Connexion Mobility Ltd (CXZ) Earnings Call Transcript & Summary

Hi, everyone. Welcome to the Connexion quarterly update. As always, we like to maximize your time for Q&A so that you can leave the call with the information that you need. You'll find on your screen a chat icon through which you can submit questions. We'll do our best to review and answer these in our allotted time. So if you'd like a more detailed answer to any of your questions, 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 step us through the financials. So Q4 FY '25, overall, was a positive quarter for Connexion. We achieved record quarterly revenue, sound profitability, steady marketplace, subscription growth and made progress with our commercial partnership for license and insurance verification. We're pursuing clear strategic and financial objectives, and these are fully funded. Strategically, we intend to be the single platform through which our customers move people, parts and vehicles. Achieving this requires significant product investment, and we are fully expensing this today through our P&L. Financially, we're squarely focused on creating long-term shareholder value, and that is measured by the size, sustainability and diversification of our earnings per share. In recent quarters, we focused on improving user engagement and user insights to more effectively support our sales and marketing efforts. Our marketplace is steadily growing, and we expect this to continue. We've narrowed our focus to that which moves the needle for OEMs and large dealer groups as opposed to single rooftop dealerships. And on the sales side, we're using a consultative selling approach to identify opportunity beyond Courtesy Transport. I'll now hand over to Ben, who will step us through the financials. Over to you, Ben.

Great. Thank you, Aaryn, and hi, everyone. Welcome. My name is Ben Stanyer, and I'm the CFO at Connexion Mobility. So today, we'll go through our Q4 performance, primarily around the finances. As reported in the quarterly and as mentioned by Aaryn, there is once again growth in total revenue, leading to another record high operating revenue for the company and now marks the 11th consecutive quarter of increased revenue. To start the financial summary, I just want to discuss the movement in the Aussie dollar. So during the quarter, there was an increase in the Aussie dollar to U.S. dollar. This has a sustained negative impact to our P&L, but an immediate positive impact to our P&L through the AUD balance sheet. Our record operating revenue was achieved due to an increase in service revenue, which is our one-off customization opportunities, and this can fluctuate between quarters and is less predictable. Our product and engineering teams have been working through the product improvements, focusing on our customers' needs, as mentioned by Aaryn previously about our focus on OEMs. And through this product improvement and engineering work, this has really driven the increase in service revenue. Over the past quarter, our total revenue reached $2.9 million, which represents a 3% increase over the previous quarter. The total revenue split is 89% to 11% between true SaaS and service revenue. And we report on that metric every quarter and the 89% to 11% that is the largest proportion of service revenue that we've seen for quite a time. So Connexion recorded a quarterly unaudited net profit before tax of $0.9 million, an increase of 7% when compared to the prior quarter. The increase in net profit before tax primarily relates to the movement in service revenue, which I just explained. There were some minor movements in other expense accounts, which offset against each other. So overall, the increase is due to the additional revenue. We have continued to report on more conventional metrics such as diluted EPS, annualized monthly recurring revenue growth, customer diversification and shareholder returns. Our diluted EPS for the quarter was USD 0.073, up 8% when compared to Q3. So 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 the diluted share count for the financial year. Overall, the diluted EPS is higher due to the increase in net profit before tax, but also being benefited 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. Annualized monthly recurring revenue, which we refer to as AMRR, is the subscription-based SaaS revenue and fixed dollar recurring SaaS revenue for the month ending and then annualized. We then compare this to June 2024. So when we have a look at our June '25 revenue compared to our June '24 revenue and annualize it, it has increased by 11.5%. The best metric, which we use to measure Connexion's improving customer diversification is customer diversification AMRR, which is -- follows the same metrics as what I just went through, but it is all revenue unrelated to General Motors Courtesy Transportation program. So our customer diversification AMRR is at 182% at the end of June '25 compared to June 2024. So quite a significant amount of growth. At the moment, this calculation is based on our marketplace subscriptions, which are a combination of usage-based subscriptions and standard SaaS-based subscriptions. So they do fluctuate month-on-month as usage can change, but over time, this calculation will continue to grow as the number of dealerships sign up to our platform with additional growth as the number of products on our marketplace grow. And finally, our net cash and investments referred to as NCI in the quarterly report ended the quarter at USD 5.9 million, increasing by $0.8 million. As always, I want to acknowledge that most of which the investments in the cash is held in AUD designated assets. The movement that was driven by an operating cash inflow of $0.7 million offset by financing cash outflow of $0.3 million. The financing cash outflow being now on market buyback, 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 our net profit before tax and our change in net cash and investments is best illustrated in the quarterly bridge graph. This provides a detailed insight into the movements during the quarter, just really bridging the gap between net profit before tax and the movement in our cash and investments. So it shows the significant cash outflows such as taxes and the share buyback while recognizing the noncash expenses such as share-based payments and then showing the movement in balance sheet items and the FX effects. So that is it for me for my finance update. As always, happy to answer any questions regarding the numbers in the Q&A section, but I'll pass back to Aaryn for any closing remarks.

