only represent about 20% of our business and we're being hard at work growing other verticals like bus and coach, emergency services of construction and field service fleets. Importantly, our other service offering is opening doors in new verticals as the ELV mandate deadline approaches. Our pipeline of near term opportunities is quite strong and as I've stated previously, we're not suffering competitive losses.

With that context, let me provide an overview of the first quarter fiscal 2017 results. As I noted, we continue to be able to post double-digit revenue growth with total revenue growing about 10% and subscription revenue up 13% year-over-year. We delivered subscription revenue in the range of our guidance. Our subscriber base grew by little over 10% with particular strength from our asset tracking solution. We added 11,800 subscribers and finished the quarter with a base of 578,000. We sustained solid profitability albeit lower than our typical levels.

Customers continue to favor our fully bundled offering and since the long term value of these contracts is higher, we remain pleased with the trend. While the business grew during the first quarter we were disappointed in our rate of growth. At the risk of repeating myself, key target markets continue to face difficult times, currency fluctuation is muting our growth and world events like Brexit create regional uncertainty. But we're growing double-digit and remain committed to delivering profitable growth.

Holding a global business is not short of challenges, but we have the market prediction, have the team and we have the experience to deliver our medium term plans and are not daunted by this task. What's more, we see a terrific opportunity to capture new subscribers as they adopt technology to comply with ELV regulations here in the U.S. I am pleased to share that our best share of verticals represented in our pipeline will have these solutions.

Our Other Service Solutions were very solid through the U.S., Europe, Africa and the Middle East and combined with our recently launched MiX Journey Management product, we provide everything that most fleets need to improve safety, efficiency and ensure regulatory compliance, including ELV while reducing cost and risk.

One project that underscores the commitment to retaining our position on the cutting edge is our initiative to leverage cloud-based infrastructure and services much more extensively. Although we have hosted in the cloud for several years, we still have some legacy datacenters where we co-locate using our own equipment. Earlier this year, we took a strategic decision to migrate these to Amazon Web Services and the project is well underway. AWS needs no introduction and we have been very impressed with their service and performance, customers will benefit from even better uptimes and redundancy as well as new features we're currently developing which would have not been possible on the legacy infrastructure without a significant capital outlay. MiX benefits from competitive pricing, improved scalability and ongoing technical and commercial innovations that will lead to operation efficiencies and savings over time.

Now that almost our entire fleet base has migrated on to the new frontend platform called DynaMiX, we have started deploying the first phase of our next generation backend platform. With our MiX Lightning, this highly scalable system leverages leading edge technologies and offers best practices and is designed to support exponential growth in our subscriber base. In parallel, we've also integrated with the leading online global net providers and started the roll out of a new event notification system that pushes critical information into the hands of our customers.

We signed two oil and gas customers in Brazil, with opening orders totaling a few hundred vehicles and the rollout is planned for next quarter. We have added a new energy customer in the United States. Our Australian team has done well, signing customers and new vehicles including contracts for several hundred vehicles in the food and beverage industry and transportation sectors. We're picking up momentum with our ARPU enhancing attachments, especially MiX Vision, Journey Management and the Extended Hours of Service Solution for non-regulated markets which we launched last quarter. Lastly, while Beame is not a new offering, this revolutionary asset tracking solution continues to gain excellent traction.

The asset tracking side of our business has proved to be an useful shock absorber, while we experience metric challenges in our premium fleet segment. This is a testimony to the power of our broad based portfolio and diversified revenue streams.

Our ability to deliver ongoing value and great service is why so many customers turn to MiX. In fact, Frost & Sullivan recently recognized MiX Telematics as South Africa's best telematics Company. This award is presented each year to companies in a variety of regional and global markets for outstanding achievement. MiX was praised for its visionary leadership in the telematics industry exemplified by its focus on driving business performance and innovations for the future.

