MiX Telematics Ltd - Annual Report: 2023 (Form 10-K)
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-K
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☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended March 31, 2023
OR
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission file number: 001-36027
MIX TELEMATICS LIMITED
(Exact name of Registrant as specified in its charter)
REPUBLIC OF SOUTH AFRICA NOT APPLICABLE
(State or other jurisdiction of incorporation or organization) (I.R.S. Employer Identification No.)
750 Park of Commerce Blvd
Suite 310, Boca Raton, Florida 33487
(Address of principal executive offices)
1-877-585-1088
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||||||
| American Depositary Shares (“ADSs”), each representing 25 ordinary shares, no par value | MIXT | New York Stock Exchange | ||||||
| Ordinary Shares, no par value | New York Stock Exchange (for listing purposes only) | |||||||
Securities registered pursuant to Section 12(g) of the Act.
None
(Title of Class)
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. ☐Yes xNo
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act. ☐Yes xNo
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. xYes ☐No
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted and pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). xYes ☐No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer o | Accelerated filer ☒ | |||||||
Non-accelerated filer ☐ | Smaller reporting company ☒ | |||||||
Emerging growth company ☐ | ||||||||
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☒
If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction of an error to previously issued financial statements. ☐
Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the registrant’s executive officers during the relevant recovery period pursuant to §240.10D-1(b) ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). ☐Yes xNo
The aggregate market value of the voting and non-voting common equity held by non-affiliates of the registrant on September 30, 2022, the last business day of the registrant’s most recent completed second fiscal quarter, was approximately $121,171,277.
As of May 26, 2023, 554,936,819 of the registrant’s ordinary shares were outstanding, including 399,341,275 ordinary shares represented by American Depository Shares. This number excludes 53,816,750 shares held by the registrant as treasury stock.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant’s Proxy Statement for the 2023 Annual General Meeting of Shareholders are incorporated by reference in Part III of this Form 10-K.
TABLE OF CONTENTS
| Page | ||||||||
| Part I | ||||||||
Item 1. Business | ||||||||
Item 1A. Risk Factors | ||||||||
Item 1B. Unresolved Staff Comments | ||||||||
Item 2. Properties | ||||||||
Item 3. Legal Proceedings | ||||||||
Item 4. Mine Safety Disclosures | ||||||||
| Part II | ||||||||
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities | ||||||||
Item 6. Reserved | ||||||||
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations | ||||||||
Item 7A. Quantitative and Qualitative Disclosures About Market Risks | ||||||||
Item 8. Financial Statements and Supplementary Data | ||||||||
Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure | ||||||||
Item 9A. Controls and Procedures | ||||||||
Item 9B. Other Information | ||||||||
| Part III | ||||||||
Item 10. Directors, Executive Officers and Corporate Governance | ||||||||
Item 11. Executive Compensation | ||||||||
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters | ||||||||
Item 13. Certain Relationships and Related Transactions, and Director Independence | ||||||||
Item 14. Principal Accountant Fees and Services | ||||||||
| Part IV | ||||||||
Item 15. Exhibits and Financial Statement Schedules | ||||||||
FORWARD-LOOKING STATEMENTS
This Annual Report on Form 10-K includes certain “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995, including without limitation, statements regarding our position to execute on our growth strategy, and our ability to expand our leadership position. These forward-looking statements include, but are not limited to, the Company’s beliefs, plans, goals, objectives, expectations, assumptions, estimates, intentions, future performance, other statements that are not historical facts and statements identified by words such as “expects”, “anticipates”, “intends”, “plans”, “believes”, “seeks”, “estimates” or words of similar meaning. 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. Although we believe that our plans, intentions, expectations, strategies and prospects as reflected in, or suggested by, these forward-looking statements are reasonable, we can give no assurance that the plans, intentions, expectations or strategies will be attained or achieved.
Furthermore, actual results may differ materially from those described in the forward-looking statements and will be affected by a variety of known and unknown risks and uncertainties, some of which are beyond our control. We believe that these risks and uncertainties include, but are not limited to, those described in Part I, Item 1A. “Risk Factors”. These risk factors should not be considered as an exhaustive list and should be read in conjunction with the other cautionary statements and information in this report.
We assume no obligation to update any forward-looking statements contained in this Annual Report and expressly disclaim any obligation to do so, whether as a result of new information, future events or otherwise, except as required by law.
PRESENTATION OF FINANCIAL AND OTHER INFORMATION
The consolidated financial statements contained in this Annual Report on Form 10-K have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”).
Unless the context requires otherwise, the terms “MiX”, the “Company”, “we”, “our” or “us” refer to MiX Telematics Limited and its consolidated subsidiaries.
Our fiscal year ends on March 31 and all references to a fiscal year, refer to the fiscal year ended March 31. References to “U.S. Dollars” and “$” are to United States Dollars.
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PART I
ITEM 1. BUSINESS
Overview
We are a leading global provider of connected fleet and mobile asset solutions delivered as Software as a Service (“SaaS”). Our solutions deliver a measurable return by enabling our customers to manage, optimize and protect their investments in commercial fleets or personal vehicles. We generate actionable insights that enable a wide range of customers, from large enterprise fleets to small fleet operators and consumers, to reduce fuel and other operating costs, improve efficiency, enhance regulatory compliance, enhance driver safety, manage risk and mitigate theft. Our solutions mostly rely on our proprietary, highly scalable technology platforms, which allow us to collect, analyze and deliver information based on data from our customers’ vehicles. Using an intuitive, web-based interface, dashboards or mobile apps, our fleet customers can access large volumes of real-time and historical data, monitor the location and status of their drivers and vehicles and analyze a wide number of key metrics across their fleet operations.
We have a large global presence, with vehicle subscriptions in over 120 countries across six continents. We currently serve a highly diverse customer base, including 4,800 fleet operators, which represented 69% of our subscription revenue for fiscal year 2023. We target sales of our enterprise fleet management solutions to customers who desire a premium solution, generally for large fleets, which we define as fleets of 50 or more vehicles. Large fleets accounted for over 92% of our fleet subscriptions at March 31, 2023. We believe we have a satisfied customer base and, among our more than 1,000 large fleet operator customers, we experienced an annual customer retention rate of 99% in fiscal year 2023. In addition, for large fleets with 500 or more vehicles, we experienced an annual customer retention rate in excess of 97% in fiscal year 2023. We have multinational enterprise fleet customer deployments with companies such as Baker Hughes, BP, Chevron, DHL, G4S, Halliburton, Nestlé, PepsiCo, Schlumberger, Shell, The Linde Group, Total and Weatherford. We also offer a range of subscription-based fleet and vehicle management solutions to meet the needs and price points of small fleet operators and consumers. Our safety and security features, including driver performance and vehicle monitoring, are important attributes of our solutions for these customers.
With the exception of fiscal year 2021, we have consistently grown our customer base. As evidence of this growth, subscribers, one of our key operating metrics and a factor influencing our rate of subscription revenue growth, increased at a compound annual growth rate of 10.8% from April 1, 2014 to March 31, 2023, and as of March 31, 2023, we tracked and managed over 1,001,800 subscribers. As a result of the COVID-19 pandemic, fiscal year 2021 represented the only year of net subscriber contraction over this period of 73,800 subscribers, resulting in a 6.1% reduction in subscription revenue for the period, on a constant currency basis. As a further indicator of our scale, in fiscal year 2023, we collected data on approximately 184 million trips per month and recorded approximately 11 billion vehicle positions per month. The monthly price charged per subscriber varies among our customers depending on the services and features they require, hardware options, customer size, route to market and geographic location of the customer. Consequently, our rate of subscription revenue growth is influenced by not only the rate of growth in the number of subscribers but also by the evolving mix of our subscriber base.
Industry Overview
Challenges Facing Fleet Operators Worldwide
Fleet managers operate in an increasingly competitive and highly regulated global environment. Timely and accurate decision-making enabled by solutions that provide real-time visibility into vehicle location and driver performance is critical to managing a safe, efficient fleet. In some developing areas of the world, ensuring driver and vehicle safety and security is also particularly challenging given high crime rates, which have resulted in automotive insurance mandates and regulatory requirements for vehicle tracking. Consequently, fleet managers and consumers demand solutions that promote driver and passenger safety, mitigate risk, drive operational efficiencies, improve security and reduce automotive insurance costs. The business environment for fleet managers is further complicated by the large number of transportation-related regulatory and compliance requirements worldwide, and the frequency with which rules and regulations change.
Legacy fleet management solutions inadequately address industry needs as many businesses use discrete manual processes, such as spreadsheet and paper-based systems and telephones, to monitor vehicle and driver activity. These approaches are labor intensive, prone to error, do not provide continuous monitoring of fleets, make it difficult to optimize fleet utilization, manage operating costs and generate minimal business intelligence. Additionally, legacy fleet management technology frequently provides limited functionality beyond basic location-based tracking and makes it difficult for fleet
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operators to fully benefit from the cost savings and efficiency improvements associated with more robust fleet management offerings.
Fleet operators face many significant challenges, which can include:
•Significant operating costs. According to the American Transport Research Institute’s 2021 data, fuel represents 40%, repair & maintenance 17%, truck insurance premiums 8% and tires 4% of vehicle-based trucking operational costs per mile. Combined, these factors account for 69% of vehicle-based operational costs per mile, all of which can be reduced through connected fleet solutions and the process of positively impacting driving behaviors, including by reducing behaviors like speeding, harsh acceleration, harsh braking and excessive idling.
•Poor visibility into fleet operations. Fleet operators frequently maintain vehicles across multiple geographic regions and often lack visibility into their fleets and oversight of their drivers, and this problem is growing in significance as fleets start to electrify and managers have to navigate the complexities of hybrid fleets. Poor fleet visibility makes it challenging to optimize fleet utilization, vehicle fleet size and miles driven while still meeting core business and customer servicing requirements. Poor driver oversight makes it difficult for operators to validate hours worked or customers visited, incentivize greater efficiency and discourage unproductive, undesirable or dangerous worker behavior.
•Challenges in maintaining regulatory compliance. Internal compliance and reporting is driven by legislative and regulatory requirements, which are often subject to change, from regulatory authorities in nearly every jurisdiction globally. This can be particularly burdensome for fleet operators managing large vehicle fleets in multiple jurisdictions. For example, in the United States, fleet operators can face numerous complex regulatory requirements, including mandatory hours of service compliance and fuel tax reporting and more recently electronic logging devices (“ELD”) legislation that requires truck drivers to log their hours of service electronically.
•Challenges in managing risk. Fleet operators are responsible for hiring, training and identifying risks associated with their drivers. Vehicle crashes are a leading cause of workplace injury and lead to significant costs for fleet operators, including financial liability and increased insurance premiums. Fleet operators need visibility into driving behavior to proactively identify and remediate drivers with poor driving habits.
•Inefficient data management. Fleet operators receive operational information from many disparate sources, including communications from their technicians and customers, paper-based reports, third-party receipts for items such as fuel purchases, vehicle maintenance logs and customer invoices. While simply collecting this unstructured data is burdensome, organizing and analyzing the data to identify trends and other actionable business intelligence can be even more challenging.
Challenges Facing Fleet Operators and Consumers in Developing Markets
In certain developing regions of the world, driver safety and vehicle security are significant concerns given high crime rates and the impact these higher crime rates have on consumers, insurance costs and regulatory requirements. More specifically, fleet operators and consumers often need to address challenges including:
•Managing the impact of crime. Vehicle crime rates in developing regions of the world often far exceed those in the United States and Western Europe, resulting in potentially significant costs for fleet operators and consumers.
•Reducing insurance costs. In developed and developing regions, insurers often provide incentives for fleet operators and consumers who subscribe to a safety and security mobile asset management solution. Some insurance providers will not insure vehicles that lack a tracking solution or will make the insurance premium cost prohibitive without one. Furthermore, insurance providers’ interest in safety and security solutions has increased following the introduction of driver performance monitoring solutions, which can enable innovative usage-based insurance and claims management initiatives.
•Complying with regulatory mandates. The growing introduction of stringent occupational health and safety legislation in developing markets is adding pressure to fleet operators, who need to fulfill their duty of care while also complying with laws regulating driving hours, rest time, fuel taxes, etc.
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Industry Trends
There have been substantial advances in the capabilities, reliability and affordability of technologies that can be used to cost-effectively collect and disseminate large amounts of vehicle data and video footage. GPS positioning and advanced on-board systems generate valuable, objective real-time information, which provides the basis for driver and vehicle management solutions. Similarly, significant advances in the performance, reliability and affordability of fixed and wireless networks, computing power and data storage capabilities have supported the rise of cloud computing that enables the delivery of SaaS. These technological advances and market shifts have helped to foster demand for subscription-based fleet and mobile asset management solutions like ours.
While fleet and mobile asset management solutions can offer a wide range of features and benefits, the reasons for adopting these solutions often vary by customer type and geography. In developed regions, including North America and Western Europe, many fleet operators adopt fleet management software solutions in order to obtain greater visibility over their vehicles and mobile workforces, to achieve cost savings through efficiency improvements, including reduced fuel consumption, and to reduce regulatory compliance burdens. In many developing regions, including Eastern Europe, Latin America, Africa, the Middle East and parts of Asia, the security of personnel and asset protection features afforded by vehicle tracking and monitoring, resulting in greater asset visibility and a lower impact of theft, are also important reasons for the adoption of fleet and mobile asset management solutions. In Australia and parts of Africa, Asia, Europe and the Middle East, compliance with health and safety standards and policies are a key reason for adoption of these systems. Managing the transition to – and operation of – electric fleets is a key priority for fleets in Europe and elsewhere. Recognizing the variety of motivations influencing our existing and potential customers is an important aspect of developing and marketing our solutions.
Global and multinational companies are increasingly looking to consolidate their fleet management systems by moving to providers that have global reach. This is primarily driven by the desire to have a secure centralized view across their fleets and impose set global standards specifically relating to driver management and safety. These companies also recognize the advantages of gathering vast quantities of data to draw new insights into their global fleet operations.
A research publication by Berg Insight says the integration of cameras to enable various video-based solutions in commercial vehicle environments is one of the most apparent trends in the fleet telematics sector today. Growing at a compound annual growth rate (“CAGR”) of 18.0% they forecast that the active installed base of video telematics systems will reach almost 8.8 million units in North America by 2027. In Europe, the active installed base is forecasted to grow at a CAGR of 17.9% to reach 2.5 million video telematics systems by 2027. The video telematics market is served by many companies including video specialists, fleet telematics players and hardware-focussed suppliers. With MiX Vision AI which was launched in fiscal year 2022 and enhanced with multiple software and hardware updates in 2023, we are meeting an ever-broader range of needs in the video telematics market.
Market Opportunity
We believe that the addressable market for our fleet management solutions is large, growing and remains largely under-penetrated. According to a report by ABI Research (“ABI”), there were approximately 230 million commercial vehicles registered globally by the end of December 2022. Global fleet management penetration was estimated to reach 23%. ABI forecasts that by 2030, the number of registered commercial vehicles will be approximately 287 million.
In addition to the growing market opportunity in commercial fleet vehicles, we believe there is a large and under-penetrated market to provide a tailored set of safety and security solutions to non-commercial passenger vehicles. Worldwide, the pool of motor vehicles is large and growing, particularly in developing markets. We estimate that there are approximately 7.7 million non-commercial passenger vehicles in operation in South Africa, as of April 2023, utilizing latest vehicle population information available from the National Traffic Information Systems. We believe the potential rate of consumer adoption of mobile asset management solutions is highest in developing regions where vehicle tracking and monitoring features can help to improve driver and passenger safety, reduce the impact of theft by improving stolen vehicle recovery rates and reduce consumer automotive insurance rates.
Our Solutions
Our subscription-based solutions enable our customers to manage, optimize and protect their investments in their commercial fleets and personal vehicles efficiently. Our highly scalable multi-tenant architecture leverages GPS and other data transmitted from in-vehicle devices, primarily over cellular networks. In fiscal year 2023, we collected data on approximately 184 million trips per month and recorded approximately 11 billion vehicle positions per month.
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The key attributes of our solutions include:
•Advanced artificial intelligence and machine learning. Our solutions are utilizing the latest technology to deliver customer value, including our MiX Vision AI video telematics offering, which uses machine learning and artificial intelligence to protect drivers in real-time from dangerous driving scenarios such as fatigue and distraction.
•Highly scalable solutions. Our software solutions are built to scale and support geographically distributed fleets of any size. As of March 31, 2023 we provided services to more than one million vehicles under subscription, with customers ranging from small fleet operators and consumers to large enterprise fleets with more than 10,000 assets.
•Robust portfolio of features addressing a full range of customer needs. We believe that we offer one of the broadest ranges of features for fleet and mobile asset management available. For example, for fleet efficiency, we offer vehicle tracking and analysis, fuel consumption and mileage analysis; for regulatory compliance, we offer compliance monitoring, hours of service tracking and fuel tax reporting; for driver improvement, we offer in-vehicle video monitoring and in-cab real-time driver feedback; for risk management, we offer driver scoring and analysis and journey management; and for safety and security, we offer vehicle and asset tracking, crash notifications and vehicle theft recovery.
•Insightful business intelligence and reporting. Our fleet management software is designed to provide our customers with insightful, actionable business intelligence on demand. For example, our premium fleet solution, MiX Fleet Manager, includes data reporting and analysis tools with more than 110 standard reports and embedded dashboards as well as the new KPI manager module, which enables clients to customize, monitor and measure the performance of the key performance indicators that matter most to them. Our business intelligence engine,supported by our data lake, provides enhanced analytics, reporting and data visualization tools for those customers seeking to understand trends or highly granular analyses of large quantities of historical and real-time data.
•Easily accessible, intuitive applications. Our web-based solutions are accessible from fixed and mobile computing devices, and provide vehicle and fleet information, dashboard views and alerts and the ability to generate analytical reports from an office or a remote location. Our customers can choose to access our solution via an intuitive web-based interface or through our dedicated mobile applications developed for the Android and iOS mobile platforms. Fleet operators can also use our application program interfaces to integrate our solution directly with their software systems, such as transportation management software, route planning systems and enterprise resource management software.
•Software-as-a-service powered by a proven, reliable infrastructure. Our use of a multi-tenant SaaS architecture allows us to deliver fleet management applications that are highly functional, flexible and fast while reducing the cost and complexity associated with customer adoption. We support our SaaS delivered solutions with a proven infrastructure of redundant servers and other hardware located in secure third-party data centers. We have continued to maintain an overall system uptime of over 99.9%, measured quarterly.
Our Offerings
We offer a range of solutions to address the needs of diverse customer segments. Our primary subscription-based offerings are:
•MiX Fleet Manager. MiX Fleet Manager is our premier commercial fleet management solution. It is built on a modern, scalable software platform for managing vehicle fleets of all sizes. Our fleet management systems provide a wide variety of complex data pertaining to driver behavior and the location, status and operational activity of vehicles and fleets. MiX Fleet Manager is an interactive, web-based application providing secure access to this complex data in a simple, intuitive manner. MiX Fleet Manager gives users live and historical views of driver and vehicle performance information, including vehicle tracking and status information as well as alerts and notifications. Together with our integrated MiX Insight Reports and MiX Mobile, the solution provides fleet managers with actionable business intelligence in the form of reports and fleet analytics. Customers can also subscribe to premium subscription-based applications supported on MiX Fleet Manager, such as:
▪MyMiX, an innovative driver engagement platform that provides professional drivers with easy 24-hour access, via the web or a mobile device, to key information about their performance. Driver scoring, a module available on MyMiX, boasts a sleek, engaging and user-friendly interface accessible from Android or iOS mobile devices.
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▪MiX Vision, an on-road and in-vehicle video recording solution, that allows fleet managers to record video footage related to driving behavior and events. We believe MiX Vision addresses an important market need for in-vehicle surveillance and driver feedback. MiX Vision is fully integrated with our premium fleet management solutions to enable event-driven or time-based video recording and supports external cameras as well as an in-cab Driver Status Monitor. MiX Vision AI was launched in calendar year 2021 and we have seen strong interest in this new solution which leverages machine vision and artificial intelligence technologies to detect driver distraction, fatigue and other unsafe driving practices such as cell-phone use and smoking.
▪MiX Rovi, an in-vehicle display and communications system allowing fleet operators to streamline their fleet operations through improved communication between drivers and their back offices. Customized data inputs are configured in MiX Fleet Manager and can be updated locally or remotely via the Internet. For example, a fleet operator of delivery vehicles can set custom data inputs for information relating to deliveries, such as quantities delivered and collected, times of arrival and departure or time spent at unscheduled stops. MiX Rovi is electronic logging devices legislation (“ELD”) compliant. In fiscal year 2022, further software updates for the MiX Rovi in-cab display were carried out, including the development of Canadian ELD solution which was certified by the Canadian authorities and released in fiscal year 2023.
▪MiX RIBAS and DriveMate, are in-cab driving aids that help drivers improve their driving style. Using an unobtrusive system of symbols with red, amber and green status lights accompanied by audible warning tones, drivers receive feedback on their driving style in real-time, enabling customers to manage improvements in driver and vehicle performance and reductions in fuel consumption and accident rates.
▪MiX Hours of Service (“Hours of Service”), allows for the real-time monitoring and compliance of legislated or regulated hours of work for the United States, Canada and Europe. Mandated ELD legislation in the United States requires truck drivers to log their hours of service electronically. European customers can also use our optional “MiX 3D” service to download and archive digital tachograph data as required by European law. This add-on also accommodates regions with non-regulated driving hours legislation, such as the Middle East and Africa, allowing fleet operators to easily set their own driving hours rules and measure activity to reduce fatigue related incidents.
▪MiX Journey Management, offers an easy-to-use electronic alternative to paper-based systems that ensures all risks relating to journeys are readily visible to decision makers when it matters most. MiX Journey Management suits fleet operators across diverse industries and is ideal for those with large fleets of vehicles that travel long distances and carry passengers or cargo.
▪MiX OEM Connect, allows customers to get instant, direct integration to relevant and powerful telematics data without the cost or downtime associated with device or hardware installations. Our cloud-to-cloud system integrates with manufacturers including Ford and Navistar, with multiple further integrations in our roadmap.
•MiX Asset Manager. Our portfolio of asset tracking products includes third-party hardware products and products developed ourselves. By keeping track of valuable assets including generators, light towers, storage tanks and pumps, our asset management solution allows for increased visibility of corporate assets, resulting in improved asset utilization and reduced loss.
•Matrix. Our Matrix suite of mobile asset management solutions is designed for entry-level fleets and consumers. The Matrix range of solutions can provide real-time and historical vehicle tracking and positioning, unauthorized vehicle use alerts, panic emergency response, crash alerts, driver behavior alerts, fuel tax logbooks and vehicle maintenance notifications. Users can access their Matrix subscription’s functionality via a web-based interface or our mobile applications.
•Beam-e. Beam-e leverages our large network of subscribers as a crowdsourcing platform to locate vehicles without the expense of utilizing a traditional cellular network connection. Each Beam-e device communicates with other nearby devices in order to form a crowdsourced network that interfaces with our systems. Rental car companies, consumers and owners of high-value mobile assets can use Beam-e to provide entry-level tracking and recovery services at an upfront cost and monthly subscription price point that is well below the cost of traditional vehicle tracking solutions.
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We currently offer Beam-e in South Africa and are evaluating opportunities for expansion into other geographies which are similar to South Africa. During fiscal year 2023, we secured our first customers in Australia where the solution is marketed as MiX Tabs solution and the requirement is to track the whereabouts of equipment.
Customers utilize our solutions to collect real-time data from their vehicles and transmit this information to our secure third-party data centers for processing. We generally design our own hardware and firmware in order to ensure their modularity, quality and interoperability with our core subscription offerings. We outsource the manufacturing of these devices and seek to drive device costs down over time in order to reduce the upfront investment required by our customers. In addition to sales of these devices to customers, we offer customers the option of bundling our devices as a full-service option, further reducing the capital investment required to access our solutions.
We believe our modular, proprietary designs and control over the entire ecosystem gives us an advantage over competitors who rely on third-party commodity in-vehicle devices because we are able to provide more customized service and solutions through our proprietary devices. Currently we have three dominant in-vehicle platforms, namely one for enterprise fleet management, one for consumer vehicle management and light fleet management and one for Beam-e or MiX Tabs for entry-level vehicle and asset tracking and recovery.
Principal features associated with our subscription-based offerings include the following:
•Vehicle tracking. Our vehicle tracking functionality allows our customers to pinpoint the exact locations of vehicles using real-time data. Notifications about vehicle activity and status are accessed through a web-based interface or our mobile applications. Our customers also have the ability to access historical tracking data for analysis.
•Location management. Our location management and geofencing features allow customers to easily designate geographic areas in which vehicles are allowed or not allowed to travel, or areas deemed dangerous or high risk. Customers receive notifications when a vehicle enters or exits unauthorized regions or locations.
•Vehicle security. Our vehicle security solution provides our customers with security options tailored to individual requirements. We offer vehicle tracking and recovery features, providing safety and security for our customers and their vehicles and helping to reduce the costs associated with theft.
•Reporting & dashboards. We provide our customers with on-demand reports enabling access to a wide range of fleet data. Our reports contain detailed information about driver behavior, vehicle location, idle time, miles and hours driven, average speed, acceleration, crash analysis and vehicle diagnostics. We also offer premium data visualization and business intelligence tools.
•Regulatory compliance. Customers can use our solutions to assist in regulatory compliance, for example hours of service and fuel tax reporting.
•Vehicle and driver management. We provide functionality for customers to manage licenses, registrations, certifications, in-vehicle video monitoring and other vehicle and driver requirements. Our advanced AI video capabilities protect drivers from risky driving scenarios such as fatigue and distraction.
•Messaging. With MiX Rovi, fleet operators can communicate efficiently and effectively with their drivers. Custom menus direct driver workflow, jobs and navigation, ensuring drivers arrive at the correct destination and improving communication between fleet operators and their drivers.
•Mobile access. We provide information to users via a variety of mobile platforms, including iOS and Android, and provide our customers with access to actionable business intelligence on their vehicles and mobile assets from the office or remotely.
•Application integration. Our application programming interfaces, MiX Integrate, allow our customers to integrate our applications with their existing enterprise software systems and allow for increased customization of our fleet reports, vehicle tracking alerts and location management features.
•Real time monitoring. We offer active real time driver behavior monitoring and risk management services.
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Our Key Competitive Strengths
The markets in which we operate are highly competitive and fragmented. We believe that the following attributes differentiate us from our competitors and are key factors to our success:
•Globalized sales, distribution and support capabilities. We currently maintain a direct and indirect sales and support presence, with localized application support in multiple languages, in countries across Africa, Australasia, Europe, the Middle East, North America and South America. We believe our global presence gives us an important advantage in competing for business from multinational enterprise fleet customers such as Baker Hughes, BP, Chevron, DHL, G4S, Halliburton, Nestlé, PepsiCo, Schlumberger, Shell, The Linde Group, Total and Weatherford, who often prefer to consolidate disparate fleet management systems.
•Solutions adaptable to multiple customer segments. We believe that by leveraging our common core technologies, personnel and systems, we can cost-effectively develop and sell a range of subscription-based fleet and mobile asset management solutions that are designed to meet the functionality and price needs of multiple customer segments, including fleet operators and consumers. Our fleet management solutions include targeted functionality to address the distinct needs of key industry segments, including oil and gas, transportation and logistics, government and municipal, bus and coach, and rental and leasing, as well as for the needs of consumers. We believe that offering a range of subscription-based solutions maximizes our ability to serve the addressable market and offers an appealing value proposition to our customers, while distinguishing ourselves from competitors that offer a single, one-size-fits-all solution.
•Focus on safety and security. Most of our solutions incorporate safety and security features that enable our customers to enhance their drivers’ and passengers’ personal safety, encourage safe driving behavior and protect vehicle investments. We also offer web-based driver training, proactive journey management and other related services to provide a turnkey safety and security solution to manage risk and fatigue-related incidents. Our differentiated safety and security features have particularly strong appeal to customers in regulated industries, such as oil and gas, customers in industries exposed to liability concerns, such as bus and coach, and customers operating in high crime regions. We perform training and land transport assessments for customers to assist them in establishing and maintaining safety levels. We believe our safety and security offerings also help our customers to reduce operating costs associated with the training of drivers.
•Track record of innovation. Our investment in software development is core to our business strategy. Our software teams employ an agile software development methodology. We have made a significant investment in product development, and we have routinely been among the first to market with innovative solutions and features that cater to the needs of our customers. For example, in fiscal year 2021, we added MyMiX tracking to our broad product portfolio. MyMiX Tracking enables fleet operators to track and manage the safety of their drivers by leveraging smart phone technology. We integrated our systems with the telematics services offered by two truck manufacturers and also launched a fringe benefit tax solution for Australia. During fiscal year 2022 we launched a new MiX Vision AI solution and an embedded analytics and dashboard platform leveraging a new data lake. We also developed a Canadian ELD solution for MiX Fleet Manager which was certified and released in fiscal year 2023, integrated with various OEM telematics data services and delivered various updates to our hardware platform in response to the global electronic component crisis. In 2023, we also launched our KPI management module for clients to visualize their key value realization insights as well as updates to our MiX Vision AI solution, which provided more options to cater for additional vehicle types and industry specializations.
•Longstanding established market position. We have a 26-year history, a geographically diverse sales and marketing footprint, a large established network of distributors and dealers, and a large base of satisfied customers. Our robust and referenceable customer base, including numerous Forbes Global 2000 enterprises, is a critical selling point to both large enterprise fleets and small fleet operators.
Growth Strategy
We intend to expand our market leadership by:
•Acquiring new customers and increasing sales to existing customers. We believe the market for fleet and mobile asset management solutions is large and growing, creating a significant opportunity for us to expand our customer base. Additionally, we believe we have the opportunity to expand our fleet management market share among our existing
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customer base by demonstrating our value proposition, growing with the customer, introducing new and innovative value-added solutions and displacing legacy fleet management solutions.
•Expanding our geographic presence. We market and distribute our solutions directly and through a global network of approximately 130 channel partners outside of South Africa. We are expanding our penetration in attractive geographic regions, such as Brazil and the United States, and continue to expand our network of strategic and sales distribution partners in other regions of the world. In addition to our primary hosted data centers that serve multiple geographies, we also established two hosted data centers in specific countries where local conditions require that the data be retained in-country.
•Broadening our customer segment focus. We currently have customers across numerous industry segments, with the resources of our direct sales organization focussed on premium customers in certain key segments, including oil and gas, transportation and logistics, government and municipal, bus and coach, and rental and leasing. We are currently increasing our product development initiatives and sales and distribution efforts in other industry segments, such as the construction and service industries. We regularly evaluate opportunities to expand our target customer focus.
•Continuing to introduce new, innovative solutions to address market demand. We are continually innovating and extending our solutions portfolio based on our assessment of market demand and trends. During fiscal year 2022 we launched a new MiX Vision AI solution, MiX OEM Connect and an embedded analytics and dashboard platform leveraging a new data lake. In fiscal year 2023, we expanded our MiX Vision AI portfolio, adding support for additional cameras and enhanced software features. We also certified and released our Canadian ELD solution, which extended our embedded dashboard offering and integrated with more OEM telematics data services. We launched a new KPI management module to help users track their progress towards achieving their corporate goals and delivered various updates to some of our hardware platforms in response to the global electronic component crisis. We are continually innovating and extending our solutions portfolio based on our assessment of market demand and trends.
•Pursuing strategic acquisitions. Our industry is highly fragmented. We intend to selectively evaluate acquisition opportunities in certain geographic regions and industry segments.
Sales and Marketing
We offer our solutions in over 120 countries through a combination of our direct and indirect marketing efforts. Our sales and marketing strategy is segmented by geographic region and customer type to cost effectively target and acquire new customers, as well as expanding and up-selling existing customers. In certain regions, we sell subscriptions of our fleet management solutions to large enterprise fleets through our direct sales force. In other regions, and for sales to small fleet operators and consumers, we work with an extensive distribution network of regional partners and national distribution value-added resellers. Through our central services organization headquartered in South Africa, we provide common marketing, product management, technical and distribution support to each of our regional sales and marketing operations.
The following is a brief description of the main categories of our sales and marketing efforts.
•Direct Sales. We focus our direct selling efforts on targeting, acquiring, servicing and upselling our premium solutions to large enterprise fleet operators and small fleet operators. We maintain sales offices in Australia, Brazil, South Africa, Uganda, the United Kingdom, the United States, Mexico and India. These offices sell directly to large enterprise fleet operators and small fleet operators in their respective regions and are also responsible for channel management of fleet solution distribution partners throughout their regions. Our sales and marketing approach with fleet customers is generally based on a combination of return on investment and the improvements in safety and security delivered by our solutions. Our South African sales offices also sell directly to consumers.
•Digital Marketing. Our digital marketing focus complements our verticalized sales strategy and supports quality and high quantity targeted lead generation in all of our regions. Lead generation channels include search engine platforms and account-based marketing platforms.
•Indirect Sales – Enterprise Fleet. We have over 130 fleet value-added resellers supporting customers with vehicles in over 120 countries worldwide. These resellers are responsible for sales, marketing, technical support, installation and training of customers in their regions. We operate a partner accreditation program in order to assure a consistent customer experience across our resellers worldwide. We also offer marketing and support services to enhance their
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selling success. We believe our large network provides us with a geographically diverse, highly effective channel for reaching local customers in countries where we do not currently have a direct presence.
•Indirect Sales – Small Fleet Operators and Consumers. We currently manage an extensive network of distribution partners for our small fleet operator and consumer customers. Our distribution partners include automobile dealers, aftermarket automotive parts and service suppliers, automobile insurers and retailers. We believe our indirect distribution strategy for the small fleet operator and consumer markets provides us with a differentiated, cost-effective customer acquisition and sales model.
Our global network of independent value-added resellers and distributors is an important component of our sales strategy. Our resellers and distributors account for a substantial percentage of our total sales, and sales generated by certain resellers and distributors represent a meaningful percentage of our revenue. The terms of our agreements with our resellers do not usually include minimum purchase obligations, are specific to a geographic territory and are primarily non-exclusive. They generally have a fixed initial term, after which they may be renewed or continue indefinitely if not terminated. This is subject to the right of either party to terminate on specified notice generally ranging from 90 days to one year, or for breach. Similarly, our distributor agreements do not include minimum purchase obligations and consist principally of a commission agreement applicable to sales generated by the distributor.
Our revenue by geographic segment is set out in note 16 of the consolidated financial statements included in this annual report.
Customers
We currently serve a highly diverse customer base, including approximately 4,800 fleet operators which represented 62% of our subscription revenue for fiscal year 2023, as well as individual consumers. We target sales of our enterprise fleet management solutions to customers who desire a premium solution, generally for large fleets, which we define as being fleets of 50 or more vehicles. Large fleets comprised 92% of our fleet customer subscriptions as of March 31, 2023. We also offer a range of subscription-based fleet and mobile asset management solutions optimized for the needs and price points demanded by small fleet operators and consumers.
Our current customer base spans numerous industry categories and customer segments, including oil and gas, transportation and logistics, government and municipal, bus and coach, and rental and leasing. No individual customer represented more than 4.0% of our subscription revenue for fiscal year 2023. For fiscal years 2023, 2022 and 2021, our top 10 fleet customers represented 16.7%, 16.6% and 21.8% respectively, of our total subscription revenue.
The following is a representative list of some of our largest customers:
•Halliburton
•Schlumberger
•Total
•Shell
•DHL
•Europcar
•Holcim
•Hyper Auto
•Baker Hughes
•Super Group
•Chevron
•Rio Tinto
•G4S
•Nippon
•British American Tobacco
•Iberdrola
•Wincanton
We believe that we have a satisfied customer base as evidenced by our customer retention rate and the favorable results of our customer surveys. In fiscal year 2023, among our more than 1,000 large fleet operator customers, we experienced an annual customer retention rate of 99%. We maintain a strong focus on monitoring and continuously enhancing our customer satisfaction levels.
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Service and Support
Installation of our solutions in our customers’ vehicles is generally provided by us or our third-party network, which includes dealers and distributors and installation partners. Customer care and technical support services are provided by our offices in Australia, Brazil, India, Mexico, South Africa, the United Arab Emirates, the United Kingdom, and the United States. In many cases, our dealers and distributors also provide customers with tier-one customer support services. Our regional offices and dealers and distributors are, in turn, supported by our central technical support team in South Africa that handles any escalated issues. Existing customers can also access customer and technical support directly through our web or mobile applications. Our technical support department is composed of a team of highly skilled staff who are familiar with all of our products, including our entire range of software and service solutions as well as our hardware. The MiX Learning Centre, now known as Academy X, is used by staff and customers around the world to undertake online training to learn about new products and enhancements.
We offer warranties of varying duration on our products. Product warranties are predominantly for a one-year period but periods of up to three years are provided in certain geographic locations. Our Beam-e product carries a lifetime warranty (to the extent that the unit remains in the vehicle into which it was installed for the original subscriber). Warranty expenses are not a significant portion of our total costs.
Research and Development
As of March 31, 2023, our product development group consists of 161 full-time staff responsible for software, hardware and firmware development, quality assurance and programme management. Our primary development group is based in South Africa, and we have additional development resources in India and the United States. Our software development teams employ an agile development methodology, while our engineering teams use traditional waterfall project management methods. During fiscal years 2023, 2022 and 2021, we invested $9.5 million, $9.3 million and $7.2 million respectively, in research and development.
Our investment in development is core to our business strategy. Our research and development efforts principally involve software development, firmware development, hardware design and related test equipment. Research and development costs are expensed as they are incurred. In addition, we have enhanced certain of our hardware components to extend their functionality and reduce component and manufacturing costs.
We have been successful in expanding our product offerings over time, mostly through internal development for which we own all Intellectual Property. Highlights from the fiscal year 2023 include:
•The deployment of 18 system-wide platform updates and 21 mobile app updates to our live environments.
•Extensions to the embedded dashboard and analytics platform launched in fiscal 2022 for premium fleet customers.
•Updates on certain hardware platforms and accessories.
•Extension of the MiX OEM Connect solution to leverage more telematics services provided by Original Equipment Manufacturers (truck makers).
•Extension of our MiX Vision AI solution to support multiple cameras.
•Certification and release of our Canadian ELD solution.
•Deeper integration of alternative hardware enablers for certain markets.
Our DevOps and SaaS operations are ISO 9001 and ISO 27001 certified with a formalized quality policy and consistent monitoring of internal processes, supplier and solution performance. We outsource all hardware manufacturing to third parties.
Technology
Our solutions are offered using a multi-tenant SaaS architecture that scales rapidly to support additional new subscribers through the addition of incremental data processing and storage capacity. This architecture flexibility allows us to sustain high levels of uptime without degradation of system performance, despite significant subscriber growth. Our existing architecture and infrastructure has been designed with sufficient capacity to meet our current and anticipated future needs. Our subscription-based fleet and consumer service offerings are designed to be accessible via a standard web browser or mobile device application.
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Our solutions typically include a proprietary in-vehicle device that incorporates off-the-shelf components, generally including a cellular modem, GPS receiver and memory capacity sufficient to run our firmware, which gathers vehicle location, time, speed, ignition status, miles driven and various vehicle and driver statistics. This information is collected at a predefined frequency and then sent to our receivers at secure third-party data centers, generally via a commercial cellular network. The information is then processed and delivered to our customers through our web-based and mobile device applications. Our solutions enable our fleet customers to access large volumes of historical and real-time data, monitor the location and status of their fleet vehicles and drivers, view a wide selection of reports and key performance indicator dashboards and generate valuable, actionable business intelligence.
We store data, host our solutions and serve our customers from third-party data centers located in Algiers in Algeria, Sydney in Australia, Muscat in Oman, Dublin in Ireland, and Virginia in the United States. In fiscal year 2023, we also added third-party data center in Dubai, United Arab Emirates. In addition to data hosted at third-party data centers, the vast majority of our cloud-based SaaS service leverages Amazon Web Services. Our data management facilities provide us with both physical security, including manned security, biometric access controls and systems security, including firewalls, encryption, redundant power and environmental controls. We believe that our third-party hosting facilities are adequate for our current needs and that suitable additional capacity will be available as needed to accommodate planned expansion of our operations.
MiX Vision AI is a fully integrated, connected camera solution with a built-in artificial intelligence processor which uses Machine Vision based Video Analytic technology to detect or monitor road events (ADAS) such as un-signalled lane departure, forward collision and following distance (also known as Headway Monitoring Warning) and unsafe driver behaviour (DSM) such as fatigue, distraction, smoking, unfastened seatbelt and phone usage. The MiX Vision AI infra-red capabilities ensure clear footage is captured at night and can alert the driver in real-time of dangerous behaviours by triggering a voice warning and audible or visual notifications with the optional AI Driver coach (R-Watch). The MiX Vision AI will also upload events (and the respective video recordings) to the MiX Fleet Manager platform where they can be reviewed by a fleet manager. They can be used for coaching the drivers, therefore reducing risks and ensuring safe trips. The device also supports Incab recording full colour images with wide-angle view of the cab with built in microphone to record audio.
Intellectual Property
We rely primarily on trade secret laws, confidentiality agreements, confidentiality procedures and contractual restrictions to establish and protect our intellectual property rights. We also rely to a limited extent on patent, trademark and copyright law. A patent covering certain aspects of our Beam-e product was issued in South Africa during fiscal year 2014 and a patent covering a method for driver verification was issued during fiscal year 2015.
We typically enter into non-disclosure and confidentiality agreements with our employees, licensees and independent consultants and other advisors. We also seek these protective agreements from some of our suppliers and subcontractors who have access to sensitive information regarding our intellectual property.
We incur intellectual property expenses that arise primarily from costs associated with documenting, applying for, and maintaining domestic and international patents and trademarks.
Competition
The rapidly evolving market for our solutions is competitive and highly fragmented, particularly by geography and customer segment. We currently compete with numerous providers of fleet and mobile asset management solutions that range from small, regional providers to midsized multinational providers, such as Cartrack, to large global providers, such as Geotab, Samsara and Navman Wireless. Many of our competitors offer fleet or mobile asset management software solutions to particular industry segments or in limited geographic regions. For example, we compete with Michelin (Masternaut) in Europe, in the US we compete with Geotab and Samsara, in South Africa we compete with Netstar and Cartrack for consumer and small fleet mobile asset management deployments in South Africa, respectively.
We believe the principal competitive factors in our market include the following:
•functionality and reliability;
•total cost of ownership;
•breadth and depth of application functionality for fleet deployments;
•product performance;
•interoperability;
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•brand and reputation;
•customer service;
•distribution channels, including a global footprint and the ability to service multinationals;
•regional geographic expertise including localized language support and support for applicable government regulations;
•size of customer base and reference accounts within key industry segments;
•ability to deliver ongoing value and return on investment;
•ease of deployment and ease of use;
•relevant industry domain expertise and functionality; and
•the financial resources of the vendor.
We believe that we compete favorably based on these factors.
Employees
The following table presents the breakdown of our employees at the date indicated:
| As of March 31, | |||||||||||
| 2021 | 2022 | 2023 | |||||||||
| South Africa | 811 | 849 | 891 | ||||||||
| United States | 69 | 80 | 72 | ||||||||
| United Kingdom | 53 | 57 | 53 | ||||||||
| United Arab Emirates | 21 | 18 | 18 | ||||||||
| Australia | 39 | 44 | 48 | ||||||||
| Brazil | 26 | 26 | 32 | ||||||||
| Uganda | 4 | 4 | 4 | ||||||||
| Romania | 5 | 5 | 6 | ||||||||
| Thailand | 3 | 0 | 0 | ||||||||
| Total | 1031 | 1083 | 1124 | ||||||||
| Full-time | 946 | 996 | 1029 | ||||||||
| Part-time | 85 | 87 | 95 | ||||||||
| Total | 1031 | 1083 | 1124 | ||||||||
Government Regulation
We are subject to laws and regulations relating to our business operations, including laws applicable to providers of Internet and mobile services both domestically and internationally, as we collect data, including personal data, disseminate data and, in some cases, sell data. The application of existing domestic and international laws and regulations relating to issues such as user privacy and data protection, marketing, advertising, inadvertent disclosure and consumer protection in many instances is unclear or unsettled.
The transmission of data over the Internet and cellular networks is a critical component of our SaaS business model. Additionally, as cloud computing continues to evolve, increased regulation by federal, state or foreign agencies becomes more likely, particularly in the areas of data privacy and data security. In particular, the dynamic regulatory environment in the European Union and the United Kingdom, made more uncertain due to Brexit, is resulting in additional and increasingly complex regulation in these areas and we believe that the similarly dynamic regulatory environment of the United States, will follow suit. New laws governing data privacy and data security will furthermore be enacted in many other regions. Laws governing the solicitation, collection, processing or use of data could impair our ability to manage and report on customer data, which is integral to the delivery of our SaaS solutions. Increased regulation and the expansion of our business and operations globally have required us to devote legal and other resources to address this regulation. We continuously update and will continue to evaluate our group data protection and security policies, charters and procedures, to assist in maintaining data privacy and data security in line with international practices.
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Data privacy regulations and applicable laws in the United States, the European Union or elsewhere will regulate our ability to use the data we gather from our customers and increase the cost of doing business and could result in claims being brought by our customers or third parties. As discussed below, South Africa, which is currently our largest market, has its own data protection and security law which came into full effect on July 1, 2021.
South African Regulatory Environment
The Protection of Personal Information Act, No. 4 of 2013 (the “POPI Act”) was promulgated into law in South Africa in November 2013 and came into full effect on July 1, 2021. Any failure to comply with the POPI Act may result in a fine not exceeding R10 million and/or imprisonment of up to 10 years, depending on the severity of such failure.
The purpose of the POPI Act is to promote the privacy of data subjects by establishing a legal framework to regulate the processing of personally identifiable information by mandating juristic persons to implement security measures that uphold the data protection principles and ultimately providing redress through the Information Regulator.
The POPI Act’s implementation has had an impact on our data security and business costs, practices and procedures in South Africa. Data protection principles and integration remain an ongoing business priority.
Several existing South African statutes regulate electronic communications, including the Electronic Communications Act, No. 36 of 2005 as amended, and the Electronic Communications and Transactions Act, No. 25 of 2002, which apply to several aspects of our business. These statutes regulate the generation, communication, production, processing, sending, receiving, recording, retaining, storing, displaying and use of information, document or signature by or in electronic form.
The Private Security Industry Regulation Act, No. 56 of 2001 (the “PSIRA Act”) also applies to our South African business and governs the vehicle recovery industry in South Africa. The PSIRA Act was enacted for the purposes of, inter alia: (i) the achievement and maintenance of a trustworthy and legitimate private security industry which acts in terms of the principles contained in the Constitution of the Republic of South Africa, Act No. 108 of 1996, and other applicable law, and is aimed at ensuring that there is greater safety and security in the country and; (ii) to regulate the private security industry and to exercise effective control over the practice of the occupation of security service providers in the public and national interest and the interest of the private security industry itself.
