Connexion Mobility Ltd (CXZ) Earnings Call Transcript & Summary

Good afternoon, everyone. Thank you for your time, and welcome to the Connexion quarterly update. We'd like to maximize your opportunity for Q&A so that you leave this call with the information that you need. You should find on your screen a chat icon through which you can submit questions. We'll do our best to review and answer these questions in our allotted time. And if you'd like a more detailed answer to your question, simply e-mail me after the call. I'll first touch on the salient points from our quarterly performance and how this ties into our broader strategy and then our CFO, Ben Stanyer, will then step us through the financials. So in summary, Q3 FY '25 was generally a positive one for Connexion with record quarterly revenue, sound profitability, steady marketplace subscription growth and a new commercial partnership with Modives for license and insurance verification. We're pursuing clear strategic and financial objectives and these are fully funded. So strategically, we intend to be the single platform through which customers can move people, parts and vehicles and achieving this means investing meaningfully into our product and we're fully expensing this through our P&L. Financially, we're squarely focused on delivering long-term shareholder value, which for us is measured by the size, sustainability and diversification of our earnings per share. So for our newer shareholders, we're connecting fleet owners with the future of mobility and that starts our journey within the niche of Courtesy Transport for Automotive Retail. This niche is supplied by 3 main modes of transport being the loaner, shuttle and ride-hail. And to date, we've meaningfully commercialized the first pillar, our loaner product and the others are underway. In recent quarters, we focused on improving our user engagement and user insights to support more effective sales and marketing efforts. Our marketplace is steadily growing and we expect this to continue. But from this quarter onwards, we are narrowing our management and product focus on that which moves the needle for OEMs and large dealer groups. So on the sales side for us, that means we're using more consultative selling approach to find opportunity to platform reuse outside of courtesy transport. I'd also like to acknowledge the recent tariff uncertainty that we've all been reading about in the media. In short, we've seen nothing to indicate a material change to our earnings. However, we do expect some weakness in dealer inventory due to pre-tariff buying at the dealerships in America. I'll now hand over to Ben to step us through the financials. Over to you, Ben.

Thank you, Aaryn. Hi, everyone. My name is Ben Stanyer and I'm the CFO at Connexion Mobility. Thank you all for joining the call to go through our Q3 financial performance. As reported in the quarterly and mentioned by Aaryn, there was once again growth in total revenue, leading to another record high operating revenue for Connexion. In January, I started this section by going through how the Aussie dollar had dropped significantly and the impact it has on Connexion. During the quarter, the Aussie dollar has remained weak, which has a sustained positive impact to our P&L. Our record operating revenue was achieved due to an increased number of subscriptions, offset by a slight decrease in service revenue when compared to the previous quarter. Over Q3, our total revenue reached $2.8 million, which represents a 1% increase over the previous quarter. And as mentioned, another record, this is our 10th consecutive quarter where we have seen an increase in revenue. We also recorded a quarterly unaudited net profit before tax of $0.83 million, a decrease of 13% when compared to the prior quarter. The decrease in net profit before tax over the prior quarter reflects the favorable FX impact from Q2, which was not repeated in the current quarter. The minor increase in revenue and decrease in growth spend is offset by a marginal increase in cost of sales. We have continued to report on conventional metrics such as diluted EPS, annualized monthly recurring revenue growth known as ARR growth, customer diversification and shareholder returns. So diluted EPS for the quarter was $0.68 (sic) [ $0.068 ], down 12% when compared to Q2. Diluted EPS is determined by our quarterly net profit before tax, applying an assumed effective tax rate to calculate an estimated net profit after tax, which is then divided by our diluted share count for the financial year. Diluted EPS is lower due to the decrease in net profit before tax, down 13% due to the reasons previously mentioned. While being offset by the decreased diluted share count, the diluted share count will continue to be favorable as we execute excess capital on the on-market buyback. ARR growth is the subscription-based SaaS revenue and fixed or SaaS recurring revenue for the month ending annualized when compared to June 2024. So with all of that, AMRR has increased 10.7% at the end of March 2025. The best metric which we use to measure Connexion's improving customer diversification is customer diversification AMRR comprising of revenue unrelated to General Motors' CTP program. Customer diversification AMRR is at 81% as at the end of March 2025 when compared to June 2024. To put this into perspective, it was 32% at the end of Q1 and 96% at the end of Q2. The drop from Q2 relates to fluctuations in usage in one of our subscription-based products, which we expect to revert to previous