So while we continue to navigate our fair share of headwinds, we're in this for the long haul. We have always taken a balanced approach to growth and profitability, we're sustaining profitable growth without sacrificing investments in sales or innovation. We're pleased to have received approval from our Shareholders to complete the buyback of around 25% of our stock from Imperial. At current valuations we can honestly see no better use of our cash.

With that said, let me turn it over to Megan to run through the details of the quarter.

Megan Pydigadu

Thanks, Joss. Let me walk through our first quarter fiscal year 2017 performance across each of our key operating metrics as well as our revenue and earnings targets. Bear in mind that our reporting currency is the South African Rand. For convenience, we have translated our results into U.S. dollars, both for the 2017 and 2016 periods using June the 30, 2016 spot rates. 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 remind you that as we have discussed throughout fiscal 2016, in addition to the macro headwinds we're facing, our business is undergoing a transition to significantly more bundled contracts. This is positive for our business as the larger subscription engagements are more profitable over the longer terms. But it does have a negative short term impact on our growth rates, profitability and free cash flow. As we have said in the past, we're happy to absorb the near term P&L effects and we believe funding the upfront costs is an excellent use of our cash as the returns are very attractive. With this transition in mind, let me run through our first quarter results.

Total revenue was R379.1 million which is a 10.2% increase from the year ago first quarter. Our first quarter subscription revenue of R306.2 million was up 12.7% year-over-year. This was at the midpoint of our guidance range of R303 million to R309 million. We added 11,773 subscribers in the quarter and now have 577,950 subscribers, for an increase of 10.4% year-over-year.

Hardware and other revenue was R72.9 million which is a 0.8% increase from the year ago first quarter. As noted, the shift towards more bundled deals remained at play here, but additionally, our hardware and other revenue continues to be impacted by lower sales activity in the energy and mining sector. Subscription revenue is now 81% of our total revenue which is up from 79% a year ago.

Moving down the P&L, our gross profits in the first quarter was R255.8 million, representing a gross margin of 67.5%, down from 70.3% posted in last year's first quarter. As we have noted, we believe our current model supports total gross margins in the high 60s. We continue to believe we can achieve our long term target to deliver gross margins in excess of 70%.

We have been outperforming that target recently as our infrastructure costs have been running lower than usual. However, as Joss noted, the Group commenced the transition from legacy datacenters where we traditionally co-located using our own equipment to AWS. This has had approximately 150 basis points impact on our subscription gross margins or about 150 basis points on the total gross margins. The remaining decline is as a result of lower margins on hardware and other revenue in the first quarter of fiscal 2017, primarily as a result of product mix favoring asset tracking engagements.

In terms of our operating expenses, our sales and marketing costs were at 4.2% relative to the first quarter last year. This line item now represents 12.8% of revenue, slightly higher than our stated target of between 11% and 12% of revenue. This remains a function of our investments in the Americas, our business model transition and lower hardware and overall flat sales. General and administrative expenses were up 14% year-over-year and represent 48.8% of revenue. Recall that our G&A costs include R&D costs not capitalized. For those of you interested to see our historical capitalization and development cost expense, we have provided a table in our earnings press release. Currency fluctuation is currently a headwind for us as the Rand strengthens. We still believe that overtime as the business becomes fully scaled this should reduce to below 40%.

Operating profit was R22.9 million, representing a 6% operating margin. This was down from an operating margin of 9.5% posted in the first quarter last year. To provide Investors with additional information regarding our financial results, we displayed Adjusted EBITDA and Adjusted EBITDA margin as well as adjusted earnings for the period which are non-IFRS measures. So we have provided a full reconciliation table in our press release.

First quarter Adjusted EBITDA was R60.4 million, down from R65.1 million last year. This represented a margin of 15.9%, down from 18.9% posted in the year ago first quarter. IFRS profit for the period which include a significant unrealized foreign exchange gain of about R19.9 million before tax was R31.9 million, up from R31.1 million in the year ago quarter. IFRS profit for the quarter was R0.04 per fully diluted ordinary share which is consistent with the year ago quarter.