The National Environmental Management: Waste Act, No. 59 of 2008 (the “NEM: WA Act”) applies to producers of electronic waste (“e-waste”). The NEM: WA Act governs the legal reforms regulating the waste management standards, norms and/or practices in order to protect the health and well-being of communities, and the environment. The NEM: WA Act also provides for the creation of integrated waste management and industry waste management schemes. We are a member of the electronic Waste Association of South Africa (“e-WASA”) Extended Producer Responsibility (“EPR”) scheme which is a conduit in fulfilling the obligations under the regulations and ensuring the environmentally sound management of e-waste. The scheme also responds to the socio-economic challenges and opportunities arising from high volumes of e-waste such as job creation, skills development as set out in the National Development Scheme and Sustainable Development Goals.
Broad-Based Black Economic Empowerment
The South African government established a legislative framework for the promotion of Broad-Based Black Economic Empowerment (“B-BBEE”). Achievement of B-BBEE objectives is measured by a scorecard which establishes a weighting for the various components of B-BBEE which relates to:
•Ownership - measuring the share of Black ownership and corresponding rights in the business, including voting rights among others.
•Management Control - reflecting the percentage of Black people in managerial positions ranging from junior management upwards.
•Skills Development - measuring the amount of money that was spent on the training and development of Black people including amongst others short courses, bursaries and learnerships.
•Enterprise and Supplier Development (including Preferential Procurement) - with enterprise development measuring contributions to, and the development of, small Black-owned businesses with the objective of enabling them to supply goods and services to the company in the future; with supplier development measuring contributions to, and the development of, Black-owned suppliers to help grow their businesses; and with preferential procurement measuring the extent to which goods and services are procured from suppliers that are empowered and have a good B-BBEE rating; and
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•Socio-Economic Development - assessing the initiatives that the company supports often to the benefit of groups of individuals and communities with the objective of promoting income-generating activities and sustainable access to the economy for these beneficiaries.
The B-BBEE Codes have a continuous review process which resulted in new B-BBEE Codes coming into effect on May 1, 2015, with more onerous compliance requirements, and proposed amendments. Various amendments have been made over the years which have had an impact on the Skills Development and Enterprise and Supplier Development (including Preferential Procurement) pillars. In addition, some definitions and interpretations were further clarified, and a few general principles were amended. MiX Telematics has always stayed abreast of these changes and made the necessary adjustments.
It is important for us to make a meaningful contribution to the country, and we view the applicable B-BBEE objectives as an opportunity for us to ensure a brighter future for all, moreover in the context of the National Development Plan 2030. In addition, B-BBEE objectives are pursued, by and large, by requiring parties who contract with corporate, governmental and State-Owned Enterprises in South Africa to achieve B-BBEE compliance through satisfaction of the applicable scorecard. Parties improve their B-BBEE contributor level when contracting with businesses that have earned good B-BBEE contributor levels in relation to their scorecards. This was very evident in April 2023 when President Cyril Ramaphosa signed the Employment Equity Amendment Bill (the “Amendment Bill”) into law. The main objective of these amendments to the Employment Equity Act of 1998 (the “Employment Equity Act”) is to enable the Employment and Labour Minister to regulate sector-specific Employment Equity (“EE”) targets and compliance criteria to issue EE Compliance Certificates in terms of Section 53 of the Employment Equity Act. Practically speaking it has bestowed the government with the right to set specific equity targets by sector and region. Companies that are wanting to do business with the government will be required to submit a certificate from the Department confirming that they are in compliance with the Employment Equity Act and its objectives. While these targets are out for public comment, we will ensure we address the regulations that the minister will put in place as we anticipate that it could have a significant impact on the way we comply with the Employment Equity Act, especially on a practical level. Furthermore, we have noted that, to ensure these EE objectives become a reality, the law now compels labour inspectors to inspect and assess workplaces and to issue employers with compliance orders.
We have nine material end-customers, which require MiX Telematics Enterprise SA Proprietary Limited to maintain at least a B-BBEE contributor between level 1 and 2 as measured under the new B-BBEE Codes. The value of these contracts represented 3.3% of our total revenue for fiscal year 2023. MX Telematics Enterprise SA Proprietary Limited has previously attained the compliance targets and furthermore has maintained not only their position on the scorecard to the highest level possible but also its Black ownership in particular that of Black Women. Failing to achieve applicable B-BBEE objectives could jeopardize our ability to maintain existing business or to secure future business from corporate, governmental or State-Owned Enterprises that could materially and adversely affect our business, financial condition and results of operations.
U.S. Regulatory Environment
In the United States, the rules and regulations to which we may be subject include those promulgated under the authority of the U.S. Federal Trade Commission (the “FTC”), state regulators, and regulator enforcement positions and expectations. The FTC has expressed interest in particular in the mobile environment and services that collect data that the FTC considers to be of a more sensitive nature than other data, such as location-based information. The FTC could deem our transceiver products such as our in-vehicle devices as collecting data of a sensitive nature. In addition to FTC scrutiny on the consumer side, many fleet drivers in the U.S. may belong to a union, which triggers some degree of oversight from the National Labor Relations Board (“NLRB”). The NLRB has taken increasing notice of the privacy rights on unionized employees, and future NLRB rules could affect our business model or the way in which our corporate clients use our solutions.
Our business is affected by U.S. federal and state laws and regulations governing the collection, use, retention, sharing and security of data that we receive from and about our users, which may include data defined as personal information under applicable law.
At the state level, all states have implemented security breach notification laws. Many states have adopted issue-specific laws pertaining to use of GPS, biometrics, among other technologies. Additionally, several states, including California, Virginia, Maryland, and Utah, have enacted laws creating new individual privacy rights for consumers (as that word is broadly defined in the law) and placing increased privacy and security obligations on entities handling personal data of consumers or households. The California Consumer Privacy Act, as amended by the California Privacy Rights Act (collectively, the “CCPA”), requires covered companies to provide new disclosures to California consumers and provide such consumers ways to opt-out of certain sales of personal information. The CCPA provides for civil penalties for violations and allows for a new cause of action for data breaches. Other U.S. states, including Colorado, Connecticut, Virginia, and Utah, have enacted similar
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— but not identical — laws. Certain of these laws are applicable only to consumer data and may not be applicable to us in the business-to-business context. As our business is directed exclusively to business consumers, we may not be subject to all such consumer-directed privacy laws. Nonetheless, we must evaluate whether and to what extent we are required to comply with any such law; to the extent that we are subject to these or other privacy laws, we may be required to implement additional processes or procedures or change the way in which we do business, ultimately increasing costs and limiting our ability to collect, use, and share data subject to those laws.
Other states, including Colorado, Utah, and Connecticut have recently passed similar privacy laws requiring businesses to provide privacy notices and enhanced consumer rights to residents. Failure to comply with privacy laws could result in penalties.
In addition, several U.S. state laws require data owners to implement reasonable security measures to protect the personal data collected from residents. These laws generally require a data owner to implement reasonable security procedures and practices appropriate to the nature of the information, and to protect the personal data from unauthorized access, destruction, use, modification, or disclosure. Although most of these state laws generally require an entity to maintain appropriate security, at least one state (Massachusetts) has adopted comprehensive data privacy requirements to protect personal data.
California was the first state to enact an Internet of Things (IoT) cybersecurity law, which took effect on January 1, 2020. The law requires manufacturers of any internet-connected devices to equip them with “reasonable” security features that are: appropriate for the nature and function of the device; appropriate for the information it may collect, contain, or transmit; and designed to protect the device and any information contained within the device from unauthorized access, destruction, use, modification or disclosure. While there is no private right of action, this law may subject us to potential governmental enforcement actions for noncompliance.
Finally, we use GPS satellites to obtain location data for our in-vehicle devices. The satellites and their ground control and monitoring stations are maintained and operated by the U.S. Department of Defense, which does not currently impose additional laws and/or regulations on the ability to access location data. We cannot assure that it will not do so in the future. Any regulatory hurdles could impede the functionality and/or cost of our solutions, which could adversely affect our business. The communication systems that we use to host and transmit data may be subject to security incidents, which may also subject the Company to regulatory enforcement and client pressures.
Globally, governments and agencies have adopted and could in the future adopt, modify, apply or enforce laws, policies, regulations, and standards covering user privacy, data security, technologies such as cookies that are used to collect, store and/or process data, marketing online, the use of data to inform marketing, the taxation of products and services, unfair and deceptive practices, and the collection (including the collection of information), use, processing, transfer, storage and/or disclosure of data associated with unique individual internet users. New regulation or legislative actions regarding data privacy and security (together with applicable industry standards) may increase the costs of doing business and could have a material adverse impact on our operations and cash flows.
We make public statements about our use and disclosure of personal data, including through our privacy policy. Although we endeavor to comply with our public statements and documentation, we may at times fail to do so or be alleged to have failed to do so. Moreover, despite our efforts, we may not be successful in achieving compliance if our employees or vendors fail to comply with our published policies, and documentation. The publication of our privacy policy and other statements that provide promises and assurances about data privacy and security can subject us to potential government or legal action if they are found to be deceptive, unfair or misrepresentative of our actual practices.
Any failure or perceived failure (including as a result of deficiencies in our policies, procedures, or measures relating to privacy, data protection, marketing, or client communications) by us to comply with laws, regulations, policies, legal or contractual obligations, industry standards, or regulatory guidance relating to privacy or data security, may result in governmental investigations and enforcement actions, litigation, fines and penalties or adverse publicity, and could cause our clients and partners to lose trust in us, which could have an adverse effect on our reputation and business. We expect that there will continue to be new proposed laws, regulations and industry standards relating to privacy, data protection, marketing, consumer communications and information security in the United States, and we cannot determine the impact such future laws, regulations and standards may have on our business. Future laws, regulations, standards and other obligations or any changed interpretation of existing laws or regulations could impair our ability to develop and market new services and maintain and grow our client base and increase revenue.
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European Union Regulatory Environment
We are subject to regulation under the laws of the European Union. Of particular relevance with regard to the regulation of our solutions are matters of data protection and privacy. Any processing of personal data in the course of the provision of services is governed by the European Union data protection regime. The framework legislation at a European Union level in respect of data protection is the General Data Protection Regulation (EU) 2016/679 (“EU GDPR”). The EU GDPR creates a single legal framework that applies across all EU member states, and in some circumstances, to processors in a state outside of the European Union where this activity affected EU citizens. The EU GDPR has compliance obligations for data controllers and data processors (we regard our solutions as primarily falling within the processor obligations, where we are providing a service on behalf of our customers, the controller).In addition, local Member State data protection and privacy laws apply as well. Some of these place obligations additional to the EU GDPR on organizations operating in the European Union, such as express suppression of positioning and speeding data when vehicles are used for private trips.
Failure to follow the EU GDPR requirements can have sanctions. For example, individuals can have a right to claim damages and National Data Protection Authorities (“NDPAs”) are able to impose fines for violations up to 4% of annual worldwide turnover, or 20 million Euro, whichever is greater. NDPAs have the power to carry out audits, request information, obtain access to premises and compel implementation of specific business practices where there are compliance concerns and risks. Data controllers must be able to demonstrate that the personal data of any data subject can be lawfully processed on one of the six specified grounds, and flow down compliance obligations onto a processor.
The EU GDPR adopts a risk-based approach to compliance, under which controllers and processors bear responsibility for assessing the degree of risk that their processing activities pose to data subjects. A controller may be required to perform data protection impact assessments before any processing that uses new technology and is likely to result in a high risk to data subjects. The EU GDPR requires controllers and processors to maintain records of their processing activities, and deal with a data security breach in a specific manner. Under the EU GDPR, data subjects have specific rights in certain circumstances, for example, the right to request that businesses delete their personal data (the right to be forgotten); to object to their personal data being processed; and to obtain a copy of their personal data within a set time frame.
Data flows within the European Union are not restricted, but some data out flows from the European Union are subject to restrictions to ensure an adequate protection for EU citizens’ personal data. Where a third country benefits from an “adequacy decision” in place, there are no restrictions on the transfer of personal data to that country. During the course of 2023 the EU is expected to adopt the EU-US Data Privacy Framework, which will be an adequacy decision for the benefit of US companies who choose to adhere to a voluntary regulatory framework. Where no adequacy decision is in place, data transfers typically require the adoption of ‘appropriate safeguards’, such as the adoption of “standard contractual clauses” and a “transfer impact assessment” to ensure appropriate protection is in place for the data in the receiving country.
United Kingdom Regulatory Environment
As a result of its departure from the European Union, the United Kingdom is no longer subject to the EU law, which includes the EU GDPR framework. However, upon leaving the EU the UK transposed the EU GDPR into UK law, creating the UK GDPR, and making only minor modifications to the text of the law. Consequently at present, the United Kingdom and European Union regimes are materially the same in terms of the obligations they impose and the rights they create. With respect to international data transfers, the UK does have its own powers for assessing the adequacy of third countries, and its own standard contract clauses and risk assessment process. In March 2023, the UK published a bill to reform some aspects of UK data protection law. Whilst these reforms are relatively modest, they will lead to greater diversion between the UK and EU versions of GDPR.
Cross-border Data Flows between the United Kingdom and the European Union
As a non-EU member state, the United Kingdom constitutes a ‘third country’ and falls outside the free-data flow area between EU member states. Likewise, EU Member States are third countries for the purposes of UK GDPR. However, for the time being both the EU and the UK benefit from mutual adequacy decisions, meaning that data can flow freely between the EU and UK in both directions.
Australian Regulatory Environment
The Australian Privacy Principles contained in the Privacy Act of 1988 (the “Privacy Act”) regulate the collection, use, retention, disclosure and security of personal information. Personal information is defined as “information or an opinion about
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an identified individual, or an individual who is reasonably identifiable, whether the information or opinion is true or not or is recorded in a material form or not”. Personal information includes location-based information where the information enables the location of an individual to be ascertained. Under the Privacy Act, before disclosing personal information outside of Australia, the transferor must take such steps as are reasonable in the circumstances to ensure that the overseas recipient does not breach the Australian Privacy Principles in relation to the information. What constitutes reasonable steps will depend on the circumstances of the transfer, but would generally include entering into a transfer agreement between the transferor and the transferee under which the transferee agrees to handle the information in accordance with the Australian Privacy Principles. The transferor may be held responsible for any breaches of the Australian Privacy Principles when personal information is transferred outside Australia, regardless of whether there is a data transfer agreement in place. There are exceptions to the requirement to take reasonable steps, such as where the individual to whom the information relates provides fully informed consent.
The Notifiable Data Breach (“NDB”) scheme which was included in the Privacy Act in February 2018, requires companies to notify individuals whose personal information is involved in a data breach that is likely to result in serious harm and includes recommendations about steps individuals should take in response to the breach.
History and development of the Company
MiX Telematics Limited is a public company incorporated in the Republic of South Africa. Our principal executive office is located at 750 Park of Commerce Blvd., Suite 310, Boca Raton, Florida 33487. Our telephone number is +1-887-585-1088, and our web address is www.mixtelematics.com. We are regarded as being primary listed on the JSE and categorized as a domestic filer with regard to our American Depositary Shares (“ADSs”) on the NYSE.
We were founded in 1996 in Johannesburg, South Africa as Matrix Vehicle Tracking Proprietary Limited, and since that time, we have grown both organically and through acquisitions. Matrix Vehicle Tracking Proprietary Limited was renamed TeliMatrix Proprietary Limited in 2001, TeliMatrix Limited in 2007 and finally MiX Telematics Limited in 2008, subsequent to our listing on the JSE.
In 2007, we acquired Control Instruments OmniBridge Proprietary Limited and certain affiliated entities (collectively, “OmniBridge”), which provided fleet management services in both the South African and international markets. In November 2007, we listed our shares on the JSE, in order to facilitate the OmniBridge acquisition. In 2008, we acquired Tripmaster Corporation, located in the United States, Safe Drive (including Safe Drive International Proprietary Limited), located in Australia and Safe Drive FZE, located in the United Arab Emirates. These acquisitions extended our geographic reach, broadened our customer relationships and expanded our driver safety and training solution offerings. In May 2012, we acquired Intellichain, located in South Africa, as part of our strategy to broaden our transportation management software functionality. On August 9, 2013, following a successful United States IPO, the Company’s ADSs were listed on the NYSE and are traded under the symbol MIXT. In December 2013, we acquired a proprietary software development business from Roitech Proprietary Limited, located in South Africa. The acquisition enhanced and broadened our fleet management smart phone application offerings. On November 1, 2014, we acquired the operating business of Compass Fleet Management (“Compass”), a South Africa based provider of specialized fleet management solutions in Southern Africa, that are delivered using the Company’s hardware and software platforms. These specialized fleet management solutions complement the Company’s existing fleet management solutions, and the acquisition broadens the array of services offered to current and future fleet management customers.
MiX Telematics North America, a 100% owned subsidiary of the Company, acquired Trimble’s Field Service Management business (“FSM”) in North America on September 2, 2022 (the “Transaction”). FSM’s North American operations include the sale and support of telemetry and video solutions that enable back-office monitoring and visualization for fleet services management in a number of industries. The Transaction presents an opportunity for the Company to increase its scale in North America and to further diversify its North America business by expanding its presence in market verticals such as construction and last mile logistics.
We currently have offices in South Africa, the United Kingdom, the United States, Uganda, Brazil, Australia, Romania and the United Arab Emirates as well as a network of more than 130 fleet value-added resellers worldwide.
Our agent for service of process in the United States is MiX Telematics North America, Inc., 750 Park of Commerce Blvd., Suite 310, Boca Raton, Florida 33487.
For further information on our principal investments and capital expenditures, see “Item 7. Liquidity and Capital Resources.”
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Availability of information
Our Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, proxy statements and amendments to those reports filed or furnished pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, or the “Exchange Act”, are available, free of charge, on our investor relations website as soon as reasonably practicable after we file such material electronically with or furnish it to the Securities and Exchange Commission, or the “SEC”. Additionally, our website, located at www.mixtelematics.com, also provides notifications of news or announcements regarding our financial performance, including press releases, public conference calls and webcasts.
Information contained on our website is not incorporated by reference into this Annual Report on Form 10-K or our other filings with the SEC. The SEC also maintains a website that contains our SEC filings. The address of the site is www.sec.gov.
Investors and others should note that we announce material financial information to our investors using our investor relations website, SEC filings, press releases, public conference calls and webcasts. We use these channels as well as social media to communicate with the public about our company, our products and services and other matters. It is possible that the information we post on social media could be deemed to be material information. Therefore, we encourage investors, the media and others interested in our company to review the information we post on the social media channels listed on our investor relations website.
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ITEM 1A. RISK FACTORS
Important factors that could cause actual financial, business or operating results to differ materially from expectations are disclosed in this annual report, including without limitation, the following risk factors. In addition to the risks listed below, we may be subject to other material risks that, as of the date of this report, are not currently known to us or that we deem immaterial at this time.
SUMMARY OF RISK FACTORS
Our business is subject to a number of risks, including risks that may prevent us from achieving our business objectives or may adversely affect our business, financial condition, results of operations, cash flow, and future prospects. The following is a summary of the principal risks that should be considered before investing in our securities. The list below is not exhaustive, and investors should read this “Risk Factors” section in full. These and other risk are described in more detail in this Item 1A. Risk Factors.
Risks related to Our Business
•We may be unable to maintain our relationships with our existing customers, which could result in a loss of subscription revenue.
•Any inability to adapt to rapid technological change in our industry could impair our ability to remain competitive and result in a decline in market acceptance of our products.
•Inaccurate output from artificial intelligence could result in brand and reputation damage.
•Industry consolidation may result in increased competition, which could result in a loss of customers and/or a reduction in revenue.
•The loss of one or more of our key personnel, or our failure to attract, train and retain other highly qualified personnel, could prevent us from executing our growth plan.
•COVID-19 or any other global pandemic outbreak and measures taken in response thereto may continue to have an adverse impact our business, results of operations and financial condition.
•We may expand by acquiring or investing in other companies, which may divert our management’s attention, result in dilution to our shareholders and consume resources that are necessary to sustain our business.
•We may not be able to increase sales of our solutions, which could materially and adversely affect our ability to grow our business and increase revenue.
•We depend on certain key suppliers and vendors to manufacture our hardware, and an interruption in the supply of our hardware could impair our production capacity, which would impact our ability to supply hardware to customers.
•We depend on our network of dealers and distributors to sell our solutions and adverse changes in our relationships with significant dealers and distributors could cause a decline in sales.
•We depend on our cellular network providers for the transmission of data from installed in-vehicle devices to our data centers and we would incur significant costs if the services of these network providers became unavailable to us.
•Our business and our customers may be materially and adversely affected by global economic and market conditions.
•Increasing focus on evolving environmental, social and governance matters by shareholders, customers, regulators and other stakeholders may result in additional risk and compliance costs.
•Climate change may have adverse impact on our business.
•Failure of businesses to adopt fleet management solutions could reduce the demand for our solutions.
•Changes in practices of insurance companies in the markets in which we provide our solutions could materially and adversely affect demand for products and services.
•Security or privacy breaches in our electronic transactions, data and asset tracking sensors may expose us to additional liability or result in a loss of customers, either of which events could harm our business.
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•We are subject to U.S. and other anti-corruption laws, trade controls, economic sanctions and similar laws and regulations, including those in the jurisdictions where we operate. Our failure to comply with these laws and regulations could subject us to civil, criminal and administrative penalties and harm our reputation.
•Laws and regulations relating to the Internet and data privacy in the markets in which we operate are complex and continuously evolving, and compliance costs are high. As these laws and regulations continue to evolve, we may be required to increase our compliance-related expenditures or limit the manner in which we collect information, the types of information that we collect, or the solutions that we offer, which may impede our ability to provide our solutions or may reduce our profit margins in specific geographic regions.
•Failure to correctly and efficiently implement a new Enterprise Resource Planning (“ERP”), Customer Relationship Management System (“CRM”) and billing system could have a material and adverse effect on our operations.
•We may be exposed to risks related to litigation and administrative proceedings that could materially and adversely affect our business, results of operations and financial condition.
Risks related to Intellectual Property
•We have not traditionally relied on patents to protect our intellectual property, and we rely on trade secrecy laws, confidentiality agreements, confidentiality procedures and contractual restrictions to establish and protect our intellectual property rights, which provide only limited protection and may subject us to litigation.
•An assertion by a third party that we are infringing on its intellectual property rights could subject us to costly and time-consuming litigation or expensive licenses.
Risks related to South Africa
•Fluctuations in the value of the South African Rand have had, and will continue to have, a significant impact on our reported revenue and results of operations, which may make it difficult to evaluate our business performance between reporting periods and may also adversely affect the price of our ADSs.
•If we do not achieve applicable B-BBEE (“Broad-Based Black Economic Empowerment”) black economic empowerment objectives in our South African businesses, we risk not being able to renew certain of our existing contracts which service South African government and quasi-governmental customers, as well as not being awarded future corporate and governmental contracts, each of which would result in the loss of revenue.
•A lack of growth, high inflation or increased interest rates in the South African economy could reduce our anticipated revenue and increase our operating costs.
Risks related to an Investment in our Ordinary Shares and ADSs
•Certain provisions of South African law may limit our ability to issue securities and access the capital markets in the future, which could hinder our ability to raise capital in the future.
Risks Related to Our Business
We may be unable to maintain our relationships with our existing customers, which could result in a loss of subscription revenue.
We provide our solutions principally on a subscription basis, typically with an initial subscription term of three to five years and renewal terms varying from one to five years, or, for certain customers, on a month-to-month basis. However, our fleet customers have no obligation to renew their subscriptions after the initial term or after any renewal term expires. Consumer contracts, unless the contract is a prepaid contract, will continue indefinitely unless cancelled by the customer based on one calendar months’ notice. We may be unable to retain existing customers and, as a result, our revenue would be adversely affected. Customers may choose to cancel or not to renew their subscriptions for many reasons, including:
•the belief that our solutions are not required for their needs or are not cost-effective;
•a desire to reduce discretionary spending;
•a belief that our competitors’ solutions provide a better value;
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•changes in our customers’ businesses, and regulations impacting our customers’ businesses that may decrease the need for our fleet and mobile asset management solutions;
•economic downturn in our customers’ industries;
•economic downturn in the geography in which our customers operate;
•a reduction in discounts offered by insurers to vehicle owners who have installed our products; or
•a belief that a return on investment cannot be demonstrated.
Our enterprise fleet management customers, whose contracts are due for renewal, may also not renew for reasons entirely out of their control, such as the dissolution of their businesses. Enterprise customers may also decrease the number of vehicles covered by subscription contracts if their fleet sizes decrease.
Our subscription contracts generally do not provide our customers with an early termination option without penalty. However, if customers do not honor subscriptions for the full term, our remedies may be limited to re-negotiation of contract terms or legal recourse through the courts, which may not be successful or cost-effective, and we may not be able to recoup all of our costs.
A significant loss of or failure to renew our subscription-based contracts, or significantly different contract terms could materially and adversely affect our business, results of operations and financial condition.
Any inability to adapt to rapid technological change in our industry could impair our ability to remain competitive and result in a decline in market acceptance of our products.
The industry in which we compete is characterized by rapid technological change, frequent introductions of new products and evolving industry standards. In addition to the mobile asset management industry, we are subject to changes in the automotive, mobile handset, Global Positioning System (“GPS”) navigation device, information technology, telecommunications and enterprise software industries. As the technology used in each of these industries evolves, we will face new integration and competition challenges. For example, as truck and automobile manufacturers continue to develop in-vehicle technology, GPS-based tracking solutions may become standard equipment and result in new sources of competition. If we are unable to adapt to rapid technological change, it could impair our ability to remain competitive and result in a decline in market acceptance of our products.
The development of new or improved products, systems or technologies that compete with our products may render our products less competitive and we may not be able to enhance our technology in a timely manner. In addition to the competition resulting from new products, systems or technologies, our future product enhancements may not adequately meet the requirements of the developing marketplace, and may not achieve the broad market acceptance necessary to generate significant revenue.
The development of new and improved products can be costly and time-consuming and is associated with inherent risks and uncertainties such as market acceptance, pricing, value proposition and continuous changes and developments in laws and regulations. If we are unable to successfully develop and timely introduce new and enhanced products which are accepted by the market it could materially and adversely affect our business, results of operations and financial condition.
Inaccurate output from artificial intelligence could result in brand and reputation damage.
Artificial intelligence (“AI”) is being integrated into a number of our solutions and/or products and could be a significant factor in future service offerings. While AI can present significant benefits, it also presents risks and challenges to our business. Data sourcing, technology, integration and process issues, program bias into decision-making algorithms, security challenges and the protection of personal privacy could impair the adoption and acceptance of AI solutions. If the output from AI solutions are deemed to be inaccurate or questionable, our brand and reputation may be harmed and we may potentially be subject to legal liability claims.
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Industry consolidation may result in increased competition, which could result in a loss of customers and/or a reduction in revenue.
Some of our competitors have made, or may make, acquisitions or enter into partnerships or other strategic relationships to offer more comprehensive services or achieve greater economies of scale. In addition, new entrants not currently considered competitors may enter our market through acquisitions, partnerships or strategic relationships. We expect these trends to continue as companies attempt to strengthen or maintain their market positions. Many potential entrants may have competitive advantages over us, such as greater name recognition, longer operating histories, more varied services and larger marketing budgets, as well as greater financial, technical and other resources. Industry consolidation may result in competitors with more compelling service offerings or greater pricing flexibility than we have, or business practices that make it more difficult for us to compete effectively, including on the basis of price, sales and marketing programs, technology or service functionality. These pressures could result in a loss of subscribers and/or a reduction in revenue.
The loss of one or more of our key personnel, or our failure to attract, train and retain other highly qualified personnel, could prevent us from executing our growth plan.
We depend on the continued service and performance of our key personnel. The loss of one or more key members of our leadership team and, or professionally qualified and experienced specialists who know our products and business processes could materially and adversely affect our operations. In addition, the loss of staff focused on customer retention in the international regions such as customer success, project management (implementation and field services) technical product and support personnel could disrupt our ability to deliver to our existing customer base and could have a material adverse effect on our ability to attract new business.
Recruiting and retaining skilled staff in the technology industry is highly competitive and staff with extensive telematics knowledge are scarce. We may experience difficulty in hiring and retaining highly skilled employees with appropriate qualifications. Our failure to attract and train new personnel, or our failure to retain, focus and motivate our current personnel, could materially and adversely affect our business, results of operations and financial condition.
COVID-19 or any other global pandemic outbreak and measures taken in response thereto may continue to have an adverse impact our business, results of operations and financial condition.
The global impact of the COVID-19 pandemic and measures taken to reduce the spread of the virus have had an adverse effect on the global macroeconomic environment and have significantly increased economic uncertainty and reduced economic activity. Although governments around the globe have taken steps to mitigate some of the more severe economic effects of the virus and the impact of the pandemic on the economic activity globally is unfolding, there can be no assurance that such steps will be effective or achieve their desired results in a timely and sustainable manner or at all.
The COVID-19 pandemic has disrupted and may continue to disrupt our operations and the operations of our customers for an indefinite period of time. COVID-19 has resulted in, and may continue to result in, significant economic volatility and uncertainty in U.S. and international financial markets, which could adversely affect our access to capital markets and investment activity, negatively impacting the availability of capital, the terms and conditions of financing arrangements and the related costs of such financing. This could result in situations where financing may not be available to us at all, or at terms formerly available to us. The effects of the pandemic also manifested in supply chain disruptions, increased the unpredictability of global markets and future economic performance, negatively impacted customer demand, changes workforce behaviors and increased reliance of remote access due to remote working arrangements.
We may expand by acquiring or investing in other companies, which may divert our management’s attention, result in dilution to our shareholders and consume resources that are necessary to sustain our business.
We may acquire complementary products, services, technologies or businesses. We also may enter into relationships with other businesses to expand our portfolio of solutions or to expand our ability to provide our solutions in foreign jurisdictions. Negotiating these transactions can be time-consuming, difficult and expensive, and our ability to complete these transactions may be subject to conditions or approvals that are beyond our control, including anti-takeover and antitrust laws in various jurisdictions. We may seek to acquire other companies or businesses using our shares as consideration. Under the South African Companies Act, No. 71 of 2008, as amended (the “Companies Act”), we are prohibited from issuing shares representing 30% or more of our outstanding equity in connection with an acquisition without shareholder approval by way of special resolution. In terms of Johannesburg Stock Exchange (“JSE”) Listings Requirements, an acquisition or disposal constituting 30% or more of our market capitalization, will require shareholder
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approval. In addition, we are subject to New York Stock Exchange Listing Rules which, subject to limited exceptions, require shareholder approval of a transaction involving the sale, issuance, or potential issuance by a company of common stock (or securities convertible into or exercisable for common stock) equal to 20% or more of the common stock, or 20% or more of the voting power outstanding before the issuance, and in certain other circumstances. Consequently, these transactions, even if undertaken and announced, may not close.
An acquisition, investment or new business relationship may result in unforeseen operating difficulties and expenditures. In particular, we may encounter difficulties assimilating or integrating the businesses, technologies, products, personnel or operations of acquired companies, particularly if the key personnel of the acquired company choose not to work for us, the acquired company’s technology is not easily compatible with ours or we have difficulty retaining the customers of any acquired business due to changes in management or otherwise. Acquisitions may also disrupt our business, divert our resources and require significant management attention that would otherwise be available for the development of our business. Moreover, the anticipated benefits of any acquisition, investment or business relationship may not be realized or any such acquisition, investment or business relationship may expose us to unknown liabilities, including litigation against the companies we may acquire, invest in or otherwise consummate a business relationship with. For one or more of those transactions, we may:
•issue additional equity securities that would dilute our shareholders;
•use cash that we may need in the future to operate our business;
•incur debt on terms unfavorable to us or that we are unable to repay or that may place burdensome restrictions on our operations;
•incur large charges or substantial liabilities; or
•become subject to adverse tax consequences, or substantial depreciation or amortization, deferred compensation or other acquisition-related accounting charges.
Any of these risks could materially and adversely affect our business, results of operations and financial condition.
We may not be able to increase sales of our solutions, which could materially and adversely affect our ability to grow our business and increase revenue.
We intend to increase sales of our solutions by increasing penetration in our existing markets and by entering new markets that represent a large potential source of demand for these solutions. Our success in increasing sales may be tied to a wide variety of factors, including demand for our services, price and service competition, customer experience, our relationships with third-party distributors and dealers, supply chain disruptions, the rate of new vehicle sales, the oil price, global economic conditions and, in the case of our safety and security solutions, the perceived threat of vehicle theft and discounts offered by insurers.
Some car and truck manufacturers have begun installing factory fitted substitute products and services, such as certain GPS-based products, in new vehicles prior to their initial sale, which may preclude us from increasing sales to subscribers purchasing such vehicles. Our inability to market and sell our solutions to new customers, at or prior to the initial sale by the manufacturer, could materially and adversely affect our ability to grow our business and increase revenue.
In the Middle East and Australasia segment and the Americas segment, we generate significant revenue from the oil and gas sector, and we may not be able to diversify and/or successfully enter into new verticals, which could materially and adversely affect our ability to grow our business and increase revenue.
We depend on certain key suppliers and vendors to manufacture our hardware, and an interruption in the supply of components or of our hardware could impair our production capacity, which would impact our ability to supply hardware to customers.
We currently purchase electronic components used in the manufacturing of our hardware from a number of suppliers, globally. These electronic components often have extended lead times on orders. An interruption in the supply of components from these suppliers or a failure to identify the need to react to shortages in a timely manner would significantly impact our operations and could require us to identify and integrate our manufacturing and supply logistics
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with an alternate supplier, or use a substitute component, which could materially and adversely affect our business, results of operations and financial condition.
The components we use to manufacture hardware are predominately supplied by manufacturers and suppliers in China. The COVID-19 pandemic, amongst other contributing factors, has adversely affected manufacturing capacity of electronic components. The component supply shortage and extended lead times may impact our business in terms of increased pricing and additional engineering projects to implement alternative components, however, we have so far been able to supply our customer demand and maintain commitments to customers. Where possible, we have also taken steps to mitigate our risk to some extent by buying additional safety stock of scarce items or items with extended lead times and continue to carefully monitor the situation which seems to be improving in certain classes.
We contract two vendors in South Africa to manufacture and assemble hardware. We have no financial control over, and limited operational influence on these vendors and the conduct of their businesses. These vendors could negatively impact our business by, among other things, extending delivery times, raising prices and limiting supply due to their own shortages and business requirements. Our two contract manufacturers produce different products for us and if the facilities at one of these contract manufacturers suffer a mass casualty event, it could take as much as four to five months, or longer, to replace production capacity.
An extended interruption in the supply of hardware from our contract manufacturers could materially and adversely affect our production capacity and hence our ability to fulfil sales orders which could have a material adverse effect on our operations. The hardware products and accessories underpinning our MiX Vision AI solution come from a supplier in China. We do not expect a hardware supply interruption would have a significant impact on our subscription revenue other than an inability to replace hardware as part of our maintenance programs, however, a hardware interruption will have a direct impact on new business growth in terms of hardware sales and the contracting of new subscribers.
We depend on our network of dealers and distributors to sell our solutions and adverse changes in our relationships with significant dealers and distributors could cause a decline in sales and customer retention.
We currently distribute our products to small fleet operators and consumers both directly and through various distribution channels, including automobile dealers, aftermarket automotive parts and service suppliers, and automobile insurers and retailers, which we collectively refer to as “distributors”.
We currently distribute our products to enterprise fleet customers, including large enterprise fleets and small fleet operators, both directly and through third parties, who are assigned specific geographic territories in which they can sell, which we refer to as “dealers”.
We are dependent on our dealers and distributors, who account for a substantial percentage of our total sales, and sales generated by certain dealers and distributors individually represent a meaningful percentage of our revenue. The terms of our agreements with our dealers do not usually include minimum purchase obligations, are specific to a geographic territory and are primarily non-exclusive. It is possible that our dealers and/or distributors also have relationships with our competitors and we have limited, if any, controls over their business activities.
Our dealer agreements generally have a fixed initial term, after which they may be renewed or continue indefinitely if not terminated. This is subject to the right of either party to terminate on specified notice, generally ranging from 90 days to one year, or for breach. Similarly, our distributor agreements do not generally include minimum purchase obligations and are either structured as resellers without commission on sales generated or are based on a commission agreement applicable to sales generated by the distributor. If our relationships with our dealers and distributors deteriorate, or if a dealer or distributor, or group of related dealers and distributors, accounting for a material portion of our sales elects not to do business with us in the future, our sales could decline materially, which could materially and adversely affect our business, results of operations and financial condition.
We depend on our cellular network providers for the transmission of data from installed in-vehicle devices to our data centers and we would incur significant costs if the services of these network providers became unavailable to us.
We contract with cellular network providers in each of our markets to provide cellular network services. These cellular networks transmit data from our customers’ in-vehicle devices to our data centers, where it is managed for the benefit of our customers. All of our installed in-vehicle devices contain a SIM card that is compatible with a specific cellular network provider. If a cellular network provider in one of our markets were to experience extended service
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outages or refuse to continue contracting with us for any reason or were to go out of business, it may adversely affect the ability to collect data from our in-vehicle devices.
In South Africa we are reliant on Eskom (the South African Power Utility), which has had challenges in meeting the country’s power demand, resulting in load shedding, load reduction and intermittent power outages. Although it has not resulted in our business operations being impacted directly, not having power at some of our contracted Cellular Network Service provider signal towers may impact our ability to locate and track vehicles in that area during load shedding.
We could incur significant costs related to the replacement of SIM cards for our customers and could suffer damage to our reputation and customer relationships. Any of the foregoing could materially and adversely affect our business, results of operations and financial condition.
The markets in which we participate are highly fragmented and competitive, with relatively low barriers to entry, and increased competition could result in reduced operating margins, increased sales and marketing expenses, and the loss of market share.
The market for our solutions is highly fragmented, consisting of a significant number of vendors, with relatively low barriers to entry. Competition in our market is based primarily on:
•functionality and reliability;
•total cost of ownership;
•breadth and depth of application functionality for fleet deployments;
•product performance;
•new technology adoption including AI;
•interoperability;
•brand and reputation;
•customer service;
•distribution channels, including a global footprint and ability to service multinationals;
•regional geographic expertise, including localized language support, support for applicable government regulations and the ability to comply with local Internet and data privacy regulations;
•size of customer base and reference accounts within key industry segments;
•ability to deliver ongoing value and return on investment;
•ease of deployment and use;
•relevant industry domain expertise and functionality; and
•the financial resources of the vendor.
We compete with a number of companies in each of the geographic markets in which we operate. Such competition could result in reduced operating margins, increased sales and marketing expenses and the loss of market share, any of which would harm our operating results. We expect competition to intensify in the future with the introduction of new technologies, the use of mobile devices and new market entrants from outside the telematics industry, such as enterprise software vendors.
The market for safety and security solutions is highly competitive. We compete in the safety and security solutions market primarily on the basis of the technological innovation, value-added services offered, brand recognition, rate of successful recoveries of mobile assets, and quality and price of our products and services. Our most competitive market is the vehicle and mobile asset tracking and recovery solutions market, due to the existence of a wide variety of competing products and services, and alternative technologies that offer various levels of protection and tracking capabilities. Some of these competing products and services, such as certain GPS-based products, are installed in new cars by vehicle manufacturers prior to their initial sale, which may make it more difficult to compete for such subscribers. Furthermore, providers of competing services or products may extend their offerings to the locations in which we operate, or new competitors may enter the safety and security solutions market.
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Our business and our customers may be materially and adversely affected by global economic and market conditions.
We generate revenue through subscription and hardware sales across various industries, all of which are exposed to general market and economic conditions. Global market and economic conditions have been, and continue to be, disrupted and unstable. Factors that could affect us and our customers include increased global inflation and inflation control policies, investor and consumer confidence, fluctuations in economic growth, availability of capital in capital and equity markets, liquidity of global financial markets, interest rates and exchange control policies, the stability of governments in countries we operate and the strength of these economies and unemployment rates.
Adverse global economic conditions, or a general global economic slowdown, could result in a contraction of existing customers, a reduction in sales revenue, extended cash collection periods from our customers due to their deteriorating financial conditions and increased impairments. This could also result in reduced new opportunities due to delayed or cancelled capital investment impacting current or anticipated customer engagement.
Increasing focus on evolving environmental, social and governance matters by shareholders, customers, regulators and other stakeholders may result in additional risk and compliance costs.
Environmental, social, and governance (“ESG”) matters are becoming more of a focus area in the United States, Europe and in other countries where we operate. Companies are facing evolving laws, regulations and expectations with respect to their operating practices, disclosure and performance in relation to corporate responsibility, diversity, equity, human capital management, climate change, data privacy and security, supply chains and human rights.
This resulted in, and is likely to continue to result in, increased management time, additional human and capital resources, and administrative expenses to comply with regulations and requirements. For example, developing an ESG strategy, implementing such strategy and collecting, measuring and reporting ESG information based on various reporting requirements can be time consuming, difficult and costly. If we fail to respond towards achieving the required ESG commitments and compliance, our business reputation and financial performance and result of operations may be negatively impacted.
Climate change may have adverse impact on our business
Extreme weather conditions at an increasing frequency including drought, floods, heat waves, intense hurricanes, thunderstorms, tornadoes, snow and ice storms may have an impact on critical infrastructure used by MiX or our suppliers or at our customer, potentially disrupting our business, the business of our suppliers and customers, which may result in extended downtime and /or additional costs to maintain or resume operations.
We could be exposed to product liability claims, which could result in significant damage to our reputation and material economic loss.
Our products, and the batteries that many of them contain, could malfunction and cause damage to our customers’ property. In particular, the rechargeable batteries in our in-vehicle devices may be prone to leakage due to environmental factors, such as extreme weather conditions or overuse. Leaks in these batteries could damage our customers’ in-vehicle devices and vehicles. Our safety and security solutions may be disabled or prove to be ineffective as a result of techniques employed by car thieves, or the discovery of technological weaknesses by such persons. If there were a systematic failure of any of our products, we could suffer significant damage to our reputation, and any insurance we maintain might not be sufficient to prevent us from suffering a material economic loss.
Failure of businesses to adopt fleet management solutions could reduce the demand for our solutions.
We derive, and expect to continue to derive, substantial revenue from the sale of subscriptions for fleet management solutions to commercial customers. Widespread acceptance and use of fleet management solutions is critical to our future revenue growth and success. If the market for fleet management solutions fails to grow, or grows more slowly than we currently anticipate, demand for our solutions would be negatively affected.
The market for fleet management solutions is subject to changing customer demand and trends in preferences. Some of the potential factors that could affect interest in and demand for fleet management solutions include:
•the effectiveness and reliability of solutions;
•fluctuations in fuel and vehicle maintenance costs, which are significant drivers of customer demand for fleet
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management solutions;
•assumptions regarding general mobile workforce inefficiency and the extent to which efficiency can be improved through fleet management solutions;
•the level of governmental and regulatory burden on the fields of transportation and occupational health and safety;
•the price, performance, features and availability of products and services that compete with ours;
•our ability to maintain high levels of customer satisfaction; and
•the rate of acceptance of web-based solutions generally.
Failure of businesses to adopt fleet management solutions could materially and adversely affect our business, results of operations and financial condition.
A decline in vehicle sales and/or an increase in the sales of factory-fitted GPS solutions in new vehicles in our markets could result in reduced demand for our solutions, which could materially and adversely affect our revenue.
A reduction in sales of new vehicles and/or an increase in factory-fitted GPS solutions in new vehicles could reduce our addressable market for solutions. New vehicle sales may decline for various reasons, including adverse changes in the general economic environment, a reduction in our customers’ discretionary spending, or an increase in new vehicle tariffs, taxes or gas prices. A decline in vehicle production levels or labor disputes affecting the automobile industry in the markets where we operate, may also impact the volume of new vehicle sales. A decline in sales of new vehicles in the markets in which we provide our solutions would result in reduced demand for such products and services, which could materially and adversely affect our business, results of operations and financial condition.
Demand for our fleet management solutions decreases when prices for crude oil and natural gas decrease, which could materially and adversely affect our revenue.
Demand for our fleet management solutions can fluctuate with the prices for crude oil and natural gas, which impact the attractiveness of our services and also directly affects our customers in the oil and gas industry, from whom we derive a significant portion of our revenue. Subscription revenue from oil and gas customers in fiscal year 2023 represented 14.4% of our total subscription revenue. Generally, lower oil and gas prices reduce the return on investment for many of our customers. Gains in fuel efficiency may lead to a relative decrease in the return on investment of our solutions perceived by our customers. The oil and gas industry is complex, and numerous geopolitical, economic, environmental and other factors affect pricing. Expectations for future crude oil and natural gas prices may affect our customers’ spending habits. Prolonged or substantial declines in crude oil and/or natural gas prices, or the perception that such prices will remain low, could materially and adversely affect our business, results of operations and financial condition.
Changes in practices of insurance companies in the markets in which we provide our solutions could materially and adversely affect demand for products and services.
We depend in part on the practices of insurance companies in some of our markets to support demand for certain of our products and services. For example, in South Africa, which is currently the largest market for our products and services, insurance companies either mandate the installation of tracking devices as a prerequisite for providing insurance coverage to owners of certain vehicles, or provide discounts on insurance premiums to encourage vehicle owners to subscribe to vehicle tracking and mobile asset recovery solutions such as ours. We benefit from insurance companies’ continued practice in the South African and certain other markets:
•accepting mobile asset location technologies such as ours as a preferred security product;
•providing premium discounts for using location and recovery products and services such as ours; and
•mandating the use of our products and services, or similar products and services, for certain vehicles.
If any of these policies or practices change, revenue from the sale of our products and services could decline, which would materially and adversely affect our business, results of operations and financial condition.
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We face many risks associated with our existing and potential new international operations, which could prevent us from successfully expanding into new geographic markets, or operating successfully in existing geographic markets.
We are a global company with substantial assets located in a number of countries. We provide our services in more than 120 countries with 12 offices in 9 countries. In some international markets, customer preferences and buying behavior may be different, and we may use business or pricing models that are different from our traditional subscription model to provide fleet management solutions to customers in those markets, or we may be unsuccessful in implementing the appropriate business model. Our revenue from new foreign markets may not exceed the costs of establishing, marketing, and maintaining our international offerings.
In addition, expanding international operations into new territories may subject us to risks with which we have limited experience. These risks include:
•lack of familiarity with local markets, including legal and regulatory requirements;
•difficulties in finding and maintaining, or potentially replacing, local dealers and distributors;
•competing with established local competitors;
•laws favoring local competitors;
•the cost and burden of monitoring and complying with legal and regulatory requirements in new territories, and/or changes to existing legal and regulatory requirements, including those relating to the Internet and data privacy and security;
•fluctuations in currency exchange rates or restrictions on currency exchange;
•availability of U.S. Dollars in countries highly dependent on resource exports;
•potentially adverse tax consequences, including the complexities of transfer pricing, value added or other tax systems, double taxation, tariffs and restrictions and/or taxes on the repatriation of earnings;
•dependence on third parties, including some commercial partners with whom we may not have extensive experience;
•increased financial accounting and reporting burdens and complexities;
•increased travel, real estate, infrastructure, insurance, legal and compliance costs associated with international operations;
•political, social, and economic instability, terrorist attacks, and security concerns in general;
•reduced or varied protection for intellectual property rights in some countries;
•increased exposure and vulnerability to claims that we have infringed on the intellectual property of third parties;
•exposure to liabilities under anti-corruption and anti-money laundering laws and regulations; and
•complexities of complying with U.S. and non-U.S. export controls laws and regulations, including Export Administration Regulations (“EAR”).
