MiX Telematics Announces Financial Results for Third Quarter of Fiscal 2017

References in this announcement to “R” are to South African Rand and references to “U.S. Dollars” and “$” are to United States Dollars. Unless otherwise stated MiX Telematics has translated U.S. Dollar amounts from South African Rand at the exchange rate of R13.7392 per $1.00, which was the R/$ exchange rate reported by Oanda.com as of December 31, 2016.
Third Quarter Highlights: • Net subscriber additions of 20,300 in the quarter • Subscribers increased by 10% year over year, bringing the total to over 605,000 subscribers at December 31, 2016 • Total subscription revenue of R311 million ($22.6 million), ahead of guidance • Cash generated from operating activities of R97 million ($7.1 million) • Adjusted EBITDA of R88 million ($6.4 million), representing a 22% Adjusted EBITDA margin • Operating profit of R48 million ($3.5 million), representing a 12% margin • Company raises guidance for subscription revenue and profitability for the full 2017 fiscal year which ends March 31, 2017
Midrand, South Africa, February 2, 2017 – MiX Telematics Limited (NYSE: MIXT, JSE: MIX), a leading global provider of fleet and mobile asset management solutions delivered as Software-as-a-Service (“SaaS”), today announced financial results for its third quarter of fiscal 2017, which ended December 31, 2016.
“We are pleased with our strong execution during the third quarter and we exceeded expectations across all key metrics,” said Stefan Joselowitz, Chief Executive Officer of MiX Telematics. “Our results were driven by general strength across the portfolio including a positive contribution from energy sector customers, as well as the ongoing shift toward bundled deals which increases the long-term value per subscriber. We added over 20,000 net new subscribers during the quarter, resulting in our ability to exceed the 600,000 mark for the first time in the Company’s history. This base growth, combined with strict cost management, allowed us to make progress in the quarter towards our stated long-term goal of delivering normalised Adjusted EBITDA margins in excess of 30%. We believe that MiX is well positioned to maintain the momentum for the remainder of the year and beyond given our industry-leading integrated fleet management platform, product diversification, ongoing traction in key verticals and geographies, as well as commitment to sustain profitable growth.”
Financial performance for the three months ended December 31, 2016, Subscription revenue: Subscription revenue was R310.7 million ($22.6 million), an increase of 5.5% compared with R294.5 million ($21.4 million) for the third quarter of fiscal 2016. Subscription revenue benefited from an increase of over 54,600 subscribers, which resulted in an increase in the subscriber base of 9.9% from December 2015 to December 2016.
Total Revenue: Total revenue was R401.4 million ($29.2 million), an increase of 6.0% compared to R378.6 million ($27.6 million) for the third quarter of fiscal 2016. Hardware and other revenue were R90.7 million ($6.6 million), an increase of 7.8% compared to R84.1 million ($6.1 million) for the third quarter of fiscal 2016.
Gross Margin: Gross profit was R267.3 million ($19.5 million), as compared to R257.6 million ($18.7 million) for the third quarter of fiscal 2016. Gross profit margin was 66.6%, compared to 68.0% for the third quarter of fiscal 2016. As reported in our previous results announcements for the first and second quarters of fiscal 2017, infrastructure costs have increased due to the Company commencing its transition from legacy data centres, where we owned certain equipment, towards cloud-based infrastructure and services. We have also made additional investments to support the roll-out of our new back-end platform, MiX Lightning, and new products such as Journey Management, Hours of Service and MiX Go, which we expect to drive increased ARPU as well as subscriber growth over time.
Operating Margin: Operating profit was R47.9 million ($3.5 million), compared to R33.7 million ($2.5 million) for the third quarter of fiscal 2016. Operating margin was 11.9%, compared to 8.9% for the third quarter of fiscal 2016. The operating margin improvement was as a result of the increased revenue described above and an R4.8 million ($0.3 million) decline in operating expenses which were R219.5 million ($16.0 million) in the third quarter of fiscal 2017 compared to R224.3 million ($16.3 million) in the third quarter of fiscal 2016. This was as a result of strong cost management. Sales and marketing costs in the third quarter of fiscal 2017 declined by R4.7 million ($0.3 million) to R48.7 million ($3.5 million) compared to R53.4 million ($3.9 million) in the third quarter of fiscal 2016. Sales and marketing costs now represent 12.1% of revenue which is closely aligned with our estimates contained in our Form 20-F for the fiscal year ended March 31, 2016, where we advised that we expected these costs to remain relatively constant as a percentage of revenue i.e. 11% to 12% of revenue.