Adjusted earnings for the period were R17.3 million which was down from the R23.7 million profit we posted a year ago. This was affected by an effective tax rate of 53.5% in the current quarter compared to 51.7% in the year ago quarter. Our quarterly tax rate can be quite volatile as they are determined by the geographic origin of our profits and losses. Adjusted earnings per diluted ordinary share were R0.02 compared to R0.03 in the first quarter a year ago.

Turning to the balance sheet, we ended the quarter with cash and cash equivalents of R845.8 million, down from R877.1 million at the end of last quarter. From a cash flow perspective, we generated R28.1 million in net cash from operating activities and made R52.2 million investments in capital expenditures, leading to a negative free cash flow of R54.1 million for the first quarter compared with negative free cash flow of R3.1 million in the first quarter of fiscal year 2016 as bundled deals continue to increase.

Finally, I would like to share our financial targets for the full fiscal year 2017 and the second quarter. As we noted in the press release, our financial targets are sensitive to exchange rate fluctuations, particularly volatility related to the Rand versus the dollar and versus the British pound. We arrived at our guidance assuming an average exchange rate of R15.8 to the dollar and R23.5 to the Pound. However, if current exchange rates of R13.9 to the dollar and R18.4 to the Pound continue throughout the remainder of fiscal 2017, our total revenues and subscription revenue guidance for the full 2017 fiscal year would come in lower by approximately R45 million and R50 million respectively.

Additionally, we have included in our guidance, the assumption that current deployment schedules in the oil and gas sector will be executed as planned. For the full year, we're reiterating our expectations to deliver total revenue of R1.575 billion to R1.606 billion which would represent year-over-year growth of 8% to 10%. We're targeting subscription revenue of R1.311 billion to R1.330 billion which would be year-over-year growth of 13% to 15%.

We're targeting Adjusted EBITDA between R317 million and R337 million which would be year-over-year growth of about 14% to 22%. This would lead to adjusted earnings to a diluted ordinary share of R0.113 to R0.131 based on 765 million diluted ordinary shares and an effective tax rate of between 29% to 33%. For the second quarter of 2017, we're targeting subscription revenue in the range of R305 million to R308 million which would represent year-over-year growth of 7% to 8%.

Operator, we're now ready to begin the Q&A session.

Question-and-Answer Session

Operator

[Operator Instructions]. We will go with Brian Peterson with Raymond James.

Brian Peterson

Thanks for taking the question. So Joss, I wanted to hit on the guidance for the year. Obviously, there is a lot of macro headwinds outside of your control and if I am looking at how you guys are thinking about sub revenue in the second quarter and keeping the full year the same, it implies a pretty significant ramp in the back half of the year. So I am just -- given everything that’s going on, I just want to understand what gives you the confidence that the revenues are going to pick up for the back half?

Stefan Joselowitz

Yes, thank you and appreciate your time. As I also alluded to in the call, we're having some pretty positive conversation with existing customers about ramping up deployments and as things currently look and all things being equal, we're expecting a ramp up. Of course, this -- these macro factors that we have really no control over and you know, it’s relatively early in our financial year as I had mentioned, we haven't got off to the start we wanted.

Per opening, we have done okay, but we -- a lot of our growth has come out of our lower ARPU asset tracking side which has put pressure on our subscription revenue line, because we've seen -- and my biggest disappointment is we saw further contraction in Q1 from key energy customers and although I never called the bottom, I was certainly hoping that we've seen the bottom of that fleet contraction. So we didn’t get off to the ideal start.

Having said that, we've discussed it as a team, we’ve put the macro issues behind. We looked at it because we can’t control them, I said behind, we just put them aside rather and said, you know, what do we have control over, what is our top line looking like at the moment and we're focused on catching up. That’s I guess, we're not paid to make excuses of the team. We're paid to deliver results and that’s what we're focused on doing.

Brian Peterson

Okay and just a clarification on that, so obviously, you guys can’t control the fleet sizes of a customer base, that will be what it would be, what it will be, but if I think about new bookings and the size of the pipeline, have you seen any extension in sales cycles or go-to-market, has that been a little slower than you expected in the quarter or is that about in line with what you were thinking?