Operating in international markets requires significant management attention and financial resources. The investment and additional resources required to establish operations and manage growth in additional territories may not produce desired levels of revenue or profitability.
Our business and results of operations may be negatively impacted by the United Kingdom’s withdrawal from the European Union.
Exposure to United Kingdom political developments, including the impact of the United Kingdom exiting from the European Union (also known as “Brexit”), could have a material adverse effect on our operations, specifically in Europe. The United Kingdom’s withdrawal from the European Union on January 31, 2020 created an uncertain political and economic environment in the United Kingdom and potentially across other EU member states. The United Kingdom and European Union has agreed to participate in a transition period, which expired on December 31, 2020, to negotiate a trade agreement and other aspects of their relationship after the transition period. During the transition period, free trade continued between the United Kingdom and European Union without checks and extra charges. Prior to the expiration of the transition period, it was announced that the United Kingdom and the European Union have entered into a post-Brexit
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deal on certain aspects of trade and other strategic and political issues, thereby avoiding some of the anticipated disruptions.
Changes resulting from Brexit or any subsequent transition agreements, including changes to existing trade agreements between Europe and the United Kingdom could lead to increased customs duties, tariffs and withholding taxes for the sale of our hardware and services from the United Kingdom into Europe, and may result in us being less profitable.
Security or privacy breaches in our electronic transactions, data and asset tracking sensors may expose us to additional liability or result in a loss of customers, either of which events could harm our business.
Any inability on our part to protect the information security of our networks, data processing systems, software products and platforms could have a material adverse effect on our reputation and profitability by exposing us to additional liability, increasing our expenses relating to resolution of these breaches and deterring users from using our products and services. Our systems and operations are vulnerable to damage or interruption from human error, a breach in cybersecurity, computer viruses, ransomware, other malware, distributed denial of service attacks, spurious spam attacks, intentional acts of vandalism and similar events. We cannot assure you that our current security methods and measures will effectively counter evolving security risks, prevent future slowdowns or disruptions, protect against extraordinary attacks while addressing the security and privacy requirements of existing and future users. Any breaches, system failures, slowdowns or disruptions as a result of malicious insiders or third-party action, including malevolent conduct by hackers, phishing and other means of social engineering could likely result in the loss, corruption or unavailability of data or unanticipated disruptions in service to our users, decreased levels of user satisfaction and significant negative effects on our reputation, which could materially and adversely affect our business.
We utilize third-party encryption and authentication technology providers to secure and review transmission of confidential information over the Internet, including private customer data such as bank account numbers and asset tracking data. Advances in technological capabilities, new discoveries in the field of cryptography, and a continually changing landscape of cybersecurity threats as well as other events or developments, could result in a compromise or breach of the technology we use to protect sensitive transaction data, including the technology provided by third parties. If any such compromise of our data security, or the data security of our customers, were to occur, it could result in misappropriation of proprietary information or interruptions in operations, and have an adverse impact on our reputation or the reputation of our customers. If we are unable to detect and prevent unauthorized access to or use of confidential information including bank account numbers and asset tracking data, our business, results of operations and financial condition could be materially and adversely affected. Any such interruption or breach of our systems could also result in legal and reputational damage to our business, including legal claims and proceedings, liability under laws that protect the privacy of personal information, government enforcement actions and regulatory penalties, as well as remediation costs. We maintain cyber liability insurance; however, this insurance may not be sufficient to cover legal, reputational and financial losses that may occur as a result of an interruption or a breach of our systems.
Our operating results may be harmed if we are required to collect sales, use, services or other related taxes for our solutions in jurisdictions where we have not historically done so, or if there are significant changes in the effective tax rates exposing us to greater than anticipated tax liabilities.
We do not believe that we are ordinarily required to collect sales, use, services or other similar taxes from our customers in certain jurisdictions. However, one or more countries or states may seek to impose sales, use, services, or other tax collection obligations on us, including for past sales. For example, the European Commission introduced a proposal of a Directive addressing taxation of digital businesses operating within the European Union, but has not yet reached an agreement on a sales tax with a scope limited to digital advertising services. As a result, certain countries, including the United Kingdom, Italy, France and Spain moved to introduce their own digital service tax (“DSTs”). DSTs would be imposed on gross revenue derived from a variety of digital services, for example, the provision of digital intermediary services. Based on our current activities, we do not believe that we would fall within the scope of the DSTs as designed today. However, the current definition of DSTs proposed by the OECD (from which the local initiatives stem) will probably be adjusted, and the locally proposed and implemented DSTs differ significantly in their scope and structure. A successful assertion by one or more jurisdictions that we should collect sales, DST or other taxes on the sale of our solutions, could result in substantial tax liabilities, including interest and penalty charges for past sales and decrease our ability to compete for future sales. We review applicable rules and regulations periodically and, when we believe sales and use taxes apply in a particular jurisdiction, we voluntarily engage tax authorities in order to determine how to comply with their rules and regulations. We cannot assure you that we will not be subject to sales and use taxes or related penalties for past sales in jurisdictions where we presently believe sales and use taxes are not due. Furthermore, we cannot be certain that we have recorded sufficient provisions on our consolidated financial statements to cover taxes.
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Although our client contracts ordinarily provide that our clients must pay all applicable sales and similar taxes, they may be reluctant to pay back taxes, and may refuse responsibility for interest or penalties associated with those taxes. If we are unable to collect and pay back taxes and the associated interest and penalties, we will incur unplanned expenses that may be substantial.
Tax laws are dynamic and subject to change as new laws are passed and new interpretations of the laws are published. Changes in tax legislation could increase our tax obligations in countries where we do business.
Due to the nature of our business, our services are provided within multiple jurisdictions, including certain jurisdictions in which we may not have anticipated our services being provided or within which we may not have had prior dealings. Accordingly, there may be unforeseen obligations related to certain jurisdictions that were not identified, where the tax legislation may have been amended or not adequately provided for in our contracts. These obligations could materially and adversely affect our financial position.
An actual or perceived reduction in vehicle theft and crime rates, may adversely impact demand for certain of our solutions, which could result in a loss of customers and a decline in growth.
Demand for our vehicle tracking and asset recovery solutions is influenced by prevailing or expected vehicle theft rates. Vehicle theft rates may decline as a result of various factors, such as the availability of improved security systems, implementation of improved or more effective law enforcement measures, and improved economic or political conditions in markets that have high theft rates. If vehicle theft rates in our markets decline significantly, or if vehicle owners or insurance companies believe that vehicle theft rates have declined or are expected to decline, demand for some of our products and services may decline, which could result in a loss of customers and a decline in growth.
We are subject to U.S. and other anti-corruption laws, trade controls, economic sanctions and similar laws and regulations, including those in the jurisdictions where we operate. Our failure to comply with these laws and regulations could subject us to civil, criminal and administrative penalties and harm our reputation.
Doing business on a worldwide basis requires us to comply with the laws and regulations of various foreign jurisdictions. These laws and regulations place restrictions on our exports, reexports, operations, technologies, trade practices, partners and investment decisions. In particular, our operations are subject to U.S. and foreign anti-corruption and trade control laws and regulations, such as the Foreign Corrupt Practices Act (the “FCPA”), various export controls and economic sanctions programs, including those administered by the U.S. Treasury Department’s Office of Foreign Assets Control (“OFAC”), as well as Australian and European sanctions. Certain of our products, technologies and services are, or may be subject to the EAR. U.S. export controls, regulations and economic sanctions include various restrictions and license requirements, including prohibit the shipment of certain products, technologies, software and services to U.S. embargoed or sanctioned countries, governments and persons. Complying with economic sanctions, export regulation, import laws and regulations may be time-consuming and may results in delays or loss of sales opportunities.
In 2022, the United States, the European Union, and the United Kingdom have imposed a number of new sanctions and export control restrictions on Russia following Russia’s invasion of Ukraine. While we have maintained business relationships with a limited number of oil and gas customers in Russia, we continue to closely monitor those relationships in consultation with outside advisors to maintain compliance with applicable U.S. sanctions and export control and regulations. Certain debt and equity restrictions that have been imposed on dealings with certain Russian entities that are not otherwise blocked parties continue to impact our ability to collect payment on the provision of services in Russia. Additionally, some of our products, technologies and services subject to the EAR may not be exported to Russia without a license. We are also mindful that more comprehensive trade restrictions may be imposed on Russia in the future, and that may impact our ability to engage in any business in Russia or with Russian entities.
While we take precautions to ensure compliance, if we fail to comply with export laws, customs and import regulations, economic sanctions and EAR, we could be subject to substantial civil and criminal penalties, including fines for the company and incarceration of responsible employees and managers, and the possible loss of export privileges. If our dealers and distributors fail to obtain any appropriate import, export, re-export licenses or permits, we may also be subject to government investigations or penalties and suffer reputational harm.
We also monitor compliance in accordance with the ten principles as set out in the United Nations Global Compact Principles, the Organization for Economic Co-operation and Development recommendations relating to corruption, and the International Labor Organization Protocol in terms of certain of the items to be monitored. As a result
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of doing business in foreign countries and with foreign partners, we are exposed to a heightened risk of violating anti-corruption and trade control laws as well as sanctions regulations.
The FCPA prohibits us from providing anything of value to foreign officials for the purposes of obtaining or retaining business, or securing any improper business advantage. It also requires us to keep books and records that accurately and fairly reflect our transactions. As part of our business, we may deal with state-owned business enterprises, the employees of which are considered foreign officials for purposes of the FCPA. In addition, the United Kingdom Bribery Act (the “Bribery Act”) which came into effect on July 1, 2011, extends beyond bribery of foreign public officials and also applies to transactions with individuals not employed by a government. The Bribery Act further punishes both the giving and receiving of bribes, whereas the FCPA only prohibits payment of a bribe. The provisions of the Bribery Act are also more onerous than the FCPA in a number of other respects, including jurisdiction, non-exemption of facilitation payments and penalties. Some of the international locations in which we operate, lack a developed legal system and have higher than normal levels of corruption.
Anti-corruption and anti-bribery laws have been enforced aggressively in recent years and are interpreted broadly. In many foreign countries, particularly in countries with developing economies, it may be a local custom that businesses engage in practices that are prohibited by the FCPA or other applicable laws and regulations. Economic sanctions programs restrict our business dealings with certain sanctioned countries, persons and entities. In addition, because we act through dealers and distributors, we face the risk that our dealers, distributors and customers might further distribute our products to a sanctioned person or entity, or an ultimate end-user in a sanctioned country, which might subject us to an investigation concerning compliance with OFAC or other sanctions regulations. Moreover, we can be held liable for the corrupt or other illegal activities of these third-party intermediaries, our employees, representatives, contractors, partners, and agents, even if we do not explicitly authorize such activities.
Violations of anti-corruption laws, trade control laws and sanctions regulations are punishable by civil penalties, including fines, denial of export privileges, injunctions, asset seizures, debarment from government contracts and revocations or restrictions of licenses, as well as criminal fines and imprisonment.
We have developed policies and procedures as part of a company-wide compliance program that is designed to assist our compliance with applicable U.S. and international anti-corruption and trade control laws and regulations, including the FCPA, the Bribery Act and trade controls and sanctions programs administered by OFAC, and provide regular training to our employees to comply with these laws and regulations. However, there can be no assurance that all of our employees, consultants, partners, agents or other associated persons will not take actions in violation of our policies and these laws and regulations, or that our policies and procedures will effectively prevent us from violating these regulations in every transaction in which we may engage, or provide a defense to any alleged violation.
In particular, we may be held liable for the actions that our local, strategic or joint venture partners take inside or outside of the United States, even though our partners may not be subject to these laws. Such a violation, even if our policies prohibit it, could materially and adversely affect our reputation, business, results of operations and financial condition. Any violation of the FCPA, other applicable anti-corruption laws, or anti-money laundering laws could result in whistleblower complaints, adverse media coverage, investigations, severe criminal or civil sanctions and suspension or debarment from government contracts, which could have an adverse effect on our reputation, business, financial condition, results of operations, and prospects. In addition, responding to any enforcement action may result in a significant diversion of management’s attention and resources and significant defense costs and other professional fees. Our continued international expansion, including in developing countries, and our development of new partnerships and joint venture relationships worldwide, could increase the risk of FCPA, OFAC or Bribery Act violations in the future.
Operating in emerging markets subjects us to greater risks than those we would face if we only operated in more developed markets, which could increase our operating costs and inhibit our growth plan.
Emerging markets, including Africa, Eastern Europe, Mexico, the Middle East, Asia and South America, are subject to greater risks than more developed markets. The Middle East region is experiencing ongoing instability, which has affected and may continue to affect our growth in the region. The Brazilian market continues to experience political and economic issues such as high unemployment rates, high inflation rates and corruption allegations, which affect our growth in the region and our ability to introduce new services to the region. South Africa is experiencing political and economic issues, as well as high unemployment rates, which could affect our ability to maintain our existing customer base as well as our ability to grow our existing customer base. The political, economic and market conditions in many emerging markets present risks that could make it more difficult to operate our business successfully. These risks include:
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•political and economic instability, including higher rates of inflation and currency fluctuations;
•higher levels of corruption, including bribery of public officials;
•loss due to civil strife, acts of war or terrorism, guerrilla activities and insurrection;
•a lack of well-developed legal systems which could make it difficult for us to enforce our intellectual property and contractual rights;
•logistical and communications challenges;
•potential adverse changes in laws and regulatory practices, including import and export license requirements and restrictions, tariffs, legal structures and tax laws;
•difficulties in staffing and managing operations and ensuring the safety of our employees;
•restrictions on the right to convert or repatriate currency or export assets;
•greater risk of uncollectible accounts and longer collection cycles; and
•introduction or changes to indigenization and empowerment programs.
Laws and regulations relating to the Internet and data privacy in the markets in which we operate are complex and continuously evolving, and compliance costs are high. As these laws and regulations continue to evolve, we may be required to increase our compliance-related expenditures or limit the manner in which we collect information, the types of information that we collect, or the solutions that we offer, which may impede our ability to provide our solutions or may reduce our profit margins in specific geographic regions.
Various laws and regulations associated with the Internet and data privacy are complex and increase our cost of doing business. Furthermore, these laws and regulations may expose us to fines and penalties if we fail to comply with them. Although we have implemented procedures designed to comply with international practices and have established additional group policies, charters and procedures to assist in maintaining data privacy and data security, we have not undertaken a formal legal review to determine our compliance with data privacy and data security laws in jurisdictions outside of the UK, the European Union and South Africa.
Furthermore, our employees, contractors and agents may not always comply with the policies and procedures we establish regarding data privacy and data security, particularly as we expand our operations through organic growth and acquisitions. While our employees may violate our policies and procedures, the Company remains responsible for, and obligated to implement, policies and procedures and enter into contracts with service providers that require appropriate protection. Any violations could subject us to civil or criminal penalties, including substantial fines or prohibitions on our ability to offer our products in one or more countries, and could also materially damage our reputation, our brand, our international expansion efforts, our business, results of operations and financial condition.
The transmission of data over the Internet and cellular networks is a critical component of our SaaS business model. Additionally, as cloud computing continues to evolve, increased regulation by federal, state or foreign agencies becomes more likely, particularly in the areas of data privacy and data security. In addition, taxation of services provided over the Internet or other charges imposed by government agencies, or by private organizations for accessing the Internet, may be imposed. Any regulation imposing greater fees for Internet use or restricting information exchange over the Internet, could result in a decline in the use of the Internet and the viability of Internet-based services, which could harm our business.
Our solutions and products enable us to collect, manage, store, and otherwise process a wide range of data related to fleet management such as mobile asset location and fuel usage, speed and mileage. We obtain our data from a variety of sources, including our customers and third-party providers. The United States and various state governments have adopted or proposed limitations on the collection, distribution and use of personal data, as well as requirements that must be followed if a breach of such personal data occurs. The California Consumer Privacy Act, effective January 1, 2020, was the first consumer privacy law in the United States. This law created new privacy rights for California consumers which were expanded by the newly passed California Privacy Rights Act of 2020, effective January 1, 2023. The employee and business-to-business (“B2B”)data exemption expired on January 1, 2023, which means that employees and B2B contracts also have enhanced rights (e.g., right to access, deletion, correction, and opt-out). There are also certain requirements that may apply to sensitive personal information, such as precise geolocation and biometric data.
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Following California, other U.S. sate consumer privacy laws have been passed:
•Virginia Consumer Data Protection Act (“VCDPA”) (effective January 1, 2023);
•Colorado Privacy Act (“CPA”) (effective July 1, 2023);
•Connecticut Data Privacy Act (effective July 1, 2023); and
•Utah Consumer Privacy Act (effective January 1, 2024).
Unlike the CCPA, these other state privacy laws do not apply to employee or commercial data. However, failure to comply with any state privacy laws, could result in penalties, fines, and/or regulatory enforcement actions.
Companies must have reasonable policies, procedures and safeguards in place to protect personal information. The FTC, which is the primary enforcement authority against “unfair” or “deceptive” practices in the U.S., has found it to be an unfair business practice when a company does not provide adequate safeguards to protect consumers’ personal information, because the lack of safeguards harms consumers and consumers cannot avoid the harm.
In addition, several U.S. state laws require data owners to implement reasonable security measures to protect the personal information collected from residents. These laws generally require a data owner to implement reasonable security procedures and practices appropriate to the nature of the information, and to protect the personal information from unauthorized access, destruction, use, modification, or disclosure. Although most of these state laws generally require an entity to maintain appropriate security, at least one state (Massachusetts) has adopted comprehensive data privacy requirements to protect personal information. However, these regulations only apply to more sensitive data, such as driver’s license number, Social Security number, and other government identifiers, as well as financial account and credit card number. California was the first state to enact an Internet of Things (IoT) cybersecurity law, which took effect on January 1, 2020. If applicable, the IoT law requires manufacturers of any internet-connected devices to equip devices with reasonable security features that are: appropriate for the nature and function of the device; appropriate for the information it may collect, contain, or transmit; and designed to protect the device and any information contained within the device from unauthorized access, destruction, use, modification or disclosure.
Some U.S. state privacy laws have also adopted data minimization principles. For instance, under the CCPA, collection, use, retention, and sharing of a consumer’s personal information must be “reasonably necessary and proportionate to achieve the purposes for which the personal information was collected or processed.” Further, personal data and sensitive personal data may not be retained “for longer than is reasonably necessary”.
In the European Union, the EU GDPR governs data collection, use, storage and disclosure of personal data in the European Union. The EU GDPR requires companies to maintain a robust, documentation heavy, data privacy compliance framework. At the same time, electronic privacy law in the EU (which is due to be updated by the upcoming e-Privacy Regulation), requires a high standard of informed consent for the use of cookies and direct electronic marketing. Failure to comply with the EU GDPR can result in penalties and fines for noncompliance, and such fines are now routinely imposed by data protection authorities. When the e-Privacy Regulation is introduced, the same high level of fines will apply in that domain. Further, since the Schrems II decision of the Court of Justice of the European Union in July 2020, there have been material restrictions on the transfer of personal data outside of the European Union, including to ‘third countries’ such as the United States and South Africa. Finally, the EU is in the process of adopting a range of other new laws governing data, digital products (including AI) and cybersecurity. We will need to monitor the applicability of these laws carefully and may need to make further investments to comply.
The United Kingdom has the UK GDPR (adopted when the UK left the EU), which for the time being imposes near-identical requirements on companies. As such, the UK benefits from an adequacy decision which allows personal data to flow freely between the UK and the EU. In March 2023, the UK published a bill to reform some aspects of UK data protection law. Whilst these reforms are relatively modest, it remains to be seen whether they will have any impact on the UK’s adequacy decision when that is reviewed in 2026. The aforementioned Schrems II decision is also applicable in the UK, meaning that there are also restrictive rules relating to the export of personal data outside of the UK. Whilst the UK is not currently contemplating the same range of new data, digital and cyber security laws as the EU, some developments in this space are planned, and these we will need to review these alongside the EU proposals.
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The Australian Privacy Principles contained in the Privacy Act of 1988 (the “Privacy Act”) regulate the collection, use, retention, disclosure and security of personal information. Personal information is defined as “information or an opinion about an identified individual, or an individual who is reasonably identifiable, whether the information or opinion is true or not or is recorded in a material form or not”. Personal information includes location-based information where the information enables the location of an individual to be ascertained. Under the Privacy Act, before disclosing personal information outside of Australia, the transferor must take such steps as are reasonable in the circumstances to ensure that the overseas recipient does not breach the Australian Privacy Principles in relation to the information. What constitutes reasonable steps will depend on the circumstances of the transfer, but would generally include entering into a transfer agreement between the transferor and the transferee under which the transferee agrees to handle the information in accordance with the Australian Privacy Principles. The transferor may be held responsible for any breaches of the Australian Privacy Principles when personal information is transferred outside Australia, regardless of whether there is a data transfer agreement in place. There are exceptions to the requirement to take reasonable steps, such as where the individual to whom the information relates provides fully informed consent.The NDB scheme which was included in the Privacy Act in February 2018, requires companies to notify individuals whose personal information is involved in a data breach that is likely to result in serious harm and includes recommendations about steps individuals should take in response to the breach.
The POPI Act was promulgated into law in South Africa in November 2013 and came into full effect on July 1, 2021. Any failure to comply with the POPI Act may result in a fine not exceeding R10 million and/or imprisonment of up to 10 years, depending on the severity of such failure.
We continuously update and will continue to evaluate our group data protection and security policies, charters, and procedures to assist in maintaining data privacy and data security in line with international privacy practices.
Embracing digital transformation is a way to increase MiX’s value to customers globally. Organizations not embracing and capitalizing on new technologies are at risk of being behind the curve in terms of new technology. Adopting new technologies such as AI technologies create new opportunities, however, increases the risk regarding compliance to privacy obligations. For example, our MiX AI Vision solution is based in hardware from a Chinese manufacturer who also owns the IP. While the solution and video footage are hosted on our servers and not in China, customers might have concerns that their footage could potentially be accessed by the supplier if the Chinese Government forces them to do so.
We may also be subject to costly notification and remediation requirements if we, or a third party, determine that we have been the subject of a data breach involving personal data of individuals. Data breach notification regulations vary among the countries where we conduct business, and also vary among the states of the United States, and any such breach involving personal data could be subject to any number of these requirements.
As noted above, we have sought to implement internationally recognized practices regarding data privacy and data security. If our privacy or data security measures fail to comply, or are perceived to fail to comply, with current or future laws and regulations, we may be subject to litigation, regulatory investigations, fines or other liabilities. Moreover, if future laws and regulations limit our customers’ ability to use and share this data or our ability to store, process and share data with our customers over the Internet, demand for our solutions could decrease and our costs could increase. We might also have to limit the manner in which we collect data, the types of personal data that we collect, or the solutions we offer. Any of these risks would materially and adversely affect our business, results of operations and financial condition.
Our ability to repatriate cash from certain regions may be restricted due to foreign exchange controls and could have an adverse effect on our results of operations.
Governments in Africa frequently intervene in economies and make changes to policies and regulations. Regulations might include price controls, mandatory wage increases, changes to employee benefits, capital and exchange controls and limitations on imports.
For example, MiX Telematics and its’ customers in Nigeria are having difficulty in sourcing foreign exchange through the Central Bank of Nigeria, which established exchange controls that limit our ability to convert Nigerian Naira into U.S. Dollar. Such limitations could adversely affect our ability to access cash and could negatively impact our results of operations in the region.
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A governmental challenge to our transfer pricing policies or practices could impose significant costs on us.
The group has intercompany transactions and consequently closely monitors the appropriateness of its transfer pricing policies and compliance therewith. The global transfer pricing environment, including with respect to operational and reporting requirements, is continuously evolving and subject to input from multiple sources and jurisdictions. These complexities require management to closely monitor new developments, which it does.
Many countries routinely examine transfer pricing policies of taxpayers subject to their jurisdiction, and authorities challenge transfer pricing policies aggressively where there is potential non-compliance and impose interest and penalties where non-compliance is determined. Although the documentation of and support for our transfer pricing policies has not been the subject of a governmental proceeding beyond examination to date, there can be no assurance that a governmental authority will not challenge these policies more aggressively in the future or, if challenged, that we will prevail. We could suffer costs related to one or more challenges to our transfer pricing.
Although South Africa signed the Multilateral Competent Authority Agreement on the Exchange of Country-by-Country (“CbC”) Reports on January 27, 2016, and published its CbC Reporting Regulations on December 23, 2016 (“CbC Regulations”), the Company is not under any obligation to file a CbC Report as its turnover is below the required threshold. In terms of the CbC Regulations, the ultimate parent entity of Multinational Enterprise Groups (“MNE Group”) with total consolidated group revenue of at least R10 billion (or €750 million should the MNE Group be headquartered outside of South Africa), must submit a CbC Report to the South African Revenue Service (“SARS”).
In addition to the CbC Regulations, any entity which has entered into cross-border related party transactions, which exceed or are reasonably expected to exceed R100 million per year in the aggregate, must submit a “Master File” and “Local File” to SARS.
MiX Telematics International meets this threshold and therefore is required to submit Master File and Local File returns.
Reduction in regulation in certain markets may adversely impact demand for certain of our solutions by reducing the necessity for, or desirability of, our solutions.
Regulatory compliance and reporting is driven by legislation and requirements, which are often subject to change, from regulatory authorities in nearly every jurisdiction globally. For example, in the United States, fleet operators can face numerous complex regulatory requirements, including mandatory Compliance, Safety and Accountability driver safety scoring, hours of service, compliance and fuel tax reporting. The reduction in regulation in certain markets may adversely impact demand for certain of our solutions, which could materially and adversely affect our business, financial condition and results of operations.
Failure to correctly and efficiently implement a new Enterprise Resource Planning (“ERP”), Customer Relationship Management System (“CRM”) and billing system could have a material and adverse effect on our operations.
We have completed the implementation of a new fully integrated ERP, CRM and billing system in the African Fleet Subsidiaries as well as completed the implementation of the ERP system in the Middle East, North America, Europe, Australia and Brazil RSOs. We are still in the process of enhancing the system functionality in Brazil. Planning for the implementation of the ERP system in the Africa Consumer RSO is underway. The overall aim of these new systems is to enable management to achieve enhanced quality, reliability and timeliness of information; improve integration and visibility of information stemming from different management functions and countries; and optimize global management of corporate processes.
The adoption of a new ERP, CRM and billing system, which will replace the various accounting systems within our individual operations, poses several challenges relating to, among other things, project governance, migration of data, potential instability of the new system, communication of new rules and procedures, training of personnel and maintaining effective internal controls. We are aware of the potential risks associated with a global system implementation and intend to adopt mitigation plans and contingency plans, in order to ensure business continuity, this includes mitigating issues noted during the pilot implementation before embarking on the full roll-out. However, there can be no assurance that a new ERP, CRM and billing system will be successfully implemented and failure to do so could have a material adverse effect on our operations and ability to execute on our growth strategy.
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If the accounting estimates we make, and the assumptions on which we rely, in preparing our consolidated financial statements prove inaccurate, our actual results may be adversely affected.
Our consolidated financial statements have been prepared in accordance with GAAP. The preparation of these consolidated financial statements requires us to make estimates and assumptions about, among other things, the assessment of expected cash flows used in evaluating goodwill and long-lived assets for impairment, the amortization period for deferred commissions, the determination of useful lives of the Company’s customer relationships, maintenance and warranty accruals, contingencies, expected credit losses, the classification of devices and other hardware as in-vehicle devices (equipment) versus inventory based on the future expectation of the different types of customer contracts, income and deferred taxes, unrecognized tax benefits, valuation allowances on deferred tax assets, stock-based compensation, fair values of assets acquired and liabilities assumed from the business acquired and fair value measurement of the contingent consideration. These estimates and assumptions affect the reported amounts of our assets, liabilities, revenue and expenses, the amounts of charges accrued by us, and related disclosure of contingent liabilities. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances and at the time they are made. If our estimates or the assumptions underlying them are not correct, actual results may differ materially from our estimates and we may need to, among other things, accrue additional charges that could adversely affect our results of operations, which in turn could adversely affect our stock price. In addition, new accounting standards, amendments and interpretations of accounting standards have occurred and may occur in the future that could adversely affect our reported financial results.
We may be exposed to risks related to litigation and administrative proceedings that could materially and adversely affect our business, results of operations and financial condition.
Our business may expose us to litigation and administrative proceedings relating to labor, regulatory, tax proceedings, governmental investigations, tort claims, contractual disputes and criminal prosecution, among other matters, that could materially and adversely affect our business, results of operations, and financial condition. In the context of these proceedings, we may not only be required to pay fines or monetary damages but also be subject to sanctions or injunctions affecting our ability to continue our operations. While we may contest these matters vigorously and make insurance claims when appropriate, litigation and other proceedings are inherently costly and unpredictable, making it difficult to accurately estimate the outcome of actual or potential litigation or proceedings. Although we will establish provisions in accordance with the requirements of GAAP, the amounts that we reserve could vary significantly from any amounts we actually pay due to the inherent uncertainties in the estimation process. In addition, litigation and administrative proceedings can involve significant management time and attention and be expensive, regardless of outcome. During the course of any litigation and administrative proceedings, there may be announcements of the results of hearings and motions and other interim developments. If securities analysts or investors regard these announcements as negative, the trading price of our ordinary shares and ADSs may decline. For more information, see “Item 3. Legal Proceedings.”
Risks Related to Intellectual Property
We have not traditionally relied on patents to protect our intellectual property, and we rely on trade secrecy laws, confidentiality agreements, confidentiality procedures and contractual restrictions to establish and protect our intellectual property rights, which provide only limited protection and may subject us to litigation.
Our future success and competitive position depend in part on our ability to protect our intellectual property and proprietary technologies. We rely primarily on trade secrecy laws, confidentiality agreements, confidentiality procedures and contractual restrictions to establish and protect our intellectual property rights, all of which provide only limited protection and may not currently, or in the future, provide us with a competitive advantage. Our confidentiality agreements with our employees, licensees, independent contractors and other advisers may not effectively prevent disclosure of confidential information and may not provide an adequate remedy in the event of unauthorized disclosure of confidential information. In addition, others may independently discover our trade secrets or develop similar technologies and processes, and, in either event we would not be able to assert trade secret rights.
We also rely, to a limited extent, on patent, trademark and copyright law. A patent covering certain aspects of our Beam-e product was issued in South Africa during fiscal year 2014 and a patent covering a method for driver verification was issued during fiscal year 2015. A further patent for an asset tracking system and method was issued in Brazil on May 4, 2021. We have traditionally not sought patent protection over our intellectual property. As a result, we may not be able to successfully defend our intellectual property from third-party infringement.
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We cannot assure you that any future trademark registrations will be issued for pending or future applications, or that any registered trademarks will be enforceable, or provide adequate protection of our proprietary rights, or that any such trademarks will not be challenged, invalidated, or circumvented.
Effective patent, trademark, copyright, and trade secret protection may not be available in every country in which our solutions are available, or where we have employees or independent contractors. In addition, the legal standards relating to the validity, enforceability, and scope of protection of intellectual property rights in Internet-related industries are uncertain and continue to evolve. The steps we have taken, and will take, may not prevent unauthorized use, reverse engineering, or misappropriation of our technologies and we may not be able to detect any of the foregoing. Any of the foregoing events could materially and adversely affect our business, results of operations and financial condition.
An assertion by a third party that we are infringing on its intellectual property rights could subject us to costly and time-consuming litigation or expensive licenses.
The fleet management, mobile asset management and technology industries are characterized by the existence of a large number of patents, copyrights, trademarks and trade secrets and by frequent litigation based on allegations of infringement or other violations of intellectual property rights. Much of this litigation involves patent-holding companies or other adverse patent owners who have no relevant product revenue of their own, and against whom our own limited patent portfolio may provide little or no deterrence. We have been subject to such claims in the past and may face additional claims in the future.
We have not historically conducted comprehensive art searches to determine whether our solutions infringe the patent rights of third parties in our current markets, or those markets we may enter in the future. Third parties may assert that we are infringing on patents, of which we are currently unaware and that would have been disclosed by prior art searches if they had been conducted. Our status as a public company in the United States has raised our visibility and may invite holders of patents who have not previously sought to enforce them against us, to bring or threaten claims for infringement or seek to negotiate royalty or other payments from us. The fact that we have relatively few patents associated with our intellectual property means that we may not be able to successfully defend our intellectual property from third-party infringement. Any of the foregoing could materially and adversely affect our business, results of operations and financial condition.
We cannot assure you that we will prevail in any future intellectual property infringement litigation given the complex technical issues and inherent uncertainties in such litigation. Defending such claims, regardless of their merit, could be time-consuming and distracting to management, result in costly litigation or settlement, cause development delays, or require us to enter into royalty or licensing agreements. In addition, we are obligated to indemnify some of our customers and other contract counterparties against third parties’ claims of intellectual property infringement based on our solutions. If our solutions violate any third-party intellectual property rights, we could be required to withdraw those solutions from the market, re-develop those solutions or seek to obtain licenses from third parties, which might not be available on reasonable terms, or at all. Any efforts to redevelop our solutions, obtain licenses from third parties on favorable terms or license a substitute technology might not be successful and, in any case, might substantially increase our costs and harm our business, financial condition and operating results. Withdrawal of any of our solutions from the market could harm our business, financial condition and operating results.
Our software may contain undetected defects or software errors, which could result in damage to our reputation or market rejection of our products.
We must update our solutions quickly to keep pace with the rapidly changing market, including the third-party software and devices with which our solutions integrate, and we have a history of frequently introducing new releases. Our solutions and/or updates to our solutions could contain errors or defects, which were not detected during our review processes, especially when first introduced or when new versions are released. Our software may not be free from errors or defects, which could result in damage to our reputation or harm to our operating results.
We warrant that our hardware will be free of defects for various periods of time. The operation of the hardware is controlled by the firmware loaded on the hardware. We generally provide firmware updates to our fleet customers by “over-the-air” wireless communication of the updated firmware directly to our customers’ in-vehicle devices. If the firmware does not function as expected and it prevents the uploading of updated firmware, then the problem cannot be corrected by an over-the-air update and will require direct servicing of the installed on-board computer by trained personnel, which imposes a very significant cost on us. Variations among communications protocols in the markets in which we operate increase the risk of error in the remote installation of firmware. Although we attempt to manage this risk
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by introducing firmware updates in stages, so that the success of deployment can be assessed on a small number of in-vehicle devices before the deployment risk is expanded to a larger customer base, there can be no assurance that we will be successful in detecting firmware operation and integration problems or otherwise in managing our exposure to remediation expense related to the deployment of firmware updates.
Our “over-the-air” transmission of firmware updates could permit a third party to disable our customers’ in-vehicle devices or introduce malware into our customers’ in-vehicle devices, which could expose us to widespread loss of service and customer claims.
“Over-the-air” transmission of our firmware updates may provide the opportunity for a third party, who has deep inside knowledge of our systems, to modify or disable our customers’ in-vehicle systems or introduce malware into our customers’ in-vehicle systems. No such incidents have occurred to date, but there can be no assurance that they will not occur in the future. Damage to our customers’ in-vehicle devices as a result of such incidents could only be remedied through direct servicing of their installed in-vehicle devices by trained personnel, which would impose a very significant cost on us, particularly if the incidents are widespread. Moreover, such incidents could expose us to widespread loss of service and claims by our customers under various theories of liability, the outcome of which would be uncertain. Third-party interference with our over-the-air transmission of firmware, or with our customers’ in-vehicle devices during such process, could materially and adversely affect our business, financial condition and results of operations.
Any significant disruption in service on, or security breaches of, our SaaS platform or computer systems, could compromise our information, damage our reputation and result in a loss of customers.
Our brand, reputation, and ability to attract, retain, and serve our customers depend upon the reliable performance of our service and our customers’ ability to access our solutions at all times. Our customers rely on our solutions to make operating decisions related to their fleet, as well as to measure, store and analyze valuable data regarding their businesses. We collect and store sensitive data, including data transmitted from our customers’ in-vehicle devices concerning the location of their mobile assets, as well as personally identifiable information concerning our customers and employees. Our solutions are vulnerable to interruption and our data centers are vulnerable to damage or interruption from human error, intentional malicious acts, computer viruses or hackers, pandemics, earthquakes, hurricanes, floods, fires, war, terrorist attacks, power losses, hardware failures, systems failures, telecommunications failures and similar events, any of which could limit our customers’ ability to access our solutions. Prolonged delays or unforeseen difficulties in connection with adding capacity or upgrading our network architecture may cause our service quality to suffer. Any event that significantly disrupts our service or exposes our data to misuse could damage our reputation and harm our business and operating results, including causing us to issue credits to customers, subjecting us to potential liability, reducing our customer retention rates, or increasing our cost of acquiring new customers, any of which would have the effect of reducing our revenue and could materially and adversely affect our business, results of operations and financial condition.
Any breach of our data or system security could result in our customer data being accessed, publicly disclosed, lost or stolen, our business and operations being interrupted, a loss of confidence in our products and services and other negative consequences such as civil liability, including under laws that protect the privacy of personal information, and regulatory penalties, any or all of which could materially and adversely affect our business, financial condition and results of operations.
In addition, we store data, host our solutions and serve all of our customers from our servers, which are located at third-party data center facilities in Algiers in Algeria, Sydney in Australia, Muscat in Oman, Dublin in Ireland, Dubai in the United Arab Emirates (“UAE”) and Virginia in the United States. While we control and have access to the servers and some of the physical components that are located in these external data centers, we do not control the operation of these facilities or certain equipment. Problems faced by our third-party data center locations, with the telecommunications network providers with whom they or we contract, or with the systems by which our telecommunications providers allocate capacity among their customers, including us, could adversely affect the experience of our customers. Third-party operators of our data centers could decide to close their facilities without adequate notice. In addition, any financial difficulties, such as bankruptcy, faced by our secure third-party data center operators or any of the service providers with whom they or we contract may have negative effects on our business, the nature and extent of which are difficult to predict.
In addition to data hosted at third-party data centers, we have transitioned the vast majority of our data to cloud-based service platforms such as Amazon Web Services (“AWS”). The use of such service presents similar risks to the use of a conventional third-party hosted environment, although at a level that is viewed internally as considerably lower. The
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use of cloud-based servicing may however present additional complexity which may be more easily managed using physical data centers, for example the jurisdiction of data and applicability of various laws and regulations denoting the transfer of data between jurisdictions is more complex in a cloud-based environment.
Certain of our customer agreements currently, and may in the future, provide minimum service level commitments regarding items such as uptime, functionality or performance. If we are unable to meet the stated service level commitments for these customers, or suffer extended periods of service unavailability, we are or may be contractually obligated to provide these customers with credits for future subscriptions, provide services at no cost or pay other penalties, which could adversely impact our profitability. Additionally, if our contracted or physical capacity is unable to keep up with our growing needs, this could have an adverse effect on our business. Our disaster recovery systems are located at our third-party hosting facilities. We use a redundant architecture and regularly review and increase capacity. However, our systems have not been tested under all disaster conditions and may not have sufficient capacity to recover all data and services in the event of an outage. In the event of a disaster in which our disaster recovery systems are irreparably damaged or destroyed, we would experience interruptions in access to our services. Any changes in third-party service levels at our data centers or any errors, defects, disruptions, or other performance problems with our solutions could harm our reputation and may damage our data. Interruptions in our services could materially and adversely affect our business, results of operations and financial condition, cause us to issue refunds to customers, subject us to potential liability, or adversely affect our subscriber retention rates.
In South Africa we are reliant on Eskom (the South African Power Utility), which has had challenges in meeting the country’s power demand, resulting in load shedding, load reduction and intermittent power outages. Although it has not resulted in our business operations being impacted directly, not having power at some of our contracted Cellular Network Service Provider signal towers may impact our ability to locate and track vehicles in that area.
Our solutions rely on third-party software and any inability to license such software from third parties could render our solutions ineffectual.
We rely on software and other intellectual property licensed from third parties, including mapping software and data from Google and Here, to develop and provide solutions to our customers. In addition, we may need to obtain future licenses from third parties to use software or other intellectual property associated with our solutions. We cannot assure you that these licenses will be available to us on acceptable terms, without significant price increases or at all. Any loss of the right or inability to obtain the right to use any such software or other intellectual property required for the development and maintenance of our solutions could result in interruptions in the provision of our solutions until equivalent technology is either developed by us, or, if available from others, is identified, obtained, and integrated, which could harm our business.
In addition, we incorporate some open-source software into our platform. The terms of many open-source licenses to which we are subject have not been interpreted by U.S. courts or courts of other jurisdictions, and there is a risk that those licenses could be construed in a manner that imposes unanticipated conditions or restrictions on our ability to commercialize our solutions. In that event, we could be required to seek licenses from third parties in order to continue offering our solutions, to re-develop our solutions, to discontinue sales of our solutions, or to release our proprietary software source code under the terms of an open-source license, any of which could adversely affect our business.
We depend on third-party technology, including cellular and GPS networks, and any disruption, failure or increase in costs could impede the functionality of our solutions.
Two critical links in our current solutions are between in-vehicle devices and GPS satellites, and between in-vehicle devices and cellular networks, which allow us to obtain location data and transmit it to our system. Increases in the fees charged by cellular carriers for data transmission or changes in the cellular networks, such as a cellular carrier discontinuing support of the network currently used by our in-vehicle devices, requiring retrofitting of our in-vehicle devices, could increase our costs and impact our profitability. We have initiated activities to migrate new installations to the next generation of cellular network compatibility, in order to maximize expected useful life of our in-vehicle devices. However, cellular carriers could in the future discontinue support for our currently utilized cellular technologies. Also, while we have included the ability to store GPS data in our in-vehicle devices in case of temporary cellular network connectivity failure, widespread disruptions or extended failures of the cellular networks would adversely affect our solutions’ functionality and utility and harm our financial results.
GPS is a satellite-based navigation and positioning system consisting of a network of orbiting satellites. These satellites and their ground support systems are complex electronic systems, subject to electronic and mechanical failures and possible sabotage and it is not certain that the U.S. government will remain committed to the operation and
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maintenance of GPS satellites in the future. In addition, technologies that rely on GPS depend on the use of radio frequency bands and any modification of the permitted uses of these bands may adversely affect the functionality of GPS and, in turn, our solutions. The satellites and their ground control and monitoring stations are maintained and operated by the U.S. Department of Defense, which does not currently charge users for access to the satellite signals and does not impose on the ability to access location data. We cannot assure you that it will not do so in the future. Any disruption, failure, increase in costs or regulatory hurdles could impede the functionality and/or cost of our solutions, which could adversely affect our business. The communication systems that we use to host and transmit data may be subject to security incidents, which may also subject the Company to regulatory enforcement and client pressures.
Our solutions integrate with third-party technologies and if our solutions become incompatible with these technologies, our solutions would lose functionality and our customer acquisition and retention could be adversely affected.
Our solutions integrate with third-party software and devices to allow our solutions to perform key functions. We cannot guarantee that this ease of integration will continue or that we will be able to integrate with other products at all or without additional cost. Additionally, previously unidentified errors, viruses or bugs may also be present in third-party software that our customers use in conjunction with our solutions. Changes to third-party software that our customers use in conjunction with our solutions could also render our solutions ineffective. Customers may conclude that our software is the cause of these errors, bugs or viruses and terminate their subscriptions. The inability to easily integrate with, or the presence of any defects in, any third-party software could result in increased costs, or in delays in software releases or updates to our products until such issues have been resolved, which could damage our reputation and materially and adversely affect our business, results of operations and financial condition.
Risks Related to South Africa
Fluctuations in the value of the South African Rand have had, and will continue to have, a significant impact on our reported revenue and results of operations, which may make it difficult to evaluate our business performance between reporting periods and may also adversely affect the price of our ADSs.
The majority of our subscription agreements and operating expenses are incurred outside the United States and denominated in foreign currencies and are subject to fluctuations due to changes in foreign currency exchange rates, particularly changes in the South African Rand. Currency fluctuations, particularly those in respect of the South African Rand, may positively or negatively impact our reported income and expenses due to the effects of translating the functional currency of our foreign subsidiaries into our reporting currency of U.S. Dollars.
The majority of our revenue are derived from currencies other than the U.S. Dollar. Accordingly, changes in exchange rates, and in particular a strengthening of the U.S. Dollar, will negatively impact our revenue and income as reported in U.S. Dollars. The depreciation of the South African Rand may also negatively impact the prices at which our ADR’s trade.
Due to the significant fluctuation in the value of the South African Rand and its impact on our results, you may find it difficult to compare our results of operations between financial reporting periods. This difficulty may have a negative impact on the price of our ADSs and/or increase their volatility. During fiscal year 2023, the South African Rand devalued by 14.3% against the U.S. Dollar (South African Rand/U.S. Dollar exchange rate averaged R16.99 and fluctuated between a high of R18.72 and a low of R14.44). This compared to an average exchange rate of R14.86 during fiscal year 2022 (which fluctuated between a high of R16.30 and a low of R13.43). The South African Rand exchange rate is affected by various international and South African political factors, global commodity prices, inflation rates, interest rates and slow economic growth. The economy is also negatively impacted by South Africa’s continuing energy shortage.
As stated above we operate internationally and are exposed to foreign exchange risk arising from various currency exposures, primarily with respect to the South African Rand, the Euro, the Australian Dollar, Brazilian Real and the British Pound. These exposures may change over time as business practices evolve and could have a material adverse impact on our financial results and cash flows. Fluctuation in currency exchange rates impacts our operating results. We have implemented a foreign currency hedging policy to reduce our net exposure, on certain recognized assets and liabilities, to fluctuations in foreign currencies. Our policy is primarily based on economic hedging principles of managing certain of our on-balance-sheet risk, as opposed to using derivative financial instruments. We do not attempt to hedge currency translation risk. Our future attempts to hedge against foreign currency risk could be unsuccessful and expose us to losses.
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If we do not achieve applicable black economic empowerment objectives in our South African businesses, we risk not being able to renew certain of our existing contracts which service South African government and quasi-governmental customers, as well as not being awarded future corporate and governmental contracts, each of which would result in the loss of revenue.
The South African government established a legislative framework for the promotion of B-BBEE. Achievement of B-BBEE objectives is measured by a scorecard which establishes a weighting for the various components of B-BBEE which relates to:
•Ownership - measuring the share of Black ownership and corresponding rights in the business, including voting rights among others.
•Management Control - reflecting the percentage of Black people in managerial positions ranging from junior management upwards.
•Skills Development - measuring the amount of money that was spent on the training and development of Black people including amongst others short courses, bursaries and learnerships.
•Enterprise and Supplier Development (including Preferential Procurement) - with enterprise development measuring contributions to, and the development of small Black-owned businesses with the objective of enabling them to supply goods and services to the company in the future; with supplier development measuring contributions to, and the development of Black-owned suppliers to help grow their businesses; and with preferential procurement measuring the extent to which goods and services are procured from suppliers that are empowered and have a good B-BBEE rating; and
•Socio-Economic Development - assessing the initiatives that the company supports often to the benefit of groups of individuals and communities with the objective of promoting income-generating activities and sustainable access to the economy for these beneficiaries.
The B-BBEE Codes have a continuous review process and updates. Various amendments and clarifications with more onerous compliance requirements have been made over the years.
