Connexion Mobility Ltd ($CXZ)

Good afternoon, everybody. Thank you for your time, and welcome to the Connexion quarterly update. As always, we'd like to maximize your opportunity for Q&A so that you can leave the call with the information that you need. You will find on your screen a chat icon through which you can submit questions. We'll do our best to review and answer these at the end of the call. And, of course, if you'd like a more detailed answer, then simply e-mail me after the call. I'll first touch on salient points from our quarterly performance and how this ties into the broader strategy, then our CFO, Ben Stanyer, will step us through the financials. So to summarize, Q3 FY '26 was generally positive for Connexion. We were appointed as the sole courtesy transportation software provider to GM Canada, which we're very pleased with. It's something we've been working on for quite some time. We then saw growing revenue through the business, sound underlying profitability. Ben will step us through the details because obviously, the headline number was down on the prior quarter, but the underlying profitability remains sound. We also saw modest marketplace subscription growth and then execution of the Canadian launch in the same quarter. So the contract was won and executed within the same quarter, which was a heavy lift on the team, and we're happy with our team's performance there. As foreshadowed in the prior quarter, our marketplace grew modestly due to reduced field team. So happy to answer any questions there later on. Product-wise, we're still focused on that, which moves the needles for OEMs and large dealer groups as opposed to single rooftop stores. So that's where our focus is on the product side. On the sales side, we're using a consultative selling approach with the OEMs. So we're looking at not just courtesy Transportation, but other ways that we can potentially reuse our platform beyond courtesy Transportation within U.S. automotive retail. From a balance sheet perspective, we continue to be in a very strong position, and we're actively reviewing opportunities to deploy capital. So we expect to update you in the coming quarter on that. I'll now hand over to Ben, who will step us through the financials. Over to you, Ben.