Adjusted EBITDA: Adjusted EBITDA, a non-IFRS measure, was R87.8 million ($6.4 million) compared to R71.0 million ($5.2 million) for the third quarter of fiscal 2016. Adjusted EBITDA margin, a non-IFRS measure, for the third quarter of fiscal 2017 was 21.9%, compared to 18.8% for the third quarter of fiscal 2016.
Profit for the period and earnings per share: Profit for the period was R35.1 million ($2.6 million), compared to R57.9 million ($4.2 million) in the third quarter of fiscal 2016. Profit for the period includes a net foreign exchange loss of R4.9 million ($0.4 million) before tax. Profit for the period for the third quarter of fiscal 2016 included a net foreign exchange gain of R68.8 million ($5.0 million)
of which R68.6 million ($5.0 million) related to U.S. Dollar cash reserves which are sensitive to volatility in the R:$ exchange rate. Earnings per diluted ordinary share were 6 South African cents, compared to 8 South African cents in the third quarter of fiscal 2016. For the third quarter of 2017, the calculation was based on diluted weighted average ordinary shares in issue of 567.0 million compared to 770.9 million diluted weighted average ordinary shares in issue during the third quarter of fiscal 2016. The diluted weighted average ordinary shares in issue during the third quarter of fiscal 2017 were lower than in the third quarter of fiscal 2016 due to the impact of the repurchase of 200.8 million ordinary shares during the second quarter of fiscal 2017.
The Company’s effective tax rate for the quarter was 19.2% compared to 43.9% in the third quarter of fiscal 2016. During the third quarter of fiscal 2017, the Company benefited from a change in an uncertain tax position relating to research and development expenditure. The change in this uncertain tax position reduced the Company’s effective tax rate in the quarter by 14.8%. Full details of this uncertain tax position are disclosed in note 10 of the accompanying financial results.
On a U.S. Dollar basis, and using December 31, 2016, the exchange rate of R13.7392 per U.S. Dollar, and at a ratio of 25 ordinary shares to one American Depositary Share (“ADS”), profit for the period was $2.6 million, or 11 U.S. cents per diluted ADS.
Adjusted earnings for the period and adjusted earnings per share: Adjusted earnings for the period, a non-IFRS measure which excludes net foreign exchange gains/(losses) from earnings, was R37.4 million ($2.7 million), compared to R16.4 million ($1.2 million) in the third quarter of fiscal 2016. Adjusted earnings per diluted ordinary share, also a non-IFRS measure, were 7 South African cents, compared to 2 South African cents in the third quarter of fiscal 2016.
On a U.S. Dollar basis, and using December 31, 2016, the exchange rate of R13.7392 per U.S. Dollar, and at a ratio of 25 ordinary shares to one Ad, adjusted earnings for the period was $2.7 million, or 12 U.S. cents per diluted ADS.
Statement of Financial Position and Cash Flow: At December 31, 2016, the Company had R358.7 million ($26.1 million) of cash and cash equivalents, compared to R907.5 million ($66.0 million) in the third quarter of fiscal 2016. The decline in cash and cash equivalents is attributable to the repurchase of 200.8 million ordinary shares which resulted in a cash outflow of R473.6 million ($34.5 million) during the second quarter of fiscal 2017.
The Company generated R97.3 million ($7.1 million) in net cash from operating activities for the three months ended December 31, 2016 and invested R73.3 million ($5.3 million) in capital expenditures during the quarter, leading to a free cash flow, a non-IFRS measure, of R24.0 million ($1.8 million), compared with negative free cash flow of R40.0 million ($2.9 million) for the third quarter of fiscal 2016.
An explanation of non-IFRS measures used in this release is set out in the Non-IFRS financial measures section of this press release. A reconciliation of these non-IFRS measures to the most directly comparable IFRS measures is provided in the financial tables that accompany this release.