levels moving forward. This was partially offset by the increase in marketplace subscriptions, which we mentioned earlier. And finally, our net cash and investments, which we have referred to as NCI, ended at the quarter at USD 5.1 million, increasing by $0.61 million. It is worth acknowledging most of which is held in the AUD-denominated assets. The movement was driven by operating cash inflow of $0.66 million, offset by financing cash outflow of $0.16 million. The financing cash outflow being our on-market buyback. As mentioned earlier, noting the reduction in share count enhances the intrinsic value of each remaining share, all while maintaining the strength of our balance sheet. The movement between net profit before tax and our change in net cash and investments is best illustrated in our favorable new graph for the quarterly report. The quarterly bridge between net profit before tax and NCI provides a detailed insight into the movements during the quarter to help draw the connection between those 2 numbers to give investors, shareholders a better insight into how the 2 numbers are correlated. That is it for me with the finance update. So I will now pass back to Aaryn for closing remarks.

Thank you, Ben. So in closing, we're still feeling very good about the business and the pleasing feedback that we're receiving from our customers and our users. And we'll now pause to turn to Q&A. [Operator Instructions]

Okay. I can see we've got a few questions that have dropped in here. Okay. So the first question is what are the key KPIs of the sales team given your increased sales focus. So the KPIs for the sales team are pretty straightforward. It's just the number of products sold. In terms of their remuneration, they're paid twice the amount for a non-GM dealership customer and 1x the standard amount for a GM dealer customer. So it's simply a number of products sold. And there's a different amount paid for each product. So just based on the value of the product. Second question. It seems like in the quarterly report, there was an explicit call out to M&A. Is there a reason? Was it intentional? What is the thought process going into any M&A, ensuring that it isn't shareholder dilutive, especially considering attractive current valuation. Separately, is there a specific intention in what the company hasn't -- sorry, in that the company hasn't engaged in a tender offer to buyback a large number of shares in a more expedient manner. Okay. So I'll answer the second part first because that's more straightforward. So with the buyback, the buyback is ongoing. So we have been actively repurchasing stock in the screen. That hasn't changed. The volume traded in Connexion shares like every nano cap is relatively low and it fluctuates up and down, but our position hasn't really changed. So we're actively participating in the screen. Regarding M&A. So yes, this might be the first time that we've called out M&A in a quarterly report explicitly. We have been actively searching for targets behind the scenes for the past -- at least the past couple of years. But we're gradually spending more and more time on it as our cash balance continues to grow. So there's no significant change in thinking behind the scenes, but this is the first time we're calling it out just because we're sort of reaching a little bit of a threshold where we expect that shareholders will continue asking more and more questions, the larger our balance sheet grows. We look at our targets in terms of 3 buckets. So the first group of companies that we look at would be direct competitors. So those that look very much like us. They're selling a courtesy transportation product into the U.S. The second bucket would be what we call adjacent competitors. So those selling adjacent or similar types of products to automotive retail in the U.S. And then the third bucket is what we refer to as loosely adjacent businesses. And so that final bucket, we really look at as more of a financial investment first. And then if it stacks up on those grounds, then we look for any synergies that we might be able to add to those businesses. We've gone into due diligence a few times over the past couple of years and obviously pulled out of those processes for different reasons. So sometimes on valuation grounds, sometimes on risk grounds. We can share, we recently went into DD with another target and falls out on valuation grounds again. So it's something we've been active on in the background for quite a while. The further we move through time, the more likely it is that eventually one of these will come off. So that's why we're just flagging it to shareholders. And then in terms of potential dilution to shareholders. So of course, we can't predict the future or anything like that. But all that we can say is, as you would have seen through our actions historically, we are very, very focused on the value of our earnings per share and therefore, just as focused on not diluting our shareholders unnecessarily. And we're also active buyers of the stock in the market. So that's all that we can say is we are particularly focused on avoiding unnecessary shareholder dilution and we do have a relatively strong balance sheet for a company of our size. Hopefully, that answers your question. Moving down here. Does lower dealership inventory have any direct impact on Connexion's revenue? Is our revenue usage-based or seat-based? Happy to answer the question, but I'm hogging the microphone. So, I'll pass this one over to Ben. Does dealer inventory affect our revenue?