Thank you, Ben. So overall, we're feeling good about the business based on positive customer feedback that we continue to receive and various OEM discussions that remain ongoing around opportunities, both within and outside of Courtesy Transportation. So let's turn over to Q&A.

And let me start with question number one. Please provide more detail on the growth in Services division and will this translate to subscription revenue going forward?

So I'm happy to answer that one, if you'd like, Aaryn. So the detail, it's due to one-off customization request from the customer, which isn't recurring in nature. So it could be a one-off fix or adjustment that they want to see in our platform. As any customization work it gets through if it is particular to a specific customer's request that it really can only be used for them, and we can't materialize that into benefit to our larger customer base. We recognize that as service revenue, which is one-off customization. It's difficult to see any -- to see how this would translate to fixed SaaS or subscription revenue moving forward because it is a once-off adjustment or change. So the specific service revenue for Q4, it's unlikely to translate to SaaS revenue moving forward.

Thank you, Ben. Much appreciated. Second question, the one Big Beautiful Bill Act in the U.S. has a lot of incentives to stimulate new vehicle purchases in the U.S. What impact do you anticipate this will have on the business? At this stage, too early to tell. Yes, in general, most of the measures being presented are protectionist in nature, so favoring local manufacturers. It's not always -- those definitions are not always as clear as they could be because an organization like General Motors, for example, doesn't have all of its manufacturing located in the U.S. But generally speaking, an organization like General Motors is favored with these sorts of initiatives. However, stimulating new vehicle purchase that's on its own may not be a positive indicator for us because, if anything, might deplete new vehicle inventory. So you might recall what we saw in a few years ago during COVID was a severe supply constraint, but we also saw strong consumer demand and the combination of those 2 completely destroyed the Courtesy Transportation fleets, which is a real problem for us. We don't foresee this to be as dramatic if there is any impact at all that's material. So overall, I don't really say too much. The other thing offsetting this is just continued increase in the average age of vehicles in the states. That's probably a more important longer-term driver. So our business is really exposed more to the service lane than the sales department. So older vehicles on average require more servicing, require a larger Courtesy fleet to support. So overall, we don't see material impact at this point. Next question, can an update on the rideshare partnership be provided as this product offering unfolded -- has it unfolded as we had expected it to? So the short answer is no, it hasn't rolled out as quickly as we'd initially hoped. There are a few reasons for that. The main one being so far, we still don't have the warranty reimbursement integration that was envisaged and still is envisaged for this product type. And that from all the feedback we received from dealers, that would be the clincher. So if we can automate warranty reimbursement, that would be the thing that really makes them pay attention. So we are getting sort of steady runs on the board, but certainly it has underperformed so far. What we have also heard from various OEMs is that they do acknowledge that Courtesy Transportation is broader than the loaner fleet. So there remains strategic value and be able to show the OEM a broader view than just the loaner fleet. But yes, so far, sales have underperformed. Next question. The on-market -- okay, this is a long one. The on-market buyback currently in place signals the Board's view of a clear dislocation between the market price and your internal assessment of intrinsic value. Would you consider increasing the scale or pace of the buyback further? Could you walk us through the Board's thinking on this? Specifically, how do you weigh the clear and immediate EPS accretion from a more aggressive buyback against 2 primary constraints, number one, being the strategic imperatives to preserve dry powder. Number two, practical market limitations with increased buying activity in the stock and this liquidity profile could disproportionately impact the price? And number three, what is your view on the share price to justify escalating the program from its current level? Okay. So there's a few questions in one. Essentially, so the way that we look at the buyback is not from a signaling perspective at all. So we view it as objectively and as rationally as we can. So we look at the economic return that we believe we are achieving by purchasing these shares compared with any other shares or investments that we could purchase, the economic we receive by purchasing those shares. Does it meet a required rate of return that's meaningful enough given the risk and liquidity and so on and so