Business Outlook Based on information as of today, February 2, 2017, the Company is issuing the following financial guidance for the full 2017 fiscal year:
• Subscription revenue – R1,233 million to R1,236 million (previous guidance was R1,220 million to R1,230 million), which would represent subscription revenue growth of 6.5% to 6.7% compared to fiscal 2016.
• Total Revenue – R1,513 million to R1,525 million (previous guidance was R1,501 million to R1,525 million), which would represent revenue growth of 3.3% to 4.1% compared to fiscal 2016.
• Adjusted EBITDA – R275 million to R295 million (previous guidance was R270 million to R290 million), which would represent a decline of 1% at the lower end and 6% growth at the higher end compared to fiscal 2016.

• Adjusted earnings per diluted ordinary share of 12.2 to 14.7 South African cents based on 632 million diluted ordinary shares in issue, and based on an effective tax rate of 29% to 32%. On a U.S. Dollar basis, and using January 30, 2017, exchange rate of R13.5273 per U.S. Dollar, and at a ratio of 25 ordinary shares to one Ad, this equates to adjusted earnings per diluted ADS of 23 to 27 U.S. cents.
For the fourth quarter of fiscal 2017, the Company expects subscription revenue to be in the range of R315 million to R318 million, which would represent subscription revenue growth of 3% to 4% compared to the fourth quarter of fiscal 2016.
The key assumptions used in deriving the forecast are as follows: • Growth in subscription revenue and vehicles under subscription are based on expected growth rates related to market conditions and takes into account growth rates achieved previously. • Achieving hardware sales according to expectations. Hardware sales are dependent on the volumes of bundled solutions selected by customers. • An average forecast exchange rate for the 2017 fiscal year of R14.2000 per $1.
The forecast is the responsibility of the Board of Directors and has not been reviewed or reported on by the Company’s external auditors. The Company’s policy is to give guidance on a quarterly basis, if necessary and does not update guidance between quarters.
The information disclosed in this “Business Outlook” paragraph complies with the disclosure requirements in terms of paragraph 8.38 of the JSE Listings Requirements which deals with profit forecasts.
Quarterly Reporting Policy in respect of JSE Listings Requirements Following the listing of the Company’s ADSs on the New York Stock Exchange, the Company has adopted a quarterly reporting policy. As a result of such quarterly reporting the Company is, in terms of paragraph 3.4(b)(ix) of the JSE Listings Requirements, not required to publish trading statements in terms of paragraph 3.4(b)(i) to (viii) of the JSE Listings Requirements.
Conference Call Information MiX Telematics management will also host a conference call and audio webcast at 8:00 a.m. (Eastern Standard Time) and 3:00 p.m. (South African Time) on February 2, 2017, to discuss the Company’s financial results and current business outlook:

• The live webcast of the call will be available on the “Investor Information” page of the Company’s website, http://investor.mixtelematics.com. • To access the call, dial 1-800-967-7141 (within the United States) or 0 800 980 989 (within South Africa) or 1-719-457-2634 (outside of the United States). The conference ID is 9683947. • A replay of this conference call will be available for a limited time at 1-844-512-2921 (within the United States) or 1-412-317-6671 (within South Africa or outside of the United States). The replay conference ID is 9683947. • A replay of the webcast will also be available for a limited time at http://investor.mixtelematics.com.
About MiX Telematics Limited MiX Telematics is a leading global provider of fleet and mobile asset management solutions delivered as SaaS to customers managing over 600,000 assets in approximately 120 countries. The Company’s products and services provide enterprise fleets, small fleets and consumers with solutions for safety, efficiency, risk and security. MiX Telematics was founded in 1996 and has offices in South Africa, the United Kingdom, the United States, Uganda, Brazil, Australia, Romania, Thailand and the United Arab Emirates as well as a network of more than 130 fleet partners worldwide. MiX Telematics shares are publicly traded on the Johannesburg Stock Exchange (JSE: MIX) and MiX Telematics American Depositary Shares are listed on the New York Stock Exchange (NYSE: MIXT). For more information visit www.mixtelematics.com.