Thanks, Aaryn. Yes, short answer is that dealership inventory does have a direct impact on Connexion's revenue. It is usage-based in the terms of how many vehicles are enrolled in the Courtesy Transportation Program. So as a dealership's inventory levels either go up or down, the number of vehicles they have enrolled in our program does have a direct impact. As Aaryn mentioned earlier, we have heard of some movements based on the tariffs in the U.S., but we are not expecting this to be material or significant at this time as there's still a lot of relatively unknown. We haven't seen anything come through that would make us think otherwise.

Thank you, Ben. And moving through Q&A. Has the company evaluated how potential U.S. tariffs could affect the business directly or indirectly? Are there any comments or guidance can be given? Short answer is we haven't seen anything to date that indicates a likelihood of material change in earnings. Of course, the tariffs are affecting U.S. automotive retail in a meaningful way. So we expect there will be some indirect impact to our business, but it's just not yet clear what that might be. So it could be positive or it could be negative or it could be a genuine combination thereof. So for example, in the very, very short term, it's likely that we'll see some level of inventory weakness that would have an impact -- a negative impact on our revenue and that's from pre-tariff panic buying, but that would be an impact that we see. But then conversely, dealers and their manufacturers may find it much more difficult to sell their vehicles in a post-tariff world, so to speak. And so to that end, the Courtesy Transportation Program is a conduit through which incentives are applied by OEMs to help in the sales process. So there's just as much reason to think it could go in either direction and we haven't seen anything clear as yet. So we're certainly continuing to monitor it and we'll keep the market informed if anything material events. Next question. At some point in the future, would you anticipate doing a reverse stock split if the business momentum continues? Stock splits and stock consolidations are not something that we have given any thought to recently. So we're really just focused on earnings per share at this point. So cutting up the pizza into more slices or fewer slices doesn't change the overall size of the pizza, so to speak for us. Happy to discuss further for anyone that feels strongly on the topic, but it's not one that we're discussing as a Board. Next question. When do you expect to start discussions with GM in relation to the renewal? And is the timing dictated by them? Or could you seek to negotiate a renewal well before expiry? Good question. Obviously, because of the concentration to GM and the sensitive nature of the contract, we can't share too much, but at a very high level, our contract expires July next year, so that's July 2026. Historically, so if we look at the previous cycle where we had the contract renewed, discussions sort of started towards the end of the calendar year prior and it was renewed a couple of months into the year in which it was going to expire. So the precedent suggests that we'll probably start speaking with GM later this year and we would hope to renew it or have some sort of outcome early next year. We are in regular -- I mean, daily discussion with GM as is always the case. And we've had indirect discussions, but nothing concrete that we can share. But yes, certainly, our intention is to angle towards that as early as we can. So internally, we started our own GM renewal discussions January this year to focus on exactly what we think we need to do to have the highest likelihood of a renewal. So it's definitely very, very front of mind for us and something we're constantly angling for with that. We're also -- to add to that, a key part of the strategy is to add value outside of the Courtesy Transportation team. And that's not to -- for many reasons to grow the business, but also to make it more difficult for them to extract us from the business if they needed to. So there are quite a few data sets and functionality that we offer to the retail incentives team that also have relevance outside of that team. So that's something that we're actively pursuing with that defensibility. Next question is, can you confirm the current share count is 820 million? So I can give you just a very rough breakdown. So we have 702 million ordinary shares on issue free floating, so to speak. We have 119 million shares in the loan funded share plan and performance rights outstanding is approximately 19 million. So that gives you a total of 840 million. In practice, we'll probably end up with a number that's a little bit lower than that in the end just because not all of the performance rights will vest and probably