Stefan Joselowitz

Yes, ignoring the sectors that we all know are under pressure. The resource sectors which includes the energy sector and of course mining which has been -- which has been under pressure for some time, it’s pretty much business as usual outside of it. Of course, Brexit has added -- we haven’t seen any immediate effects though, not using that -- you know, we're not making a call on it one way or the other, other than it’s clearly -- it’s logically raised the level of uncertainty in Europe and we will see how it plays out. But again, we're taking a cautious view at the moment I suppose and as usual we will have to see how it pans out going forward.

Brian Peterson

Got it and maybe one for you, Megan, just wanted to understand where you are in the datacenter transition, are we going to see maybe 150 basis point impact over the next couple of quarters, when do you expect that transition to be completed? Thank you.

Megan Pydigadu

So in terms of that on our gross margin, I think we can probably expect it for the remainder of the financial year that will impact on our gross margins and it’s all really dependent on how fast we grow our base over this coming year as well and as we get scale.

Brian Peterson

Got it, thank you.

Stefan Joselowitz

Yes, just to conclude on that, we would expect it to normalize as our premium fleet base rose particularly according to what we planned it to grow by.

Brian Peterson

Understood. Thanks Joss, thanks Megan.

Stefan Joselowitz

Thank you, Brian.

Operator

Next we will go to Bhavan Suri with William Blair.

Bhavan Suri

To start off with you know, just to follow up on Brian's question, you guys have renewed 100% of your oil and gas customers and you are seeing a contraction. Just help me walk through what a typical sort of conversation is going on there, obviously, they continue to see pressure on their business, but sort of they've got renewals, renewals are done and help me think through how that’s working now with further contraction and sort of what sort of pieces are they seeing their business sort of say, we can do without sort of this type of vehicle, this type of use case?

Stefan Joselowitz

Yes. I guess, it’s correlated almost directly to their mobile workforce. So if they had gotten through their layoff cycle, then we would have I guess at that point, you know, seen the bottom. I accept there is a lag. These are large organizations. They make decisions, they make cost cutting decisions or investment decisions, either way, there is a lag between the decision being made and seeing the full effect of the implementation, either on the upside or the downside. At the moment, of course we're dealing with downside. So typically, I am not going to mention a name, but one of our fleets we were close to 12,000 vehicles, we're down now pushing 7,000 vehicles with that same customer, happy customers, renewed with us over a period of pretty much 12 months, we have seen net count reduction. It’s a big impact on our -- it has a big impact on having a muting effect on our growth rate in our premium fleet business. So these are the things we have to deal with.

Now the conversations you asked that we're having is coupled with the contraction that we have been seeing including into this Q1 of this fiscal year. We've had new implementations or new projects put on hold. The conversations we’ve been having is that we have scheduled restarts, those are the kind of discussion meeting with customers on a number of those products, projects have been scheduled for late in Q2, some of them very big rollouts. Now, if those go according to plan, we will start seeing the leverage up that we're planning for this financial year. So the conversations are positive.

You know, we're making -- whereas up to a couple of quarters ago, in fact even up to last quarter, the conversations were putting this on hold, shrinking this, not going ahead with it. It’s now we're scheduling start on this one or that one, so much more positive and of course we're taking all of that stuff into account.

Bhavan Suri

Then just turning to the other verticals, you know, you sort of felt good about it, but especially in Europe, you are getting any sense of weakness in any other vertical out there; coach, carriage, anything yet or is it just sort of -- you're just concerned about the uncertainly because of Brexit or are you hearing anything from customers about their plans at all?