It is important for us to make a meaningful contribution to the country, and we view the applicable B-BBEE objectives as an opportunity for us to ensure a brighter future for all, moreover in the context of the National Development Plan 2030. In addition, B-BBEE objectives are pursued, by and large, by requiring parties who contract with corporate, governmental and State-Owned Enterprises in South Africa to achieve B-BBEE compliance through satisfaction of the applicable scorecard. Parties improve their B-BBEE contributor level when contracting with businesses that have earned good B-BBEE contributor levels in relation to their scorecards.
MiX Telematics Enterprise SA Proprietary Limited engages with government and state-owned enterprises in tendering for business and is therefore required to maintain at least a certain B-BBEE contributor level to continue to provide the service. Currently some material end-customers requires MiX Telematics Enterprise SA Proprietary Limited to maintain at least a B-BBEE contributor between level 1 and 2 as measured under the new B-BBEE Codes. The value of these contracts represented 3.3% of our total revenue for fiscal year 2023. MiX Telematics Enterprise SA Proprietary Limited has attained the agreed compliance targets in fiscal year 2023.
The Employment Equity Act promotes equality in the workplace, and ensures that employees are treated fairly and have equal opportunities within the workplace. In April 2023, the Amendment Bill was assented. The main objectives of the Amendment Bill are to enable the Employment and Labour Minister to impose sector-specific EE targets and compliance criteria to issue EE Compliance Certificates in terms of Section 53 of the Employment Equity Act. This has bestowed the government with the right to set specific equity targets by sector and region. Companies that are wanting to do business with the government will be required to submit a certificate from the Department confirming that they are in compliance with the Employment Equity Act and its objectives. This means that MiX Telematics will not set its own EE targets but targets will be imposed.
Failing to achieve applicable B-BBEE and EE objectives could jeopardize our ability to maintain existing business or to secure future business from corporate, governmental or state-owned enterprises that could materially and adversely affect our business, financial condition and results of operations.
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We face the risk of disruption from labor disputes and changes to South African labor laws, which could result in significant additional operating costs or alter our relationship with our employees.
Our operations may be materially affected by changes to labor laws. South African laws relating to labor that regulate work time, provide for mandatory compensation in the event of termination of employment for operational reasons, and impose monetary penalties for non-compliance with administrative and reporting requirements in respect of affirmative action policies, could result in significant costs. In addition, future changes to South African legislation and regulations relating to labor may increase our costs or alter our relationship with our employees. The resulting disruptions could materially and adversely affect our business, results of operations and financial condition.
Socio-economic inequality in South Africa or regionally may subject us to political and economic risks which may affect the ownership or operation of our business.
We are incorporated and own significant operations in South Africa. As a result, we are subject to political and economic risks relating to South Africa. South Africa was transformed from a racially based government into a democracy in 1994, with successful rounds of democratic elections held under a modern constitution during 1994, 1999, 2004, 2009, 2014 and most recently, in May 2019. The next national elections are scheduled to be held in 2024. We fully support government policies aimed at redressing the disadvantages suffered by the majority of citizens under the previous non-democratic dispensation and recognize that in order to implement these policies, our operations and profits may be impacted. However, South Africa faces many challenges in overcoming substantial racial differences in levels of economic and social development among its people. While South Africa features highly developed and sophisticated business sectors and financial and legal infrastructure at the core of its economy, large parts of the country’s black population, particularly in rural areas, do not have access to adequate education, health care, housing and other services, including water and electricity. In addition, South Africa also has a higher level of unemployment than the United States.
The ruling party which has controlled the South African government since democracy has committed itself to creating a stable, democratic, free market economy, which it has achieved to a great extent. It remains difficult however, to predict the future political, social and economic direction of South Africa or the manner in which any future government will attempt to address the country’s inequalities. It is also difficult to predict the impact that addressing these inequalities will have on our business. Furthermore, there has been regional, political and economic instability in countries neighboring South Africa, which could materially and adversely affect our business, results of operations and financial condition.
Although political conditions in South Africa are generally stable, changes may occur in the composition of its ruling party or in its political, fiscal and legal systems which might affect the ownership or operation of our business, which may, in turn, materially and adversely affect our business, financial condition and results of operations. These risks may include changes in legislation, arbitrary interference with private ownership of contract rights, and changes to exchange controls, taxation and other laws or policies affecting foreign trade or investment and could materially and adversely affect our business, financial condition and results of operations. Any changes in investment ratings, regulations and policies or a shift in political attitudes both within and towards South Africa are beyond our control and could materially and adversely affect our business, financial condition and results of operations.
A lack of growth, high inflation or increased interest rates in the South African economy could reduce our anticipated revenue and increase our operating costs.
The South African Reserve Bank (“SARB”) estimated and expects gross domestic product (“GDP”) to grow by 0.2% in 2023. The same report indicated that GDP is expected to grow by 1% in 2024 and 1.1% in 2025. The International Monetary Fund, in April 2023, projected that the South African economy is expected to grow by 0.1% in 2023.
Current economic projections remain uncertain as a result of no material easing of difficult global economic conditions. This can be attributed to Russia’s ongoing war in the Ukraine and the impact of that on European markets, financial conditions in the US, weak economic growth in developing countries, a surge in global inflation mainly as a result of global supply chain constraints, global politics, sanctions and impact thereof on global trade. Furthermore, the South African economy is also impacted by the high unemployment rate. In the first quarter of 2023, the official unemployment rate was 32.9%, with unemployment as per the expanded definition reported as 42.4%.
The South African economy has in the past and may in the future continue to be characterized by rates of inflation and interest rates that are substantially higher than those prevailing in the United States and other developed
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economies. The SARB set the inflation target range as between 3% and 6%. SARB reported inflation in April 2023 remained elevated at 7.1% and is forecast to average 6.0% this year.
Economic conditions in South Africa may be further impacted by the South African credit ratings from the three major credit rating agencies. All three major rating agencies kept the South African credit ratings on Non-Investment Grade Speculative, however all three rating agencies have changed the outlook from negative to stable.
•Standard & Poor’s maintained South Africa’s long term foreign-currency credit rating to BB-, three notches below investment grade, kept the country’s local currency debt rating at BB, and maintained the outlook as positive on March 8, 2023;
•Fitch affirmed the rating on sub-investment grade BB- and maintained the outlook as stable on November 25, 2022; and
•Moody’s maintained its sub-investment grade Ba2 rating, with the outlook as stable. This was last updated on April 1, 2022.
Consequently, economic conditions in South Africa could impact our anticipated revenue growth, increase our South African-based costs, decrease our operating margins and adversely affect our ability to obtain cost-effective debt financing in South Africa.
Our business operations may be disrupted as a result of erratic and intermittent electricity supply in South Africa, which could adversely affect our business, results of operations and financial condition.
All businesses in South Africa are reliant on electricity generated and supplied by Eskom (the South African Power Utility). For an extended period, Eskom has been unable to generate and supply electricity to meet the demand of the South African economy and has resulted in erratic and intermittent electricity supply.
Eskom has implemented several short- and long-term mitigation plans to reduce and manage the demand and alleviate the pressure on the electricity grid. Despite their efforts and initiatives, supply continues to be intermittent and unpredictable.
As part of our operation mitigation plans, we have installed and upgraded back diesel generators to operate our control rooms, call centers and core business activities and are exploring further alternative power generation. We do regular maintenance and upgrades on these generators. We are managing and supporting diesel fuel replacement and battery backup through a third party specialist vendor.
Our business may be adversely affected, including our financial position, cash flows and future growth if Eskom is unable to increase their electricity generating capacity through commissioning new electricity-generating power stations.
Our financial flexibility could be constrained by South African currency restrictions, which, in turn, could hinder our normal corporate functioning.
South African companies are subject to exchange control limitations, which could hinder our normal corporate functioning, particularly given our significant expansion outside of South Africa in recent years. Exchange controls have been relaxed in recent years and may continue to be relaxed. However, South African companies remain subject to certain restrictions on their ability to raise and deploy capital outside of the Southern African Common Monetary Area, which includes South Africa, Namibia, Lesotho and Swaziland. These restrictions have affected the manner in which we have financed our acquisitions outside South Africa. These restrictions or any adverse changes to these restrictions could materially and adversely affect our business, results of operations and financial condition.
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Risks Related to an Investment in our Ordinary Shares and ADSs
Sales of our ordinary shares may adversely affect the prices of our ordinary shares and ADSs.
Sales of substantial amounts of our ordinary shares in the public market, including sales by our officers, directors and principal shareholders, or the perception that such sales may occur, could adversely affect the prevailing market price of our ordinary shares or our ADSs as well as our ability to raise capital through an offering of our securities. In the future, we may also sponsor the sale of shares currently held by some of our shareholders, or issue new shares. We can make no prediction as to the timing of any such sales or the effect, if any, that future sales of our ordinary shares, or the availability of our ordinary shares for future sale, will have on the market price of our ordinary shares or ADSs prevailing from time to time.
The price of our ordinary shares or ADSs may be volatile and fluctuate significantly, which could result in substantial losses for investors.
Market prices for our securities may be volatile in response to various factors, some of which are beyond our control. Such volatility could negatively impact the perceived value and market prices of our ordinary shares or ADSs. In addition to the risks described in this ‘Risk Factors’ section of the annual report, some of the factors that may cause these market prices to fluctuate include:
•actual or anticipated fluctuations in our financial results or the financial results of our competitors;
•loss of existing customers or inability to attract new customers;
•actual or anticipated changes in our growth rate;
•our announcement of results for a financial reporting period that are lower than expected, whether caused by our results of operations or by currency fluctuations;
•changes in estimates of our financial results or recommendations by securities analysts;
•failure of any of our solutions to achieve or maintain market acceptance;
•changes in market valuations of similar companies;
•changes in our capital structure, including issuances or repurchases of securities or the incurrence of debt;
•announcements by us or our competitors of significant products, technologies, services, contracts, acquisitions, or strategic alliances;
•success of competitive products or services;
•regulatory developments in South Africa, the United States or other countries;
•actual or threatened litigation involving us or our industry;
•additions or departures of key personnel;
•breaches of security;
•general perception of the future of the fleet and mobile asset management market or our solutions;
•sales of ADSs or ordinary shares by our shareholders;
•ADS price and volume fluctuations attributable to inconsistent trading volume levels of our ADSs; and
•changes in general economic, industry, and market conditions.
We issue quarterly press releases and other disclosure of our financial results. Our quarterly operating results will fluctuate in the future as a result of a variety of factors, including, but not limited to, impact of adverse global economic conditions on our business and the businesses of our customers, our ability to accurately forecast revenue and appropriately plan our expenses, long sales cycles for our enterprise fleet management solutions, service outages or security breaches and any related occurrences which could impact our reputation as well as fluctuations in currency exchange rates. If our quarterly operating results or guidance fall below the expectations of research analysts or investors, the price of our ordinary shares and ADSs could decline substantially.
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In addition, the stock market in general, and the market for technology companies in particular, has experienced extreme price and volume fluctuations that have often been unrelated or disproportionate to the operating performance of those companies. These broad market and industry factors may materially harm the market price of our ordinary shares and ADSs. Securities class action litigation has often been instituted against companies following periods of volatility in the overall market and in the market price of a company’s securities. This litigation, if instituted against us, could result in very substantial costs, divert our management’s attention and resources, and harm our business, operating results, and financial condition.
Exchange rate volatility may adversely affect the market price of our ADSs and any dividends payable to ADS holders.
As discussed above and further discussed below, there have been significant fluctuations in the exchange rate between the South African Rand and the U.S. Dollar. Unforeseen events in international markets, fluctuations in interest rates, changes in capital flows, political developments or interest rates may cause further exchange rate instability that could, in turn, depress the value of the South African Rand, thereby decreasing the U.S. Dollar value of our ADSs and any dividends or distributions paid on the ordinary shares underlying the ADSs.
Our shares trade on more than one market and this may result in price variations.
Our ordinary shares have been traded on the JSE since 2007, and our ADSs have been traded on the New York Stock Exchange (the “NYSE”) since August 2013. Trading in our ordinary shares and ADSs on these markets takes place in U.S. Dollars on the NYSE and South African Rand on the JSE, and at different times, resulting from different time zones, trading days and public holidays in the United States and South Africa. The trading prices of our ordinary shares and ADSs on these two markets may differ due to these and other factors. Any decrease in the price of our ordinary shares on the JSE could cause a corresponding decrease in the trading price of our ADSs on the NYSE.
We have reported a material weakness in our internal controls over financial reporting in the prior fiscal period. Although we have remediated the material weakness, we cannot assure you that other material weaknesses in financial reporting controls will not occur. An ineffective control environment might impair our ability to produce accurate and timely financial statements, which could adversely affect our operating results, our ability to operate our business and investors’ and customers’ view of us.
Under Section 404 of the Sarbanes-Oxley Act of 2002, we are required to furnish a management certification and auditor attestation regarding the effectiveness of our internal control over financial reporting. We are required to report, among other things, control deficiencies that constitute a “material weakness” or changes in internal control that materially affect, or are reasonably likely to materially affect, internal control over financial reporting. A “material weakness” is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the company’s annual or interim financial statements will not be prevented or detected on a timely basis.
In 2022, management identified several deficiencies in the design and operating effectiveness of business process level controls in the areas of management review of income tax, consignment stock and capitalization of internally generated software costs at the Company’s Africa segment. These deficiencies, aggregated with other business process level control deficiencies, were assessed and reported as a material weakness. For a discussion of the material weakness and our remediation efforts, see Item 9A, Controls and Procedures, in this Annual report on Form 10-K. The material weakness that was reported in our Annual Report on Form 10-K for the fiscal year ended March 31, 2022, was remediated as of March 31, 2023.
If we fail to maintain an effective internal control environment, our ability to produce accurate and timely financial statements could be impaired, which could adversely affect our operating results, our ability to operate our business, and investors’ and customers’ views of us. In addition, if we identify any additional material weaknesses in the future, the disclosure of that fact, even if quickly remediated could reduce the market’s confidence in our financial statements and negatively affect the trading price of our ADSs.
Inherent limitations on the effectiveness of the system of disclosure controls and procedures could result in misstatement due to error or fraud going undetected.
There are inherent limitations to the effectiveness of any system of disclosure controls and procedures, including the possibility of human error and the circumvention or overriding of the controls or the procedures. Accordingly, even disclosure controls and procedures designed and operating effectively, can only provide reasonable assurance of achieving
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their control objectives. Because of the inherent limitations in an effective system of internal controls, misstatement due to error or fraud may occur and not be detected.
Certain provisions of South African law may limit or otherwise discourage a takeover or business combination that could otherwise benefit our shareholders.
Various transactions including, without limitation, those which result in a person, or a group of persons acting in concert, holding shares entitled to exercise or cause to be exercised 35% or more of the voting rights at meetings of our shareholders will be subject to the Fundamental Transactions and Takeover Regulations (the “Takeover Regulations”), promulgated in terms of Section 196 of the Companies Act, which are regulated by the Takeover Regulation Panel. The Takeover Regulations impose various obligations in such circumstances including the requirement of an offer to minority shareholders.
A transaction will be subject to the approval of the competition authorities in terms of the Competition Act, No. 89 of 1998, as amended (the “Competition Act”), if it results in the acquisition of “control”, as defined in the Competition Act and otherwise falls within the scope of the Competition Act. The Competition Act prohibits a transaction within its scope from being implemented without the necessary approvals.
To the extent applicable, a transaction may be subject to the JSE Listings Requirements as well as the approval of the Exchange Control Department of the South African Reserve Bank, and other applicable regulatory bodies. In addition, certain fundamental transactions such as mergers, amalgamations, schemes of arrangements and sales of a majority of a company’s assets, require the approval of shareholders exercising 75% of the voting rights at a shareholders meeting, and if 15% or more of a company’s shareholders vote against the transaction, any dissenting shareholder may, within five days, require the company, at its expense, to obtain court approval before implementing the resolution. Even if less than 15% of the shareholders vote against the resolution, any dissenting shareholder may apply to court for a review of the transaction. Such regulations, including the Takeover Regulations and the Competition Act, may have the effect of delaying, deferring or preventing a change in control of us including an extraordinary transaction (such as a merger, tender offer, scheme of arrangement or sale of all or substantially all of our assets) that might provide a premium price for our shareholders.
We are a “smaller reporting company”, and the reduced disclosure requirements applicable to smaller reporting companies may make our ordinary shares or ADSs less attractive to investors.
We are a “smaller reporting company” as defined in the Exchange Act and have elected to take advantage of certain of the scaled disclosures available to smaller reporting companies, including simplified executive compensation disclosures in our filings. We cannot predict whether investors will find our ordinary shares or ADSs less attractive because of our reliance on any of these exemptions. If some investors find our ordinary shares or ADSs less attractive as a result, there may be a less active trading market for such securities. As a result, investors in our ordinary shares or ADSs may experience a decrease, which could be substantial, in the value of such securities, including decreases unrelated to our operating performance or prospects, or a complete loss of their investment.
The concentration of ownership of our capital stock limits your ability to influence corporate matters.
At May 26, 2023, our executive officers and directors beneficially owned 13.2% of our ordinary shares, and our current 5% or greater shareholders and entities affiliated with them, beneficially owned 40.6% of our ordinary shares (excluding any ordinary shares beneficially owned by an executive officer or director). This significant concentration of share ownership may adversely affect the trading price for our ordinary shares and ADSs because investors often perceive disadvantages in owning stock in companies with concentrated share ownership. In addition, these shareholders, acting together, may be able to control our management and affairs and matters requiring shareholder approval, including the election of directors and the approval of significant corporate transactions, such as mergers, consolidations or the sale of substantially all of our assets. Shareholders owning greater than 25% of our outstanding ordinary shares will have the ability to block certain corporate actions, including the issuance of additional equity securities for cash. See “Certain provisions of South African law may limit our ability to issue securities and access the capital markets in the future, which could hinder our ability to raise capital in the future.” Consequently, this concentration of ownership may have the effect of exacerbating the delays and limitations on capital market transactions and could materially and adversely affect our business, results of operations and financial condition.
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Certain provisions of South African law may limit our ability to issue securities and access the capital markets in the future, which could hinder our ability to raise capital in the future.
The authority of our Board of Directors to issue additional securities is limited by the JSE Listings Requirements and certain provisions of the Companies Act and our Memorandum of Incorporation, and as a result we may be unable to access the capital markets on a timely basis when it is opportune to do so. Under the JSE Listings Requirements, the issuance of equity securities, or securities convertible into equity securities, for cash by our Board of Directors requires shareholder approval, either by means of a specific authority for a specific transaction or by way of a general authority, for a limited time period. If a general authority is not in place, we may experience extended delays and uncertainty in seeking shareholder approval for financing transactions and as a result we may be unable to execute financing transactions with available investors, on advantageous terms or at all. Moreover, while a general authority could allow our Board of Directors to issue for cash additional ordinary shares representing up to 30% of the ordinary shares outstanding at the time of the general authorization, as a practical matter, shareholders in the South African market are often reluctant to grant general authorities up to the 30% threshold. The Company has previously sought a general authority to issue equity securities, or securities convertible into equity securities, for cash, limited to 5% of the ordinary shares outstanding at the time the general authorization is sought. A general authorization would not permit our Board of Directors to issue ordinary shares for cash with a greater than 10% discount to the 30-day volume-weighted average price, as of the issuance date, which, if we were to experience significant financial difficulties in the future, could prevent us from obtaining funds when needed. Shareholders owning greater than 25% of our outstanding ordinary shares have the ability to block an issuance of ordinary shares for cash. The Company has sought a further limited authority approving the placement of the authorized but unissued shares of the Company under the control of directors who may issue such shares in their discretion. This authority, if approved by a majority of shareholders, is only valid until the Company’s next annual general meeting or until renewed; is in line with the Memorandum of Incorporation and provides limited flexibility to execute financing transactions or any approval of a general authorization to our Board of Directors. While we will be able to issue non-convertible debt securities without shareholder approval, we will not be able to grant any voting rights to debt holders, which would be likely to increase the cost of any such debt issuance to the Company.
The relative volatility and illiquidity of the South African securities markets may substantially limit your ability to sell the ordinary shares underlying our ADSs at the price and time you desire.
Our ordinary shares are listed for trading on the JSE. Investing in securities that trade in emerging markets, such as South Africa, often involves greater risk than investing in the securities of issuers in the United States, and such investments are generally considered to be more speculative in nature. The South African securities market is substantially smaller, less liquid, more concentrated and can be more volatile than major securities markets in the United States. There is also significantly greater concentration in the South African securities markets than in major securities markets in the United States. On April 28, 2023, the JSE total market capitalization amounted to R22,398.15 billion ($1,220.7 billion) and this market capitalization was represented by 349 companies. Accordingly, although you are entitled to withdraw the ordinary shares underlying our ADSs from the depositary at any time, your ability to sell such shares at a price and time you desire may be substantially limited. The Bank of New York Mellon (“BNYM”) serves as the depositary (the “depositary”) with respect to the ADSs.
Holders of our ADSs in the United States may have difficulty bringing actions and enforcing judgements, against us, our directors and our executive officers based on the civil liabilities provisions of the federal securities laws or other laws of the United States or any state thereof.
We are incorporated in South Africa; however, half of our directors and the majority of our senior management reside in the United States. The rest of the directors, senior management and certain experts names herein, either reside in South Africa or other jurisdictions. A portion of the assets of these persons and substantially all of the Company’s assets are therefore located outside of the United States. As a result, it may not be possible for investors to enforce against these persons or us a judgement obtained in a United States court predicated upon the civil liability provisions of the federal securities or other laws of the United States or any state thereof. South Africa is also not party to any international treaty or convention relating to the enforcement of foreign judgements.
A foreign judgement is not directly enforceable in South Africa, but constitutes a cause of action which will be enforced by South African courts provided that:
•the court that pronounced the judgement had jurisdiction (under its own laws) to entertain the case according to the principles recognized by South African law with reference to the jurisdiction of foreign courts;
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•the defendant was a resident subject to the foreign court’s jurisdiction or was at least present in the foreign court’s jurisdiction at the commencement of the action, or must have submitted to that court’s jurisdiction either contractually or by conduct, in the latter instance, by defending the case on its merits;
•the judgement is final and conclusive (that is, it cannot be altered by the court which pronounced it);
•the judgement has not lapsed or been satisfied;
•the recognition and enforcement of the judgement by South African courts would not be contrary to public policy, including observance of the rules of natural justice which require that the documents initiating the United States proceeding were properly served on the defendant and that the defendant was given the right to be heard and represented by counsel in a free and fair trial before an impartial tribunal;
•the judgement was not obtained by fraudulent means;
•the judgement does not involve the enforcement of a penal or revenue law of the foreign state; and
•the enforcement of the judgement is not otherwise precluded by the provisions of the South African Protection of Businesses Act of 1978, as amended.
It is the policy of South African courts to award compensation for the loss or damage actually sustained by the person to whom the compensation is awarded. Although the award of punitive damages is generally unknown to the South African legal system that does not mean that such awards are necessarily contrary to public policy. Whether a judgement was contrary to public policy depends on the facts of each case. Exorbitant, unconscionable, or excessive awards will generally be contrary to public policy. South African courts cannot enter into the merits of a foreign judgement and cannot act as a court of appeal or review over the foreign court. South African courts will usually implement their own procedural laws and, where an action based on an international contract is brought before a South African court, the capacity of the parties to the contract will usually be determined in accordance with South African law.
It is doubtful whether an original action based on U.S. federal securities laws may be brought before South African courts. A plaintiff who is not a resident in South Africa may be required to provide security for costs in the event of proceedings being initiated in South Africa. Furthermore, the Rules of the High Court of South Africa require that documents executed outside South Africa must be notarially authenticated for the purpose of use in South Africa.
Holders of our ADSs may not receive dividend payments, which could cause you to lose some or all of the value of any dividend distribution.
Under the terms of our deposit agreement with the depositary for our ADSs, the depositary will convert any cash dividend or other cash distribution we pay on the ordinary shares underlying the ADSs into U.S. Dollars, if it can do so on a reasonable basis and can transfer the U.S. Dollars to the United States. If this conversion is not possible or if any government approval becomes necessary and cannot be obtained, the deposit agreement allows the depositary to distribute the foreign currency only to those ADS holders to whom it is permissible to do so. If the exchange rate fluctuates significantly during a time when the depositary cannot convert the foreign currency or distribute a payment to you, you may lose some or all of the value of any dividend distribution. We consider the issuance of such dividends on a quarter-by-quarter basis.
Holders of our ADSs may be subject to additional risks related to holding ADSs rather than ordinary shares.
ADS holders do not hold ordinary shares directly and thus are subject to, among others, the following additional risks:
•as an ADS holder, we will not treat you as one of our shareholders and you will not be able to exercise shareholder rights, except through the depositary as permitted by the deposit agreement;
•distributions on the ordinary shares represented by your ADSs will be paid to the depositary, and before the depositary makes a distribution to you on behalf of your ADSs, any withholding taxes that must be paid will be deducted. Additionally, if the exchange rate fluctuates during a time when the depositary cannot convert the foreign currency, you may lose some or all of the value of the distribution; and
•we and the depositary may amend or terminate the deposit agreement without the ADS holders’ consent in a manner that could prejudice ADS holders.
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You must act through the depositary to exercise your voting rights, as a result of which you may be unable to exercise your voting rights on a timely basis.
As a holder of ADSs, and not the ordinary shares underlying your ADSs, we will not treat you as one of our shareholders and you will not be able to exercise shareholder rights. The depositary will be the holder of the ordinary shares underlying your ADSs, and ADS holders will be able to exercise voting rights with respect to the ordinary shares represented by the ADSs only in accordance with the deposit agreement relating to the ADSs. There are practical limitations on the ability of ADS holders to exercise their voting rights due to the additional procedural steps involved in communicating with these holders. For example, holders of our ordinary shares will receive notice of shareholders’ meetings by mail, the securities exchange news service of the JSE or by other means and will be able to exercise their voting rights by either attending the meeting in person or voting by proxy. ADS holders, by comparison, will not receive notice directly from us. Instead, in accordance with the deposit agreement, we will provide notice of any applicable meeting date to the depositary as soon as practicable. If we ask it to do so, as soon as practicable after receiving notice from us of any such meeting, the depositary will mail to holders of ADSs the notice of the meeting and a statement as to the manner in which voting instructions may be given by holders. Subject to satisfaction of the foregoing standard, there is no specified number of days within which the depositary must mail ADS holders the notice of meeting and voting instructions. To exercise their voting rights, ADS holders must then instruct the depositary as to voting the ordinary shares represented by their ADSs. Due to these procedural steps involving the depositary, the process for exercising voting rights may take longer for ADS holders than for holders of ordinary shares. The ordinary shares represented by ADSs for which the depositary fails to receive timely voting instructions may not be voted at all.
Judgements of South African courts with respect to our ADSs will be payable only in South African Rand, which could expose any prevailing party to exchange rate risk until the judgement is collected.
If proceedings are brought in a South African court seeking to enforce the rights of holders of the ADSs, any judgement made in favor of such holders, even if the judgement is on an obligation deemed to be denominated in U.S. Dollars, could only be made or awarded in South African Rand based on the exchange rate in effect at the time the judgement is entered. The prevailing party in such proceeding would therefore bear exchange rate risk until the judgement could be collected and converted into another currency.
By purchasing ADSs, holders will irrevocably submit to the jurisdiction of state or federal courts in New York, New York in connection with any legal suit, action or proceeding relating to the deposit agreement or our ADSs.
By purchasing ADSs or an interest therein, holders of ADSs irrevocably agree that any legal suit, action or proceeding against or involving us or the depositary, arising out of or based upon the deposit agreement or the ADSs, may only be instituted in a state or federal court in New York, New York, and by purchasing ADSs or an interest therein holders irrevocably waive any objection to the laying of venue of any such proceeding. We have agreed to indemnify the depositary and its agents under certain circumstances. Neither the depositary nor any of its agents will be liable to holders or beneficial owners of ADSs or interests in ADSs for any indirect, special, punitive or consequential damages (including, without limitation, lost profits) of any form incurred by any person or entity, whether or not foreseeable and regardless of the type of action in which such a claim may be brought.
There is a risk that we will be classified as a passive foreign investment company (“PFIC”), which could result in adverse U.S. federal income tax consequences to U.S. holders of ordinary shares or our ADSs.
We may be classified as a PFIC for U.S. federal income tax purposes, which could result in adverse U.S. federal income tax consequence to U.S. holders.
Based on the current price of our ADSs and the composition of our income and assets, we do not believe that we are a PFIC for U.S. federal income tax purposes for our current taxable year ended March 31, 2023. However, a separate determination must be made after the close of each taxable year as to whether we are a PFIC. We cannot assure you that we will not be a PFIC for any future taxable year. If we were treated as a PFIC for any taxable year during which a U.S. holder held an equity share or an ADS, certain adverse U.S. federal income tax consequences could apply to the U.S. holder.
ITEM 1B. UNRESOLVED STAFF COMMENTS
None.
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ITEM 2. PROPERTIES
Our principal executive offices are located in Boca Raton, Florida. In addition, we maintain facilities in various locations outside of the United States, including South Africa, the United Kingdom, Uganda, Brazil, Australia, Romania and the United Arab Emirates. All of our facilities are leased. We believe that our facilities are adequate for our current needs and that suitable additional space will be available as needed to accommodate any potential expansion.
ITEM 3. LEGAL PROCEEDINGS
Competition Commission Matter
On April 15, 2019, the Competition Commission of South Africa (the “Commission”) referred a matter to the Competition Tribunal of South Africa (“Tribunal”). The Commission contends that the Company and a number of its channel partners have engaged in market division. Should the Tribunal rule against MiX Telematics, the Company may be liable to an administrative penalty in terms of the Competition Act, No. 89 of 1998. The Company cooperated fully with the Commission during its preliminary investigation.
The Tribunal has set the matter for hearing from June 24 to July 2, 2024. Leading up to that date various intermediary steps such as discovery, filing of witness statements and trial bundle exchanges will take place.
We cannot predict the timing of a resolution or the ultimate outcome of the matter. However, the Company and its external legal advisers continue to believe that we have consistently adhered to all applicable laws and regulations and that the referral from the Commission is without merit. As of March 31, 2023, we have not made any provisions for this matter as an estimate of the possible loss or range of loss could not be made, and we do not believe that an outflow of economic resources is probable.
ITEM 4. MINE SAFETY DISCLOSURE.
Not applicable.
PART II
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
Market information
The principal market for the ordinary shares of MiX Telematics Limited is the JSE, and the ordinary shares are traded under the symbol “MIX”. The Company’s ADSs are listed on the NYSE and are traded under the symbol “MIXT”. BNYM serves as depositary with respect to the ADSs.
Holders of record
As of May 26, 2023, there were 2,101 holders of record of our ordinary shares.
Dividends policy
Dividend payments are currently considered on a quarter-by-quarter basis.
Securities authorized for issuance under equity compensation plans
Information regarding our equity compensation plans is incorporated by reference in Item 12 of Part III of this Annual Report on Form 10-K.
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Purchases of equity securities by the issuer and affiliated purchasers
On May 23, 2017, our Board of Directors (the “Board”) approved a share repurchase program of up to R270 million (equivalent of $15.0 million as of March 31, 2023) under which the Company could repurchase its ordinary shares, including ADSs. On December 3, 2021, the Board approved an increase to the share repurchase program under which the Company may repurchase ordinary shares, including ADSs. Post this increase, and after giving effect to shares already purchased under the program as at December 2, 2021, the Company could repurchase additional shares with a cumulative value of R160 million ($10.0 million). The total value of the whole share repurchase program post the December 3, 2021 increase is R396.5 million ($24.9 million). During fiscal year 2023, shares with a value of R6.6 million (equivalent of $0.4 million as of March 31, 2023) were repurchased under the share repurchase program. Additional shares to the value of R108.7 million (equivalent of $6.0 million as of March 31, 2023) may still be repurchased.
The Company may repurchase its shares from time to time at its discretion through open market transactions and block trades, based on ongoing assessments of the capital needs of the Company, the market price of its securities and general market conditions. This share repurchase program may be discontinued at any time by the Board, and the Company has no obligation to repurchase any amount of its securities under the program. The repurchase program will be funded out of existing cash resources or borrowing facilities.
The following table provides information regarding the share repurchase activity made under the share repurchase program for each of the three months in the quarter ended March 31, 2023:
| Period | Total number of shares repurchased | Average price paid per share (1) R | Shares canceled under the share repurchase program | Total value of shares purchased as part of publicly announced program R’000 | Maximum value of shares that may yet be purchased under the program R’000 | ||||||||||||
| Month | |||||||||||||||||
| January 2023 | — | — | — | — | 113,534 | ||||||||||||
| February 2023 | 673,008 | 5.79 | — | 3,894 | 109,640 | ||||||||||||
| March 2023 | 165,423 | 5.84 | 838,431 | 966 | 108,674 | ||||||||||||
| 838,431 | 5.80 | 838,431 | 4,860 | 108,674 | |||||||||||||
(1) Including transaction costs.
Table below shows the equivalent U.S. Dollar amounts, converted at the average monthly exchange rate for the month of the purchase.
| Period | Total number of shares repurchased | Average price paid per share (1) $ | Shares canceled under the share repurchase program | Total value of shares purchased as part of publicly announced program $’000 | Maximum value of shares that may yet be purchased under the program $’000 | ||||||||||||
| Month | |||||||||||||||||
| January 2023 | — | — | — | — | 6,803 | ||||||||||||
| February 2023 | 673,008 | 0.32 | — | 218 | 6,131 | ||||||||||||
| March 2023 | 165,423 | 0.32 | 838,431 | 53 | 5,942 | ||||||||||||
| 838,431 | 0.32 | 838,431 | 271 | 5,942 | |||||||||||||
(1) Including transaction costs.
Shares repurchased during the three months in the quarter ended March 31, 2023 were delisted and form part of the authorized unissued share capital of the Company.
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ITEM 6. RESERVED
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ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our consolidated financial statements and the accompanying notes included in Item 8 of this annual report on Form 10-K.
This discussion contains forward-looking statements that involve risks, uncertainties and assumptions. Our future results may vary materially from those indicated as a result of the risks that affect our business, including, among others, those identified in “Forward-Looking Statements” and “Item 1A. Risk Factors”.
Overview
We are a leading global provider of connected fleet and mobile asset solutions delivered using SaaS. Our solutions deliver a measurable return by enabling our customers to manage, optimize and protect their investments in commercial fleets or personal vehicles. We generate actionable insights that enable a wide range of customers, from large enterprise fleets to small fleet operators and consumers, to reduce fuel and other operating costs, improve efficiency, enhance regulatory compliance, enhance driver safety, manage risk and mitigate theft. Our solutions mostly rely on our proprietary, highly scalable technology platforms, which allow us to collect, analyze and deliver information based on data from our customers’ vehicles. Using an intuitive, web-based interface, dashboards or mobile apps, our fleet customers can access large volumes of real-time and historical data, monitor the location and status of their drivers and vehicles and analyze a wide number of key metrics across their fleet operations.
We were founded in 1996 and we have offices in South Africa, the United Kingdom, the United States, Uganda, Brazil, Australia, United Arab Emirates, Mexico and India as well as a network of more than 130 fleet value-added resellers 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).
We derive the majority of our revenue from subscriptions to our fleet and mobile asset management solutions. Our subscriptions generally include access to our SaaS solutions, connectivity, and in many cases, use of an in-vehicle device. We also generate revenue from the sale of in-vehicle devices, which enable customers to use our subscription-based solutions, installation services of our in-vehicle-devices and driver training for fleet customers. We generate sales through the efforts of our direct sales teams, staffed in our regional sales offices, and through our global network of distributors and dealers. Our direct sales teams focus on marketing our fleet solutions to global and multinational enterprise accounts and to other customer accounts located in regions of the world where we maintain a direct sales presence. Our direct sales teams have industry expertise across multiple industries, including oil and gas, transportation and logistics, government and municipal, bus and coach, rental and leasing, and utilities. In some markets, we rely on a network of distributors and dealers to sell our solutions on our behalf. Our distributors and dealers also install our in-vehicle devices and provide training, technical support and ongoing maintenance for the customers they support.
Recent Developments
MiX Telematics North America, one of our wholly-owned subsidiaries, acquired Trimble’s Field Service Management business (“FSM”) in North America on September 2, 2022 (the “FSM Acquisition”).
FSM’s North American operations include the sale and support of telemetry and video solutions that enable back-office monitoring and visualization for fleet services management in a number of industries. The FSM Acquisition presents us with an opportunity to increase our scale in North America and to further diversify our North America business by expanding our presence in market verticals such as construction and last mile logistics.
All existing FSM subscription contracts and the related revenue streams were acquired by MiX Telematics North America. Refer to note 3 to the consolidated financial statements for additional information regarding the acquisition.
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Inflation Risk
We believe that inflation may have a material effect on our business, financial condition or results of operations in the current fiscal year. Current economic projections remain uncertain as a result of the sudden and sharp surge in global inflation mainly as a result of global supply chain constraints, rising fuel prices, global politics, sanctions and the impact thereof on global trade. If our costs were to become subject to significant inflationary pressures, we may not be able to fully offset these higher costs through price increases. Our inability to do so could harm our business, financial condition and results of operations. Refer to Part I Item 1A. “Risk Factors” for further information regarding inflation risk.
Key Financial Measures and Operating Metrics
In addition to financial measures based on our consolidated financial statements, we monitor our business operations using various financial and non-financial metrics.
Subscription Revenue
Subscription revenue represents subscription fees for our solutions, which include the use of our SaaS fleet management solutions, connectivity, and in many cases, our in-vehicle devices. Our subscription revenue is driven primarily by the number of subscribers and the monthly price per subscriber, which varies depending on the services and features customers require, hardware options, customer size and geographic location.
In fiscal year 2023 subscription revenue has increased as a percentage of total revenue due to a decrease in hardware and other revenue. In fiscal years 2021, 2022 and 2023, subscription revenue represented 89.3%, 86.2% and 87.4% respectively, of our total revenue. In fiscal years 2021, 2022 and 2023, our top 10 customers represented 21.8%, 16.6% and 16.7% respectively, of our subscription revenue.
Subscribers
Subscribers represent the total number of discrete services we provide to customers at the end of the period.
| Fiscal Year Ended March 31, | |||||||||||||||||||||||
| 2021 | 2022 | 2023 | |||||||||||||||||||||
| Subscribers | 744,677 | 815,165 | 1,001,881 | ||||||||||||||||||||
During fiscal year 2023, our subscriber base grew by a net 186,700 subscribers, or 22.9%, compared to the net growth of 70,500 subscribers during fiscal year 2022. The growth was mainly due to the Africa segment, with contributions across all solution categories, and due to net 33,107 subscribers added by MiX Telematics North America, from the acquired FSM business.
Factors Affecting Our Performance
Level of Subscription Revenue and Hardware Revenue
We believe that we are well positioned to grow our base of subscribers, by adding both fully-bundled subscriptions and subscriptions where the hardware has been purchased upfront. We intend to maintain our investment in sales and marketing and continue to attract new subscribers by introducing attractive new features and services.
Additionally, we believe we have the opportunity to expand our fleet management market share among our existing customer base by demonstrating our value proposition, growing with the customer, introducing new and innovative value-added solutions and displacing legacy fleet management solutions. Our solutions are utilizing the latest technology to deliver customer value, including our MiX Vision AI video telematics offering, which uses machine learning and artificial intelligence to protect drivers in real-time from dangerous driving scenarios such as fatigue and distraction.
Fluctuations in Exchange Rates
Revenue from our international operations has historically represented a substantial portion of our total revenue. Accordingly, changes in exchange rates, and in particular a strengthening of the U.S. Dollar, will negatively affect our reported income and expenses as expressed in U.S. Dollars (our reporting currency). The South African Rand is the functional currency for the Company. Currency fluctuations in the South African Rand may positively or negatively
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impact our reported income and expenses due to the effects of translating the functional currency of our foreign subsidiaries into Rand at different average exchange rates and then translating into our reporting currency of U.S. Dollars.
In fiscal year 2023, the South African Rand weakened by 14.3% against the U.S. Dollar and British Pound weakened by 13.7% against the U.S. Dollar, as shown in the table below.
| Average exchange rate for Fiscal Year Ended March 31, | |||||||||||||||||
| 2021 | 2022 | 2023 | |||||||||||||||
| South African Rand for U.S. Dollars (per $1.00) | 16.37 | 14.86 | 16.99 | ||||||||||||||
| % movement | 10.8 | % | (9.2) | % | 14.3 | % | |||||||||||
| British Pound for U.S. Dollars (per $1.00) | 0.77 | 0.73 | 0.83 | ||||||||||||||
| % movement | (2.5) | % | (5.2) | % | 13.7 | % | |||||||||||
We expect continued exchange rate volatility in the South African Rand against other major currencies. The South African Rand has been even more volatile due to the uncertain economic conditions in South Africa, the war in Ukraine and sanctions against Russia, international inflation and economic deterioration worldwide. As of June 19, 2023, the South African Rand/U.S. Dollar exchange rate was 18.20, 7.1% higher than the average exchange rate for fiscal year 2023.
Mix of Subscribers with Different Revenue and Cost Economics
We offer services to a wide range of customers, from large enterprise vehicle fleets to small fleet operators and consumers. The subscription revenue and cost per subscriber and the subscriber retention pattern differ by type of subscriber. For example, our entry-level consumer solution, Beam-e, is characterized by lower revenue and lower cost per subscriber compared to our large enterprise solutions. Small fleet and consumer customers will enter into and terminate contracts much more frequently than our enterprise customers, thereby affecting subscriber retention. As the mix of our subscriber base evolves, the average revenue per subscriber and average cost per subscriber is likely to change.
Varying Economic Conditions in our Markets
We seek to capitalize on opportunities and manage risks in our key markets, which are geographically dispersed with subscribers located in more than 120 countries worldwide. Overall, we believe that our presence across multiple geographic markets and our exposure to multiple economies provides us with diversification from the risk of changing economic conditions in any one country or region. Other macroeconomic factors, such as expectations for future crude oil and natural gas prices, affect our customers’ spending habits. Prolonged or substantial declines in crude oil and/or natural gas prices, or the perception that such prices will decrease in the future, negatively impacts our net subscriber growth and hardware sales in this sector. In addition to macroeconomic changes, performance in any given region may vary due to multiple factors, including growth in subscribers, the overall profile of the customer base (for example, in Africa, we have a significant consumer subscriber base), the services and hardware options selected by particular subscribers and our distribution strategy in the region.
Changes in regional conditions require management to formulate strategic responses that safeguard our financial position and maintain our balanced approach to producing revenue growth, profitability and cash flow.
Changing Customer Needs and Ongoing Investment in Technology
We continuously analyze market trends and opportunities in the various geographies in which we operate and have identified an opportunity to increase subscription revenue growth by the addition of new products and services in certain of the regions in which we operate. Our investment in software development is core to our business strategy. Our software teams employ an agile software development methodology. We have made a significant investment in product development, and we have routinely been among the first to market with innovative solutions and features that cater to the needs of our customers. For example, major updates to the MiX Vision solution were made in fiscal year 2021 and MiX Vision AI was launched in fiscal year 2022. In fiscal year 2023, we expanded our MiX Vision AI portfolio, adding support for additional cameras and enhanced software features. We also certified and released our Canadian ELD solution, extended our embedded dashboard offering and integrated with more original equipment manufacturers (OEMs) telematics data services.
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Long Sales Cycle for Our Enterprise Fleet Management Solutions
From period to period, our revenue may fluctuate depending upon the customer contracts we have secured. The typical sales cycle for large enterprise fleet management solutions contracts may be long, especially in comparison to the sales cycle for our consumer solutions. It may also be difficult for us to predict the timing of when we will enter into enterprise fleet management contracts.
Longer sales cycles for large contracts, for both customers who purchase in-vehicle devices and those who opt for the fully bundled option, may affect the comparability of financial results in certain segments. Our revenue may fluctuate from period to period depending on the level and timing of hardware sales, while subscription revenue growth is also impacted by the timing of the rollout of large enterprise fleets. We are focussed on mitigating these long sales cycles and the associated volatility by enhancing our sales pipeline management process, by increasing our sales and marketing investment levels across all geographical segments and by diversifying our customer segment focus.
Investment in Sales and Marketing
We offer our solutions in over 120 countries through a combination of our direct and indirect marketing efforts. Our sales and marketing strategy is segmented by geographic region and customer type in order to cost effectively target and acquire new customers. In certain regions, we sell subscriptions of our fleet management solutions to large enterprise fleets through our direct sales force. In other regions, and for sales to small fleet operators and consumers, we work with an extensive distribution network of regional partners and national distribution dealers. Through our central services organization headquartered in South Africa, we provide optimized marketing, product management, technical and distribution support to each of our regional sales and marketing operations. We continue to focus on growth and expect to continue to invest in sales and marketing to grow our customer base and to expand within existing customers.
Basis of Presentation and Key Components of Our Results of Operations
In fiscal year 2023, we managed our business in six segments which include Africa, Americas, Brazil, Europe and the Middle East and Australasia (our regional sales offices (“RSOs”)), and our central services organization (“CSO”). CSO is the central services organization that wholesales products and services to RSOs which, in turn, interface with our end-customers, distributors and dealers. CSO is also responsible for the development of hardware and software platforms and provides common marketing, product management, technical and distribution support to each of the other reportable segments. CSO is a reportable segment because it produces discrete financial information which is reviewed by the chief operating decision maker (“CODM”) and has the ability to generate external revenue.
The CODM has been identified as the Chief Executive Officer who makes strategic decisions. The performance of the reportable segments has been measured and evaluated by the CODM using Segment Adjusted EBITDA, which is a measure that uses income before income tax expense excluding the contingent consideration remeasurement, acquisition-related costs, non-recurring legal costs, net interest expense, net foreign exchange losses/gains, net loss/profit on sale of property, plant and equipment, restructuring costs, stock-based compensation costs, impairment of long-lived assets, depreciation, amortization, operating lease costs and corporate and consolidation entries. Product development costs are capitalized and amortized and this amortization is excluded from Segment Adjusted EBITDA.
In determining Segment Adjusted EBITDA, the margin generated by CSO, net of any unrealized intercompany profit, is allocated to the geographic region where the external revenue is recorded by our RSOs. The costs remaining in CSO relate mainly to research and development of hardware and software platforms, common marketing, product management and technical and distribution support to each of the RSOs.
Each RSO’s results reflect the external revenue earned, as well as the Segment Adjusted EBITDA earned (or loss incurred) before the remaining CSO and corporate costs allocations. Segment assets are not disclosed because such information is not reviewed by the CODM.
Revenue
The majority of our revenue is subscription-based. Consequently, growth in subscribers influences our subscription revenue growth. However, other factors, including, but not limited to, the types of new subscribers we add and the timing of entry into subscription contracts also play a significant role. The price and terms of our customer subscription contracts vary based on a number of factors, including fleet size, hardware options, geographic region and distribution channel. In addition, we derive revenue from the sale of in-vehicle devices, which are used to collect, generate and transmit the data used to enable our SaaS solutions.
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Our customer contracts typically have a three to five-year initial term. Following the initial term, most fleet customers elect to renew for fixed terms ranging from one to five years. Our third-party dealers are typically billed monthly based on active connections. Some of our customer agreements, including our consumer subscriptions, provide for automatic monthly or yearly renewals unless the customer elects not to renew its subscription. Our consumer customer contracts in South Africa are governed by the Consumer Protection Act, which allows customers to cancel without paying the full balance of the contract amount. Our fleet contracts and our customer contracts outside of South Africa are generally non-cancellable.