not all of the loan funded share plan -- shares will vest either in due course. Yes, certainly no more than 840 million shares on issue today. Keep going. Two questions. How do you see NVIDIA's recent development with GM, particularly self-driving, affecting Connexion's business model? And the second question is the comment from today's report and within other OEMs, this reflects an acknowledgment of the long sales cycle of Courtesy Transportation being insufficient to support Connexion's need for near-term revenue growth. Should this be taken to mean that expansions with other OEM's CTP programs is less of a priority relative to GM relationship? [ Nice bit of timing ] Great job. Okay. So first question, NVIDIA's recent development with GM around self-driving, yes, so certainly, self-driving autonomous vehicles are likely to eventually have an impact on our business. However, it's still, we believe quite some years away. So you have -- I mean, a lot of things need to go right for autonomous vehicles to actually gain traction commercially. You have the technological aspect, but then you have what will probably be a lot more burdensome, which will be regulation and insurance. That's still a very difficult thing to solve. And I think it will be many, many years before we start to see any impact from that. And then the other thing to keep in mind is that our business provides a tool that helps the dealers to service customers that own existing vehicles or used vehicles as they're getting serviced. So our platform doesn't manage new vehicle inventory for sale but it helps to service existing inventory. So that adds to the lag again. So for example, let's say that tomorrow, 100% of vehicles sold were autonomous vehicles hypothetically, you would still have a long tail of used vehicles that are not autonomous that would still need servicing for many years to come. So the average age of a passenger vehicle in states is just over 12 years, just for context. They've got -- that's an average. Obviously, it doesn't take into account the long-tail. They've got an average of 12 years in addition to however long it takes for autonomous vehicles to get up and running. Second question basically around Courtesy Transportation versus alternative programs through which we could sell. So it's not that we're not focusing on Courtesy Transportation, it's just an acknowledgment that there are very, very few opportunities that come up. It takes a while for these products to -- for these contracts to expire. They're usually 5-year contracts. So there aren't too many shots on goal, so to speak. So we are still very active in chasing those contracts. We're pleased to say that we are in more conversations now with the right team. So those are managing those contracts, we're in more conversations with them than we've ever been. So we're feeling good about that. But this is taking us a very long time to get some meaningful wins. So what we do know is that our core product can be reused and have most of the functionality reapplied to other programs at OEMs. So at its core, it's a fleet management platform that's customized for Courtesy Transportation, but you can still take that core sort of circa 80%, 80% to 90% of the functionality and reapply that to other use cases as well. So we're having more consultative conversations with other teams within OEMs to see if we can find an angle in. Yes. Okay. I'm just looking through another question here. Has there been any consideration for certain non-U.S. dealers? It has been considered and we've chosen not to spend much time focusing outside the states. There are a few reasons for that. So the first obvious one is the U.S. is almost any or most markets. It's very large. So if we take Australia, it's probably the one that we actually get asked about the most, why aren't we selling to Aussie dealerships. So if we can compare the two, U.S. market is 10x the size. We're a resource-constrained company, a very small company with a very small team. Our current product is known and visible within the U.S. So if we pitch to a U.S. prospect, they can -- they might have some familiarity with our product and our customers today. And if they don't, they can pretty easily validate it locally. . The next reason is Courtesy Transportation is highly prevalent amongst OEMs in the U.S. That's not the case in a lot of other markets, including Australia, for example. So there's certainly a pretty well-entrenched expectation in the States for Courtesy Transportation to be offered even amongst non-luxury brands. That's helpful. Telemetry is probably the most developed in the U.S. versus other countries and telemetry is a really important input to our software. And then the negotiating power or the balance of power between the OEMs and the dealer groups favors the OEMs in the states