Stefan Joselowitz

No, I think it’s -- at the moment, it’s just concerns. It’s concerns amongst some of the customers we have spoken to, it’s just a climate of uncertainty and we haven’t seen any immediate impact. So I just want to make that clear is that the mention of Brexit is we operate our operations in United Kingdom, it’s currently part of the EU. It’s planned not to be part of the EU and that’s created uncertainty on both sides of the channel effectively because people are worried about the economy in Europe and what the impact of that is going to be over the short to medium term. Longer term, I think it will all settle down and it may have negligible impact on our business. So we're -- I am just putting it out to be as frank as possible with our Shareholders who are my partners in the business and they need to know what’s worrying me, what's worrying me is that there is a -- you know, Brexit has just raised the level of uncertainty we could have done without right now.

Bhavan Suri

Got it, got it. Then one final one from me, just on the add-on products, whether it’s Vision or Journey Management Solutions, as you look at that core base, just some sense of penetration and uptake and then obviously vis-à-vis expectations for Journey Management, your newer solution is, is that just going growing faster than you would have thought or is that sort of in line with expectation?

Stefan Joselowitz

Journey Management, I will deal with it in this, you know, the feedback I am extremely excited about, we’ve got active customers on it. It is a real offer enhancer. It’s probably marginally behind our plans bearing in mind that a big use case, it’s not done any use cases in the energy sector. So we're -- although we have got some customers actively using it, we’ve got others that say, wow, love it. But it's more dollars for them to layout, so it sort of I guess slower for them to make a decision point. So I would say that that’s not quite where we expect it to be at, but there is no doubt in my mind it will get there and beyond. So the product is working extremely well.

MiX Vision being taken up now, active take up in multiple verticals just about every vertical that we deal in, there is an active use case now for MiX Vision combined with all other services that we provide and it’s adding good value to us and adding great value to our customers which of course is what’s growing to drive further rollouts. So it’s -- we remain excited about it. It’s nowhere near what it could be as an ARPU -- as moving the needle is concerned, but it's definitely gaining traction and getting to the point of scale which is what I am excited about.

Bhavan Suri

That’s helpful, Joss. Thank you and thanks for the color. Thanks Megan.

Megan Pydigadu

Thanks.

Stefan Joselowitz

Thanks Bhavan, appreciate it, appreciate it.

Operator

[Operator Instructions]. We will take our next question from Brian Schwartz with Oppenheimer.

Brian Schwartz

I got two questions. Megan, on the AWS migration, I am just wondering [indiscernible] in terms does that change at all the long term gross margin target could it potentially be higher than maybe what you are expecting at the time of the IPO.

Megan Pydigadu

I think overtime we would expect our gross margins to transition back to 70% and the obvious reasons why we've gone with AWS, it offers obviously a whole lot of benefits in terms of redundancy, uptime and our ability to scale quickly as our subscriber base grows.

Brian Schwartz

Okay. Then Joss, I wanted to just take your temperture on the consolidation activity that’s been happening in the fleet space here at the end of Q2 and post quarter especially here in the U.S. with some of the competition. The question that I want to ask you is I am just wondering if there is anything that you can do internally from a marketing standpoint to take advantage of this dislocation that’s going to be happening here in the U.S. market at least over the next six to 12 months and just wondering if there is any strategies or anything that you guys could do that could maybe take advantage of this dislocation in the market here in regards to your pipeline momentum. Thanks.

Stefan Joselowitz

I am not sure I understand the question, from a buy-side or sell-side or in terms of our own market cap, what--?

Brian Schwartz

Yes, in terms of your own strategy, you know, we had -- look, I mean it’s out there, we have seen Verizon come in at the end of Q2 and they bought a larger private fleet management company and then after the quarter ended you know [indiscernible] acquisition of a large public fleet management company here in the U.S. So I imagine in the market, that’s going to cause at least some dislocation as these companies merge and integrate, just wondering if there is anything here in the U.S. from a marketing or--

Stefan Joselowitz

Right, right, right, thank you. I do understand the question now, momentum…

Brian Schwartz

Yes, just take advantage of that.