Cost of Revenue and Gross Margin
Cost of revenue associated with our subscription revenue consists primarily of costs related to cellular communications, infrastructure hosting, third-party data providers, service contract maintenance costs, commission expense related to third-party dealers or distributors (commission is capitalized and amortized, on a straight-line basis, unless the amortization period is 12 months or less) and depreciation of our capitalized installed in-vehicle devices. Cost of sales associated with our hardware revenue includes the cost of the in-vehicle devices, cost of hardware warranty, shipping costs, custom duties, and commission expense related to third-party dealers or distributors. We capitalize the cost of in-vehicle devices utilized to service customers, for customers selecting our bundled option, and we depreciate these costs from the date of installation over their expected useful lives.
We expect that cost of revenue as a percentage of revenue will vary from period to period depending on our revenue mix, including the proportion of our revenue attributable to our subscription-based services. Subscription revenue generates a higher gross profit margin than hardware and other revenue. The majority of the other components of our cost of revenue are variable and are affected by the number of subscribers, the composition of our subscriber base, and the number of new subscriptions sold in the period.
Operating Expenses
Sales and Marketing
Sales and marketing expenses consist primarily of salaries and wages to sales and marketing employees, commissions paid to employees, travel-related expenses, and advertising and promotional costs. We pay our sales employees commissions based on achieving subscription targets and we capitalize commission and amortize it over the expected life of the contract taking account of expected extensions/renewals (unless the amortization period is 12 months or less). Commission capitalized that is attributable to hardware or installation is amortized in full at the time the related hardware, or installation, revenue is recognized. Advertising costs consist primarily of costs for print, radio, television and digital advertising, search engine optimization, promotions, public relations, customer events, tradeshows and sponsorships. We expense advertising costs as incurred. We plan to continue to invest in sales and marketing in order to grow our sales and build brand and category awareness.
Administration and Other Charges
Administration and other charges consist primarily of salaries and wages for administrative staff, travel costs, professional fees (including audit and legal fees), real estate leasing costs, expensed research and development costs and depreciation of fixed assets including vehicles and office equipment and amortization of intangible assets. We expect that administration and other charges will increase in absolute terms as we continue to grow our business.
Research and Development
For additional disclosures in respect of research and development, technology and intellectual property please refer to “Item 1. Business”.
Taxes
In fiscal years 2021, 2022 and 2023 our effective tax rates were 15.3%, 33.1% and 65.1% respectively, compared to a South African statutory rate of 28% for fiscal years 2021 and 2022 and 27% for fiscal year 2023. Taxation mainly consists of normal statutory income tax paid or payable and deferred tax on any temporary differences.
Our effective tax rate may vary primarily according to the mix of profits made in various jurisdictions and the impact of certain non-deductible/non-taxable foreign exchange movements, net of tax. As a result, significant variances in future periods may occur. A reconciliation of the actual tax rate to the South African tax rate of 27% is disclosed in note 13 to the consolidated financial statements.
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Results of operations
The following table sets forth certain consolidated statements of income data:
| For the year ended March 31, | |||||||||||||||||||||||
| 2021 | 2022 | 2023 | |||||||||||||||||||||
| (In thousands) | |||||||||||||||||||||||
| Total revenue | $ | 126,894 | $ | 143,294 | $ | 144,993 | |||||||||||||||||
| Total cost of revenue | 43,865 | 51,859 | 54,127 | ||||||||||||||||||||
| Gross profit | 83,029 | 91,435 | 90,866 | ||||||||||||||||||||
| Sales and marketing | 11,344 | 15,436 | 17,194 | ||||||||||||||||||||
| Administration and other | 53,487 | 61,550 | 62,107 | ||||||||||||||||||||
| Income from operations | 18,198 | 14,449 | 11,565 | ||||||||||||||||||||
| Other (expense)/income | (897) | (574) | 1,689 | ||||||||||||||||||||
| Net interest expense | 72 | 510 | 287 | ||||||||||||||||||||
| Income tax expense | 2,634 | 4,418 | 8,445 | ||||||||||||||||||||
| Net income | 14,595 | 8,947 | 4,522 | ||||||||||||||||||||
| Less: Net income attributable to non-controlling interest | — | — | — | ||||||||||||||||||||
| Net income attributable to MiX Telematics Limited | $ | 14,595 | $ | 8,947 | $ | 4,522 | |||||||||||||||||
| The following table sets forth, as a percentage of revenue, consolidated statements of income data: | |||||||||||||||||||||||
| For the year ended March 31, | |||||||||||||||||||||||
| 2021 | 2022 | 2023 | |||||||||||||||||||||
| (Percentage) | |||||||||||||||||||||||
| Total revenue | 100.0% | 100.0% | 100.0% | ||||||||||||||||||||
| Total cost of revenue | 34.6 | 36.2 | 37.3 | ||||||||||||||||||||
| Gross profit | 65.4 | 63.8 | 62.7 | ||||||||||||||||||||
| Sales and marketing | 8.9 | 10.8 | 11.9 | ||||||||||||||||||||
| Administration and other | 42.2 | 43.0 | 42.8 | ||||||||||||||||||||
| Income from operations | 14.3 | 10.1 | 8.0 | ||||||||||||||||||||
| Other (expense)/income | (0.7) | (0.4) | 1.2 | ||||||||||||||||||||
| Net interest expense | 0.1 | 0.4 | 0.2 | ||||||||||||||||||||
| Income tax expense | 2.0 | 3.1 | 5.9 | ||||||||||||||||||||
| Net income | 11.5 | 6.2 | 3.1 | ||||||||||||||||||||
| Less: Net income attributable to non-controlling interest | — | — | — | ||||||||||||||||||||
| Net income attributable to MiX Telematics Limited | 11.5 | 6.2 | 3.1 | ||||||||||||||||||||
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Results of Operations for Fiscal Year 2022 Compared to Fiscal Year 2023
Revenue
| For the year ended March 31, | ||||||||||||||||||||
| 2022 | 2023 | % Change | % Change at constant currency | |||||||||||||||||
| (In thousands, except for percentages) | ||||||||||||||||||||
| Subscription revenue | $ | 123,573 | $ | 126,656 | 2.5 | % | 11.9 | % | ||||||||||||
| Hardware and other revenue | 19,721 | 18,337 | (7.0) | % | 0.3 | % | ||||||||||||||
| $ | 143,294 | $ | 144,993 | 1.2 | % | 10.3 | % | |||||||||||||
Our total revenue increased by $1.7 million or 1.2%, from fiscal year 2022 to fiscal year 2023. The principal factors affecting our revenue growth included:
•Subscription revenue increased by 2.5% to $126.7 million, compared to $123.6 million for fiscal year 2022. The FSM business acquired on September 2, 2022 contributed $5.6 million to the subscription revenue for fiscal year 2023. Subscription revenue increased by 11.9% on a constant currency basis, year over year, of which 4.5% is attributable to the FSM business acquisition. Subscription revenue represented 87.4% of our total revenue for fiscal year 2023 compared to 86.2% for the prior year. During fiscal year 2023, our subscriber base grew by a net 186,700 subscribers, or 22.9%, to over 1,001,000 subscribers at March 31, 2023, compared to the net growth of 70,500 subscribers during fiscal year 2022. The growth was mainly due to the Africa segment, with contributions across all solution categories, and due to net 33,107 subscribers added by MiX Telematics North America, from the acquired FSM business.
The majority of our total revenue and subscription revenue are derived from currencies other than the U.S. Dollar. Accordingly, the strengthening of the U.S. Dollar against these currencies (in particular against the South African Rand) following currency volatility, has negatively impacted our revenue and subscription revenue reported in U.S. Dollars. Compared to fiscal year 2022, the South African Rand weakened by 14% against the U.S. Dollar. The South African Rand/U.S. Dollar exchange rate averaged R16.99 in fiscal year 2023 compared to an average of R14.86 during fiscal year 2022. The impact of translating foreign currencies to U.S. Dollars at the average exchange rates during fiscal year 2023 led to a 9.4% decrease in reported U.S. Dollar subscription revenue.
•Hardware and other revenue decreased by $1.4 million, or 7.0%, from fiscal year 2022 to fiscal year 2023. The decrease was mainly related to foreign exchange movements, as hardware and other revenue increased by 0.3% on a constant currency basis, year over year.
The impact of translating foreign currencies to U.S. Dollars at the average exchange rates during fiscal year 2023 led to a 9.1% decrease in reported U.S. Dollar revenue.
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A breakdown of third-party revenue by segment is shown in the table below:
| For the Year Ended March 31, | |||||||||||||||||||||||||||||||||||
| 2022 | 2023 | 2022 | 2023 | 2022 | 2023 | ||||||||||||||||||||||||||||||
| (In thousands) | |||||||||||||||||||||||||||||||||||
| Total Revenue | Subscription Revenue | Hardware and other revenue | |||||||||||||||||||||||||||||||||
| Africa | $ | 83,176 | $ | 79,454 | $ | 74,778 | $ | 73,924 | $ | 8,398 | $ | 5,530 | |||||||||||||||||||||||
| Americas | 15,574 | 20,230 | 14,036 | 18,557 | 1,538 | 1,673 | |||||||||||||||||||||||||||||
| Middle East and Australasia | 22,554 | 23,938 | 16,950 | 16,313 | 5,604 | 7,625 | |||||||||||||||||||||||||||||
| Europe | 17,254 | 14,483 | 13,509 | 12,155 | 3,745 | 2,328 | |||||||||||||||||||||||||||||
| Brazil | 4,654 | 6,812 | 4,253 | 5,637 | 401 | 1,175 | |||||||||||||||||||||||||||||
| CSO | 82 | 76 | 47 | 70 | 35 | 6 | |||||||||||||||||||||||||||||
| Total | $ | 143,294 | $ | 144,993 | $ | 123,573 | $ | 126,656 | $ | 19,721 | $ | 18,337 | |||||||||||||||||||||||
In the Africa segment, subscription revenue decreased by $0.9 million or 1.1%. On a constant currency basis, the increase in subscription revenue was 12.2%, as a result of a 24.6% increase in subscribers since April 1, 2022. Hardware and other revenue decreased by $2.9 million or 34.2%. Total revenue decreased by $3.7 million or 4.5%. Total revenue increased by 8.4% on a constant currency basis.
In the Americas segment, subscription revenue increased by $4.5 million or 32.2%. The FSM business acquired on September 2, 2022 reported subscription revenue of $5.6 million during fiscal year 2023 which contributed to the subscription revenue increase, and increased the segment’s subscriber base by 88%. Hardware and other revenue increased by $0.1 million or 8.8%. Total revenue increased by $4.7 million or 29.9%.
In the Middle East and Australasia segment, subscription revenue decreased by $0.6 million or 3.8%. On a constant currency basis, the increase in subscription revenue was 0.9% as a result of a 5.1% increase in subscribers since April 1, 2022. Hardware and other revenue increased by $2.0 million or 36.1%. Total revenue increased by $1.4 million or 6.1%. Total revenue in constant currency increased by 11.5%.
In the Europe segment, subscription revenue decreased by $1.4 million or 10.0%. On a constant currency basis, subscription revenue decreased by 1.8%, as a result of a 2.1% decrease in subscribers since April 1, 2022. Hardware and other revenue decreased by $1.4 million or 37.8%. Total revenue decreased by $2.8 million or 16.1%. Total revenue decreased by 8.2% on a constant currency basis.
In the Brazil segment, subscription revenue increased by $1.4 million or 32.5%. On a constant currency basis, subscription revenue increased by 28.0%, as a result of a 20.5% increase in subscribers since April 1, 2022. Hardware and other revenue increased by $0.8 million or 193.0%. Total revenue increased by $2.2 million or 46.4%. On a constant currency basis, total revenue increased by 41.4%.
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Cost of Revenue and Gross Margin
| For the year ended March 31, | |||||||||||
| 2022 | 2023 | ||||||||||
| (In thousands, except for percentages) | |||||||||||
| Cost of revenue - subscription | $ | 36,683 | $ | 40,073 | |||||||
| Cost of revenue - hardware and other | 15,176 | 14,054 | |||||||||
| Gross profit | $ | 91,435 | $ | 90,866 | |||||||
| Gross profit margin | 63.8 | % | 62.7 | % | |||||||
| Gross profit margin - subscription | 70.3 | % | 68.4 | % | |||||||
| Gross profit margin - hardware and other | 23.0 | % | 23.4 | % | |||||||
Compared to an increase in total revenue of $1.7 million or 1.2%, cost of revenue increased by $2.3 million or 4.4%, from fiscal year 2022 to fiscal year 2023. This resulted in a lower gross profit margin of 62.7% in fiscal year 2023 compared to 63.8% in fiscal year 2022.
Subscription revenue, which generates a higher gross profit margin than hardware and other revenue, contributed 87.4% of total revenue in fiscal year 2023 compared to 86.2% in fiscal year 2022. The subscription revenue margin during fiscal year 2023 was 68.4% compared to 70.3% for fiscal year 2022. The decrease in the subscription revenue margin was mainly due to increased platform costs and an increase in amortized development costs.
During fiscal year 2023, hardware and other margins were 23.4% compared to 23.0% in fiscal year 2022.
Sales and Marketing
| For the year ended March 31, | |||||||||||
| 2022 | 2023 | ||||||||||
| (In thousands, except for percentages) | |||||||||||
| Sales and marketing | $ | 15,436 | $ | 17,194 | |||||||
| As a percentage of revenue | 10.8 | % | 11.9 | % | |||||||
Sales and marketing costs increased by $1.8 million, or 11.4%, from fiscal year 2022 to fiscal year 2023 against a 1.2% increase in total revenue. The increase in fiscal year 2023 was primarily as a result of increases of $1.2 million in employee costs and $0.6 million in travel costs. It should be noted that the FSM business contributed $0.3 million of the total sales and marketing costs for fiscal year 2023.
In fiscal year 2023, sales and marketing costs represented 11.9% of revenue compared to 10.8% of revenue in fiscal year 2022.
Administration and Other Expenses
| For the year ended March 31, | |||||||||||
| 2022 | 2023 | ||||||||||
| (In thousands, except for percentages) | |||||||||||
| Administration and other | $ | 61,550 | $ | 62,107 | |||||||
| As a percentage of revenue | 43.0 | % | 42.8 | % | |||||||
Administration and other expenses increased by $0.6 million, or 0.9%, from fiscal year 2022 to fiscal year 2023.
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The increase mainly relates to increases of $1.0 million in restructuring costs, $0.8 million in acquisition related costs, and $1.2 million contributed by the FSM business (mainly employee costs), partially offset by a decrease of $0.9 million in other employee costs, $0.9 million in bonuses and $0.6 million saving in professional fees due to non-recurring legal related costs incurred during fiscal year 2022.
Taxation
| For the year ended March 31, | |||||||||||
| 2022 | 2023 | ||||||||||
| (In thousands, except for percentages) | |||||||||||
| Income tax expense | $ | 4,418 | $ | 8,445 | |||||||
| Effective tax rate | 33.1 | % | 65.1 | % | |||||||
Income tax expense increased by $4.0 million, or 91.1%. Our effective tax rate increased by 32.0% to 65.1% in fiscal year 2023. A reconciliation of our effective tax rate to the South African corporate tax rate of 27% for both fiscal years 2023 and 2022, is presented in note 13 to the consolidated financial statements. In fiscal year 2023, the effective tax rate increased by 26.3% as a result of certain non-taxable foreign exchange movements on intercompany loans which have led to deferred tax charges being recognized in the Consolidated Statements of Income. In fiscal year 2022 non-taxable foreign exchange differences decreased the tax rate by 3.1%.
Adjusted effective tax rate, a non-GAAP measure which excludes the impact of net foreign exchange losses and gains, restructuring costs, acquisition-related costs and contingent consideration remeasurement, net of tax, is the tax rate used in determining adjusted net income. Adjusted effective tax rate was 39.4% in fiscal year 2023 as compared to 35.3% in fiscal year 2022. Refer to the non-GAAP section for the reconciliation of adjusted effective tax rate.
Results of Operations for Fiscal Year 2021 Compared to Fiscal Year 2022
Revenue
| For the year ended March 31, | ||||||||||||||||||||
| 2021 | 2022 | % Change | % Change at constant currency | |||||||||||||||||
| (In thousands, except for percentages) | ||||||||||||||||||||
| Subscription revenue | $ | 113,351 | $ | 123,573 | 9.0 | % | 2.8 | % | ||||||||||||
| Hardware and other revenue | 13,543 | 19,721 | 45.6 | % | 41.2 | % | ||||||||||||||
| $ | 126,894 | $ | 143,294 | 12.9 | % | 6.9 | % | |||||||||||||
Our total revenue increased by $16.4 million or 12.9%, from fiscal year 2021 to fiscal year 2022. The principal factors affecting our revenue growth included:
•Subscription revenue increased by 9.0% to $123.6 million, compared to $113.4 million for fiscal year 2021. Subscription revenue represented 86.2% of our total revenue for fiscal year 2022 compared to 89.3% for the prior year. Subscription revenue increased by 2.8% on a constant currency basis, year over year. During fiscal year 2022, our subscriber base grew by a net 70,500 subscribers to 815,200 subscribers at March 31, 2022.
The majority of our revenue and subscription revenue are derived from currencies other than the U.S. Dollar. Accordingly, the weakening of the U.S. Dollar against these currencies (in particular against the South African Rand) following currency volatility, has positively impacted our revenue and subscription revenue reported in U.S. Dollars. Compared to fiscal year 2021, the South African Rand strengthened by 9% against the U.S. Dollar. The South African Rand/U.S. Dollar exchange rate averaged R14.86 in fiscal year 2022 compared to an average of R16.37 during fiscal year 2021. The impact of translating foreign currencies to U.S. Dollars at the average exchange rates during fiscal year 2022 led to a 6.2% increase in reported U.S. Dollar subscription revenue.
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•Hardware and other revenue increased by $6.2 million, or 45.6%, from fiscal year 2021 to fiscal year 2022. Our fiscal year 2022 hardware revenue strength has been due to the new MiX Vision AI solution, which is seeing strong adoption, as well as the improvement in trading conditions in line with economic recovery from the pandemic.
The impact of translating foreign currencies to U.S. Dollars at the average exchange rates during fiscal year 2022 led to a 6.0% increase in reported U.S. Dollar revenue.
A breakdown of third-party revenue by segment is shown in the table below:
| For the Year Ended March 31, | |||||||||||||||||||||||||||||||||||
| 2021 | 2022 | 2021 | 2022 | 2021 | 2022 | ||||||||||||||||||||||||||||||
| (In thousands) | |||||||||||||||||||||||||||||||||||
| Total Revenue | Subscription Revenue | Hardware and other revenue | |||||||||||||||||||||||||||||||||
| Africa | $ | 67,948 | $ | 83,176 | $ | 62,453 | $ | 74,778 | $ | 5,495 | $ | 8,398 | |||||||||||||||||||||||
| Americas | 18,981 | 15,574 | 18,211 | 14,036 | 770 | 1,538 | |||||||||||||||||||||||||||||
| Middle East and Australasia | 21,237 | 22,554 | 16,558 | 16,950 | 4,679 | 5,604 | |||||||||||||||||||||||||||||
| Europe | 14,579 | 17,254 | 12,138 | 13,509 | 2,441 | 3,745 | |||||||||||||||||||||||||||||
| Brazil | 4,064 | 4,654 | 3,922 | 4,253 | 142 | 401 | |||||||||||||||||||||||||||||
| CSO | 85 | 82 | 69 | 47 | 16 | 35 | |||||||||||||||||||||||||||||
| Total | $ | 126,894 | $ | 143,294 | $ | 113,351 | $ | 123,573 | $ | 13,543 | $ | 19,721 | |||||||||||||||||||||||
In the Africa segment, subscription revenue increased by $12.3 million or 19.7%. On a constant currency basis, the increase in subscription revenue was 9.5% as a result of a 10.6% increase in subscribers since April 1, 2021. Hardware and other revenue increased by $2.9 million or 52.8%. Total revenue increased by $15.2 million or 22.4%. On a constant currency basis, total revenue growth was 12.4%.
In the Americas segment, subscription revenue declined by $4.2 million or 22.9% despite an 8.1% increase in subscribers since April 1, 2021. Included in fiscal year 2021 subscription revenue reported was a once off contract modification fee of $1.1 million, pertaining to the reduction of existing subscriber contracts of a major energy sector customer following a reduction of their fleet due to prevailing economic conditions. Hardware and other revenue increased by $0.8 million or 99.7%. Total revenue declined by $3.4 million or 18.0%.
Subscription revenue in the Middle East and Australasia segment increased by $0.4 million or 2.4%. On a constant currency basis, the increase in subscription revenue was 0.5%. Subscribers increased by 3.5% since April 1, 2021. Hardware and other revenue increased by $0.9 million or 19.8%. Total revenue increased by $1.3 million or 6.2%. Total revenue in constant currency increased by 4.1%.
In the Europe segment, subscription revenue increased by $1.4 million or 11.3%. On a constant currency basis, the growth in subscription revenue was 9.9%. Subscribers increased by 10.0% since April 1, 2021. Hardware and other revenue increased by $1.3 million or 53.4%. Total revenue increased by $2.7 million or 18.4%. On a constant currency basis total revenue growth was 16.9%.
In the Brazil segment, subscription revenue increased by $0.3 million or 8.4%. On a constant currency basis, subscription revenue increased by 7.2%. Subscribers increased by 4.4% since April 1, 2021. Hardware and other revenue increased by $0.3 million or 182.4%. Total revenue increased by $0.6 million or 14.5%. On a constant currency basis, total revenue increased by 13.2%.
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Cost of Revenue and Gross Margin
| For the year ended March 31, | |||||||||||
| 2021 | 2022 | ||||||||||
| (In thousands, except for percentages) | |||||||||||
| Cost of revenue - subscription | $ | 33,414 | $ | 36,683 | |||||||
| Cost of revenue - hardware and other | 10,451 | 15,176 | |||||||||
| Gross profit | $ | 83,029 | $ | 91,435 | |||||||
| Gross profit margin | 65.4 | % | 63.8 | % | |||||||
| Gross profit margin - subscription | 70.5 | % | 70.3 | % | |||||||
| Gross profit margin - hardware and other | 22.8 | % | 23.0 | % | |||||||
Compared to an increase in total revenue of $16.4 million or 12.9%, cost of revenue increased by $8.0 million or 18.2%, from fiscal year 2021 to fiscal year 2022. This, together with the higher levels of hardware and other revenue, resulted in a lower gross profit margin of 63.8% in fiscal year 2022 compared to 65.4% in fiscal year 2021.
Subscription revenue, which generates a higher gross profit margin than hardware and other revenue, contributed 86.2% of total revenue in fiscal year 2022 compared to 89.3% in fiscal year 2021.
During fiscal year 2022, hardware and other margins were higher than in fiscal year 2021, mainly due to the geographical sales mix and the distribution channels. Hardware sales via our dealer channel and the MiX Vision AI attract lower gross margins.
Sales and Marketing
| For the year ended March 31, | |||||||||||
| 2021 | 2022 | ||||||||||
| (In thousands, except for percentages) | |||||||||||
| Sales and marketing | $ | 11,344 | $ | 15,436 | |||||||
| As a percentage of revenue | 8.9 | % | 10.8 | % | |||||||
Sales and marketing costs increased by $4.1 million, or 36.1%, from fiscal year 2021 to fiscal year 2022 against a 12.9% increase in total revenue. The increase in fiscal year 2022 was primarily as a result of increases of $1.9 million in advertising costs, $1.5 million in employee costs, $0.2 million in bonuses, $0.2 million in travel costs and other increases of $0.3 million, none of which were individually significant. In fiscal year 2022, sales and marketing costs represented 10.8% of revenue compared to 8.9% of revenue in fiscal year 2021.
Administration and Other Expenses
| For the year ended March 31, | |||||||||||
| 2021 | 2022 | ||||||||||
| (In thousands, except for percentages) | |||||||||||
| Administration and other | $ | 53,487 | $ | 61,550 | |||||||
| As a percentage of revenue | 42.2 | % | 43.0 | % | |||||||
Administration and other expenses increased by $8.1 million, or 15.1%, from fiscal year 2021 to fiscal year 2022.
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The increase mainly relates to increases of $3.4 million in salaries and wages, $1.2 million in bonuses, $0.8 million in information & technology costs, $2.3 million in professional fees (including $0.6 million in legal costs associated with patent infringement), $0.6 million in training and recruitment costs, increases in expected credit loss provision of $0.9 million, offset by $0.9 million saving due to restructuring costs and other decreases of $0.2 million, none of which were individually significant.
Taxation
| For the year ended March 31, | |||||||||||
| 2021 | 2022 | ||||||||||
| (In thousands, except for percentages) | |||||||||||
| Income tax expense | $ | 2,634 | $ | 4,418 | |||||||
| Effective tax rate | 15.3 | % | 33.1 | % | |||||||
Income tax expense increased by 67.7%. Our effective tax rate increased by 17.8% to 33.1% in fiscal year 2022. A reconciliation of our effective tax rate to the South African corporate tax rate of 28% for both fiscal years 2022 and 2021, is presented in note 13 to the consolidated financial statements. In fiscal year 2022 the effective tax rate decreased by 3.1% as a result of certain non-taxable foreign exchange movements on intercompany loans which have led to deferred tax charges being recognized in the Consolidated Statements of Income. In fiscal year 2021 non-taxable foreign exchange differences decreased the tax rate by 19.7%.
Adjusted effective tax rate, a non-GAAP measure which excludes the impact of net foreign exchange losses and gains, restructuring costs, acquisition-related costs and contingent consideration remeasurement, net of tax, is the tax rate used in determining adjusted net income. Adjusted effective tax rate was 35.3% in fiscal year 2022 as compared to 34.1% in fiscal year 2021. Refer to the non-GAAP section for the reconciliation of adjusted effective tax rate.
Non-GAAP Financial Measures
We use certain measures to assess the financial performance of our business. Certain of these measures are termed “non-GAAP measures” because they exclude amounts that are included in, or include amounts that are excluded from, the most directly comparable measure calculated and presented in accordance with GAAP, or are calculated using financial measures that are not calculated in accordance with GAAP. These non-GAAP measures include adjusted EBITDA, adjusted EBITDA margin, adjusted net income, adjusted net income per share, adjusted effective tax rate, free cash flow and constant currency information.
An explanation of the relevance of each of the non-GAAP measures, a reconciliation of the non-GAAP measures to the most directly comparable measures calculated and presented in accordance with GAAP and a discussion of their limitations is set out below. We do not regard these non-GAAP measures as a substitute for, or superior to, the equivalent measures calculated and presented in accordance with GAAP or those calculated using financial measures that are calculated in accordance with GAAP.
Adjusted EBITDA and Adjusted EBITDA Margin
Adjusted EBITDA and adjusted EBITDA margin are two of the profit measures reviewed by the CODM. We define adjusted EBITDA as net income before income taxes, net interest expense, net foreign exchange losses/gains, depreciation of property, plant and equipment including capitalized customer in-vehicle devices, amortization of intangible assets including capitalized internal-use software development costs and intangible assets identified as part of a business combination, impairment of long-lived assets, stock-based compensation costs, net loss/profit on sale of property, plant and equipment, restructuring costs, non-recurring legal costs, acquisition-related costs and the contingent consideration remeasurement. The adjusted EBITDA definition has been updated also to exclude acquisition-related costs and the contingent consideration remeasurement that arose during fiscal year 2023. We define adjusted EBITDA margin as adjusted EBITDA divided by total revenue.
We have included adjusted EBITDA and adjusted EBITDA margin in this Annual Report on Form 10-K because they are key measures that our management and Board use to understand and evaluate our core operating performance and
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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, we believe that adjusted EBITDA and adjusted EBITDA margin provide useful information to investors and others in understanding and evaluating our operating results.
A reconciliation of net income (the most directly comparable financial measure presented in accordance with GAAP) to adjusted EBITDA for the periods shown is presented below.
| Reconciliation of net income to adjusted EBITDA for the year ended March 31, | |||||||||||||||||
| 2021 | 2022 | 2023 | |||||||||||||||
| (In thousands) | |||||||||||||||||
| Net income | $ | 14,595 | $ | 8,947 | $ | 4,522 | |||||||||||
| Plus: Income tax expense | 2,634 | 4,418 | 8,445 | ||||||||||||||
| Plus: Net interest expense | 72 | 510 | 287 | ||||||||||||||
| Plus/(less): Foreign exchange losses/(gains) | 959 | 648 | (1,110) | ||||||||||||||
Plus: Depreciation (1) | 12,878 | 10,693 | 9,743 | ||||||||||||||
Plus: Amortization (2) | 3,681 | 4,258 | 5,866 | ||||||||||||||
| Plus: Impairment of long-lived assets | 8 | 47 | 104 | ||||||||||||||
| Plus: Stock-based compensation costs | 1,273 | 1,325 | 502 | ||||||||||||||
| Plus/(less): Net loss/(profit) on sale of property, plant and equipment | 13 | (36) | (25) | ||||||||||||||
| Plus: Restructuring costs | 1,055 | 164 | 1,022 | ||||||||||||||
Plus: Non-recurring legal costs (3) | — | 591 | — | ||||||||||||||
| Plus: Acquisition-related costs | — | — | 784 | ||||||||||||||
| Less: Contingent consideration remeasurement | — | — | (504) | ||||||||||||||
| Adjusted EBITDA | $ | 37,168 | $ | 31,565 | $ | 29,636 | |||||||||||
| Adjusted EBITDA margin | 29.3 | % | 22.0 | % | 20.4 | % | |||||||||||
1.Includes depreciation of owned assets (including in-vehicle devices). | |||||||||||||||||||||||
2.Includes amortization of intangible assets (including capitalized internal-use software development costs and intangible assets identified as part of a business combination). | |||||||||||||||||||||||
3.Includes legal related costs for a non-recurring patent infringement matter, that has been resolved. | |||||||||||||||||||||||
Our use of adjusted EBITDA and adjusted EBITDA margin have limitations as analytical tools, and should not be considered as performance measures in isolation from, or as a substitute for, analysis of our results as reported under GAAP.
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, our 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 us;
•other companies, including companies in our industry, may calculate adjusted EBITDA differently, which reduces its usefulness as a comparative measure; and
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•certain of the adjustments (such as restructuring costs, impairment of long-lived assets and others) made in calculating adjusted EBITDA are those that management believes are not representative of our underlying operations and, therefore, are subjective in nature.
Because of these limitations, adjusted EBITDA and adjusted EBITDA margin should be considered alongside other financial performance measures, including income from operations, net income and our other results.
Adjusted Net Income
Adjusted net income is defined as net income excluding net foreign exchange losses/gains, restructuring costs, acquisition-related costs and contingent consideration remeasurement, net of tax. During the current period, the adjusted net income definition has been updated also to exclude restructuring costs, acquisition-related costs and contingent consideration remeasurement. The Company does not believe that such restructuring costs reflect its ongoing, core operations because of its non-periodic nature. Therefore, the adjusted net income definition has been updated in the current period to exclude restructuring costs, thereby allowing investors and others to understand and evaluate the Company’s operating results.
We have included adjusted net income in this Annual Report because it provides a useful measure for period-to-period comparisons of our core business by excluding net foreign exchange losses/gains, restructuring costs, acquisition-related costs and contingent consideration remeasurement, and associated tax consequences, from earnings. Accordingly, we believe that adjusted net income provides useful information to investors and others in understanding and evaluating our operating results.
Reconciliation of net income to adjusted net income | |||||||||||||||||
| For the year ended March 31, | |||||||||||||||||
| 2021 | 2022 | 2023 | |||||||||||||||
| (In thousands) | |||||||||||||||||
| Net income | $ | 14,595 | $ | 8,947 | $ | 4,522 | |||||||||||
| Net foreign exchange losses/(gains) | 959 | 648 | (1,110) | ||||||||||||||
| Income tax effect of net foreign exchange (losses)/gains | (3,657) | (563) | 3,500 | ||||||||||||||
Restructuring costs (1) | 1,055 | 164 | 1,022 | ||||||||||||||
| Income tax effect of restructuring costs | (269) | (21) | (168) | ||||||||||||||
| Acquisition-related costs | — | — | 784 | ||||||||||||||
| Income tax effect on acquisition-related costs | — | — | (182) | ||||||||||||||
| Contingent consideration remeasurement | — | — | (504) | ||||||||||||||
| Income tax effect of contingent consideration remeasurement | — | — | 116 | ||||||||||||||
| Adjusted net income | $ | 12,683 | $ | 9,175 | $ | 7,980 | |||||||||||
(1) During the fourth quarter of fiscal year 2023, the Company incurred significant restructuring costs due to restructuring plans implemented as part of a cost saving initiative. The comparative periods in the above table have been re-presented to reflect the inclusion of such new adjustments. This resulted in a $0.8 million and a $0.1 million increase in the adjusted net income for fiscal year 2021 and 2022, respectively.
Basic and Diluted Adjusted Net Income per share
Basic and diluted adjusted net income per share is defined as adjusted net income divided by the weighted average number of ordinary shares in issue during the period. During the current period, the adjusted net income definition has been updated also to exclude restructuring costs, acquisition-related costs and contingent consideration remeasurement. The Company does not believe that such restructuring costs reflect its ongoing, core operations because of its non-periodic nature. Therefore, the adjusted net income definition has been updated in the current period to exclude restructuring costs, thereby allowing investors and others to understand and evaluate the Company’s operating results.
We have included basic and diluted adjusted net income per share in this Annual Report because it provides a useful measure for period-to-period comparisons of our core business by excluding net foreign exchange gains/losses, restructuring costs, acquisition-related costs and contingent consideration remeasurement, and associated tax
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consequences, from earnings. Accordingly, we believe that basic and diluted adjusted net income per share provides useful information to investors and others in understanding and evaluating our operating results.
Reconciliation of net income to adjusted net income per share | |||||||||||||||||
| For the year ended March 31, | |||||||||||||||||
| 2021 | 2022 | 2023 | |||||||||||||||
| (In thousands) | |||||||||||||||||
| Net income | $ | 14,595 | $ | 8,947 | $ | 4,522 | |||||||||||
| Net foreign exchange losses/(gains) | 959 | 648 | (1,110) | ||||||||||||||
| Income tax effect of net foreign exchange (losses)/gains | (3,657) | (563) | 3,500 | ||||||||||||||
Restructuring costs (1) | 1,055 | 164 | 1,022 | ||||||||||||||
| Income tax effect of restructuring costs | (269) | (21) | (168) | ||||||||||||||
| Acquisition-related costs | — | — | 784 | ||||||||||||||
| Income tax effect on acquisition-related costs | — | — | (182) | ||||||||||||||
| Contingent consideration remeasurement | — | — | (504) | ||||||||||||||
| Income tax effect of contingent consideration remeasurement | — | — | 116 | ||||||||||||||
| Adjusted net income | $ | 12,683 | $ | 9,175 | $ | 7,980 | |||||||||||
| Weighted average number of ordinary shares in issue | |||||||||||||||||
| Basic (’000) | 549,415 | 551,923 | 552,603 | ||||||||||||||
| Adjusted for: | |||||||||||||||||
| - potentially dilutive effect of stock appreciation rights | 9,872 | 10,531 | 2,496 | ||||||||||||||
| - potentially dilutive effect of restricted share units | 774 | 1,504 | 959 | ||||||||||||||
| - potentially dilutive effect of stock options | 562 | — | — | ||||||||||||||
| Diluted (’000) | 560,624 | 563,958 | 556,058 | ||||||||||||||
| Net income per ordinary share – basic | $ | 0.027 | $ | 0.016 | $ | 0.008 | |||||||||||
| Net foreign exchange losses/(gains) | 0.002 | 0.001 | (0.002) | ||||||||||||||
| Income tax effect of net foreign exchange (losses)/gains | (0.007) | (0.001) | 0.006 | ||||||||||||||
Restructuring costs (1) | 0.002 | # | 0.002 | ||||||||||||||
| Income tax effect of restructuring costs | # | # | # | ||||||||||||||
| Acquisition-related costs | — | — | 0.001 | ||||||||||||||
| Income tax effect on acquisition-related costs | — | — | # | ||||||||||||||
| Contingent consideration remeasurement | — | — | (0.001) | ||||||||||||||
| Income tax effect of contingent consideration remeasurement | — | — | # | ||||||||||||||
| Adjusted net income per ordinary share – basic | $ | 0.024 | $ | 0.016 | $ | 0.014 | |||||||||||
| Net income per ordinary share – diluted | $ | 0.026 | $ | 0.016 | $ | 0.008 | |||||||||||
| Net foreign exchange losses/(gains) | 0.002 | 0.001 | (0.002) | ||||||||||||||
| Income tax effect of net foreign exchange (losses)/gains | (0.007) | (0.001) | 0.006 | ||||||||||||||
Restructuring costs (1) | 0.002 | # | 0.002 | ||||||||||||||
| Income tax effect of restructuring costs | # | # | # | ||||||||||||||
| Acquisition-related costs | — | — | 0.001 | ||||||||||||||
| Income tax effect on acquisition-related costs | — | — | # | ||||||||||||||
| Contingent consideration remeasurement | — | — | (0.001) | ||||||||||||||
| Income tax effect of contingent consideration remeasurement | — | — | # | ||||||||||||||
| Adjusted net income per ordinary share – diluted | $ | 0.023 | $ | 0.016 | $ | 0.014 | |||||||||||
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# Amount less than $0.001
(1) During the fourth quarter of fiscal year 2023, the Company incurred significant restructuring costs due to restructuring plans implemented as part of a cost saving initiative. The comparative periods in the above table have been re-presented to reflect the inclusion of such new adjustments. The adjusted net income per basic and diluted ordinary share increased by $0.002 cents for the fiscal year 2021 and remained unchanged for the fiscal year 2022.
Adjusted Effective Tax Rate
The adjusted effective tax rate is defined as income tax expense excluding the income tax effect of net foreign exchange losses/gains, restructuring costs, acquisition-related costs and contingent consideration remeasurement divided by income before income tax expense excluding net foreign exchange losses/gains, restructuring costs, acquisition-related costs and contingent consideration remeasurement. During the current period, the adjusted effective tax rate definition has been updated also to exclude restructuring costs, acquisition-related costs and contingent consideration remeasurement. The Company does not believe that such restructuring costs reflect its ongoing, core operations because of its non-periodic nature. Therefore, the adjusted effective tax rate definition has been updated in the current period to exclude restructuring costs, thereby allowing investors and others to understand and evaluate the Company’s operating results.
We have included adjusted effective tax rate in this Annual Report on Form 10-K because it provides a useful measure for period-to-period comparisons of our core business by excluding net foreign exchange losses/gains, restructuring costs, acquisition-related costs and contingent consideration remeasurement, and associated tax consequences, from our effective tax rate.
| Reconciliation of effective tax rate to adjusted effective tax rate | |||||||||||||||||
| For the year ended March 31, | |||||||||||||||||
| 2021 | 2022 | 2023 | |||||||||||||||
| (In thousands) | |||||||||||||||||
| Income before income tax expense | $ | 17,229 | $ | 13,365 | $ | 12,967 | |||||||||||
| Net foreign exchange losses/(gains) | 959 | 648 | (1,110) | ||||||||||||||
Restructuring costs (1) | 1,055 | 164 | 1,022 | ||||||||||||||
| Acquisition-related costs | — | — | 784 | ||||||||||||||
| Contingent consideration remeasurement | — | — | (504) | ||||||||||||||
Income before income tax expense excluding net foreign exchange (gains)/losses, acquisition-related costs, restructuring costs and contingent consideration remeasurement | $ | 19,243 | $ | 14,177 | $ | 13,159 | |||||||||||
| Income tax expense | $ | (2,634) | $ | (4,418) | $ | (8,445) | |||||||||||
| Income tax effect of net foreign exchange (losses)/gains | (3,657) | (563) | 3,500 | ||||||||||||||
| Income tax effect of restructuring costs | (269) | (21) | (168) | ||||||||||||||
| Income tax effect of acquisition-related costs | — | — | (182) | ||||||||||||||
| Income tax effect of contingent consideration remeasurement | — | — | 116 | ||||||||||||||
Income tax expense excluding income tax effect of net foreign exchange gains/(losses), acquisition-related costs, restructuring costs and contingent consideration remeasurement | $ | (6,560) | $ | (5,002) | $ | (5,179) | |||||||||||
| Effective tax rate | 15.3 | % | 33.1 | % | 65.1 | % | |||||||||||
| Adjusted effective tax rate | 34.1 | % | 35.3 | % | 39.4 | % | |||||||||||
(1) During the fourth quarter of fiscal year 2023, the Company incurred significant restructuring costs due to restructuring plans implemented as part of a cost saving initiative. The comparative periods in the above table have been re-presented to reflect the inclusion of such new adjustments. The adjusted effective tax rate decreased by 0.5% and 0.2% for fiscal year 2021 and 2022 respectively.
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Free Cash Flow
Free cash flow is determined as net cash provided by operating activities less capital expenditure for 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 utilizes after accounting for all capital expenditures including investments in in-vehicle devices.
The following table (in thousands) reconciles Net Cash Provided by Operating Activities to Free Cash Flow for the periods shown:
| For the year ended March 31, | |||||||||||||||||
| 2021 | 2022 | 2023 | |||||||||||||||
| (In thousands) | |||||||||||||||||
| Net cash provided by operating activities | $ | 38,572 | $ | 19,402 | $ | 21,948 | |||||||||||
| Less: Capital expenditure payments | (8,654) | (26,217) | (25,121) | ||||||||||||||
| Free cash flow | $ | 29,918 | $ | (6,815) | $ | (3,173) | |||||||||||
Constant Currency Information
Constant currency information has been presented in the sections below to illustrate the impact of changes in currency rates on our results. The constant currency information has been determined by adjusting the current financial reporting year’s results to the prior year’s average exchange rates, determined as the average of the monthly exchange rates applicable to the year. The measurement has been performed for each of our currencies, including the South African Rand and British Pound. The constant currency growth percentage has been calculated by utilizing the constant currency results compared to the prior year results.
The constant currency information represents non-GAAP information. We believe this provides a useful basis to measure the performance of our business as it removes distortion from the effects of foreign currency movements during the period.
Due to the significant portion of our customers who are invoiced in non-U.S. Dollar denominated currencies, we also calculate our subscription revenue growth rate on a constant currency basis, thereby removing the effect of currency fluctuation on our results of operations.
Refer to discussion below for the annual constant currency growth. The following tables provide the constant currency reconciliation to the most directly comparable GAAP measure for the fiscal years shown:
Subscription Revenue
| For the year ended March 31, | |||||||||||||||||||||||||||||||||||
| 2021 | 2022 | % Change | 2022 | 2023 | % Change | ||||||||||||||||||||||||||||||
| (In thousands, except for percentages) | |||||||||||||||||||||||||||||||||||
| Subscription revenue as reported | $ | 113,351 | $ | 123,573 | 9.0 | % | $ | 123,573 | $ | 126,656 | 2.5 | % | |||||||||||||||||||||||
| Conversion impact of U.S. Dollar/other currencies | — | (7,048) | (6.2) | % | — | 11,622 | 9.4 | % | |||||||||||||||||||||||||||
| Subscription revenue on a constant currency basis | $ | 113,351 | $ | 116,525 | 2.8 | % | $ | 123,573 | $ | 138,278 | 11.9 | % | |||||||||||||||||||||||
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Hardware and Other Revenue
| For the year ended March 31, | |||||||||||||||||||||||||||||||||||
| 2021 | 2022 | % Change | 2022 | 2023 | % Change | ||||||||||||||||||||||||||||||
| (In thousands, except for percentages) | |||||||||||||||||||||||||||||||||||
| Hardware and other revenue as reported | $ | 13,543 | $ | 19,721 | 45.6 | % | $ | 19,721 | $ | 18,337 | (7.0) | % | |||||||||||||||||||||||
| Conversion impact of U.S. Dollar/other currencies | — | (596) | (4.4) | % | — | 1,438 | 7.3 | % | |||||||||||||||||||||||||||
| Hardware and other revenue on a constant currency basis | $ | 13,543 | $ | 19,125 | 41.2 | % | $ | 19,721 | $ | 19,775 | 0.3 | % | |||||||||||||||||||||||
Total Revenue
| For the year ended March 31, | |||||||||||||||||||||||||||||||||||
| 2021 | 2022 | % Change | 2022 | 2023 | % Change | ||||||||||||||||||||||||||||||
| (In thousands, except for percentages) | |||||||||||||||||||||||||||||||||||
| Total revenue as reported | $ | 126,894 | $ | 143,294 | 12.9 | % | $ | 143,294 | $ | 144,993 | 1.2 | % | |||||||||||||||||||||||
| Conversion impact of U.S. Dollar/other currencies | — | (7,644) | (6.0) | % | — | 13,060 | 9.1 | % | |||||||||||||||||||||||||||
| Total revenue on a constant currency basis | $ | 126,894 | $ | 135,650 | 6.9 | % | $ | 143,294 | $ | 158,053 | 10.3 | % | |||||||||||||||||||||||
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Liquidity and Capital Resources
We believe that our cash and borrowings available under our credit facilities will be sufficient to meet our liquidity requirements for the foreseeable future. Liquidity risk is reduced as a result of stable income due to the recurring nature of our income, available cash resources, as well as unutilized facilities which are available.
The following tables provide a summary of our cash flows for each of the three years ended March 31, 2021, 2022 and 2023:
| Fiscal Year Ended March 31, | |||||||||||||||||||||||
| 2021 | 2022 | 2023 | |||||||||||||||||||||
| (In thousands) | |||||||||||||||||||||||
| Net cash generated from operating activities | $ | 38,572 | $ | 19,402 | $ | 21,948 | |||||||||||||||||
| Net cash used in investing activities | (8,650) | (26,157) | (28,789) | ||||||||||||||||||||
| Net cash (used in)/from financing activities | (5,209) | (5,067) | 4,958 | ||||||||||||||||||||
| Net increase/(decrease) in cash and cash equivalents, and restricted cash | 24,713 | (11,822) | (1,883) | ||||||||||||||||||||
| Cash, and cash equivalents and restricted cash at the beginning of the year | 18,652 | 46,343 | 34,719 | ||||||||||||||||||||
| Effect of exchange rate changes on cash and cash equivalents, and restricted cash | 2,978 | 198 | (2,179) | ||||||||||||||||||||
| Cash, and cash equivalents and restricted cash at the end of the year | $ | 46,343 | $ | 34,719 | $ | 30,657 | |||||||||||||||||
We fund our operations, capital expenditure and acquisitions through cash generated from operating activities, cash on hand and our undrawn borrowing facilities.
It is currently our policy to pay regular dividends, and we consider such dividend payments on a quarter-by-quarter basis.
As of March 31, 2021, 2022 and 2023, the Company had approved, but not yet contracted, capital commitments for intangible assets of $4.7 million, $5.6 million and $3.9 million respectively.
As of March 31, 2021, 2022 and 2023, the Company had approved, and contracted, capital commitments for property, plant and equipment of $1.2 million, $14.8 million and $2.2 million, respectively; and for intangible assets of $1.3 million, $1.6 million and $1.4 million respectively.