Forward-Looking Statements This press release includes certain “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995, including without limitation, statements concerning our financial guidance for the fourth quarter and full year of fiscal 2017, our position to execute on our growth strategy, and our ability to expand our leadership position. These forward-looking statements reflect our current views about our plans, intentions, expectations, strategies and prospects, which are based on the information currently available to us and on assumptions we have made. Actual results may differ materially from those described in the forward-looking statements and will be affected by a variety of risks and factors that are beyond our control including, without limitation, those described under the caption “Risk Factors” in the Company’s Annual Report on Form 20-F filed with the Securities and Exchange Commission (the “SEC”) for the fiscal year ended March 31, 2016, as updated by other reports that the Company files with or furnishes to the SEC. The Company assumes no obligation to update any forward-looking statements contained in this press release as a result of new information, future events or otherwise.
Non-IFRS financial measures Adjusted EBITDA To provide investors with additional information regarding its financial results, the Company has disclosed within this press release, Adjusted EBITDA and Adjusted EBITDA margin. Adjusted EBITDA is a non-IFRS financial measure; it does not represent cash flows from operations for the periods indicated and should not be considered an alternative to profit for the period as an indicator of the Company’s results of operations or as an alternative to cash flows from operations as an indicator of liquidity. Adjusted EBITDA is defined as the profit for the period before income taxes, net finance income/(costs) including foreign exchange gains/(losses), depreciation of property, plant and equipment including capitalized customer in-vehicle devices, amortization of intangible assets including capitalized in-house development costs and intangible assets identified as part of a business combination, share-based compensation costs, transaction costs arising from the acquisition of a business or investigating strategic alternatives, restructuring costs, profits/(losses) on the disposal or impairments of assets or subsidiaries, certain non-recurring initial public offering (“IPO”) costs, insurance reimbursements relating to impaired assets and certain litigation costs.
The Company has included Adjusted EBITDA and Adjusted EBITDA margin in this press release because they are key measures that the Company’s management and Board of Directors use to understand and evaluate its core operating performance and trends; to prepare and approve its annual budget, and to develop short- and long-term operational plans. In particular, the exclusion of certain expenses in calculating Adjusted EBITDA and Adjusted EBITDA margin can provide a useful measure for period-to-period comparisons of the Company’s core business. Accordingly, the Company believes that Adjusted EBITDA and Adjusted EBITDA margin provides useful information to investors and others in understanding and evaluating its operating results.
The Company’s use of Adjusted EBITDA has limitations as an analytical tool, and you should not consider this performance measure in isolation from or as a substitute for analysis of the Company’s results as reported under IFRS. Some of these limitations are: • although depreciation and amortization are non-cash charges, the assets being depreciated and amortized may have to be replaced in the future, and Adjusted EBITDA does not reflect cash capital expenditure requirements for such replacements or for new capital expenditure requirements; • Adjusted EBITDA does not reflect changes in, or cash requirements for, the Company’s working capital needs; • Adjusted EBITDA does not consider the potentially dilutive impact of equity-based compensation; • Adjusted EBITDA does not reflect tax payments that may represent a reduction in cash available to the Company; and • other companies, including companies in the Company’s industry, may calculate Adjusted EBITDA differently, which reduces its usefulness as a comparative measure.
Because of these limitations, you should consider Adjusted EBITDA alongside other financial performance measures, including operating profit, profit for the period and the Company’s other results.
Adjusted Earnings and Adjusted Earnings Per Share Adjusted earnings per share is defined as profit attributable to owners of the parent, MiX Telematics Limited, excluding net foreign exchange gains/(losses) net of tax, divided by the weighted average number of ordinary shares in issue during the period.
We have included Adjusted earnings per share in this press release because it provides a useful measure for period-to-period comparisons of the Company’s core business by excluding net foreign exchange gains/(losses) from earnings. Accordingly, we believe that Adjusted earnings per share provides useful information to investors and others in understanding and evaluating the Company’s operating results.
Free cash flow Free cash flow is determined as net cash generated from operating activities less capital expenditure per investing activities. We believe that free cash flow provides useful information to investors and others in understanding and evaluating the Company’s cash flows as it provides detail of the amount of cash the Company generates or utilises after accounting for all capital expenditures including investments in in-vehicle devices and development expenditure.