Stefan Joselowitz

Not from an M&A perspective but taking advantage, you know, I think there is definitely some conversations we're already having, I better be -- obviously be very careful about spoiling our competitive position through public things. But of course, Verizon are making -- have made some significant moves not necessarily sitting well with their competitors. So I think there is definitely some opportunity to look at some fleet opportunity while their transition takes place and what we do now from an experience and I am sure that it applies to these mega organizations as well is that integration of our multiple assets in a very short timeframe are typically not easy and they do create distraction and I suspect we certainly will do our level best to take full advantage of that distraction as well as I guess other competitors that are in the space that are seeing a similar opportunity.

Brian Schwartz

Thank you for taking my questions here this morning.

Stefan Joselowitz

Thank you, Brian.

Operator

Next we will go to David Gearhart with First Analysis.

David Gearhart

Yes, my first question is you know, I kind of wanted to get a sense for the asset tracking business and in your remarks you mentioned that the asset tracking business has done well. It's providing a cushion absorbing the effects of macro headwinds. Just trying to get a sense of how much of your gross additions just at a high level, just talking directionally, are coming from asset tracking win versus fleet.

Stefan Joselowitz

I can give you a rough idea purely because we haven’t published the metrics. So that should be in the last couple of quarters where we would typically see it running it like 50/50 I guess between asset tracking side of our business now premium fleet business. In the last couple of quarters, it’s been heavily weighted towards asset tracking. You can read between that line, it’s not all of it, but it’s heavily weighted towards asset tracking side, has proven to be an -- this our broad product portfolio, diversified revenue streams has proved to be a great shock absorber for us over what's been a difficult I guess, five, six quarters now. It’s an important part of our business that leverages [indiscernible] technology and is doing a great job from our perspective.

But of course, it’s at a low ARPU, great margins, but at low ARPU, similar margins and we know we're looking forward to getting normality back into our business where we get the multiplication effect, I guess, of a single premium fleet subscriber has a multiplication effect on our subscription revenue on compared to an asset tracking way, an asset tracking subscriber. So I hope that gives you at least some color around it as opposed to -- and that doesn’t specifically answer the exact numbers but it gives you some idea.

David Gearhart

Sounds good and then also, can we get a kind of an update on the Middle East and maybe just from a geographic perspective how you are doing in that geography and others, lot of oil and gas out there, but I know on prior calls you had mentioned that you get the wins, but it would be difficult just given the climate to get things solved and I am just wondering if you could just give us some color there.

Stefan Joselowitz

Yes. Our Middle East business, we're certainly seeing in terms of the contraction -- remember, two of our businesses there are heavily exposed to energy, to oil and gas, is obviously our United States business and our Middle East business. I would -- from our Middle East perspective, we're pretty much -- we didn’t see much contraction during Q1, so the bulk of the contraction that we continue to see in the space was in the United States.

So without calling the bottom in the Middle East, because they are about exposed to the same industry and obviously I can’t pretend that I am not concerned about the very recent dip in oil price again over the last few weeks. But from a Middle East perspective, the business had held its own nicely during the quarter, I guess is the best way I can describe it at this point, wasn't a rocket engine of growth but held its own.

Operator

That concludes today's question-and-answer session. Mr. Joselowitz, I would like to turn the conference back over to you for any additional or closing remarks.

Stefan Joselowitz

Yes. Just quickly from me, thanks again for joining us today. We really appreciate your attention, your questions. We will be presenting at the Oppenheim and Canaccord Conferences in Boston next week and are looking forward to see some of you there. We're also looking forward to seeing you all in Las Vegas during the CTIA show in September.

We will be holding several important Company events in Vegas and including an Analysts and an Investors day on afternoon of September, the 8. We hope if you any of you are in town, you will join us for a tour of our booth, you will have presentations from our global executive Management team including sales, product development etcetera.

You will have the opportunity to hear from our ELV expert on this important new opportunity for MiX. During the week following CTIA, we will be hosting our biennial dealer conference. We have it every two years, where we expect dealers from all corners of the globe will be joining us in Vegas to help us develop our strategy for going forward and we're really excited about it. Thanks again for your time.

Operator

This concludes today's conference. Thank you for your participation. You may now disconnect.

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