Capital commitments will be funded out of a mixture of working capital and cash and cash equivalents. Capital commitments for intangible assets relate to software and technology and capital commitments for property, plant and equipment mainly relate to in-vehicle devices.
On May 23, 2017, the Board approved a share repurchase program of up to R270 million (equivalent of $15.0 million as of March 31, 2023) under which the Company could repurchase its ordinary shares, including ADSs. On December 3, 2021, the Board approved an increase to the share repurchase program under which the Company may repurchase ordinary shares, including ADSs. Post this increase, and after giving effect to shares already purchased under the program as at December 2, 2021, the Company could repurchase additional shares with a cumulative value of R160 million ($10.0 million). The total value of the whole share repurchase program post the December 3, 2021 increase is R396.5 million ($24.9 million). During fiscal year 2023, shares with a value of R6.6 million (equivalent of $0.4 million as of March 31, 2023) were repurchased under the share repurchase program. Additional shares to the value of R108.7 million (equivalent of $6.0 million as of March 31, 2023) may still be repurchased.
We expect any repurchases under this share repurchase program to be funded out of existing cash resources or borrowing facilities. During fiscal year 2023, the Company repurchased 1,166,659 ordinary shares on the open market at prevailing market prices for a cumulative consideration of $0.4 million. Refer to “Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities” for information regarding our share repurchase program.
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Operating Activities
Net cash provided by operating activities during fiscal year 2021 consisted of our net income (after excluding non-cash charges) of $45.6 million, a net reduction in operating assets and liabilities investments of $1.6 million, net interest received of $0.3 million and taxes paid of $5.8 million.
Net cash provided by operating activities decreased from $38.6 million in fiscal year 2021 to $19.4 million in fiscal year 2022. This is primarily attributable to lower cash generated from operations of $17.4 million, lower net interest received of $0.3 million and increased taxation paid of $1.4 million. The lower cash generated from operations is primarily as a result of a decrease in net income of $5.6 million and a deterioration in working capital management of $10.0 million (specifically an increase in accounts receivables of $10.3 million due to slower collection of receivables and higher revenue, an increase in capitalized commissions of $1.1 million due to higher revenue, an increase in inventories of $0.5 million, an increase in prepaid expenses and other current assets of $0.8 million and an adverse change in foreign currency translation adjustments of $2.5 million, partially offset by an increase in accounts payables of $3.8 million and an increase in accrued expenses and other liabilities of $1.4 million).
Net cash provided by operating activities increased from $19.4 million in fiscal year 2022 to $21.9 million in fiscal year 2023. This is primarily attributable to decreased taxation paid of $5.2 million, offset by lower cash generated from operations of $2.5 million and higher net interest paid of $0.2 million. The lower cash generated from operations is primarily as a result of a decrease in net income of $4.4 million and a deterioration in working capital management of $1.6 million (specifically an increase in capitalized commissions of $3.7 million due to higher revenue, an increase in inventories of $1.3 million, a decrease in accounts payables of $1.3 million, a decrease in accrued expenses and other liabilities of $0.7 million, adverse changes in foreign currency translation adjustments of $0.9 million, partially offset by a decrease in accounts receivables of $5.1 million due to improved collection of receivables and a decrease in prepaid expenses and other current assets of $1.1 million).
Net cash provided by operating activities during fiscal year 2023 consisted of our net income (after excluding non-cash charges) of $36.8 million, a net reduction in operating assets and liabilities investments of $12.7 million, net interest paid of $0.2 million and taxes paid of $2.0 million.
Investing Activities
Net cash used in investing activities during fiscal year 2021 primarily consisted of capital expenditures of $8.7 million. Capital expenditures during the year included purchases of intangible assets of $4.0 million, which included internal-use software of $2.8 million as well as computer software, technology and other intangibles of $1.2 million, and cash paid to purchase property, plant and equipment of $4.6 million, which included in-vehicle devices of $4.2 million.
Net cash used in investing activities in fiscal year 2022 increased to $26.2 million from $8.7 million in fiscal year 2021. Net cash used in investing activities during fiscal year 2022 primarily consisted of capital expenditures of $26.2 million. Capital expenditures during fiscal year 2022 included purchases of intangible assets of $5.9 million and cash paid to purchase property, plant and equipment of $20.3 million, which included in-vehicle devices of $18.3 million.
Net cash used in investing activities in fiscal year 2023 increased to $28.8 million from $26.2 million in fiscal year 2022. Net cash used in investing activities during fiscal year 2023 primarily consisted of capital expenditures of $25.1 million and $3.7 million paid by MiX Telematics North America for the acquisition of Trimble’s FSM business, compared. Capital expenditures during fiscal year 2023 included purchases of intangible assets of $5.3 million and cash paid to purchase property, plant and equipment of $19.8 million, which included in-vehicle devices of $18.9 million.
Financing Activities
In fiscal year 2021, the cash used in financing activities of $5.2 million includes dividends paid of $5.4 million and $0.7 million from facilities repaid, offset by proceeds of $0.9 million from the issue of ordinary shares in relation to the exercise of stock options.
In fiscal year 2022, the cash used in financing activities of $5.1 million includes dividends paid of $5.9 million and ordinary shares repurchased of $3.0 million, offset by $3.9 million from facilities utilized.
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In fiscal year 2023, the cash from financing activities of $4.9 million includes $10.5 million from facilities utilized for working capital purposes in the Africa segment, offset by dividends paid of $5.2 million and ordinary shares repurchased of $0.4 million.
Credit Facilities
As of March 31, 2023, our principal sources of liquidity were net cash balances of $14.6 million (consisting of cash and cash equivalents of $29.9 million less short-term debt (bank overdraft) of $15.3 million) and unutilized borrowing capacity of $18.7 million available through our credit facilities. Our principal sources of credit are our facilities with Standard Bank of South Africa Limited (“Standard Bank”), Nedbank Limited and Investec Bank Limited (“Investec”).
Up until November 14, 2022, we had the following facilities under the facility letter with Standard Bank, an overdraft facility of R64.0 million (the equivalent of $3.6 million as of March 31, 2023), a working capital facility of R25.0 million (the equivalent of $1.4 million as of March 31, 2023) and a vehicle and asset finance facility of R8.5 million (the equivalent of $0.5 million as of March 31, 2023) that bore interest at South African Prime less 1.2% except for the working capital facility that bore interest at South African Prime less 0.25%.
On November 15, 2022, the Company concluded a second amendment to the credit agreement with Standard Bank, which entitles the Company to utilize a maximum amount of R70.0 million (the equivalent of $3.9 million as of March 31, 2023), in the form of a customer foreign currency account overdraft facility (the “CFC Overdraft Facility”). All other facilities under the facility letter with Standard Bank were replaced by the CFC Overdraft Facility. The CFC Overdraft Facility has no fixed renewal date and is repayable on demand. The CFC Overdraft Facility bears interest at the South African Prime interest rate less 1.2% per annum.
The Company also terminated the suretyship securing the Customer’s indebtedness (among other parties), to Standard Bank, which was signed by the Company and its subsidiaries: MiX Telematics Africa and MiX Telematics International Proprietary Limited. A new suretyship agreement was entered into providing that the Company and only one subsidiary being Mix Telematics International Proprietary Limited, binds themselves as surety(ies) and co-principal debtor(s) for the payment of all the present and future debts of any kind of the Company and Mix Telematics International Proprietary Limited to Standard Bank. The security release letter also provides that Standard Bank’s claims to any security furnished by the Company and its subsidiaries under the original suretyship agreement would be released upon signature of the new suretyship agreement.
We use this facility as part of our foreign currency hedging strategy. We draw down on this facility in the applicable foreign currency in order to fix the exchange rate on the existing balance sheet foreign currency exposure that we anticipate settling in that foreign currency. As of March 31, 2023, $3.0 million of the facility was utilized.
On June 29, 2022, the Company entered into a new credit facility agreement with Investec for a 364-day renewable committed general credit facility of R350 million ($22 million at a USD/ZAR exchange rate of $1:ZAR 16.1546), (the “Committed Facility”) and an uncommitted general credit facility of $10 million (the “Uncommitted Facility”).
Under the Committed Facility, the Company will pay a commitment fee charged at 30bps on any undrawn portion of the Committed Facility (plus VAT on such amount), calculated monthly and payable, free of deduction, monthly in arrears on the first business day of each month. The Uncommitted Facility is repayable on demand by Investec and a fee of 10bps per annum shall be charged on any undrawn portion of the Uncommitted Facility (plus VAT on such amount), calculated monthly and payable, free of deduction, monthly in arrears on the seventh business day of each month.
The loans under the Committed Facility bear interest at South African prime interest rate less 1.5% per annum and the loans under the Uncommitted Facility bear interest at overnight or daily negotiable rates, in each case which such interest shall accrue on all amounts outstanding under the Committed Facility or the Uncommitted Facility, as the case may be, payable monthly in arrears on the first business day of each month, or as otherwise specified in the Credit Agreement. Investec shall advise the Company of any changes to the applicable interest rate. As of March 31, 2023, $12.2 million of the facility was utilized. We will use this facility for working capital purposes.
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Our Investec credit facilities contain certain restrictive clauses, including without limitation, those limiting our and our guarantor subsidiaries’, as applicable, ability to, among other things, incur indebtedness, incur liens, or sell or acquire assets or businesses. These facilities are not subject to any financial covenants such as interest coverage or gearing ratios. Mix Telematics Africa (Pty) Ltd, Mix Telematics International (Pty) Ltd and Mix Telematics Enterprise SA (Pty) Ltd have issued guarantees in favour of Investec in terms of which they guarantee the performance by MiX Telematics Limited of all its obligations to Investec.
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Critical Accounting Policies and Estimates
Our consolidated financial statements are prepared in accordance with GAAP. Certain of our significant accounting policies and critical accounting estimates are summarized below. The preparation of consolidated financial statements in conformity with GAAP requires the use of estimates and assumptions that affect the amounts reported and disclosed. Significant estimates include, but are not limited to, allowances for doubtful accounts, the assessment of expected cash flows used in evaluating goodwill for impairment and income and deferred taxes. Our actual results could differ from those estimates, and such differences may be material to the consolidated financial statements. We evaluate our estimates and assumptions on an ongoing basis.
Allowance for doubtful accounts
The allowance for doubtful accounts on accounts receivables is calculated by considering all relevant information, internal and external, about the collectability of cash flows, including information about past events, current conditions, and reasonable and supportable forecasts of future economic conditions to appropriately reflect the risk of losses over the remaining contractual lives of the assets. Historical loss rates, calculated as actual losses over a period as a percentage of revenue, are adjusted for current conditions and management’s expectations about future economic conditions.
The allowance is measured on a collective basis where management groups their customers appropriately based on their credit risk characteristics.
The allowance for doubtful accounts is a valuation account and the asset’s carrying amount is reduced and the amount of the loss is recognized in the Consolidated Statements of Income. Subsequent recoveries, if any, are credited to the allowance. Actual write-downs are recorded when the asset is deemed uncollectible after all efforts to recover have yielded no results.
Goodwill
Goodwill is not amortized but is tested for possible impairment at least annually, or when circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying value. Goodwill is allocated to a reporting unit for the purpose of impairment testing. The carrying value of the reporting unit, to which goodwill has been allocated, is compared to its fair value, and a goodwill impairment charge is recognized for the amount (if any) by which the carrying value exceeds the fair value, limited to the amount of the goodwill.
The fair values of the reporting units are determined based on the use of pre-tax cash flow projections based on approved financial budgets covering a 5-year period. These cash flows take into account market-based assumptions and near-term expectations. The discount rates used were calculated using the capital asset pricing model. These rates reflect specific risks relating to the relevant reporting units. The growth rate has been determined based on the expected long-term inflation outlook.
No impairments of goodwill existed as of the most recent testing date, March 31, 2023 or the previous testing, March 31, 2022. Given the headroom that exists in the reporting units, we believe that a reasonable change in assumptions would not result in any goodwill impairments. The Europe reporting unit has been assessed to be the most sensitive to changes in assumptions. A simultaneous increase of 2.0% in discount rate and a decrease of 2.0% in terminal growth rate results in an impairment for the Europe reporting unit. For the Europe reporting unit the following should be noted that if the cash flows do not grow more than the historical average an impairment could be noted.
The changes in the carrying value of goodwill during fiscal year 2022 is only attributable to foreign currency translation adjustments, during fiscal year 2023 changes are attributable to foreign currency translation adjustments and the goodwill from the FSM acquisition (refer to note 3 to the consolidated financial statements for additional information regarding the acquisition).
Although there were no impairments of goodwill as of March 31, 2022 and 2023, significant judgement was exercised in determining the fair value of each reporting unit. In particular, to the extent that anticipated new contracts do not materialize and the business strategy does not come to fruition, or key personnel are not retained, the forecasts on which the impairment tests were performed could be negatively impacted.
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Taxation
We are subject to income taxes in numerous jurisdictions. During the process of determining our world-wide provision for income taxes, we are required to make judgements in respect of international tax matters, including transfer pricing and controlled foreign company legislation. Where applicable tax legislation is subject to interpretation, management makes assessments, based on expert tax advice, of the relevant tax that is more likely than not to be paid and provides accordingly.
Income taxes are accounted for under the asset and liability method. Income tax expense is recognized in the Consolidated Statements of Income, except to the extent that it relates to items recognized in other comprehensive income or directly in equity. We use the portfolio approach for releasing income tax effects from accumulated other comprehensive income.
The current income tax charge is calculated on the basis of the tax laws and tax rates enacted by the reporting date in the countries where we operate and generate taxable income. Interest, and penalties, incurred on the underpayment of income taxes is classified as interest expense, and administration expenses, respectively.
Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carryforwards. Deferred tax is measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. Uncertainty generated by the current economic environment may affect the valuation of our deferred tax assets over time. Our accounting for deferred tax balances represent management’s best estimate of future events that can be appropriately reflected in the accounting estimate.
Deferred tax liabilities arising on investments in domestic subsidiaries are not recognized to the extent that the investment can be recovered on a tax-free basis; and on investments in foreign subsidiaries to the extent that the undistributed earnings will be invested indefinitely or will be remitted in a tax-free liquidation.
Contingent consideration
Contingent consideration is classified as a liability and is remeasured to fair value at each reporting date until the contingency is resolved. Changes in fair value that are not measurement period adjustments are recognized in the Consolidated Statements of Income.
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ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
As a “smaller reporting company”, we are not required to provide the information required by this Item 7A.
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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The information concerning our consolidated financial statements, together with the reports of Deloitte & Touche (“Deloitte”) are presented at the beginning of page 94 of this Annual Report on Form 10-K.
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ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
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ITEM 9A. CONTROLS AND PROCEDURES
EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES
In connection with the preparation of this report, an evaluation was carried out by certain members of Company management, with the participation of the Chief Executive Officer and our Chief Financial Officer of the effectiveness of the Company’s disclosure controls and procedures (as defined in Securities and Exchange Commission’s (“SEC”) Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (“Exchange Act”)), as of March 31, 2021. Disclosure controls and procedures are designed to ensure that information required to be disclosed in reports filed or submitted under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to management, including the Chief Executive Officer and the Chief Financial Officer, to allow timely decisions regarding required disclosures.
Based on the evaluation performed, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective as of March 31, 2023.
MANAGEMENT’S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING
Management of the Company is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act. Our internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with GAAP and includes those policies and procedures that: (1) pertain to the maintenance of records that in reasonable detail accurately and fairly reflect our transactions and the dispositions of our assets; (2) provide reasonable assurance that our transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles and that our receipts and expenditures are being made only in accordance with appropriate authorizations; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material effect on our consolidated financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Under the supervision of and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, we assessed the effectiveness of our internal control over financial reporting as of March 31, 2023, using the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) in Internal Control—Integrated Framework (2013). Based on our evaluation under the framework, our management concluded that our internal control over financial reporting was effective as of March 31, 2023.
The Company’s independent registered public accounting firm, Deloitte & Touche, has audited the consolidated financial statements included in this Annual Report on Form 10-K, has also audited our internal control over financial reporting as of March 31, 2023, as stated in their audit report that follows below.
Previously Reported Material Weakness in Internal Control Over Financial Reporting
As disclosed in Item 9A. Controls and Procedures in our Annual Report on Form 10-K for the fiscal year ended March 31, 2022, we identified a material weakness in internal control related to the ineffective design and operation of business process level controls in the areas of management review of income tax, consignment stock and capitalization of internally generated software costs at the Company’s Africa segment.
Upon identification of the material weakness, we developed a remediation plan and implemented control design changes and/or refinements that improved and strengthened the operation of financial statement close controls. In particular, we:
•Appointed personnel and restructured the finance function;
•Redesigned where applicable, management’s review control descriptions to address the design and effectiveness of controls over income tax, consignment stock and the capitalization of software costs;
•Reviewed and implemented process and system functionality and automation enhancements;
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•Adopted formal off boarding and onboarding processes for staff in the finance function;
•Trained finance staff in executing finance functional tasks and executing controls;
•Assigned accountability for fulfilling finance tasks, control remediation efforts and the execution of controls; and
•Reviewed the retention and succession policies of key senior resources.
Based on the results of our testing of the procedures and controls, management concluded that as of March 31, 2023, the material weakness reported in fiscal year 2022 has been remediated.
Changes in Internal Control Over Financial Reporting
We have implemented a new ERP system in our Middle East, North America, Europe, Australia and Brazil operations, and plan to roll that out to our South African based operations. Although we do not believe this implementation have resulted in material changes to the control environment, we have implemented some control enhancements such as workflow approval. Except for the changes in connection with the remediation plan and the implementation of the ERP system described above, there have been no other changes in our internal control over financial reporting that occurred during the fiscal year ended March 31, 2023 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the stockholders and the Board of Directors of MiX Telematics Limited
Opinion on Internal Control over Financial Reporting
We have audited the internal control over financial reporting of MiX Telematics Limited and its subsidiaries (the “Company”) as of March 31, 2023, based on criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of March 31, 2023, based on criteria established in Internal Control — Integrated Framework (2013) issued by COSO.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated financial statements as of and for the year ended March 31, 2023, of the Company and our report dated June 22, 2023, expressed an unqualified opinion on those financial statements.
Basis for Opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying management’s report on internal control over financial reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
Definition and Limitations of Internal Control over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions
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are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
/s/ Deloitte & Touche
Deloitte & Touche
Registered Auditor
Johannesburg, South Africa
June 22, 2023
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ITEM 9B. OTHER INFORMATION
None.
ITEM 9C. DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS
Not applicable.
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PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
The information required under this item is incorporated herein by reference to our definitive proxy statement pursuant to Regulation 14A, to be filed with the Commission not later than 120 days after the close of our fiscal year ended March 31, 2023.
ITEM 11. EXECUTIVE COMPENSATION
The information required under this item is incorporated herein by reference to our definitive proxy statement pursuant to Regulation 14A, to be filed with the Commission not later than 120 days after the close of our fiscal year ended March 31, 2023.
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ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
The information required under this item is incorporated herein by reference to our definitive proxy statement pursuant to Regulation 14A, to be filed with the Commission not later than 120 days after the close of our fiscal year ended March 31, 2023.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
The information required under this item is incorporated herein by reference to our definitive proxy statement pursuant to Regulation 14A, to be filed with the Commission not later than 120 days after the close of our fiscal year ended March 31, 2023.
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
The information required under this item is incorporated herein by reference to our definitive proxy statement pursuant to Regulation 14A, to be filed with the Commission not later than 120 days after the close of our fiscal year ended March 31, 2023.
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ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
Financial Statements
The information concerning our financial statements, and Report of Independent Registered Public Accounting Firm required by this Item is incorporated by reference herein to the section of this Annual Report on Form 10-K in the section, entitled “Consolidated Financial Statements and Supplementary Data”.
Financial Statement Schedules
Schedule II — Valuation and Qualifying Accounts - The information concerning Schedule II — Valuation and Qualifying Account required by this Item is incorporated by reference herein to the section of this Annual Report on Form 10-K in the section entitled “Consolidated Financial Statements and Supplementary Data” on page 135 of that section.
Exhibits
| Exhibit number | Description | |||||||
| 3.1 | ||||||||
| 4.1 | ||||||||
| 4.2 | ||||||||
| 10.1* | ||||||||
| 10.2* | ||||||||
| 10.3* | ||||||||
| 10.4* | ||||||||
| 10.5 | ||||||||
| 10.5.1 | First Amendment to Existing Facility Letter, dated January 24, 2020, between The Standard Bank of South Africa Limited and the Company, filed as Exhibit 10.6.1 with the Company’s Annual Report on Form 10-K for the year ended March 31, 2020, filed on July 23, 2020 (File No. 001-36027), is incorporated herein by reference. | |||||||
| 10.5.2 | ||||||||
| 10.5.3 | ||||||||
| 10.5.4 | ||||||||
88
89
| Exhibit number | Description | |||||||
| 31.2 | ||||||||
| 32.1 | ||||||||
| 101 | The following consolidated financial statements from the Company’s Annual Report on Form 10-K for the year ended March 31, 2023, formatted in XBRL (Extensible Business Reporting Language): (i) Consolidated Balance Sheets (ii) Consolidated Statements of Income, (iii) Consolidated Statements of Comprehensive Income (Loss), (iv) Consolidated Statement of Changes in Redeemable Non-Controlling Interests and Stockholders’ Equity, (v) Consolidated Statements of Cash Flows, and (vi) Notes to Consolidated Financial Statements. | |||||||
| 101.INS | XBRL Instance Document | |||||||
| 101.SCH | XBRL Taxonomy Extension Schema Document | |||||||
| 101.CAL | XBRL Taxonomy Extension Calculation Linkbase Document | |||||||
| 101.DEF | XBRL Taxonomy Extension Definition Linkbase Document | |||||||
| 101.LAB | XBRL Taxonomy Extension Label Linkbase Document | |||||||
| 101.PRE | XBRL Taxonomy Extension Presentation Linkbase Document | |||||||
| 104 | Cover Page Interactive Data File (formatted as inline XBRL and contained in Exhibit 101). | |||||||
| * | Indicates management contract or compensatory plan. | ||||
| † | Certain schedules and similar attachments to this exhibit have been omitted pursuant to Item 601(a)(5) of Regulation S-K. Any omitted schedule or similar attachment will be furnished supplementally to the SEC upon request. | ||||
| § | Portions of this exhibit have been redacted pursuant to Item 601(b)(10)(iv) of Regulation S-K. An unredacted copy of the exhibit will be furnished supplementally to the SEC upon request. | ||||
| # | Certain locations of recovery teams, other operating details relating to the recovery teams and pricing terms contained in the agreement and within Annexure A (Services to be provided by the Contractor), Annexure D (Permitted clients of the Contractor) and Annexure E.1 (Helicopter Services) have been amended since the original execution of this agreement. The amended agreement and annexures do not contain information material to an investment or voting decision and such information is not otherwise disclosed in this exhibit or the Form 10-K. Accordingly, the amended agreement and annexures have been omitted. The Registrant hereby undertakes to furnish supplemental copies of the omitted agreement and annexures to the Securities and Exchange Commission or its staff upon request. | ||||
| ** | The certification attached as Exhibit 32 that accompanies this Annual Report on Form 10-K is not deemed filed with the SEC and is not to be incorporated by reference into any filing of the Company under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended, whether made before or after the date of this Annual Report on Form 10-K, irrespective of any general incorporation language contained in such filing. | ||||
90
ITEM 16. FORM 10-K SUMMARY
None.
91
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused and authorized the undersigned to sign this Annual Report on Form 10-K on its behalf.
MiX Telematics Limited
By: /s/ Stefan Joselowitz
Name: Stefan Joselowitz
Title: President and Chief Executive Officer
(Principal Executive Officer)
Date: June 22, 2023
POWER OF ATTORNEY
Know all persons by these presents, that each person whose signature appears below constitutes and appoints Stefan Joselowitz and Paul Dell, or either of them, as his or her true and lawful attorneys-in-fact and agents, with full power of substitution, for him or her and in his or her name, place and stead, in any and all capacities, to sign any and all amendments to this Annual Report on Form 10-K, and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, full power and authority to do and perform each and every act and thing requisite and necessary to be done in connection therewith as fully to all intents and purposes as he or she might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents, or their substitute or substitutes may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, this Annual Report on Form 10-K has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.
Signature Title Date
By: /s/ Stefan Joselowitz President and Chief Executive Officer
(Principal Executive Officer) June 22, 2023
Stefan Joselowitz
By: /s/ Paul Dell Vice President and Chief Financial Officer
(Principal Financial Officer) June 22, 2023
Paul Dell
By: /s/ Ian Jacobs Chair of the Board June 22, 2023
Ian Jacobs
By: /s/ Richard Bruyns Director June 22, 2023
Richard Bruyns
92
By: /s/ Charmel Flemming Director June 22, 2023
Charmel Flemming
By: /s/ Fikile Futwa Director June 22, 2023
Fikile Futwa
By: /s/ Charles Tasker Chief Operating Officer June 22, 2023
Charles Tasker
93
CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Index to the Consolidated Financial Statements
| Page | ||||||||
94
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the stockholders and the Board of Directors of MiX Telematics Limited
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of MiX Telematics Limited and subsidiaries (the “Company”) as of March 31, 2023 and 2022, the related consolidated statements of income, consolidated statements of comprehensive income/(loss), consolidated statements of changes in stockholders’ equity, and the consolidated statements of cash flows, for each of the three years in the period ended March 31, 2023, and the related notes and the schedules listed in the Index at Item 15 (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of March 31, 2023 and 2022, and the results of its operations and its cash flows for each of the three years in the period ended March 31, 2023, in conformity with accounting principles generally accepted in the United States of America.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’s internal control over financial reporting as of March 31, 2023, based on criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated June 22, 2023, expressed an unqualified opinion on the Company’s internal control over financial reporting.
Basis for Opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matter
The critical audit matter communicated below is a matter arising from the current-period audit of the financial statements that was communicated or required to be communicated to the audit committee and that (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.
Goodwill — Refer to Note 2 to the financial statements
Critical Audit Matter Description
The Company’s evaluation of goodwill for impairment involves the comparison of the fair value of each reporting unit to its carrying value. The Company used the discounted cash flow model to estimate fair value, which requires management to make significant estimates and assumptions related to discount rates and forecasts of future revenue and cash flows. Changes in these assumptions could have a significant impact on either the fair value, the amount of any goodwill impairment charge, or both. The Company’s goodwill balance was $39.2 million as of March 31, 2023, of which $8.1 million was allocated to the European reporting unit (“MiX Europe”). The fair value of MiX Europe exceeded its carrying value by 36.2% as of the measurement date and, therefore, no impairment was recognized.
95
We identified goodwill for MiX Europe as a critical audit matter because of the significant judgments made by management to estimate the fair value of MiX Europe. This required a high degree of auditor judgment, including the need to involve our fair value specialists, when performing audit procedures to evaluate the reasonableness of management’s estimates and assumptions related to selection of the discount rate and forecasts of future revenue and cash flows for MiX Europe.
How the Critical Audit Matter Was Addressed in the Audit
Our audit procedures related to the discount rate and forecasts of future revenue and operating cash flows used by management to estimate the fair value of MiX Europe included the following, among others:
a.We tested the effectiveness of controls over management’s goodwill impairment evaluation, including those over the determination of the fair value of MiX Europe such as controls related to management’s selection of the discount rate and forecasts of future revenue and cash flows.
b.We evaluated management’s ability to accurately forecast future revenue and cash flows by comparing actual results to management’s historical forecasts.
c.We evaluated the reasonableness of management’s forecasts by comparing the forecasts to:
•Historical revenue and cash flows;
•Internal communications to management and the Board of Directors; and
•The Company’s actual performance to certain of its peer companies. We compared the Company’s Enterprise Value over EBITDA multiple to those of its peers.
d.With the assistance of our fair value specialists, we evaluated the reasonableness of (1) the valuation methodology and (2) the discount rate by: testing the source information underlying the determination of the discount rate and the mathematical accuracy of the calculation.
e.Developed a range of independent estimates and compared those to the discount rate selected by management.
f.We have reviewed the disclosures in note 2 to the financial statements which contain the key assumptions utilized and we consider these to be appropriate.
/s/ Deloitte & Touche
Deloitte & Touche
Registered Auditor
Johannesburg, South Africa
June 22, 2023
We have served as the Company’s auditor since 2017.
96
MIX TELEMATICS LIMITED
CONSOLIDATED BALANCE SHEETS
(in thousands, except per share data)
| As of March 31, | ||||||||||||||
| 2022 | 2023 | |||||||||||||
| ASSETS | ||||||||||||||
| Current assets: | ||||||||||||||
| Cash and cash equivalents | $ | 33,738 | $ | 29,876 | ||||||||||
| Restricted cash | 981 | 781 | ||||||||||||
Accounts receivables, net of allowances for doubtful accounts of $5.4 million and $2.7 million, respectively | 25,092 | 24,194 | ||||||||||||
| Inventory, net | 3,356 | 4,936 | ||||||||||||
| Prepaid expenses and other current assets | 11,463 | 9,950 | ||||||||||||
| Total current assets | 74,630 | 69,737 | ||||||||||||
| Property, plant and equipment, net | 32,274 | 36,779 | ||||||||||||
| Goodwill | 44,434 | 39,258 | ||||||||||||
| Intangible assets, net | 20,460 | 21,895 | ||||||||||||
| Deferred tax assets | 3,768 | 2,090 | ||||||||||||
| Other assets | 4,988 | 6,804 | ||||||||||||
| Total assets | $ | 180,554 | $ | 176,563 | ||||||||||
LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||||||||
| Current liabilities: | ||||||||||||||
| Short-term debt | $ | 5,597 | $ | 15,253 | ||||||||||
| Accounts payables | 8,052 | 6,120 | ||||||||||||
| Accrued expenses and other liabilities | 19,610 | 21,486 | ||||||||||||
| Contingent consideration | — | 3,569 | ||||||||||||
| Deferred revenue | 6,692 | 5,295 | ||||||||||||
| Income taxes payable | 590 | 298 | ||||||||||||
| Total current liabilities | 40,541 | 52,021 | ||||||||||||
| Deferred tax liabilities | 8,972 | 12,357 | ||||||||||||
| Long-term accrued expenses and other liabilities | 4,344 | 3,368 | ||||||||||||
| Total liabilities | 53,857 | 67,746 | ||||||||||||
Stockholders’ equity: | ||||||||||||||
MiX Telematics Limited stockholders’ equity | ||||||||||||||
Preference shares: 100 million shares authorized but not issued | — | — | ||||||||||||
Ordinary shares: 605.2 million and 608.8 million no-par value shares issued as of March 31, 2022 and 2023, respectively | 64,390 | 64,001 | ||||||||||||
Less treasury stock at cost: 53.8 million shares as of March, 31, 2022 and March 31, 2023 | (17,315) | (17,315) | ||||||||||||
| Retained earnings | 79,709 | 79,024 | ||||||||||||
| Accumulated other comprehensive income/(loss) | 3,909 | (13,399) | ||||||||||||
| Additional paid-in capital | (4,001) | (3,499) | ||||||||||||
| Total MiX Telematics Limited stockholders’ equity | 126,692 | 108,812 | ||||||||||||
| Non-controlling interest | 5 | 5 | ||||||||||||
Total stockholders’ equity | 126,697 | 108,817 | ||||||||||||
| Total liabilities and stockholders’ equity | $ | 180,554 | $ | 176,563 | ||||||||||
The accompanying notes are an integral part of these consolidated financial statements.
97
MIX TELEMATICS LIMITED
CONSOLIDATED STATEMENTS OF INCOME
(in thousands, except per share data)
| For the year ended March 31, | ||||||||||||||||||||
| 2021 | 2022 | 2023 | ||||||||||||||||||
| Revenue | ||||||||||||||||||||
| Subscription | $ | 113,351 | $ | 123,573 | $ | 126,656 | ||||||||||||||
| Hardware and other | 13,543 | 19,721 | 18,337 | |||||||||||||||||
| Total revenue | 126,894 | 143,294 | 144,993 | |||||||||||||||||
| Cost of revenue | ||||||||||||||||||||
| Subscription | 33,414 | 36,683 | 40,073 | |||||||||||||||||
| Hardware and other | 10,451 | 15,176 | 14,054 | |||||||||||||||||
| Total cost of revenue | 43,865 | 51,859 | 54,127 | |||||||||||||||||
| Gross profit | 83,029 | 91,435 | 90,866 | |||||||||||||||||
| Operating expenses | ||||||||||||||||||||
| Sales and marketing | 11,344 | 15,436 | 17,194 | |||||||||||||||||
| Administration and other | 53,487 | 61,550 | 62,107 | |||||||||||||||||
| Total operating expenses | 64,831 | 76,986 | 79,301 | |||||||||||||||||
| Income from operations | 18,198 | 14,449 | 11,565 | |||||||||||||||||
| Other (expense)/income | (897) | (574) | 1,689 | |||||||||||||||||
| Net interest expense | 72 | 510 | 287 | |||||||||||||||||
| Interest income | 662 | 420 | 1,159 | |||||||||||||||||
| Interest expense | 734 | 930 | 1,446 | |||||||||||||||||
| Income before income tax expense | 17,229 | 13,365 | 12,967 | |||||||||||||||||
| Income tax expense | 2,634 | 4,418 | 8,445 | |||||||||||||||||
| Net income | 14,595 | 8,947 | 4,522 | |||||||||||||||||
| Less: Net income attributable to non-controlling interest | — | — | — | |||||||||||||||||
| Net income attributable to MiX Telematics Limited | $ | 14,595 | $ | 8,947 | $ | 4,522 | ||||||||||||||
| Net income per ordinary share | ||||||||||||||||||||
| Basic | $ | 0.03 | $ | 0.02 | $ | 0.01 | ||||||||||||||
| Diluted | $ | 0.03 | $ | 0.02 | $ | 0.01 | ||||||||||||||
| Net income per American Depository Share | ||||||||||||||||||||
| Basic | $ | 0.66 | $ | 0.41 | $ | 0.20 | ||||||||||||||
| Diluted | $ | 0.65 | $ | 0.40 | $ | 0.20 | ||||||||||||||
| Ordinary shares | ||||||||||||||||||||
| Weighted average | 549,415 | 551,923 | 552,603 | |||||||||||||||||
| Diluted weighted average | 560,624 | 563,958 | 556,058 | |||||||||||||||||
| American Depository Shares | ||||||||||||||||||||
| Weighted average | 21,977 | 22,077 | 22,104 | |||||||||||||||||
| Diluted weighted average | 22,425 | 22,558 | 22,242 | |||||||||||||||||
The accompanying notes are an integral part of these consolidated financial statements.
98
MIX TELEMATICS LIMITED
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME/(LOSS)
(in thousands)
| For the year ended March 31, | ||||||||||||||||||||
| 2021 | 2022 | 2023 | ||||||||||||||||||
| Net income | $ | 14,595 | $ | 8,947 | $ | 4,522 | ||||||||||||||
| Other comprehensive income/(loss) | ||||||||||||||||||||
| Foreign currency translation gains/(losses), net of tax | 12,994 | 1,985 | (17,308) | |||||||||||||||||
| Total comprehensive income/(loss) | 27,589 | 10,932 | (12,786) | |||||||||||||||||
| Less: Total comprehensive income/(loss) attributable to non-controlling interest | — | — | — | |||||||||||||||||
| Total comprehensive income/(loss) attributable to MiX Telematics Limited | $ | 27,589 | $ | 10,932 | $ | (12,786) | ||||||||||||||
The accompanying notes are an integral part of these consolidated financial statements.
99
MIX TELEMATICS LIMITED
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
(in thousands)
| Common Stock | Treasury Stock | Accumulated Other Comprehensive Income/(Loss) | Additional Paid-In Capital | Retained Earnings | Total MiX Telematics Limited Stockholders’ Equity | Non-Controlling Interest | Total Stockholders’ Equity | |||||||||||||||||||||||||||||||||||||||||||||||||
| Shares | Amount | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Balance as of April 1, 2020 | 600,934 | $ | 66,522 | $ | (17,315) | $ | (11,070) | $ | (6,599) | $ | 67,482 | $ | 99,020 | $ | 5 | $ | 99,025 | |||||||||||||||||||||||||||||||||||||||
| Total comprehensive income | — | — | — | 12,994 | — | 14,595 | 27,589 | — | 27,589 | |||||||||||||||||||||||||||||||||||||||||||||||
| Net income | — | — | — | — | — | 14,595 | 14,595 | — | 14,595 | |||||||||||||||||||||||||||||||||||||||||||||||
| Other comprehensive income | — | — | — | 12,994 | — | — | 12,994 | — | 12,994 | |||||||||||||||||||||||||||||||||||||||||||||||
| Issuance of common stock in relation to stock options and SARs exercised | 4,645 | 879 | — | — | — | — | 879 | — | 879 | |||||||||||||||||||||||||||||||||||||||||||||||
| Stock-based compensation | — | — | — | — | 1,273 | — | 1,273 | — | 1,273 | |||||||||||||||||||||||||||||||||||||||||||||||
| Dividends declared on ordinary shares | — | — | — | — | — | (5,367) | (5,367) | — | (5,367) | |||||||||||||||||||||||||||||||||||||||||||||||
| Balance as of March 31, 2021 | 605,579 | $ | 67,401 | $ | (17,315) | $ | 1,924 | $ | (5,326) | $ | 76,710 | $ | 123,394 | $ | 5 | $ | 123,399 | |||||||||||||||||||||||||||||||||||||||
| Total comprehensive income | — | — | — | 1,985 | — | 8,947 | 10,932 | — | 10,932 | |||||||||||||||||||||||||||||||||||||||||||||||
| Net income | — | — | — | — | — | 8,947 | 8,947 | — | 8,947 | |||||||||||||||||||||||||||||||||||||||||||||||
| Other comprehensive income | — | — | — | 1,985 | — | — | 1,985 | — | 1,985 | |||||||||||||||||||||||||||||||||||||||||||||||
| Issuance of common stock in relation to SARs exercised | 5,618 | — | — | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||
| Stock-based compensation | — | — | — | — | 1,325 | — | 1,325 | — | 1,325 | |||||||||||||||||||||||||||||||||||||||||||||||
| Dividends declared on ordinary shares | — | — | — | — | — | (5,948) | (5,948) | — | (5,948) | |||||||||||||||||||||||||||||||||||||||||||||||
| Ordinary shares repurchased and cancelled | (6,020) | (3,011) | — | — | — | — | (3,011) | — | (3,011) | |||||||||||||||||||||||||||||||||||||||||||||||
| Balance as of March 31, 2022 | 605,177 | $ | 64,390 | $ | (17,315) | $ | 3,909 | $ | (4,001) | $ | 79,709 | $ | 126,692 | $ | 5 | $ | 126,697 | |||||||||||||||||||||||||||||||||||||||
| Total comprehensive (loss)/income | — | — | — | (17,308) | — | 4,522 | (12,786) | — | (12,786) | |||||||||||||||||||||||||||||||||||||||||||||||
| Net income | — | — | — | — | — | 4,522 | 4,522 | — | 4,522 | |||||||||||||||||||||||||||||||||||||||||||||||
| Other comprehensive loss | — | — | — | (17,308) | — | — | (17,308) | — | (17,308) | |||||||||||||||||||||||||||||||||||||||||||||||
| Issuance of common stock in relation to SARs and RSUs exercised | 4,744 | — | — | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||
| Stock-based compensation | — | — | — | — | 502 | — | 502 | — | 502 | |||||||||||||||||||||||||||||||||||||||||||||||
| Dividends declared on ordinary shares | — | — | — | — | — | (5,207) | (5,207) | — | (5,207) | |||||||||||||||||||||||||||||||||||||||||||||||
| Ordinary shares repurchased and cancelled | (1,167) | (389) | — | — | — | — | (389) | — | (389) | |||||||||||||||||||||||||||||||||||||||||||||||
| Balance as of March 31, 2023 | 608,754 | $ | 64,001 | $ | (17,315) | $ | (13,399) | $ | (3,499) | $ | 79,024 | $ | 108,812 | $ | 5 | $ | 108,817 | |||||||||||||||||||||||||||||||||||||||
The accompanying notes are an integral part of these consolidated financial statements.
100
MIX TELEMATICS LIMITED
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
| For the year ended March 31, | ||||||||||||||||||||
| 2021 | 2022 | 2023 | ||||||||||||||||||
| Cash flows from operating activities: | ||||||||||||||||||||
| Net income | $ | 14,595 | $ | 8,947 | $ | 4,522 | ||||||||||||||
| Adjustments to reconcile net income to net cash provided by operating activities: | ||||||||||||||||||||
| Current income taxes | 6,953 | 4,937 | 2,379 | |||||||||||||||||
| Deferred income taxes | (4,319) | (519) | 6,066 | |||||||||||||||||
| Loss/(profit) on sale of property, plant and equipment | 13 | (36) | (25) | |||||||||||||||||
| Contingent consideration remeasurement | — | — | (504) | |||||||||||||||||
| Depreciation | 12,878 | 10,693 | 9,743 | |||||||||||||||||
| Amortization of intangible assets | 3,681 | 4,258 | 5,866 | |||||||||||||||||
| Amortization of deferred commissions | 3,533 | 3,566 | 4,276 | |||||||||||||||||
| Impairment of long-lived assets | 8 | 47 | 104 | |||||||||||||||||
| Net interest expense | 72 | 510 | 287 | |||||||||||||||||
| Stock based compensation costs | 1,273 | 1,325 | 502 | |||||||||||||||||
| Net foreign exchange losses/(gains) | 959 | 648 | (1,110) | |||||||||||||||||
| Change in allowance for doubtful accounts | 2,961 | 2,559 | 4,202 | |||||||||||||||||
| Write-down of inventory to net realizable value | 660 | 790 | 800 | |||||||||||||||||
| Net accrued expenses and other liabilities raised | 2,535 | 616 | 731 | |||||||||||||||||
| Other non-cash items | (245) | (223) | (519) | |||||||||||||||||
| Changes in operating assets and liabilities: | ||||||||||||||||||||
| Inventories | (498) | (1,037) | (2,380) | |||||||||||||||||
| Accounts receivables | 1,872 | (8,386) | (3,304) | |||||||||||||||||
| Prepaid expenses and other current assets | (1,589) | (2,341) | (1,195) | |||||||||||||||||
| Accounts payables | (2,529) | 1,340 | (3) | |||||||||||||||||
| Accrued expenses and other liabilities | 959 | 2,328 | 1,673 | |||||||||||||||||
| Deferred commissions | (2,251) | (3,399) | (7,042) | |||||||||||||||||
| Foreign currency translation adjustments on operating assets and liabilities | 2,482 | (32) | (898) | |||||||||||||||||
| Interest received | 641 | 404 | 733 | |||||||||||||||||
| Interest paid | (311) | (400) | (911) | |||||||||||||||||
| Income tax paid | (5,761) | (7,193) | (2,045) | |||||||||||||||||
| Net cash provided by operating activities | 38,572 | 19,402 | 21,948 | |||||||||||||||||
| Cash flows from investing activities: | ||||||||||||||||||||
| Acquisition of property, plant and equipment – in-vehicle devices | (4,232) | (18,335) | (18,868) | |||||||||||||||||
| Acquisition of property, plant and equipment –other | (398) | (1,985) | (946) | |||||||||||||||||
| Proceeds from the sale of property, plant and equipment | 4 | 60 | 71 | |||||||||||||||||
| Acquisition of intangible assets | (4,024) | (5,897) | (5,307) | |||||||||||||||||
| Cash paid for business combination | — | — | (3,739) | |||||||||||||||||
| Net cash used in investing activities | (8,650) | (26,157) | (28,789) | |||||||||||||||||
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| Cash flows from financing activities: | ||||||||||||||||||||
| Proceeds from issuance of ordinary shares in relation to stock options, SARs and RSUs exercised | 879 | — | — | |||||||||||||||||
| Cash paid for ordinary shares repurchased | — | (3,011) | (389) | |||||||||||||||||
| Cash paid on dividends to MiX Telematics stockholders | (5,359) | (5,929) | (5,197) | |||||||||||||||||
| Movement in short-term debt | (729) | 3,873 | 10,544 | |||||||||||||||||
| Net cash (used in)/from financing activities | (5,209) | (5,067) | 4,958 | |||||||||||||||||
| Net increase/(decrease) in cash and cash equivalents, and restricted cash | 24,713 | (11,822) | (1,883) | |||||||||||||||||
| Cash and cash equivalents, and restricted cash at the beginning of the year | 18,652 | 46,343 | 34,719 | |||||||||||||||||
| Effect of exchange rate changes on cash and cash equivalents, and restricted cash | 2,978 | 198 | (2,179) | |||||||||||||||||
| Cash and cash equivalents, and restricted cash at the end of the year | $ | 46,343 | $ | 34,719 | $ | 30,657 | ||||||||||||||
The accompanying notes are an integral part of these consolidated financial statements.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Nature of the Business
MiX Telematics Limited and its consolidated subsidiaries (“the Company”) is a global provider of connected fleet and mobile asset solutions delivered as Software-as-a-Service (“SaaS”). The Company’s solutions enable customers to manage, optimize and protect their investments in commercial fleets, mobile assets or personal vehicles. The Company’s solutions enable a wide range of customers, from large enterprise fleets to small fleet operators and consumers, to reduce fuel and other operating costs, improve efficiency, enhance regulatory compliance, promote driver safety, manage risk and mitigate theft. The Company’s solutions mostly rely on our proprietary, highly scalable technology platforms, which allows it to collect, analyze and deliver information based on data from customers’ vehicles. Using intuitive, web-based interfaces, reports or mobile applications, the Company’s fleet customers can access large volumes of real-time and historical data, monitor the location and status of their drivers and vehicles and analyze a wide number of key metrics across their fleet operations.
MiX Telematics Limited is a public company incorporated and domiciled in South Africa. The Company’s ordinary shares are publicly traded on the Johannesburg Stock Exchange (JSE: MIX) and its American Depositary Shares are listed on the New York Stock Exchange (NYSE: MIXT). The address of the Company’s principal executive office is 750 Park of Commerce Boulevard, Suite 310, Boca Raton, Florida, 33487.
2. Summary of significant accounting policies
The principal accounting policies applied in the preparation of these consolidated financial statements are set out below. These accounting policies have been consistently applied to all the years presented, unless otherwise stated.
Basis of preparation and consolidation
The Company’s consolidated financial statements for the year ended March 31, 2023 are prepared in accordance with generally accepted accounting principles in the United States (“GAAP”) and should be read in conjunction with the accompanying notes thereto. All subsidiaries have been consolidated, including variable interest entities (“VIEs”) of which the Company is deemed to be the primary beneficiary. Inter-company transactions, balances and unrealized gains on transactions between group companies are eliminated. Unrealized losses are also eliminated except to the extent the transaction provides evidence of an impairment of the transferred asset. Accounting policies of subsidiaries have been adjusted to ensure consistency with the policies adopted by the Company. All subsidiaries have the same reporting dates as the Company.
Use of estimates
The preparation of consolidated financial statements in conformity with GAAP requires the use of estimates and assumptions that affect the amounts reported and disclosed. Significant estimates include, but are not limited to, fair values of assets acquired and liabilities assumed from the business acquired, fair value measurement of contingent consideration, allowances for doubtful accounts, the assessment of expected cash flows used in evaluating goodwill and long-lived assets for impairment, the amortization period for deferred commissions, the determination of useful lives of the Company’s customer relationships, contingencies, the classification of devices and other hardware as in-vehicle devices (equipment) versus inventory based on the future expectation of the different types of customer contracts, income and deferred taxes, unrecognized tax benefits and valuation allowances on deferred tax assets. Actual results could differ from those estimates, and such differences may be material to the consolidated financial statements.