forth. So on that basis, we are currently buying the stock. We are buying it in a meaningful way. You are correct. We absolutely need to balance that level of volume that we trade while achieving the best price outcome. So in that sense, we are no different from any other institutional purchaser of a stock. So we have a large volume appetite, but we want to achieve the best price. So we need to be disciplined and patient with how we go about that. To date, we've averaged approximately 20% of market volume. So we're meaningful, but we're not pushing the stock around, and we certainly don't bid the stock up. So we're very patient and disciplined with how we go about it, and we've achieved meaningful volume over time. So we're happy with that. We don't see any reason to change current behavior unless there was a material change in the underlying business. That's probably about all we can really say on the matter. But again, it's continuously judged as objectively and as rationally as possible against the other opportunities that we have with those funds. So what can we invest organically into the business? What can we achieve through a passive investment portfolio? So you'll note that we have a passive investment portfolio that generates a baseline return. So obviously, if we're going to invest into the equity of any company, including Connexions, we need to achieve something that's really materially higher returning than that. So everything is taken in that context. Next question. How are you feeling about the GM contract coming up next half? So contract expiry is July next year. And based on our experience around the previous expiry a few years ago, we would expect -- usually, those contract expiries are addressed well before the actual expiry date. Given how material this GM contract is to our business, we really can't share very much at all. All that we can say is overall, we're happy with the business, very happy with our relationship with GM. So we're feeling good overall. But unfortunately, I can't share much more than that. Do you have a view how large the Tollaid and on-demand marketplaces can become? Excellent growth. Great to see diversification. So we don't share firm numbers on how -- what the addressable market is for each product. What I would say for a product like Tollaid is it's likely to be sub $1 million as the realistic target for us. A product like on-demand might be a little more. But as I've noted in response to the previous question, we've underperformed to date on that rollout. So although the addressable market for on-demand is quite meaningful, I would say, a few million dollars as a ballpark. We've obviously underperformed so far. So yes, I wouldn't be expecting any rapid growth just based on that addressable market per se, but that's a ballpark estimate. Is the service revenue higher margin than subscription? I'll let Ben answer that question. I would say, in general, no, not if we're looking at gross margins. But over to you, Ben.

Great. Thank you, Aaryn. And yes, great question. So in the immediate short term, generally services revenue does have a higher return because if we do anything material to say if we create a new product that is subscription, that does have quite a lot of cost going into it to generate the first dollar return. However, over a course of period, it could be -- and if it guide 3 to 6 months, the subscription revenue would then outweigh the services revenue return. And the opportunity is...

The incremental margin.

Incremental margin. Yes. Thank you, Aaryn. And yes, the service revenue versus subscription revenue opportunities that present themselves from time to time, it really depends on what the customization is required if there is an ongoing need to monitor or improve, if there's recurring cost to run something for our customers, that is where it might fall into SaaS revenue, but service revenue, if it's a one-off cost to us, it's one-off revenue for the customer.

Thank you, Ben. So as we note in the quarterly reports, our focus is on growing the size, sustainability and diversification of our earnings per share. I'll be first to admit, we haven't done as good a job as what we could in actually demonstrating what those metrics look like. So how you'd actually measure the size, sustainability and diversification of the EPS. The size is obviously done. That's pretty straightforward, but measuring sustainability and diversification of the EPS is a much more difficult exercise, but it is one that we will endeavor to present to shareholders when we can. So I just recommend that investors keep thinking about those 3 components for any company that including Connexion, and we'll do our best to demonstrate more clearly what those numbers look like. Okay. Let me just check. I don't believe there are any further questions, but let me double check. It looks like no further questions at this time. So we'll leave it there for today. As always, if you do have other questions that pop up, feel free to e-mail me directly. Always happy to help. Thank you very much for your time, and we'll speak next quarter. Good afternoon.

Thanks, everyone.