more so than it does in other -- many other countries, including Australia. So for example, in the U.S., the General Motors Courtesy Transportation product is managed by a team of approximately 5 full-time staff. And that works well for us. They have a budget that allows them to engage with us in a really active way and then take a look at the size of the dealerships, the concentration of dealerships in the U.S. So General Motors, the very largest dealer group, which is a huge multibillion-dollar listed company, still only represents approximately -- would be approximately 2% to 3% of GM stores. So pretty low percentage of GM stores is owned by the biggest dealer group. Compare that with Australia, where you might have -- if you look at the size of the team at an OEM that could run a program like this, well, they're not going to have 5 people, they'd be lucky to have 1 full-time person. And then in Australia, you have 2 to 3 large dealer groups and they're not going to be told what to do or pushed around by a relatively small OEM. So for that reason, OEM programs is not done in the same way as they are in the U.S. So it's certainly open to inbound inquiry and we might do something in the future, but it's just not where our focus has been. Keep moving. Are quarterly webinar is recorded and published? They are recorded and not published, but if you send us an e-mail, we can send you a link. Okay. If I then perhaps make sure I capture all of these. There might be a couple of very [indiscernible] I might have missed. With the advent of new Chinese EV OEMs gaining ground at overseas, are they a good target for your software? They could well be because we're focused on the U.S., we're focused for now on OEMs that dominate the U.S. or are strong in the U.S. Currently, the U.S. has been quite defensive and has kept out a lot of the new Chinese EV OEMs. That won't -- I imagine that won't be forever, but it certainly is for the time being and we can't -- we don't necessarily have insight to that ending anytime soon. So we haven't put any effort into building relationships with new Chinese EV OEMs because we don't see any likelihood that they would be dominant in the near future. But yes, certainly acknowledge that they are dominant all around the world and increasingly so and they're a force to be reckoned with and probably eventually will be so in the U.S. But right now, our sales team is focused on the U.S. and focused on those OEMs that are really active in the U.S. And how is -- next question, how is Connexion ensuring that it gets invited to more RFPs for OEMs? For example, Volvo is more marketing spend a lever here? Good question. That's probably the toughest question to answer. So what we -- so the question is how are we ensuring that we get invited to more RFPs. There's no sort of real secret sauce here. It's just a combination of all the standard things that you would expect. So we do attend industry events and we do the cold messaging and the cold calling. We rely heavily on our networks and obviously try building our networks to find warm introductions where we can. So one of the things that we are doing more actively now is engaging in a really collaborative way with teams outside of the Courtesy Transportation teams to try to win that business, but also to eventually get a warmer intro back into the Courtesy Transportation team. So we won't share names, but there are a couple of OEMs that we're speaking with at the moment and we're speaking with people at the OEMs regarding potential use for fleet management product. Those discussions have gone reasonably -- they've gone well, but it's very early days. And so now that they can see that we're friendly trusted people with a real platform, in one instance, they just recently introduced us to the Courtesy Transportation team within that same OEM. So we're trying to attack it from all angles, but it's obviously the toughest part of our business is how to actually crack in and find the right people to speak with and then connect with them. So we're tackling it from all angles. The marketing spend -- more and more marketing spend wouldn't hurt, but I'm not convinced that heavy marketing spend would necessarily be the quickest way to get introductions to the right teams with these OEMs. So I think it's more about building quality relationships with some people within the OEM and then getting a warm introduction through them rather than general marketing. Okay. I believe we've covered all the questions. Just going to double check. Yes. That looks like we have covered every question. So again, if you have -- my contact details are available, so feel free to get in touch. Thank you, everyone for your time and we'll look forward to catching up with the next quarterly update. Thanks, everyone, and good afternoon.

Thanks, everyone.