We have considered the impact of rising inflation, fuel prices, global politics, sanctions and the impact thereof on global trade on the estimates and assumptions used. As of March 31, 2023, we have taken into account the impact of the above on goodwill sensitivities and impairment assessments. However, future changes in economic conditions could have an impact on future estimates and judgements used.
Revenue from contracts with customers
Significant judgments
Revenue is recognized upon transfer of control of distinct promised products and/or services to customers in an amount that reflects the consideration that the Company expects to receive in exchange for those products and/or services. The Company enters into contracts that include the supply of fleet and mobile asset management equipment. For such contracts, the Company utilizes significant judgment to determine whether control of the equipment has transferred to the customer, and in instances where it does, it recognizes revenue in accordance with Revenue from Contracts with Customers (“ASC 606”). When control of the equipment does not transfer to the customer, which is when legal title does not transfer to the customer, our judgement is that the customer does not have the right to direct the use of the equipment when the customer does not operate the equipment
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or make any significant decisions about its use. In these instances, the Company uses the equipment to provide fleet and mobile asset management services to the customer. Accordingly, these arrangements, which comprise virtually all of the transactions in which legal title does not pass to the customer, are not within the scope of ASC 842, Leases (“ASC 842”). Instead, for such contracts we have concluded that they are service contracts comprising a single performance obligation, and revenue is recognized over time pursuant to ASC 606.
Recognition and measurement
The Company provides fleet and mobile asset management solutions to its customers, and its principal revenue streams are (1) Subscription and (2) Hardware and other. Subscription revenue is recognized over time and hardware and other revenue is recognized at a point-in-time.
To provide services to customers, a device is required which collects and transmits information collected from the vehicle or other asset. Fleet customers may also obtain other items of hardware, virtually all of which are functionally dependent on the device. Some customers obtain control of the device and other hardware (where legal title transfers to the customer); while other customers do not (where legal title remains with the Company). A contract arises on the acceptance of a customer’s purchase order, which is typically executed in writing.
In instances where the customer obtains control of the device and other hardware, which is typically upon installation or delivery to the customer, the device, the other hardware, the installation thereof and the service are each accounted for as separate performance obligations. The total transaction price is allocated to each performance obligation using relative stand-alone selling prices. Revenue allocated to the device and other hardware is recognized upon delivery, and revenue allocated to installation is recognized once the installation is complete, since installation is completed within a day. Revenue related to the service performance obligation (subscription) is recognized on a straight-line basis over the expected contractual term, since we consistently deliver telematics services on a continuous basis over that period.
In instances where the customer does not obtain control of the device and other hardware, which is functionally dependent on the device, there is only a single performance obligation, namely the service. The customer is not able to direct the use of these items, and accordingly these contracts do not contain leases. In these instances, the devices and other hardware are used by the Company to provide the services. The total revenue from these contracts is recognized as subscription revenue on a straight-line basis over the expected contractual term, since we consistently deliver telematics services on a continuous basis over that period.
Revenue is presented net of discounts, value added tax, returns and after eliminating sales within the Company.
The Company distributes devices and other hardware to certain small fleet operators and consumers through distributors. Distributors act as agents and hardware revenue is only recognized when the distributor sells the hardware unit to the end customer. Once a unit is sold to a customer, the customer enters into a service agreement directly with the Company. The obligation to supply the service and the credit risk rests with the Company. The subscription revenue is recognized when the service is rendered.
The Company also sells hardware to motor vehicle dealerships for fitment into their vehicle trading stock. These dealerships purchase the hardware from the Company and are considered to act as a principal in the contract because they obtain title to the hardware, bear the risks and rewards of ownership and accordingly control the hardware purchased. The buyer of the vehicle then enters into a service-only contract with the Company. Revenue is recognized upon sale of the hardware to the dealership and subscription revenue is recognized as the services are provided to the customer.
The Company distributes devices and other hardware to enterprise fleet customers through value-added resellers. Value-added resellers are considered to act as a principal for the sale of hardware to the end customer, and revenue is recognized by the Company upon sale of the hardware unit to the resellers. Value-added resellers are also considered to act as a principal for the provision of the service to end customers because, even though the resellers do not provide the service themselves, the resellers control the right to receive the service before that right is transferred to the end customer, the resellers have the primary responsibility for fulfilling the promise to provide the service to the end customer, and the resellers have full discretion in establishing the prices charged to the end customer. Accordingly, subscription revenue is recognized as the service is provided to the resellers.
Contract liabilities (deferred revenue)
Timing of revenue recognition may differ from the timing of invoicing customers or collecting payments from customers. Typically, corporate customers pay in arrears, while consumer customers pay in advance.
When customers are invoiced in advance for subscription services that will be provided over periods of more than one month, or pay in advance of service periods of more than one month, deferred revenue liabilities, or contract liabilities, are recorded.
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In all other instances, the Company has a right to consideration for subscription services from customers in an amount that corresponds directly with the value to customers of the Company’s performance completed to date. Therefore, revenue is recognized for the amount to which the Company has a right to invoice as a practical expedient. The transaction price estimated therefore does not include any estimated amounts of variable consideration that are constrained. Estimates of variable consideration constrained may include fixed or variable price escalations based on an index; amounts charged for de-and-re-installations, installation cancellations, wasted time and waiting time and amounts charged for actual data usage and/or actual satellite access, amongst others. These estimates will simply be recognized as revenue as and when they occur. The future subscription services will be provided over varying periods from 1 to 60 months.
Contracts for which the Company receives a payment for a time period which is more than 12 months in advance are considered to comprise a significant financing component. Interest expense is accrued on the deferred revenue liability. This results in the revenue being measured at the future value of the payments received.
Deferred commissions
Commissions incurred to acquire contracts are capitalized and amortized, unless the amortization period is 12 months or less. The commission capitalized is attributed to the specific performance obligations in the related contract. Commission is considered commensurate with respect to a particular contract when equivalent/comparable commission is payable upon the extension or renewal of such a contract or upon the customer entering into a new contract. To the extent commission capitalized is commensurate, the commission attributable to service will be amortized over the minimum contractual period or, if shorter, the expected life of the contract. To the extent it is not commensurate, the commission capitalized that is attributable to service is amortized over the expected life of the contract. Typically, with regard to month-to-month contracts, commission payable is not considered commensurate for such contracts because no commission is payable as and when the customer extends each month by not giving notice. Accordingly, commission incurred on such contracts that is attributable to service is amortized over the expected life of the contract taking account of expected extensions/renewals. Commission capitalized that is attributable to hardware or installation is amortized in full at the time the related hardware, or installation, revenue is recognized.
Recurring commission is commission which is payable for each month the customer remains with the Company. The amount capitalized reflects the total commission payable over the minimum contractual period or, if shorter, the expected life of the contract, together with the effect of the time value of money, where significant.
As of March 31, 2022 and 2023, deferred commissions amounted to $4.1 million and $6.0 million respectively, which are included within Other assets on the Balance Sheet.
Amortization expense of external commissions capitalized is recognized in cost of sales, while that of internal commissions earned by the Company’s sales personnel is recognized in sales and marketing costs. Commissions not capitalized under the 12-month practical expedient are also classified in the same manner.
Foreign currency
Functional and reporting currency
Each subsidiary is consolidated by translating its assets, liabilities and results into the functional currency of its immediate parent company, and subsequently the consolidated position, determined in South African Rand, is translated into U.S. Dollars (reporting currency). Assets and liabilities are translated into U.S. Dollars using the exchange rates in effect at the balance sheet date. Equity items are translated at historical exchange rates, while income and expense items are translated using average exchange rates for the period. Foreign currency translation adjustments are reported in stockholders’ equity as a component of accumulated other comprehensive income/loss until disposal.
The movement in the foreign currency translation adjustments is as follows (in thousands):
| As of March 31, | ||||||||||||||
| 2022 | 2023 | |||||||||||||
| Cumulative foreign currency translation adjustments, beginning of year | $ | 1,924 | $ | 3,909 | ||||||||||
| Foreign currency translation gains/(losses) for the year, net of tax | 1,985 | (17,308) | ||||||||||||
| Cumulative foreign currency translation adjustments, end of year | $ | 3,909 | $ | (13,399) | ||||||||||
Transactions and balances
Transactions in foreign currencies are initially recorded by the Company and its subsidiaries in their respective functional currencies using the exchange rates at the dates of the transactions. Foreign currency monetary assets and liabilities are translated at exchange rates in effect at the balance sheet date. All resulting foreign exchange gains and losses are recognized in Other income/expense in the Statement of Income. However, gains and losses arising on long-term monetary assets held by a
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group entity in a foreign subsidiary for which settlement is neither planned nor anticipated within the foreseeable future, form part of the net investment of the foreign operation. These foreign exchange gains and losses are recognized as part of the foreign currency translation adjustments in accumulated other comprehensive income/loss until disposal.
Financial Assets
Cash and cash equivalents
Cash and cash equivalents comprise cash on hand and deposits held on call with banks; all of which are available for use by the Company and have an original maturity of less than three months.
Restricted cash
Restricted cash comprises deposits backing guarantees issued by financial institutions on behalf of the Company in respect of the Company’s obligations under certain lease, supply and other agreements, and cash held by MiX Telematics Enterprise BEE Trust (a VIE which is consolidated). Cash held by the Trust is to be used solely for the benefit of its beneficiaries. As at March 31, 2022 and 2023, the cash held by the Trust comprised $0.7 million and $0.6 million, respectively.
Accounts receivables
Accounts receivables are amounts due from customers for goods sold or services performed in the ordinary course of business. Since the terms of payment are not more than 12 months, accounts receivables are recognized initially at their transaction price. Subsequent to initial recognition, accounts receivables are measured at amortized cost using the effective interest method, less an allowance for doubtful accounts, which reflects expected credit losses.
Allowance for doubtful accounts
The allowance for doubtful accounts on accounts receivables is calculated by considering all relevant information, internal and external about the collectability of cash flows, including information about past events, current conditions, and reasonable and supportable forecasts of future economic conditions to appropriately reflect the risk of losses over the remaining contractual lives of the assets. Historical loss rates, calculated as actual losses over a period as a percentage of revenue, are adjusted for current conditions and management’s expectations about future economic conditions.
The allowance is measured on a collective basis where management groups their customers appropriately based on their credit risk characteristics.
The allowance for doubtful accounts is a valuation account and the asset’s carrying amount is reduced and the amount of the loss is recognized in the Consolidated Statements of Income. Subsequent recoveries, if any, are credited to the allowance. Actual write-downs are recorded when the asset is deemed uncollectible after all efforts to recover have yielded no results.
Loans to external parties
Loans to external parties are recognized initially at fair value, and subsequently at amortized cost using the effective interest method, less expected credit losses over the lifetime of the loan.
Expected credit losses are determined using management’s estimate of the probability of default and the value of the underlying security. Loans to external parties are included within Other assets on the Consolidated Balance Sheet.
Concentration of Credit Risk
Credit risk arises from restricted cash, cash and cash equivalents as well as credit exposures to customers and loans to external parties. The Company analyses the credit risk for each of its new customers based on predefined requirements before standard payment and delivery terms and conditions are offered. An allowance for doubtful accounts is provided for individual accounts. Management regularly reviews receipts and the fair value of loans to external parties. Expected credit losses are provided for accordingly. Cash investments are only placed with reputable financial institutions. Management believes that financial institutions that hold the Company’s deposits are financially credit worthy and, accordingly, minimal credit risk exists with respect to those balances.
Fair value measurements
Other than the contingent consideration, the Company has no financial assets or liabilities that are measured at fair value on a recurring basis. The carrying amounts of the Company’s financial instruments, except for loans to external parties, approximate their fair values due to their short-term nature. The fair value of the loans to external parties is determined using unobservable market data (Level 3 inputs), that represent management’s estimate of current interest rates that a commercial lender would charge the borrowers. The fair value of the contingent consideration is categorized as a Level 3 fair value, based on the inputs in a discounted cash flow valuation.
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When certain triggering events occur, the Company is required to assess non-financial assets for impairment. When impaired, non-financial assets are written down to fair value. The Company uses valuation approaches that maximize the use of observable inputs and minimize the use of unobservable inputs to the extent possible. The Company determines fair value based on assumptions that market participants would use in pricing the asset in the principal or most advantageous market.
Fair value is determined in accordance with ASC 820, Fair Value Measurement and is categorized as follows:
Level 1: Quoted prices (unadjusted) in active markets for identical assets or liabilities;
Level 2: Inputs other than quoted prices included within level 1 that are observable for the asset or liability, either directly (that is, as prices) or indirectly (that is, derived from prices); and
Level 3: Inputs for the asset or liability that are not based on observable market data (that is, unobservable inputs).
Inventories
Inventories comprise of components and finished goods which are stated at the lower of cost and net realizable value. Cost is determined using a first-in, first-out, actual cost or weighted average cost basis. The cost of inventories includes the cost of manufacturing as charged by third parties and excludes borrowing costs. Net realizable value is the estimated selling price in the ordinary course of business less reasonably predictable costs of completion, disposal and transportation, and is based upon assumptions about future demand and market conditions. Impairments of inventory are not subsequently reversed. During the years ended March 31, 2021, 2022 and 2023, $0.7 million, $0.8 million and $0.8 million was recognized, respectively, as a charge in cost of sales as a result of the write-down of inventory to net realizable value.
Inventories comprise of the following (in thousands):
| As of March 31, | |||||||||||
| 2022 | 2023 | ||||||||||
| Components | $ | — | $ | 3,131 | |||||||
| Finished goods | 4,744 | 3,146 | |||||||||
| Total inventories | 4,744 | 6,277 | |||||||||
| Less: Provision for impairment | (1,388) | (1,341) | |||||||||
| Inventory, net | $ | 3,356 | $ | 4,936 | |||||||
Property, plant and equipment
Property, plant and equipment are stated at historical cost less accumulated depreciation and any accumulated impairment losses. Historical cost includes all expenditure directly attributable to the acquisition of the items of property, plant and equipment. Subsequent costs are included in the asset’s carrying amount or recognized as a separate asset, as appropriate, only when it is probable that future economic benefits associated with the item will flow to the Company and the cost of the item can be measured reliably. Repairs and maintenance are charged to the Consolidated Statements of Income in the reporting period in which they are incurred.
The cost of in-vehicle devices installed in vehicles (including installation and shipping costs) as well as the cost of uninstalled in-vehicle devices, are capitalized as property, plant and equipment. The Company depreciates installed in-vehicle devices on a straight-line basis over their expected useful lives, commencing upon installation, whereas uninstalled in-vehicle devices are not depreciated until installed. The related depreciation expense is recorded as part of cost of sales in the Consolidated Statements of Income. Depreciation is calculated using the straight-line method to reduce the cost of the asset to its residual value over its estimated useful life, as follows:
| Plant and equipment | 1 - 8 years | ||||
| Motor vehicles | 3 - 7 years | ||||
| Furniture, fixtures and equipment | 1 - 10 years | ||||
| Computer and radio equipment | 1 - 7 years | ||||
| In-vehicle devices installed | 1 - 8 years | ||||
The assets’ residual values and useful lives are reviewed, and adjusted if appropriate, at the end of each reporting period.
Gains or losses on disposal or retirement are recognized within Other income/expenses in the Consolidated Statements of Income.
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Leases
The Company as a lessee
The Company recognizes a right-of-use asset and a lease liability at the lease commencement date for all leases except for those that have a lease term of 12 months or less and do not contain a purchase option that is reasonably certain to be exercised. The lease payments associated with these leases are recognized as an expense on a straight-line basis over the lease term.
Right-of use assets are initially measured at cost, which comprises the initial amount of the related lease liability adjusted for any lease payments made at or before the commencement date, plus any initial direct costs incurred, less any lease incentives received.
All of the Company’s leases which are capitalized are classified as operating leases. This means that the right-of-use asset is depreciated in such a manner, that together with the interest charge on the lease liability, the Company achieves a straight-line total lease expense over the lease period.
Lease payments included in the measurement of the lease liability comprise the following:
•fixed payments; and
•lease payments in an optional renewal period if the Company is reasonably certain to exercise an extension option.
The lease liability is measured at commencement based on the present value of lease payments over the lease term using the relevant group entity’s incremental borrowing rate at inception of the lease. The lease liability is remeasured when the Company changes its assessment of whether an extension option will be exercised, when a termination notice is served, or when there are other changes to the terms of the lease such as rent concessions or an extension to the lease term that was not initially catered for in the lease agreement.
When the lease liability is remeasured, a corresponding adjustment is made to the carrying amount of the right-of-use asset. The adjustment is recorded in the Consolidated Statements of Income once the carrying amount of the right-of-use asset has been reduced to zero.
The Company presents right-of-use assets within Property, plant and equipment, and lease liabilities within Accrued expenses and other liabilities, on the Consolidated Balance Sheets.
Goodwill
Goodwill is tested for possible impairment at least annually, or when circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying value. Qualitative factors are first assessed to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying value. Goodwill is allocated to a reporting unit for the purpose of impairment testing. If it is determined that it is more likely than not that the fair value of a reporting unit is less than its carrying value, the carrying value of the reporting unit, to which goodwill has been allocated, is compared to its fair value, and a goodwill impairment charge is recognized for the amount (if any) by which the carrying value exceeds the fair value, limited to the amount of the goodwill. No impairments of goodwill existed as of the most recent testing date of March 31, 2023 or the previous testing date of March 31, 2022.
Reconciliation of Total Goodwill
The following table is a reconciliation of the carrying amount of goodwill at the beginning and end of the reporting period:
| As of March 31, | |||||||||||
| 2022 | 2023 | ||||||||||
| Goodwill | |||||||||||
| Opening balance | $ | 43,938 | $ | 44,434 | |||||||
| Business acquired | — | 1,441 | |||||||||
| Foreign currency translation difference | 496 | (6,617) | |||||||||
| Balance as of March 31 | $ | 44,434 | $ | 39,258 | |||||||
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The allocation of goodwill to reportable segments is as follows (in thousands):
| As of March 31, | ||||||||||||||
| 2022 | 2023 | |||||||||||||
| Central Services Organization | $ | 7,116 | $ | 5,736 | ||||||||||
| Europe | 8,591 | 8,078 | ||||||||||||
| Middle East and Australasia | 4,365 | 4,364 | ||||||||||||
| Africa | 24,362 | 19,639 | ||||||||||||
| Americas | — | 1,441 | ||||||||||||
| $ | 44,434 | $ | 39,258 | |||||||||||
Sensitivity of goodwill to impairment as of March 31, 2023 was as follows:
| Central Services Organization | Africa | Europe | Middle East and Australasia | Americas | ||||||||||||||||||||||||||||
| Fair value of reporting unit exceeded its carrying amount by | 343.8 | % | 227.5 | % | 36.4 | % | 151.6 | % | 45.8 | % | ||||||||||||||||||||||
| Post-tax discount rate used to determine fair value | 15.2 | % | 15.2 | % | 11.5 | % | 12.4 | % | 11.2 | % | ||||||||||||||||||||||
| Growth rate used to extrapolate cash flow beyond the budget period | 5.0 | % | 5.0 | % | 2.7 | % | 3.0 | % | 3.0 | % | ||||||||||||||||||||||
| The following mutually exclusive changes will result in nil headroom | ||||||||||||||||||||||||||||||||
| Post-tax discount rate applied to the expected cash flow projections | 35.7 | % | 29.9 | % | 14.4 | % | 22.8 | % | 14.0 | % | ||||||||||||||||||||||
| Decrease in the cash flow projections of | 77.5 | % | 69.5 | % | 26.7 | % | 60.2 | % | 31.4 | % | ||||||||||||||||||||||
If the growth rate in any reporting entity is changed to zero, this does not result in any impairment. Although there were no impairments of goodwill as of March 31, 2023, significant judgement was exercised in determining the fair value of each reporting unit. In particular, to the extent that anticipated new contracts do not materialize and the business strategy does not come to fruition, or key personnel are not retained, the forecasts on which the impairment tests were performed could be negatively impacted. The Europe reporting unit has been assessed to be the most sensitive to changes in assumptions. A simultaneous increase of 2.0% in discount rate and a decrease of 2.0% in terminal growth rate results in an impairment for the Europe reporting unit. For the Europe reporting unit the following should be noted that if the cash flows do not grow more than the historical average an impairment could be noted.
Intangible assets
Patents and trademarks
Patents and trademarks acquired in a business combination are recognized at fair value at the acquisition date. Patents and trademarks have a finite useful life and are subsequently carried at cost less accumulated amortization and accumulated impairment losses. Amortization is calculated using the straight-line method to allocate the cost of patents and trademarks over their estimated useful lives which range from 3 to 10 years.
Customer relationships
Customer relationships acquired in a business combination are recognized at fair value at the acquisition date. Customer relationships have a finite useful life and are subsequently carried at cost less accumulated amortization and accumulated impairment losses. Amortization is calculated over the expected useful life of the customer relationship ranging from 1 to 10 years and reflects the pattern in which future economic benefits of the customer relationship are expected to be generated. The useful life principally reflects management’s view of the average economic life of the customer base and is assessed by reference to factors such as customer churn rates.
Internal-use software and technology
The Company capitalizes as intangible assets, internal-use software acquired or developed solely to meet the Company’s internal needs. Costs, excluding general and administrative costs such as general overheads, legal, research, business process engineering and data conversion costs, are capitalized from the date on which management implicitly or explicitly authorizes, or commits to fund, the project, and it is probable that the project will be completed and the software will perform the intended
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function (application development stage). All costs incurred during the preliminary development stage are expensed. Capitalization ceases when the project is substantially complete and the software is ready for its intended use.
Costs, including annual licenses, associated with maintaining computer software programs, and training costs are expensed as incurred. Costs incurred for upgrades and enhancements (modifications to existing internal-use software that provides additional functionality) are capitalized during the application development stage.
Software capitalized is amortized on a straight-line basis over its estimated useful life ranging from 1 to 20 years, commencing on the date when the software is ready for its intended use.
Computer software for external use
Computer software for external use refers to the firmware that is developed by the Company for the devices and other hardware provided to its customers. The costs of developing firmware are expensed as incurred prior to the establishment of its technological feasibility, from which point the development costs are capitalized and recognized as intangible assets. For the periods presented, technological feasibility could only be demonstrated shortly before the release of the firmware, and as a result, the development costs that meet the requirements for capitalization are not material.
Impairment of long-lived assets
Intangible assets that are not ready for use are not subject to amortization but are assessed annually for impairment or more frequently if events or changes in circumstances indicate that they might be impaired.
Long-lived assets that are subject to amortization or depreciation are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable.
An asset is written down immediately to its fair value if its carrying amount is greater than its future undiscounted cash flows. Recognized impairment losses are not reversed.
For the purposes of assessing impairment, long-lived assets are grouped with other assets and liabilities at the lowest level for which identifiable cash flows are largely independent of the cash flows of other assets and liabilities.
Impairment losses recognized during the years ended March 31, 2021, 2022 and 2023 were $0.1 million or less for each year.
Contingent consideration
Contingent consideration is classified as a liability and is remeasured to fair value at each reporting date until the contingency is resolved. Changes in fair value that are not measurement period adjustments are recognized in the Consolidated Statements of Income.
Common stock
Incremental external costs directly attributable to the issuance of new shares or the exercise of stock options are shown in equity as a deduction, net of tax, from the proceeds.
If a Group company purchases the Company’s equity instruments (treasury stock), then the consideration paid, including any directly attributable incremental costs (net of income taxes) is deducted from equity attributable to ordinary shareholders of the Company as treasury stock until the shares are canceled or reissued. If such ordinary shares are subsequently reissued, then any consideration received, net of any directly attributable incremental transaction costs and the related income tax effects, is included in equity attributable to ordinary shareholders of the Company. MiX Telematics Investments Proprietary Ltd (“MiX Investments”), a wholly owned subsidiary of the Company, holds 53,816,750 of the Company’s ordinary shares of no par value. These shares are held as treasury stock.
Share repurchases
On May 23, 2017, the Board approved a share repurchase program of up to R270 million (equivalent of $15.0 million as of March 31, 2023) under which the Company could repurchase its ordinary shares, including ADSs. On December 3, 2021, the Board approved an increase to the share repurchase program under which the Company may repurchase ordinary shares, including ADSs. Post this increase, and after giving effect to shares already purchased under the program as at December 2, 2021, the Company could repurchase additional shares with a cumulative value of R160 million ($10.0 million). The total value of the whole share repurchase program post the December 3, 2021 increase is R396.5 million ($24.9 million). Subsequent to the approved increase in the share repurchase program shares with a value of R44.7 million (the equivalent of $2.5 million as of March 31, 2023) were repurchased during fiscal year 2022. During fiscal year 2023 shares with a value of R6.6 million (the equivalent of $0.4 million as of March 31, 2023) were repurchased under the share repurchase program. Additional shares to the value of R108.7 million (the equivalent of $6.0 million as of March 31, 2023) may still be repurchased.
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The Company may repurchase its shares from time to time at its discretion through open market transactions and block trades, based on ongoing assessments of the capital needs of the Company, the market price of its securities and general market conditions. This share repurchase program may be discontinued at any time by the Board of Directors, and the Company has no obligation to repurchase any amount of its securities under the program. The repurchase program will be funded out of existing cash resources or borrowing facilities.
During the years ended March 31, 2022 and 2023, the Company repurchased 6,020,085 and 1,166,659 shares, respectively, for an aggregate repurchase consideration of $3.0 million and $0.4 million respectively. Subsequent to the repurchases during fiscal year 2022 and 2023, the shares were de-listed and now form part of the authorized unissued share capital of the Company. The maximum value of shares that may still be repurchased under the program is R108.7 million (equivalent of $6.0 million as of March 31, 2023). The authority to repurchase shares will expire at the upcoming annual general meeting.
Taxation
Income taxes are accounted for under the asset and liability method. Income tax expense is recognized in the Consolidated Statements of Income, except to the extent that it relates to items recognized in other comprehensive income or directly in equity. The Company uses the portfolio approach for releasing income tax effects from accumulated other comprehensive income.
The current income tax charge is calculated on the basis of the tax laws and tax rates enacted by the reporting date in the countries where the Company and its subsidiaries operate and generate taxable income. Interest, and penalties, incurred on the underpayment of income taxes is classified as interest expense, and administration expenses, respectively.
Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carryforwards. Deferred tax assets and liabilities arising from the assets and liabilities assumed in a business combination are recognized for the potential tax effects of temporary differences, carryforwards, and any income tax uncertainties of an acquiree that exist at the acquisition date, or that arise as a result of the acquisition. Deferred tax is measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. Valuation allowances are provided when necessary to reduce deferred tax assets to the extent it is more likely than not that some portion of the deferred tax asset will not be realized.
Management periodically evaluates its tax positions with respect to situations in which applicable tax regulation is subject to interpretation. For uncertainties in income tax positions if it is more likely than not that some tax benefit will be sustained based on the technical merits of the position, then the tax benefit recognized is the largest amount of benefit that is greater than 50% likely of being realized upon ultimate settlement. If it is not more likely than not that some tax benefit will be sustained, then zero tax benefit is recognized. There were no material uncertain tax positions as of March 31, 2022 and 2023.
Deferred tax liabilities arising on investments in domestic subsidiaries are not recognized to the extent that the investment can be recovered on a tax-free basis; and on investments in foreign subsidiaries to the extent that the undistributed earnings will be invested indefinitely or will be remitted in a tax-free liquidation.
Stock-based compensation
The Company operates various stock-based compensation plans, under which the entity receives services from employees as consideration for equity instruments of the Company. Settlement has taken place out of a fresh issue of shares. The equity instruments that may be granted in terms of the plans include stock options, retention shares, performance shares and stock appreciation rights, all of which entitle the holder to obtain shares in the Company. The fair value, determined at grant date, of the equity instruments granted is recognized as an expense over the vesting period, taking expected forfeiture into account, with a corresponding credit to additional paid-in capital. At the end of each reporting period, the Company revises its estimate of the number of equity instruments that are expected to vest, using historical and current information, and recognizes the impact of any revisions in the Consolidated Statements of Income, with a corresponding adjustment to additional paid-in capital. Expected forfeitures relating to service conditions are estimated to be 5%.
Advertising
Advertising costs are expensed as incurred and are classified as sales and marketing expense on the Consolidated Statements of Income. For the years ended March 31, 2021, 2022 and 2023, $2.3 million, $4.2 million and $4.2 million respectively, were expensed.
Recent accounting pronouncements not yet adopted
On October 28, 2021, the FASB issued ASU 2021-08, which amends ASC 805, Business Combinations, to require companies to apply ASC 606, Revenue from Contracts with Customers, to recognize and measure contract assets and contract liabilities
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from contracts with customers acquired in a business combination. This creates an exception to the general recognition and measurement principle in ASC 805 which requires an acquirer to generally recognize such items at fair value on the acquisition date. The ASU is effective for fiscal years beginning after December 15, 2022 and interim periods therein for public business entities (PBEs). For all other entities, it is effective for fiscal years beginning after December 15, 2023 and interim periods therein. Early adoption is permitted for all entities, including adoption in an interim period. The effective date for the Company is April 1, 2023. Management is yet to assess the impact of adoption of this ASU.
3. Acquisition
MiX Telematics North America, a 100% owned subsidiary of the Company, acquired Trimble Inc.’s (“Trimble”) Field Service Management business (“FSM”) in North America on September 2, 2022 (the “Transaction”).
FSM’s North American operations include the sale and support of telemetry and video solutions that enable back-office monitoring and visualization for fleet services management in a number of industries. The Transaction presents an opportunity for the Company to increase its scale in North America and to further diversify its North America business by expanding its presence in market verticals such as construction and last mile logistics.
All existing FSM subscription contracts and the related revenue streams were acquired by MiX Telematics North America.
The purchase consideration for the FSM business comprised of the following:
•An upfront cash payment of $3.7 million on September 2, 2022 (“Closing Date”), based on an upfront fee of $300 per subscription contract where the FSM customer has purchased or agreed to purchase 4G hardware as of the day immediately prior to the Closing Date and where the contractual term expires on or after the 18-month anniversary of the Closing Date.
•Additional payments to be made in respect of the renewal of existing subscriptions as well as for new subscriptions entered into by customers (that were customers on the Closing Date) with MiX Telematics North America. Depending on the hardware requirements of these customers and specific contract terms, Trimble will be paid between $200 and $300 per subscription contract. The additional payments will be made approximately every three months, ending on March 2, 2024, and have been treated as contingent consideration. The initial fair value of the contingent consideration of $4.1 million was included in the purchase price for purposes of calculating goodwill and reflects an expectation of approximately a 75% retention rate. Subsequent changes in fair value will be recognized in the Consolidated Statements of Income. The estimated total consideration for additional payments should not exceed $6.4 million which assumes a 100% conversion rate, which the Company believes is unlikely.
The acquisition of the FSM business was considered a business combination and was accounted for under the acquisition method of accounting. The following table summarizes the consideration transferred, the assets acquired and liabilities assumed as of the acquisition date (in thousands):
| September 2, 2022 | ||||||||
| Fair value of consideration transferred | ||||||||
| Cash consideration | $ | 3,739 | ||||||
| Contingent consideration | 4,073 | |||||||
| 7,812 | ||||||||
| Fair value of identifiable assets acquired and liabilities assumed | ||||||||
| Customer relationships | 6,000 | |||||||
| Finance lease receivable | 412 | |||||||
Indemnification asset (1) | 1,476 | |||||||
Loss contingency (1) | (1,476) | |||||||
| Product warranties | (41) | |||||||
| 6,371 | ||||||||
| Goodwill | $ | 1,441 | ||||||
(1) With the acquisition, the Company assumed a Hardware Purchase Plan (“HPP”) loss contingency of $1.5 million with a corresponding indemnification asset against Trimble. The HPP represents a contractual obligation, requiring the replacement of equipment should this
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become technically obsolete. The key event triggering the provision is the imminent shut down of the 3G network across different states in America. The Company has entered into an agreement with Trimble whereby Trimble will be responsible for covering these costs. The indemnification outcomes are directly linked to the loss contingency.
The initial accounting for the business combination is complete at the reporting date. The fair values of the identifiable assets acquired and liabilities assumed are final and therefore, adjustments to them and the resulting goodwill will not occur in future.
During a transitional period, until all the FSM subscribers have been migrated to the Company’s SaaS platform, Trimble will (i) supply certain hardware comprising telematics kits and other parts as required for the fulfillment of subscription contracts; (ii) grant MiX Telematics North America a non-exclusive, non-transferable license to certain software in respect of hardware used by subscribers; and (iii) provide access to certain applications and network connections to support ongoing operations and customer account management. The Company however remains liable to the customer for the services.
Acquisition-related costs of $0.8 million were incurred, and are included in Administration and other expenses in the Consolidated Statements of Income. The initial cash payment was funded out of existing cash resources.
The goodwill is attributable to the workforce of the acquired business and the opportunity for the Company to increase its scale in North America and to further diversify its North America business. The goodwill is assigned to the Americas segment and is deductible for tax purposes. There was no change in the goodwill balance of $1.4 million between the date of acquisition and the end of the reporting period, March 31, 2023.
The customer relationships acquired will be amortized over a weighted average amortization period of 8 years.
The acquired business contributed revenue of $5.6 million and earnings of $0.2 million for the period from September 2, 2022 to March 31, 2023. If the business had been acquired on April 1, 2022, the acquired business would have contributed revenue of $10.6 million and earnings of $1.0 million, after amortization of customer relationships, for the year ended March 31, 2023.
At March 31, 2023 a gain of $0.5 million was recognized in other income in the income statement for the remeasurement of the contingent consideration to fair value. The remeasurement of the contingent consideration does not constitute a measurement period adjustment because it reflects new conditions subsequent to acquisition rather than more information about conditions that existed at the acquisition date.
Valuation Methodology
The customer relationships were valued using the multi-period excess earnings method under the income approach, which estimates associated revenue and costs to determine the projected cash flows derived from this asset. The discount rate of 20% used reflects the risk and uncertainty of the cash flows relative to the overall business. The useful lives of customer relationships were established by reference to the payback period of the asset.
Assumptions used in forecasting cash flows included consideration of the following:
•Historical performance including sales and profitability
•Contributory asset charges
•Business prospects, industry expectations and competitive environment
•Estimated economic life of the asset
•Revenue attributable to existing customers
•Attrition of existing customers
The fair value of the contingent consideration was estimated using the income approach, based on applying a discounted cash flow valuation. Key inputs in the valuation include forecasted existing subscriber conversion rates and the associated discount rate. The rate was determined using a credit spread of 5.23% and a risk free rate ranging from 3.23% to 3.40%.
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4. Credit risk related to accounts receivables
As of March 31, 2022 and 2023, the aging analysis of accounts receivables is as follows (in thousands):
| Gross | Allowance for doubtful accounts | Net | ||||||||||||||||||
| 2022 | ||||||||||||||||||||
| Not past due | $ | 13,332 | $ | (533) | $ | 12,799 | ||||||||||||||
| Past due by 1 to 30 days | 4,124 | (841) | 3,283 | |||||||||||||||||
| Past due by 31 to 60 days | 3,113 | (523) | 2,590 | |||||||||||||||||
| Past due by 61 to 90 days | 1,763 | (447) | 1,316 | |||||||||||||||||
| Past due by more than 90 days | 8,186 | (3,082) | 5,104 | |||||||||||||||||
| Total | $ | 30,518 | $ | (5,426) | $ | 25,092 | ||||||||||||||
| Gross | Allowance for doubtful accounts | Net | ||||||||||||||||||
| 2023 | ||||||||||||||||||||
| Not past due | $ | 10,276 | $ | (161) | $ | 10,115 | ||||||||||||||
| Past due by 1 to 30 days | 6,081 | (104) | 5,977 | |||||||||||||||||
| Past due by 31 to 60 days | 2,238 | (91) | 2,147 | |||||||||||||||||
| Past due by 61 to 90 days | 1,895 | (140) | 1,755 | |||||||||||||||||
| Past due by more than 90 days | 6,449 | (2,249) | 4,200 | |||||||||||||||||
| Total | $ | 26,939 | $ | (2,745) | $ | 24,194 | ||||||||||||||
The movements in the allowance for doubtful accounts are as follows (in thousands):
| 2022 | 2023 | ||||||||||||||||
| Balance at April 1, | $ | 5,575 | $ | 5,426 | |||||||||||||
| Bad debt provision | 2,559 | 4,202 | |||||||||||||||
| Write-offs | (2,855) | (6,131) | |||||||||||||||
| Foreign currency translation differences | 147 | (752) | |||||||||||||||
| Balance at March 31, | $ | 5,426 | $ | 2,745 | |||||||||||||
The measurement of expected credit losses is a function of the probability of default, loss given default (i.e., the magnitude of the loss if there is default) and the exposure at default. The assessment of the probability given default and loss given default is based on historical data adjusted by relevant forward-looking information. The exposure at default is represented by the asset’s gross carrying amount at the reporting date.
The Company considers a default to have occurred when a receivable is more than 90 days past due or information determined internally or obtained from external sources indicates that the customer is unlikely to pay its creditors, including the Company, in full. Amounts provided for are generally written off when there is no expectation of recovering the amount, in accordance with the Company’s write-off policy.
Overview of the Company’s exposure to credit risk from customers
The maximum exposure to credit risk at the reporting date is the carrying value of each receivable and loan to external parties, net of impairment losses where relevant. As of March 31, 2022 and 2023, the Company has no significant concentration of credit risk, due to its spread of customers across various operations and geographical locations.
The Company does not hold any collateral as security.
Net accounts receivables as of March 31, 2022 of $4.1 million were pledged as security for the Company’s overdraft facilities. During fiscal year 2023, the Company terminated the suretyship securing its indebtedness to Standard Bank of South Africa Limited and a new agreement was entered into. Refer to note 18 to the consolidated financial statements.
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5. Prepaid expenses and other current assets
Prepaid expenses and other current assets comprise of the following (in thousands):
| As of March 31, | ||||||||||||||
| 2022 | 2023 | |||||||||||||
| Pre-payments | $ | 3,010 | $ | 2,742 | ||||||||||
| Prepaid taxes | 144 | 95 | ||||||||||||
| Indemnification asset | — | 474 | ||||||||||||
| Current income tax asset | 2,195 | 1,496 | ||||||||||||
| VAT receivable | 1,661 | 1,362 | ||||||||||||
| Sundry debtors | 3,936 | 3,378 | ||||||||||||
| Deposits | 264 | 131 | ||||||||||||
| Staff receivable | 111 | 91 | ||||||||||||
| Lease receivable | 141 | 171 | ||||||||||||
| Interest receivable | 1 | 10 | ||||||||||||
| $ | 11,463 | $ | 9,950 | |||||||||||
6. Property, plant and equipment
Property, plant and equipment comprises owned and right-of-use assets. The Company leases many assets including property, motor vehicles and office equipment.
The cost and accumulated depreciation of owned assets are as follows (in thousands):
| As of March 31, | ||||||||||||||
| 2022 | 2023 | |||||||||||||
| Owned assets | ||||||||||||||
| Plant and equipment | 791 | 793 | ||||||||||||
| Motor vehicles | 1,938 | 1,948 | ||||||||||||
| Furniture, fixtures and equipment | 1,553 | 1,295 | ||||||||||||
| Computer and radio equipment | 4,036 | 3,743 | ||||||||||||
| In-vehicle devices | 65,881 | 72,405 | ||||||||||||
| Assets in progress | 332 | 26 | ||||||||||||
| Owned assets, gross | 74,531 | 80,210 | ||||||||||||
| Less: accumulated depreciation and impairments | (46,597) | (46,932) | ||||||||||||
| Owned assets, net | $ | 27,934 | $ | 33,278 | ||||||||||
Total depreciation expense related to owned assets during the years ended March 31, 2021, 2022 and 2023 was $12.9 million, $10.7 million and $9.7 million, respectively. Depreciation expense related to in-vehicle devices is included in subscription cost of revenue.
During fiscal year 2023, the Africa segment reassessed the useful lives of its installed in-vehicle devices where, on average, the useful lives were increased from 3 years to 5 years. The reassessment of the useful lives resulted in a $1.4 million reduction in the depreciation expense relative to what would have been recognized in fiscal year 2023 had the change not occurred.
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The cost and accumulated depreciation of right-of-use assets are as follows (in thousands):
| As of March 31, | ||||||||||||||
| 2022 | 2023 | |||||||||||||
| Right-of-use assets | ||||||||||||||
| Property | $ | 7,019 | $ | 5,792 | ||||||||||
| Equipment, motor vehicles and other | 305 | 259 | ||||||||||||
| Less: accumulated depreciation | (2,984) | (2,550) | ||||||||||||
| Right-of-use assets, net | $ | 4,340 | $ | 3,501 | ||||||||||
7. Intangible assets
Intangible assets comprise the following (in thousands):
| As of March 31, 2022 | As of March 31, 2023 | |||||||||||||||||||||||||||||||||||||
| Useful life (in years) | Gross Carrying amount | Accumulated amortization | Net | Gross Carrying amount | Accumulated amortization | Net | ||||||||||||||||||||||||||||||||
| Patents and trademarks | 3 - 10 | $ | 105 | $ | (70) | $ | 35 | $ | 90 | $ | (63) | $ | 27 | |||||||||||||||||||||||||
| Customer relationships | 1 - 10 | 2,772 | (2,528) | 244 | 8,234 | (3,061) | 5,173 | |||||||||||||||||||||||||||||||
| Internal-use software, technology and other | 1 - 20 | 42,335 | (22,154) | 20,181 | 39,031 | (22,336) | 16,695 | |||||||||||||||||||||||||||||||
| Total | $ | 45,212 | $ | (24,752) | $ | 20,460 | $ | 47,355 | $ | (25,460) | $ | 21,895 | ||||||||||||||||||||||||||
For the years ended March 31, 2021, 2022 and 2023, amortization expense of $3.7 million, $4.3 million, and $5.9 million has been recognized, respectively. Non-cash disposals of $1.5 million were recognized for the year ended March 31, 2023 and were immaterial for the year ended March 31, 2022. Foreign exchange related losses of $0.4 million and foreign exchange related gains $3.7 million, on accumulated amortization, were recognized for the years ended March 31, 2022 and 2023.
The weighted average amortization period of intangible assets purchased during the year ended March 31, 2022 and 2023 is 5 years and 8 years, respectively.
As of March 31, 2022 and 2023, there was internal-use software in progress of $5.5 million, and $3.3 million, respectively.
As of March 31, 2023, the estimated future amortization expense is as follows (in thousands):
| Years ending March 31, | |||||
| 2024 | $ | 7,661 | |||
| 2025 | 6,806 | ||||
| 2026 | 4,953 | ||||
| 2027 | 1,901 | ||||
| 2028 | 366 | ||||
| Thereafter | 208 | ||||
| Total | $ | 21,895 | |||
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8. Other assets
The following is a summary of other assets (in thousands):
| As of March 31, | ||||||||||||||
| 2022 | 2023 | |||||||||||||
| Deferred commissions | $ | 4,135 | $ | 6,014 | ||||||||||
| Loans to external parties and other receivables | 664 | 498 | ||||||||||||
| Lease receivables - non-current | $ | 189 | $ | 292 | ||||||||||
| Total other assets | $ | 4,988 | $ | 6,804 | ||||||||||
Deferred commissions
Deferred commissions arise from commissions paid to sales employees and external third parties to obtain contracts with customers, unless the amortization period is 12 months or less, in which instance it is expensed immediately. The following is a summary of the amortization expense (in thousands):
| As of March 31, | ||||||||||||||
| 2022 | 2023 | |||||||||||||
| Amortization recognized during the year: | $ | (3,566) | $ | (4,276) | ||||||||||
–Cost of revenue (external commissions) | (2,602) | (3,366) | ||||||||||||
–Sales and marketing (internal commissions) | (964) | (910) | ||||||||||||
Loans to external parties
The loans to external parties relate to Broad-based Black Economic Empowerment transactions entered to in South Africa.
As of March 31, 2022, the amortized cost of the loans to Black Industrialists Group Property Management Company (Pty) Ltd (“BIG”) and HSW Management services CC (“HSW”) amounted to $0.7 million. The loan to HSW was fully settled during July 2022. As of March 31, 2023, the amortized cost of the loan to BIG amounted to $0.5 million. The loan to BIG was originated during fiscal year 2020, and is on off-market terms. The imputed interest rate on the loans to BIG is 9.65%. Imputed interest rate represents the interest rate that results from a process of approximation required when the present value of a loan must be estimated because an established exchange price is not determinable and the loan has no ready market. As of March 31 2023, the fair value of the loan to BIG determined using a discount rate of 11.25% amounted to $0.5 million.
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9. Accrued expenses and other liabilities
Accrued expenses comprise the following (in thousands):
| As of March 31, | ||||||||||||||
| 2022 | 2023 | |||||||||||||
| Current: | ||||||||||||||
| Product warranties | $ | 630 | $ | 317 | ||||||||||
| Maintenance | 506 | 430 | ||||||||||||
| Employee-related accruals | 3,748 | 3,392 | ||||||||||||
Bonus and incentives (1) | 3,873 | 3,344 | ||||||||||||
| 932 | 688 | |||||||||||||
| Accrued commissions | 3,017 | 3,675 | ||||||||||||
Loss contingency (2) | — | 474 | ||||||||||||
Value added tax payables (1) | 48 | 1,239 | ||||||||||||
Post-acquisition support and hardware payable (2) | — | 2,265 | ||||||||||||
| Other accruals | 6,856 | 5,662 | ||||||||||||
| Total current | $ | 19,610 | $ | 21,486 | ||||||||||
| Non-current: | ||||||||||||||
| $ | 3,655 | $ | 2,966 | |||||||||||
| Other liabilities | 689 | 402 | ||||||||||||
| Total non-current | $ | 4,344 | $ | 3,368 | ||||||||||
(1) Due to the significance of Bonus and incentives and Value added tax payables, the amounts are now disclosed separately; whereas in the previous periods they were included in Employee-related accruals and Other accruals, respectively. | ||||||||||||||
(2) Relates to the acquisition of Trimble’s FSM business. | ||||||||||||||
Product warranties
The Company provides warranties on certain products and undertakes to repair or replace items that fail to perform satisfactorily. Management estimates the related provision for future warranty claims based on historical warranty claim information, the product lifetime, as well as recent trends that might suggest that past cost information may differ from future claims. The table below provides details of the movement in the accrual in thousands:
| As of March 31, | ||||||||||||||
| 2022 | 2023 | |||||||||||||
| Product warranties | ||||||||||||||
| Opening balance | $ | 612 | $ | 683 | ||||||||||
| Warranty expense | 307 | 147 | ||||||||||||
Reclassification (1) | — | (261) | ||||||||||||
| Utilized | (242) | (154) | ||||||||||||
Acquisition (2) | — | 41 | ||||||||||||
| Foreign currency translation difference | 6 | (97) | ||||||||||||
| Balance as of March 31 | $ | 683 | $ | 359 | ||||||||||
| Non-current portion (included in other liabilities) | $ | 53 | $ | 42 | ||||||||||
| Current portion | $ | 630 | $ | 317 | ||||||||||
(1) Relates to a reclassification of certain costs from Product warranties to the Maintenance provision.
(2) Relates to the acquisition of Trimble’s FSM business.
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10. Deferred revenue
The movement in deferred revenue is as following (in thousands):
| As of March 31, | ||||||||||||||
| 2022 | 2023 | |||||||||||||
| Deferred revenue | ||||||||||||||
| Opening balance | $ | 5,788 | $ | 6,692 | ||||||||||
| Increases during the year | 53,267 | 49,544 | ||||||||||||
| Recognized as revenue | (52,486) | (49,878) | ||||||||||||
| Foreign currency translation difference | 123 | (1,063) | ||||||||||||
| Closing balance | $ | 6,692 | $ | 5,295 | ||||||||||
During the year ended March 31, 2022 and March 31, 2023, revenue of $3.8 million and $4.1 million, respectively, was recognized which was included in the deferred revenue balances as of the beginning of the year.
11. Development expenditure
Development expenditure incurred comprises the following (in thousands):
| As of March 31, | ||||||||||||||||||||
| 2021 | 2022 | 2023 | ||||||||||||||||||
Costs capitalized (1) | $ | 2,928 | $ | 3,751 | $ | 3,912 | ||||||||||||||
Costs expensed (2) | 4,284 | 5,597 | 5,591 | |||||||||||||||||
| Total costs incurred | $ | 7,212 | $ | 9,348 | $ | 9,503 | ||||||||||||||
(1) Costs capitalized relate only to the development of internal-use software, which are recognized in accordance with the Intangible assets (Internal-use software and technology) accounting policy. | ||||||||||||||||||||
(2) Costs expensed are included in Administration and other expenses in the Consolidated Statements of Income. | ||||||||||||||||||||
12. Leases
The Company leases property and vehicles under operating leases. The lease terms vary between 1 month and 120 months, with many leases providing renewal rights and certain leases with annual escalations of up to 8% per annum. To the extent the Company is reasonably certain that it will exercise renewal options, such options have been included in the lease terms used for calculating the right-of-use assets and lease liabilities. Right-of-use assets are included in Property, plant and equipment in the Consolidated Balance Sheets and lease liabilities related to the Company’s operating leases are included in Accrued expenses and other liabilities and Long-term accrued expenses and other liabilities in the Consolidated Balance Sheets.
Where lease terms are 12-months or less, and meet the criteria for short-term lease classification, no right-of-use asset and no lease liability are recognized.
The components of lease cost are as follows (in thousands):
| As of March 31, | ||||||||||||||||||||
| 2021 | 2022 | 2023 | ||||||||||||||||||
| Operating lease cost | $ | 1,657 | $ | 1,643 | $ | 1,252 | ||||||||||||||
| Short-term lease cost | 407 | 330 | 308 | |||||||||||||||||
| Total lease cost | $ | 2,064 | $ | 1,973 | $ | 1,560 | ||||||||||||||
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Supplemental cash flow information and non-cash activity related to the Company’s operating leases are as follows (in thousands):
| As of March 31, | ||||||||||||||||||||
| 2021 | 2022 | 2023 | ||||||||||||||||||
| Operating cash flow information: | ||||||||||||||||||||
| Cash payments included in the measurement of lease liabilities | $ | 1,540 | $ | 1,502 | $ | 1,293 | ||||||||||||||
| Non-cash activity: | ||||||||||||||||||||
| Right-of-use assets obtained in exchange for new operating lease liabilities | $ | 110 | $ | 417 | $ | 862 | ||||||||||||||
Weighted-average remaining lease term - operating leases (months) (1) | 38 | 25 | 22 | |||||||||||||||||
| Weighted-average discount rate - operating leases | 7.3 | % | 8.0 | % | 8.0 | % | ||||||||||||||
(1) Including expected renewals where appropriate. | ||||||||||||||||||||
Maturities of operating lease liabilities as of March 31 were as follows (in thousands):
| 2024 | $ | 952 | ||||||
| 2025 | 829 | |||||||
| 2026 | 735 | |||||||
| 2027 | 632 | |||||||
| 2028 | 597 | |||||||
| Thereafter | 812 | |||||||
| Total future minimum lease payments | 4,557 | |||||||
| Less: Imputed interest | (903) | |||||||
| Present value of future minimum lease payments | 3,654 | |||||||
| Less: Current portion of lease liabilities | (688) | |||||||
| Non-current portion of lease liabilities | $ | 2,966 | ||||||
13. Income taxes
The following table presents domestic and foreign components of income before income tax expense (in thousands):
| As of March 31, | ||||||||||||||||||||
| 2021 | 2022 | 2023 | ||||||||||||||||||
| Domestic (South Africa) | $ | 14,443 | $ | 12,254 | $ | 14,781 | ||||||||||||||
| Foreign | 2,786 | 1,111 | (1,814) | |||||||||||||||||
| Income before income tax expense | $ | 17,229 | $ | 13,365 | $ | 12,967 | ||||||||||||||
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The following is a summary of the Company’s provision for income taxes for the years ended March 31, 2021, 2022 and 2023:
| As of March 31, | |||||||||||||||||||||||
| 2021 | 2022 | 2023 | |||||||||||||||||||||
| Current tax | |||||||||||||||||||||||
| Domestic (South Africa) | $ | (5,768) | $ | (4,346) | $ | (1,427) | |||||||||||||||||
Foreign federal (1) | (165) | (74) | 10 | ||||||||||||||||||||
Foreign state (2) | (1,020) | (517) | (962) | ||||||||||||||||||||
| Total Current | (6,953) | (4,937) | (2,379) | ||||||||||||||||||||
| Deferred tax | |||||||||||||||||||||||
| Domestic (South Africa) | 3,987 | 573 | (5,448) | ||||||||||||||||||||
Foreign federal (1) | 83 | (155) | (18) | ||||||||||||||||||||
Foreign state (2) | 249 | 101 | (600) | ||||||||||||||||||||
| Total deferred | 4,319 | 519 | (6,066) | ||||||||||||||||||||
| Total income tax expense | $ | (2,634) | $ | (4,418) | $ | (8,445) | |||||||||||||||||
(1) U.S. Federal taxes
(2) U.S. and other foreign state taxes
The following table provides a reconciliation of the income tax expense calculated at the South African statutory tax rate, of 27% (2021 and 2022 of 28%), to the income tax expense:
| As of March 31, | |||||||||||||||||
| 2021 | 2022 | 2023 | |||||||||||||||
| Income before income tax expense | $ | 17,229 | $ | 13,365 | $ | 12,967 | |||||||||||
| Tax at South African statutory rate of 28% | 4,824 | 3,742 | — | ||||||||||||||
| Tax at South African statutory rate of 27% | — | — | 3,501 | ||||||||||||||
| Tax effect of: | |||||||||||||||||
| – Income not subject to tax | (35) | (55) | (38) | ||||||||||||||
– Non-deductible expenses (1) | 929 | 626 | 1,589 | ||||||||||||||
– (Non-taxable)/Non-deductible foreign exchange movements (2) | (3,401) | (419) | 3,408 | ||||||||||||||
| – Investment in subsidiaries | 217 | 202 | (127) | ||||||||||||||
| – Withholding tax | 23 | 113 | 91 | ||||||||||||||
– Foreign tax paid (3) | 425 | 357 | 322 | ||||||||||||||
| – Foreign tax rate differential | (241) | (115) | 33 | ||||||||||||||
| – Valuation allowance | (233) | 402 | (209) | ||||||||||||||
| – Under/(over)-provision prior years | 298 | (102) | 152 | ||||||||||||||
– Tax incentives in addition to cost incurred (4) | (321) | (253) | (355) | ||||||||||||||
| – Transfer pricing imputation | 21 | 67 | 129 | ||||||||||||||
– Tax rate change (5) | — | (226) | (174) | ||||||||||||||
| – Imputation of controlled foreign company income | 100 | 83 | 91 | ||||||||||||||
| – Other | 28 | (4) | 32 | ||||||||||||||
| Income tax expense | $ | 2,634 | $ | 4,418 | $ | 8,445 | |||||||||||
(1) These non-deductible expenses consist primarily of items of a capital nature and costs attributable to exempt income, primarily dividends from subsidiaries.
(2) The (non-taxable)/non-deductible foreign exchange movements arise as a result of the Company’s internal loan structures.
(3) The foreign tax paid relates primarily to withholding taxes on revenue earned in jurisdictions where the Company does not have a jurisdictional presence.
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(4) The tax incentives relate mainly to research and development allowances, as well as learnership allowances received in terms of the South African tax authorities. MiX Telematics International Proprietary Limited (“MiX International”), a subsidiary of the Company, is eligible for a 150% allowance for research and development spend in terms of section 11D of the South African Income Tax Act.
(5) The tax rate change in fiscal year 2022 relates to MiX Telematics Europe Limited’s corporate tax rate change from 24% to 25%, and in fiscal year 2023 the Company’s South African subsidiaries corporate tax rate change from 28% to 27%.
The Company’s weighted average tax rate is 65.1% (2022: 33.1%, 2021: 15.3%).
The Company’s net deferred tax liabilities consist of the following (in thousands):
| As of March 31, | ||||||||||||||
| 2022 | 2023 | |||||||||||||
| Deferred tax assets | ||||||||||||||
| Deferred revenue | 1,432 | 1,175 | ||||||||||||
| Capital allowances for tax purposes | 1,010 | 1,041 | ||||||||||||
| Accruals | 4,936 | 4,007 | ||||||||||||
| Tax losses | 2,000 | 2,220 | ||||||||||||
| Stock based compensation | 554 | 129 | ||||||||||||
| Deferred foreign currency losses | 338 | — | ||||||||||||
| Recurring commission liability | 241 | 353 | ||||||||||||
| Lease liabilities | 517 | 441 | ||||||||||||
| Other | 39 | 19 | ||||||||||||
| Gross deferred tax assets | 11,067 | 9,385 | ||||||||||||
| Set-off of deferred tax balances | (6,652) | (7,091) | ||||||||||||
| Net deferred tax assets before valuation allowance | 4,415 | 2,294 | ||||||||||||
| Less valuation allowance | (647) | (204) | ||||||||||||
| Net deferred tax assets | 3,768 | 2,090 | ||||||||||||
| Deferred tax liabilities | ||||||||||||||
| Capital allowances for tax purposes | 3,629 | 5,548 | ||||||||||||
| Intangible assets | 3,735 | 3,661 | ||||||||||||
| Prepaid expenses | 232 | 335 | ||||||||||||
| Deferred foreign currency gains | 5,673 | 8,077 | ||||||||||||
| Investment in subsidiaries | 646 | 401 | ||||||||||||
| Deferred commissions | 719 | 916 | ||||||||||||
| Lease assets | 638 | 505 | ||||||||||||
| Other | 352 | 5 | ||||||||||||
| Gross deferred tax liabilities | 15,624 | 19,448 | ||||||||||||
| Set-off of deferred tax balances | (6,652) | (7,091) | ||||||||||||
| Net deferred tax liabilities | 8,972 | 12,357 | ||||||||||||
| Net deferred tax liability | (5,204) | (10,267) | ||||||||||||
| The gross movement in net deferred tax assets/(liabilities) is as follows: | ||||||||||||||
| Opening balance | (5,405) | (5,204) | ||||||||||||
| Foreign currency translation | (268) | 1,507 | ||||||||||||
| Other comprehensive income | (50) | (504) | ||||||||||||
| Statement of Income charge | 519 | (6,066) | ||||||||||||
| Closing balance | (5,204) | (10,267) | ||||||||||||
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Recognition of deferred tax
Deferred tax at year-end has been recognized using the following corporate tax rates:
| Region | 2022 | 2023 | ||||||||||||
| South Africa | 28 | % | 27 | % | ||||||||||
| Australia | 30 | % | 30 | % | ||||||||||
| Brazil | 34 | % | 34 | % | ||||||||||
| Mexico | 30 | % | 30 | % | ||||||||||
| Romania | 16 | % | 16 | % | ||||||||||
| Thailand | 20 | % | 20 | % | ||||||||||
| Uganda | 30 | % | 30 | % | ||||||||||
| United Arab Emirates | — | % | — | % | ||||||||||
| United Kingdom | 24 | % | 25 | % | ||||||||||
| United States of America | 21 | % | 21 | % | ||||||||||
Realization of deferred tax assets is dependent upon the generation of future taxable income, if any, the timing and amount of which are uncertain. As of March 31, 2022 and 2023, the Company believes that it is not more likely than not that deferred tax assets of $0.6 million and $0.2 million, respectively, will be realized in respect of cumulative tax losses amounting to $2.5 million and $0.7 million, respectively. Accordingly, the Company has recorded a valuation allowance on such deferred tax assets.
For the year ended March 31, 2022, the valuation allowance primarily increased by $0.3 million as a result of an increase in deferred tax assets not recognized on current year tax losses. For the year ended March 31, 2023, the valuation allowance decreased by $0.3 million as a result of reversals of previously raised valuation allowances on prior year tax losses.
As at March 31, 2022 and 2023, the Company had tax loss carryforwards of $5.1 million and $8.7 million. respectively. The tax loss carryforwards can be carried forward indefinitely except for tax losses of $0.3 million in Thailand which expire in two consecutive years from 2023 till 2025.
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14. Earnings per share
Basic
Basic earnings per share is calculated by dividing the income attributable to ordinary shareholders of the parent by the weighted average number of ordinary shares in issue during the year.
The net income and weighted average number of shares used in the calculation of basic and diluted earnings per share are as follows (in thousands, except per share data):
| As of March 31, | |||||||||||||||||
| 2021 | 2022 | 2023 | |||||||||||||||
| Numerator (basic) | |||||||||||||||||
| Net income attributable to MiX Telematics Limited stockholders | $ | 14,595 | $ | 8,947 | $ | 4,522 | |||||||||||
| Denominator (basic) | |||||||||||||||||
| Weighted average number of ordinary shares in issue and outstanding | 549,415 | 551,923 | 552,603 | ||||||||||||||
| Basic earnings per share | $ | 0.03 | $ | 0.02 | $ | 0.01 | |||||||||||
American Depository Shares (1): | |||||||||||||||||
| Net income attributable to MiX Telematics Limited stockholders | $ | 14,595 | $ | 8,947 | $ | 4,522 | |||||||||||
| Weighted average number of American Depository Shares in issue and outstanding | 21,977 | 22,077 | 22,104 | ||||||||||||||
| Basic earnings per American Depository Share | $ | 0.66 | $ | 0.41 | $ | 0.20 | |||||||||||
(1) One American Depository Share is the equivalent of 25 ordinary shares.
Diluted
Diluted earnings per share is calculated by dividing the diluted income attributable to ordinary shareholders by the diluted weighted average number of ordinary shares in issue during the year. Stock options, retention shares and stock appreciation rights granted to employees under the TeliMatrix Group Executive Incentive Scheme and the MiX Telematics Long-Term Incentive Plan (“LTIP”) are considered to be potential ordinary shares. They have been included in the determination of diluted earnings per share if the required target share price or annual shareholder return hurdles (as applicable) would have been met based on the performance up to the reporting date, and to the extent to which they are dilutive. No further awards will be made in terms of the TeliMatrix Group Executive Incentive Scheme going forward.
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| As of March 31, | |||||||||||||||||
| 2021 | 2022 | 2023 | |||||||||||||||
| Numerator (diluted) | |||||||||||||||||
| Diluted net income attributable to MiX Telematics Limited stockholders | $ | 14,595 | $ | 8,947 | $ | 4,522 | |||||||||||
| Denominator (diluted) | |||||||||||||||||
| Weighted average number of ordinary shares in issue and outstanding | 549,415 | 551,923 | 552,603 | ||||||||||||||
| Adjusted for: | |||||||||||||||||
| – potentially dilutive effect of stock appreciation rights | 9,872 | 10,531 | 2,496 | ||||||||||||||
| – potentially dilutive effect of restricted share units | 774 | 1,504 | 959 | ||||||||||||||
| – potentially dilutive effect of stock options | 562 | — | — | ||||||||||||||
| Diluted weighted average number of ordinary shares in issue and outstanding | 560,624 | 563,958 | 556,058 | ||||||||||||||
| Diluted earnings per share | $ | 0.03 | $ | 0.02 | $ | 0.01 | |||||||||||
American Depository Shares (1): | |||||||||||||||||
| Diluted net income attributable to MiX Telematics Limited stockholders | $ | 14,595 | $ | 8,947 | $ | 4,522 | |||||||||||
| Diluted weighted average number of American Depository Shares in issue and outstanding | 22,425 | 22,558 | 22,242 | ||||||||||||||
| Diluted earnings per American Depository Share | $ | 0.65 | $ | 0.40 | $ | 0.20 | |||||||||||
(1) One American Depository Share is the equivalent of 25 ordinary shares.
15. Dividends
The following dividends were declared (in thousands):
| As of March 31, | ||||||||||||||||||||
| 2021 | 2022 | 2023 | ||||||||||||||||||
| Dividends declared | $ | 5,367 | $ | 5,948 | $ | 5,207 | ||||||||||||||
16. Segment information
The Company has 6 reportable segments, which are based on the geographical location of the 5 Regional Sales Offices (“RSOs”) and also includes the Central Services Organization (“CSO”). CSO is the central services organization that wholesales products and services to RSOs who, in turn, interface with our end-customers, distributors and dealers. CSO is also responsible for the development of hardware and software platforms and provides common marketing, product management, technical and distribution support to each of the other reportable segments. CSO is a reportable segment because it produces discrete financial information which is reviewed by the chief operating decision maker (“CODM”) and has the ability to generate external revenue.
The CODM has been identified as the Chief Executive Officer who makes strategic decisions for the Company. The performance of the reportable segments has been measured and evaluated by the CODM using Segment Adjusted EBITDA, which is a measure that uses income before income tax expense excluding the contingent consideration remeasurement, acquisition-related costs, non-recurring legal costs, net interest expense, net foreign exchange losses/gains, net loss/profit on sale of property, plant and equipment, restructuring costs, stock-based compensation costs, impairment of long-lived assets, depreciation, amortization, operating lease costs and corporate and consolidation entries. Product development costs are capitalized and amortized and this amortization is excluded from Segment Adjusted EBITDA.
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In determining Segment Adjusted EBITDA, the margin generated by CSO, net of any unrealized intercompany profit, is allocated to the geographic region where the external revenue is recorded by our RSOs. The costs remaining in CSO relate mainly to research and development of hardware and software platforms, common marketing, product management and technical and distribution support to each of the RSOs.
Each RSO’s results therefore reflects the external revenue earned, as well as its performance before the remaining CSO and corporate costs allocations.
The segment information provided to the CODM is as follows (in thousands):
| As of March 31, 2021 | |||||||||||||||||||||||
Subscription revenue (1) | Hardware and other revenue (2) | Total revenue | Segment Adjusted EBITDA | ||||||||||||||||||||
| Regional Sales Offices | |||||||||||||||||||||||
| Africa | $ | 62,453 | $ | 5,495 | $ | 67,948 | $ | 31,781 | |||||||||||||||
| Europe | 12,138 | 2,441 | 14,579 | 6,260 | |||||||||||||||||||
| Americas | 18,211 | 770 | 18,981 | 7,077 | |||||||||||||||||||
| Middle East and Australasia | 16,558 | 4,679 | 21,237 | 9,751 | |||||||||||||||||||
| Brazil | 3,922 | 142 | 4,064 | 1,495 | |||||||||||||||||||
| Total Regional Sales Offices | 113,282 | 13,527 | 126,809 | 56,364 | |||||||||||||||||||
| Central Services Organization | 69 | 16 | 85 | (7,553) | |||||||||||||||||||
| Total Segment Results | $ | 113,351 | $ | 13,543 | $ | 126,894 | $ | 48,811 | |||||||||||||||
(1) Subscription revenue is recognized over time.
(2) Hardware and other revenue is recognized at a point in time.
| As of March 31, 2022 | |||||||||||||||||||||||
Subscription revenue (1) | Hardware and other revenue (2) | Total revenue | Segment Adjusted EBITDA | ||||||||||||||||||||
| Regional Sales Offices | |||||||||||||||||||||||
| Africa | $ | 74,778 | $ | 8,398 | $ | 83,176 | $ | 36,467 | |||||||||||||||
| Europe | 13,509 | 3,745 | 17,254 | 6,337 | |||||||||||||||||||
| Americas | 14,036 | 1,538 | 15,574 | 842 | |||||||||||||||||||
| Middle East and Australasia | 16,950 | 5,604 | 22,554 | 10,034 | |||||||||||||||||||
| Brazil | 4,253 | 401 | 4,654 | 1,260 | |||||||||||||||||||
| Total Regional Sales Offices | 123,526 | 19,686 | 143,212 | 54,940 | |||||||||||||||||||
| Central Services Organization | 47 | 35 | 82 | (10,168) | |||||||||||||||||||
| Total Segment Results | $ | 123,573 | $ | 19,721 | $ | 143,294 | $ | 44,772 | |||||||||||||||
(1) Subscription revenue is recognized over time.
(2) Hardware and other revenue is recognized at a point in time.
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| As of March 31, 2023 | |||||||||||||||||||||||
Subscription revenue (1) | Hardware and other revenue (2) | Total revenue | Segment Adjusted EBITDA | ||||||||||||||||||||
| Regional Sales Offices | |||||||||||||||||||||||
| Africa | $ | 73,924 | $ | 5,530 | $ | 79,454 | $ | 32,721 | |||||||||||||||
| Europe | 12,155 | 2,328 | 14,483 | 5,412 | |||||||||||||||||||
| Americas | 18,557 | 1,673 | 20,230 | 4,087 | |||||||||||||||||||
| Middle East and Australasia | 16,313 | 7,625 | 23,938 | 8,998 | |||||||||||||||||||
| Brazil | 5,637 | 1,175 | 6,812 | 2,133 | |||||||||||||||||||
| Total Regional Sales Offices | 126,586 | 18,331 | 144,917 | 53,351 | |||||||||||||||||||
| Central Services Organization | 70 | 6 | 76 | (10,409) | |||||||||||||||||||
| Total Segment Results | $ | 126,656 | $ | 18,337 | $ | 144,993 | $ | 42,942 | |||||||||||||||
(1) Subscription revenue is recognized over time.
(2) Hardware and other revenue is recognized at a point in time.
The revenue from external parties reported to the Company’s CODM is recognized and measured in a manner consistent with that in the Consolidated Statements of Income. Revenue generated by the South African-based operating segments of the Company (i.e., Central Services Organization and Africa, excluding East Africa) to its local and foreign-based customers for fiscal years 2021, 2022 and 2023, amounted to $67.1 million, $82.3 million and $78.5 million, respectively. Revenue generated by the foreign-based segments (i.e., Europe, Americas, East Africa, Middle East, Brazil and Australasia) to its local and foreign-based customers for fiscal years 2021, 2022 and 2023, amounted to $59.8 million, $61.0 million and $66.5 million.
A reconciliation of the segment results to income before income tax expense for the year is disclosed below (in thousands).
| As of March 31, | |||||||||||||||||
| 2021 | 2022 | 2023 | |||||||||||||||
| Segment Adjusted EBITDA | $ | 48,811 | $ | 44,772 | $ | 42,942 | |||||||||||
| Corporate and consolidation entries | (8,879) | (10,243) | (10,722) | ||||||||||||||
Operating lease costs (1) | (1,652) | (1,611) | (1,253) | ||||||||||||||
Product development costs (2) | (1,112) | (1,353) | (1,331) | ||||||||||||||
| Depreciation and amortization | (16,559) | (14,951) | (15,609) | ||||||||||||||
| Impairment of long-lived assets | (8) | (47) | (104) | ||||||||||||||
| Stock-based compensation costs | (1,273) | (1,325) | (502) | ||||||||||||||
Restructuring costs (3) | (1,055) | (164) | (1,022) | ||||||||||||||
| Net (loss)/profit on sale of property, plant and equipment | (13) | 36 | 25 | ||||||||||||||
| Net foreign exchange (losses)/gains | (959) | (648) | 1,110 | ||||||||||||||
| Net interest expense | (72) | (510) | (287) | ||||||||||||||
Non-recurring legal costs (4) | — | (591) | — | ||||||||||||||
| Acquisition-related costs | — | — | (784) | ||||||||||||||
| Contingent consideration remeasurement | — | — | 504 | ||||||||||||||
| Income before income tax expense | $ | 17,229 | $ | 13,365 | $ | 12,967 | |||||||||||
(1) For the purposes of calculating Segment Adjusted EBITDA, operating leases have been capitalized, except for leases with a term of no more than 12 months or leases of low value assets. Where operating leases are capitalized for segment reporting purposes, the amortization of the right-of-use asset and the interest on the operating lease liability are excluded from the Segment Adjusted EBITDA. Therefore, in order to reconcile Segment Adjusted EBITDA to income before income tax expense, the total lease expense in respect of operating leases needs to be deducted.
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(2) For segment reporting purposes, product development costs, which do not meet the capitalization requirements under ASC 730 Research and Development or under ASC 985 Software, are capitalized and amortized. The amortization is excluded from Segment Adjusted EBITDA. In order to reconcile Segment Adjusted EBITDA to income before income tax expense, product development costs capitalized for segment reporting purposes need to be deducted.
(3) During fiscal year 2021, the Company incurred $1.1 million of restructuring costs which comprise of employee termination benefits, as a result of measures to minimize the adverse economic and business effect of the COVID-19 pandemic and to re-align resources with the Company’s current business outlook and cost structure. $0.7 million, $0.2 million, $0.1 million and $0.1 million of the restructuring costs related to the CSO, Africa, Americas and Middle East and Australasia reporting segments, respectively. As of March 31, 2022, all of the restructuring costs had been paid. During fiscal year 2023, the Company incurred $1.0 million of restructuring costs. $0.4 million, $0.4 million, $0.1 million and $0.1 million of the restructuring costs related to the Middle East and Australasia, Americas, CSO and Europe reporting segments, respectively. Restructuring costs are included in Administration and other expenses in the Consolidated Statements of Income.
(4) Includes legal related costs for a non-recurring patent infringement matter during fiscal year 2022, that has been resolved.
Segment assets are not disclosed because such information is not reviewed by the CODM. The following table depicts the geographical location of the Company’s long-lived assets (in thousands) other than financial instruments, deferred commissions and deferred tax assets:
| As of March 31, | ||||||||||||||
| 2022 | 2023 | |||||||||||||
| South Africa | $ | 75,621 | $ | 69,321 | ||||||||||
| Europe | 10,161 | 9,478 | ||||||||||||
| Americas | 5,192 | 12,937 | ||||||||||||
| Middle East and Australia | 5,099 | 4,914 | ||||||||||||
| Brazil | 1,095 | 1,282 | ||||||||||||
| Total | $ | 97,168 | $ | 97,932 | ||||||||||
These assets are allocated based on the physical location of the asset.
No single customer accounted for 10% or more of the Company’s total revenue in fiscal years 2021, 2022 and 2023. No single customer accounted for 10% or more of the Company’s accounts receivable as of fiscal years ended 2022 and 2023.
17. Stock-based compensation plan
The Company has issued share incentives to directors and certain key employees within the Company under the MiX Telematics Long-Term Incentive Plan (“LTIP”), an equity-classified incentive plan.
The LTIP provides for three types of grants to be issued, namely performance shares, restricted share units (“RSUs”) and stock appreciation rights (“SARs”).
As of March 31, 2023, there were 23,390,000 shares reserved for future issuance under the LTIP.
The total stock-based compensation expense (included in administration and other) recognized during the years ended March 31, 2021, 2022 and 2023, was $1.3 million, $1.3 million and $0.5 million, respectively. Net deferred tax benefits recognized/(reversed) on total stock-based compensation expense in the Statement of Income for the years ended March 31, 2021, 2022 and 2023, was $0.1 million, $(0.1) million and $(0.1) million, respectively. Tax benefits realized on awards exercised during the years ended March 31, 2021, 2022 and 2023, was $0.1 million, $0.6 million and $0.2 million, respectively.
Stock appreciation rights granted under the LTIP
Under the LTIP, SARs may be issued to certain directors and key employees. The exercise price of the SARs granted is equal to the closing market value of ordinary shares on the day preceding the date of grant. The SARs granted vest in tranches of 25% per annum, commencing on the second anniversary of the grant date and expire 6 years after the grant date. Vesting is contingent upon employment within the Company and an annual total shareholder return in excess of 10% being achieved, taking into account any dividends paid during the vesting period. Management estimates forfeiture to be approximately 5%.
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Upon exercise, the Company will settle the value of the difference, between the closing market value of the ordinary shares on the day of settlement and the award price (if positive), by delivering shares. The Company has no legal or constructive obligation to settle the SARs in cash.
The following table summarizes the Company’s SARs for the fiscal year ended March 31, 2023:
| Number of SARs | Weighted- Average Exercise Price in U.S. Cents* | Weighted-Average Remaining Contractual Term (years) | Aggregate Intrinsic Value* (in thousands) | ||||||||||||||||||||
| Outstanding as of April 1, 2022 | 40,971,875 | 45 | |||||||||||||||||||||
| Granted on November 1, 2022 | 11,575,000 | 28 | |||||||||||||||||||||
| Exercised | (8,171,875) | 19 | |||||||||||||||||||||
| Forfeited | (8,575,000) | 40 | |||||||||||||||||||||
| Outstanding as of March 31, 2023 | 35,800,000 | 37 | 3.84 | ||||||||||||||||||||
| Vested and expected to vest as of March 31, 2023 | 34,010,000 | 37 | 4.11 | $ | — | ||||||||||||||||||
| Vested as of March 31, 2023 | — | — | — | $ | — | ||||||||||||||||||
* The exercise price is denominated in South African cents. U.S. currency amounts are based on a ZAR:USD exchange rate of 17.9772 as of March 31, 2023.
The weighted-average grant-date fair value of SARs granted during the years ended March 31, 2021, 2022 and 2023, was 13 U.S. cents, 18 U.S. cents and 14 U.S. cents, respectively. The grant-date fair value was determined using a combination of the Monte Carlo Simulation option pricing model and the Binomial Tree option pricing model. U.S. currency amounts are based on a ZAR:USD exchange rate of 17.9772 as of March 31, 2023. The key drivers and assumptions input into the valuation models used to determine these values are disclosed below. The volatility was calculated using a mixture of the Company’s historical data as well as the share data of comparable companies for grants made in all financial years preceding 2023 and the Company’s historical share data for grants made in the 2023 fiscal year and the current year.
The total intrinsic value of SARs exercised during fiscal years 2021, 2022 and 2023 was $0.5 million, $2.4 million, and $1.3 million, respectively. U.S. Dollar amounts are based on a ZAR:USD exchange rate of 17.9772 as of March 31, 2023.
The salient details of SARs granted during fiscal year 2023 are provided in the table below:
| Total shareholder return | |||||||||||
| Grant date | November 1, 2022 | ||||||||||
Grant date fair value (ZAR/$)(1) | R2.58/$0.14 | ||||||||||
Award price (ZAR/$)(1) | R5.10/$0.28 | ||||||||||
JSE share price on grant date (ZAR/$)(1) | R5.80/$0.32 | ||||||||||
| Expiry date | November 1, 2028 | ||||||||||
| Performance conditions | |||||||||||
| – Total shareholder return of (%) | 10.0 | ||||||||||
| Remaining contractual life at March 31, 2023 | 5.6 | ||||||||||
| Valuation assumptions and drivers | |||||||||||
| Volatility (%) | 50.4 | ||||||||||
| Anticipated forfeiture rate (%) | 5.0 | ||||||||||
| Anticipated dividend yield (%) | 3.71 | ||||||||||
| Annual risk-free interest rate (%) | 8.74 | ||||||||||
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The salient details of SARs granted during fiscal year 2022 are provided in the table below:
| Total shareholder return | Total shareholder return | ||||||||||
| Grant date | December 9, 2021 | March 24, 2022 | |||||||||
Grant date fair value (ZAR/$)(1) | R3.24/$0.20 | R2.83/$0.19 | |||||||||
Award price (ZAR/$)(1) | R7.38/$0.47 | R7.24/$0.49 | |||||||||
JSE share price on grant date (ZAR/$)(1) | R7.50/$0.47 | R7.10/$0.48 | |||||||||
| Expiry date | December 9, 2027 | March 24, 2028 | |||||||||
| Performance conditions | |||||||||||
| – Total shareholder return of (%) | 10.0 | 10.0 | |||||||||
| Remaining contractual life at March 31, 2023 | 4.7 | 5.0 | |||||||||
| Valuation assumptions and drivers | |||||||||||
| Volatility (%) | 47.0 | 47.4 | |||||||||
| Anticipated forfeiture rate (%) | 5.0 | 5.0 | |||||||||
| Anticipated dividend yield (%) | 1.91 | 3.19 | |||||||||
| Annual risk-free interest rate (%) | 6.69 | 7.46 | |||||||||
(1) For purposes of this table, the award price has been converted, based on the South African Rand/U.S. Dollar exchange rate in effect as of grant date.
The following table summarizes the Company’s unvested SARs for the fiscal year ended March 31, 2023:
| Number of SARs | Weighted- Average Grant-Date Fair Value in U.S. Cents* | ||||||||||
| Unvested as of April 1, 2022 | 31,278,125 | 16 | |||||||||
| Granted on November 1, 2022 | 11,575,000 | 14 | |||||||||
| Forfeited | (7,053,125) | 13 | |||||||||
| Unvested as of March 31, 2023 | 35,800,000 | 16 | |||||||||
* The exercise price used to determine the grant date fair value is denominated in South African cents. U.S. currency amounts are based on a ZAR:USD exchange rate of 17.9772 as of March 31, 2023.
As of March 31, 2023, there was $2.2 million of unrecognized compensation cost related to unvested SARs. This amount is expected to be recognized over a weighted-average period of 3.88 years.
Restricted share units granted under the LTIP
Under the LTIP, RSUs may be issued to certain directors and key employees. The scheme rules allow for a maximum of 2 million RSUs to be granted in any financial year and for a maximum of 12 million RSUs to be granted in aggregate over the life of the plan.
2 million time-based RSUs were granted on June 1, 2020, and vest in tranches of 50% per annum, commencing on the second anniversary of the grant date. Vesting is conditional upon the continued employment of the recipient with the Company. Management estimates forfeiture to be approximately 5%. Settlement will take place in the Company’s shares. The Company has no legal or constructive obligation to settle the RSUs in cash. The weighted average grant date fair value per RSU granted was 32 U.S. cents. U.S. currency amounts are based on a ZAR:USD exchange rate of 17.9772 as of March 31, 2023. The grant date fair value was determined by deducting the present value of expected dividends to be paid per share prior to vesting from the closing market price of the Company’s shares on the grant date. The unrecognized compensation cost related to unvested RSUs as of March 31, 2023 was immaterial, which will be recognized over a weighted average period of 0.2 year, which is also the weighted average remaining contractual period.
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The following table summarizes the Company’s unvested RSUs for the fiscal year ended March 31, 2023:
| Number of RSUs | Weighted- Average Grant-Date Fair Value in U.S. Cents* | ||||||||||
| Unvested as of April 1, 2022 | 2,000,000 | 32 | |||||||||
| Settled | (1,000,000) | 32 | |||||||||
| Forfeited | (200,000) | 32 | |||||||||
| Unvested as of March 31, 2023 | 800,000 | 32 | |||||||||
* The exercise price used to determine the grant date fair value is denominated in South African cents. U.S. currency amounts are based on a ZAR:USD exchange rate of 17.9772 as of March 31, 2023.
Performance shares granted under the LTIP
Under the LTIP, performance shares may be issued to certain directors and key employees. The performance shares granted vest immediately once the service and performance conditions have been met. Settlement takes place by delivering ordinary shares equal to the number of performance shares that have vested, alternatively as a fall back provision only, by settling the value in cash.
No performance shares were granted during fiscal year 2022 or fiscal year 2023 under this scheme.
18. Debt
As of March 31, 2022 and 2023, debt comprises bank overdrafts of $5.6 million and $15.3 million, respectively. Details of undrawn facilities are shown below:
| As of March 31, | ||||||||||||||||||||
| Interest rate | 2022 | 2023 | ||||||||||||||||||
| Undrawn borrowing facilities at floating rates include: | ||||||||||||||||||||
| – Standard Bank: | ||||||||||||||||||||
| CFC Overdraft | SA prime* less 1.2% | $ | — | $ | 1,180 | |||||||||||||||
| Vehicle and asset finance | SA prime* less 1.2% | 587 | — | |||||||||||||||||
| Working capital facility | SA prime* less 0.25% | 544 | — | |||||||||||||||||
| – Nedbank Limited overdraft | SA prime* less 2% | 690 | 264 | |||||||||||||||||
| – Investec Facility: | ||||||||||||||||||||
| General committed banking facility | SA Prime* less 1.5% | — | 7,222 | |||||||||||||||||
| General uncommitted banking facility | Negotiable (overnight or daily rates) | — | 10,000 | |||||||||||||||||
| $ | 1,821 | $ | 18,666 | |||||||||||||||||
*South African prime interest rate
As of March 31, 2022 and 2023, the South African prime interest rate was 7.75% and 11.25%, respectively. The Standard Bank of South Africa Limited (“Standard Bank”) and Nedbank Limited facilities have no fixed renewal date and are repayable on demand. The facility from Nedbank Limited is unsecured.
On June 29, 2022, the Company entered into a new credit facility agreement with Investec Bank Limited (“Investec”) for a 364-
day renewable committed general credit facility of R350 million ($22 million at a USD/ZAR exchange rate of $1:ZAR 16.1546), (the “Committed Facility”) and an uncommitted general credit facility of $10 million (the “Uncommitted Facility”). As of March 31, 2023, $12.2 million of the committed general credit facility was utilized.
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Under the Committed Facility, the Company will pay a commitment fee charged at 30bps on any undrawn portion of the Committed Facility (plus VAT on such amount), calculated monthly and payable, free of deduction, monthly in arrears on first business day of each month. The Uncommitted Facility is repayable on demand by Investec and a fee of 30bps per annum shall be charged on any undrawn portion of the Uncommitted Facility (plus VAT on such amount), calculated monthly and payable, free of deduction, monthly in arrears on the seventh business day of each month.
The loans under the Committed Facility bear interest at South African prime interest rate less 1.5% per annum and the loans under the Uncommitted Facility bear interest at overnight or daily negotiable rates, in each case which such interest shall accrue on all amounts outstanding under the Committed Facility or the Uncommitted Facility, as the case may be, payable monthly in arrears on the first business day of each month, or as otherwise specified in the Credit Agreement. Investec shall advise the Company of any changes to the applicable interest rate.
Mix Telematics Africa (Pty) Ltd, Mix Telematics International (Pty) Ltd and Mix Telematics Enterprise SA (Pty) Ltd have issued guarantees in favour of Investec in terms of which they guarantee the performance by MiX Telematics Limited of all its obligations to Investec.
In November 2022, the Company concluded a second amendment to the credit agreement with Standard Bank, which entitles the Company to utilize a maximum amount of R70 million (the equivalent of $3.9 million as of March 31, 2023), in the form of a customer foreign currency account overdraft facility (the “CFC Overdraft Facility”). All other facilities under the facility letter with Standard Bank were replaced by the CFC Overdraft Facility. The CFC Overdraft Facility has no fixed renewal date and is repayable on demand. The CFC Overdraft Facility bears interest at the South African Prime interest rate less 1.2% per annum. As of March 31, 2023, $3.0 million of the facility was utilized.
The Company also terminated the suretyship securing the Customer’s indebtedness (among other parties), to Standard Bank, which was signed by the Company and its subsidiaries; MiX Telematics Africa and MiX Telematics International Proprietary Limited. A new suretyship agreement was entered into providing that the Company and only one subsidiary being Mix Telematics International Proprietary Limited, binds themselves as surety(ies) and co-principal debtor(s) for the payment of all the present and future debts of any kind of the Company and Mix Telematics International Proprietary Limited to Standard Bank. The security release letter also provides that Standard Bank’s claims to any security furnished by the Company and its subsidiaries under the original suretyship agreement have been released upon signature of the new suretyship agreement.
19. Restructuring
During the last quarter of fiscal year 2023, the Company implemented strategic cost-saving initiatives to the organization in an effort to consolidate the Company’s sales function. Restructuring activities primarily related to headcount reductions of various sales function staff which resulted in severance, and other related costs being incurred. Severance costs generally include severance payments, health insurance, legal and other costs. Restructuring activities only affected the Middle East and Australasia, Americas, CSO and Europe reporting segments, respectively.
In connection with the restructuring, we have recorded total restructuring costs of $1.0 million in the form of employee termination benefits. $0.4 million, $0.4 million, $0.1 million and $0.1 million of the restructuring costs related to the Middle East and Australasia, Americas, Europe and CSO reporting segments, respectively. This represented the total amount expected to be incurred and the total incurred to date since inception in respect of severance-related activities. As at March 31, 2023, no additional charges are expected to be incurred in connection with this plan. Restructuring costs are included in Administration and other expenses in the Consolidated Statements of Income. The restructuring is expected to be concluded and settled by the first quarter of fiscal year 2024.
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The restructuring activity related to severance activity described above is recorded in Accrued expenses and other liabilities on the Consolidated Balance Sheets and is summarized as follows:
| As of March 31, | |||||||||||
| 2023 | |||||||||||
| Opening balance | $ | — | |||||||||
| Costs incurred | 1,022 | ||||||||||
| Settled cash | (474) | ||||||||||
| Foreign currency translation differences | (79) | ||||||||||
| Closing balance | $ | 469 | |||||||||
20. Commitments and contingencies
Capital commitments
As of March 31, 2021, 2022 and 2023, the Company had approved, and contracted, capital commitments for property, plant and equipment of $1.2 million, $14.8 million and $2.2 million, respectively; and for intangible assets of $1.3 million, $1.6 million and $1.4 million, respectively.
Capital commitments will be funded out of a mixture of working capital and cash and cash equivalents.
Contingencies
Service agreement
In terms of an amended network services agreement with Mobile Telephone Networks Proprietary Limited (“MTN”), MTN is entitled to claw back payments from MiX Telematics Africa Proprietary Limited, a subsidiary of the Company, in the event of early cancellation of the agreement or certain base connections not being maintained over the term of the agreement. No connection incentives will be received in terms of the amended network services agreement. The maximum potential liability under the arrangement as of March 31, 2022 and 2023 was $1.7 million and $1.1 million, respectively. No loss is considered probable under this arrangement.
Competition Commission of South Africa matter
On April 15, 2019, the Competition Commission of South Africa (the “Commission”) referred a matter to the Competition Tribunal of South Africa (“Tribunal”). The Commission contends that the Company and a number of its channel partners have engaged in market division. Should the Tribunal rule against MiX Telematics, the Company may be liable to an administrative penalty in terms of the Competition Act, No. 89 of 1998. The Company cooperated fully with the Commission during its preliminary investigation.
The Tribunal has set the matter for hearing from June 24 to July 2, 2024. Leading up to that date various intermediary steps such as discovery, filing of witness statements and trial bundle exchanges will take place.
We cannot predict the timing of a resolution or the ultimate outcome of the matter. However, the Company and its external legal advisers continue to believe that we have consistently adhered to all applicable laws and regulations and that the referral from the Commission is without merit. As of March 31, 2023, we have not made any provisions for this matter as an estimate of the possible loss or range of loss could not be made, and we do not believe that an outflow of economic resources is probable.
21. Retirement benefits
It is the policy of the Company to provide retirement benefits to all its South African, United Kingdom, United States, Brazilian and Australian employees. All these retirement benefits are defined contribution plans and are held in separate trustee-administered funds. These plans are funded by members as well as company contributions. The South African plan is subject to the Pension Funds Act of 1956, the UK plan is subject to the United Kingdom Pensions Act 2008 and the Australian plan is subject to the Superannuation Guarantee Administration Act of 1992. In Brazil, the Company contributes to a mandatory state social contribution plan known as Regime Geral de Previdência Social. In Romania there is a mandatory social security contribution paid to the state budget, as defined by the Pension Law (Law 263/2010) and the Fiscal Code (Law 227/2015). For the United States employees, a voluntary Internal Revenue Service section 401(k) tax-deferred as well as a Roth IRA post-tax defined contribution schemes are offered. The full extent of the Company’s liability, in respect of the retirement benefits
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offered, is the contributions made, which are charged to the Consolidated Statements of Income as they are incurred. The total Company contribution to such schemes for the years ended March 31, 2021, 2022 and 2023 were $1.9 million, $2.1 million and $2.0 million, respectively.
22. Related party transactions
There were no related party transactions during the years ended March 31, 2021, 2022 and 2023.
23. Subsequent events
Other than the items below, the directors are not aware of any matter material or otherwise arising since March 31, 2023 and up to the date of this report, not otherwise dealt with herein.
Dividend declared
The Board of Directors declared in respect of the fourth quarter of fiscal year 2023 which ended on March 31, 2023, a dividend of 4.50000 South African cents per ordinary share and 1.12500 South African Rand per ADS that will be paid on June 29, 2023.
24. Exchange rates
The Company is subject to fluctuations in exchange rates between the ZAR and foreign currencies, primarily the U.S. Dollar and the British Pound. The following major rates of exchange were used in the preparation of the consolidated financial statements:
| As of March 31, | ||||||||||||||||||||
| 2021 | 2022 | 2023 | ||||||||||||||||||
| USD:ZAR | – closing | 14.92 | 14.49 | 17.98 | ||||||||||||||||
| – average | 16.37 | 14.86 | 16.99 | |||||||||||||||||
| USD:GBP | – closing | 0.73 | 0.76 | 0.81 | ||||||||||||||||
| – average | 0.77 | 0.73 | 0.83 | |||||||||||||||||
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Schedule II - Valuation and Qualifying Accounts
(Amounts in thousands)
| Description | Balance at beginning of the year | Net additions / (decreases) - charged to costs and expenses | Net additions / (decreases) - charged to other accounts 1 | Deductions | Balance at end of the year | |||||||||||||||||||||||||||
| Year ended March 31, 2021 | ||||||||||||||||||||||||||||||||
| Allowance for doubtful accounts | $ | 3,602 | $ | 2,961 | $ | 670 | $ | (1,656) | 2 | $ | 5,577 | |||||||||||||||||||||
| Deferred taxation valuation allowance | 748 | 19 | (4) | (252) | 3 | 511 | ||||||||||||||||||||||||||
| Year ended March 31, 2022 | ||||||||||||||||||||||||||||||||
| Allowance for doubtful accounts | 5,577 | 2,559 | 145 | (2,855) | 2 | 5,426 | ||||||||||||||||||||||||||
| Deferred taxation valuation allowance | 511 | 349 | (266) | 53 | 3 | 647 | ||||||||||||||||||||||||||
| Year ended March 31, 2023 | ||||||||||||||||||||||||||||||||
| Allowance for doubtful accounts | 5,426 | 4,202 | (752) | (6,131) | 2 | 2,745 | ||||||||||||||||||||||||||
| Deferred taxation valuation allowance | $ | 647 | $ | (209) | $ | (234) | $ | — | 3 | $ | 204 | |||||||||||||||||||||
1 Foreign currency translation adjustments.
2 Amounts relate to write-offs of uncollectible accounts, net of recoveries.
3 Amounts relate to utilization of previously unrecognized tax losses.
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