Great. Thank you, Aaryn. Hi, everyone. For those of you who don't know me, my name is Ben, and I am the CFO at Connexion Mobility. Thank you all for joining the call today to go through our Q3 performance. As reported in the quarterly, we launched EEP, the Enhanced Exposure Program for GM Canada in February 2026. This helps lead Connexion to an all-time high in quarterly revenue, which is just over USD 3 million, which is an increase of 5% when compared to Q2. As always, before going through the financial summary, I just want to discuss the movement in the Aussie dollar during the quarter. So there was a significant increase in AUD to USD during the quarter. However, the end of December to the end of March, it only went $0.02 higher, which does have some impact to the lower net profit before tax from what we've seen. However, FX is one thing that we just try to minimize and report on as required. So for this quarter, I will start sharing my screen just to show some of the graphs presented in the quarterly report as I talk through the results, just to help some of our shareholders between tabs. So just started sharing and now everyone should be able to see it, right. So what we can see here is the subscription and service revenues have increased during the quarter by 6% and 8%, respectively, with the Fixed-Dollar SaaS revenue decreasing by 1%. So majority of the increase have stemmed from the work with Canada. This follows on from the comments from last quarter that our product and engineering team are heavily focused on the pilot, and this has continued into Q3 for the launch. Total revenue split between recurring, which is our subscription Fixed-Dollar SaaS and our once-off or customization revenue being service revenue and has been consistent the past previous 2 quarters with an 89% to 11% kind of ratio and split. Connexion recorded a quarterly gross profit of $1.9 million, which represents an 11% increase over the previous quarter. The increase relates to the increase in movement with the cost of sales remaining mostly consistent. As previously mentioned, the cost of sales will vary quarter-to-quarter based on the team's priorities and the allocation of employee wages between cost of sales and R&D will fluctuate. So as we've experienced over the past couple of quarters with the heavy focus on Canada, majority of that has gone through cost of sales and not so much through R&D being research and development. Now on to our key financial metrics. So Connexion recorded a quarterly unaudited net profit before tax of $0.6 million, a decrease of 31% when compared to the prior quarter. The decrease in net profit before tax is mainly due to an increase in overall expenses of $0.4 million, offset by the increase in revenue. So with the increase in total expenses, $0.2 million related to nonrecurring administrative expenses. So that is the accrued expenses that we recognize over the financial year. And due to some assumptions, they have been -- the accrued expenses are much -- going to be much higher at the end of the year. So they have then had to ramp up in this quarter and catch up from the first 6 months when the assumptions and expectations are lower, and they are going higher. So there was a bit of a catch-up. That is why we're classifying it as nonrecurring because we don't expect that same level to continue in Q4. The $0.1 million in seasonal expenses related to more one-off expenditure through our sales and marketing. During the month of Feb, there was quite a bit of travel to the U.S. for some major conferences and majority of that cost relates to that, the travel and also the Canada launch. So when we say seasonal expenses, it's going -- if you look back at our previous quarters, there is always an increase in our sales and marketing spend and a slight decrease in our net profit before tax in Q3. And that seasonal expenses is seasonal, and we do not expect it until Q3 of FY '27. And with the remainder $0.1 million relating to the ongoing cost of sales and the slight R&D mix for the EEP launch, which is also referred to as our GM Canada Courtesy Transportation Program. So we have also continued to report on financial metrics such as diluted EPS, annualized monthly recurring revenue growth, which is AMRR and Customer Diversification AMRR growth, which I know is a bit of a mouthful, but we will go through it. So our diluted EPS, which is the bottom graph down here for the quarter, was USD 0.052. So this is down 29% when compared to the previous quarter. The diluted EPS is calculated by our quarterly net profit before tax, applying an assumed effective tax rate to calculate the estimated net profit after tax, which is then divided by the diluted share count for the financial year. So diluted EPS is lower due to the decrease in net profit before tax. It isn't a straight correlation. It is slightly -- has decreased slightly less than the net profit before tax, and that is due to the diluted share count from the on-market buyback. So during the quarter, we repurchased and canceled 98 million shares. And for 1 quarter, this is almost double our previous most active quarter from a buyback perspective. And I will go through the impact that had on our net cash and investments shortly. But just one thing to note, so with the higher activity in the on-market buyback because that happened in March, of course, being March the last month of the quarter, the full impact wasn't realized in this quarter, but we will just see the benefits from it in Q4 into FY '27 and beyond. So the annualized monthly recurring revenue growth is our Subscription-based SaaS revenue and our Fixed-Dollar SaaS recurring revenue for the month ending and then annualized. So when we have a look at our Subscription and Fixed-Dollar SaaS revenue in June '25 compared to the end of March 2026, this has increased 10%. So we are seeing significant growth through the GM Canada launch. And very similar to AMRR growth being the Annualized Monthly Recurring Revenue growth, we have our metric on customer diversification AMRR growth, which is used to measure our improving customer diversification being revenue unrelated to General Motors CTP. Customer diversification AMRR is at 47% growth at the end of March 2026 when compared to June 2025. So that is, is at the end of June 2025 being the end of the 2025 financial year, 9 months through, we have improved our customer diversification recurring revenue by 47%. It is worth noting that, that does not include GM Canada. It is calculated based on our marketplace subscriptions, which are a combination of usage-based subscriptions and standard SaaS-based subscriptions. So over time, this calculation will continue to grow as a number of dealerships sign up to our platform with the additional growth as the number of products on our marketplace grow. Our net cash and investments, this top right-hand graph referred to as NCI ended the quarter at USD 5.9 million, decreasing by $0.8 million. As always, I want to acknowledge most of which is held in AUD designated assets. So it does move as the Aussie dollar moves compared to the U.S. So within the NCI, net cash investments, this includes our Covertrue Holdings, which was announced to the ASX in September 2025. So I will now show you the quarterly bridge between our net profit before tax and how that flows through to the movement in NCI. So as we can see here, majority of the movement was driven by the Financing Cash Outflow of $1.7 million. This is offset by the Operating Cash Inflow of $0.6 million. The Financing Cash Outflow being our on-market buyback. As we also mentioned, the reduction in share count enhances the intrinsic value of each remaining share, all while maintaining the strength of our balance sheet. So we will continue to see the value of the reduced share count, not only in Q3 and Q4, but many years to follow. The movement between our net profit before tax and our change in net cash and investments is detailed and best illustrated with this graph. It shows a detailed insight into the movements during the quarter, showing the taxes paid, the added back of noncash expenses such as our share-based payments while also showing the balance sheet movements and the FX effect. So we can see that there was a positive gain due to some movement in FX. But once again, a lot of this is overshadowed by the significant financing cash outflow. As we move through the quarterly report, we also showcase the investment earnings introduced in the previous quarterly report. So at Connexion, our long-term objective is to improve the size, sustainability and diversification of our earnings per share. This includes our operating earnings generated from our ordinary activities, so our Connexion bread and butter, call it our platform, and this is supported by our net cash investments. We have highlighted that our net cash and investments are investments that provide Connexion with a meaningful diversified and sustainable and growing source of earnings. So as illustrated in this graph, the investment earnings portion of our diluted EPS share is significant at 31% for the quarter, up from 16% in the previous quarter. So as you can see, the investment portfolio through the Covertrue Holdings is starting to grow over time, and this will only help support diluted earnings per share. So that is it for me for my finance update. As always, happy to answer any questions in the Q&A section, but I will now pass back to Aaryn for closing remarks.

Thank you very much, Ben. That's an excellent update. So in summary, it's largely business as usual for us at Connexion, albeit we are pleased with the win that we've had in Canada. So let's turn to our Q&A.

So starting with the first question from an anonymous user. Is it possible to provide any clarity on the trading performance of Covertrue Group? So we do not break out the performance of our financial portfolio today. What I can share is very high-level general commentary, which is that Covertrue has performed in line with budget until quite recently. So basically in the last couple of months, performance has declined in line with some of the issues that a lot of businesses are facing in Australia, which is really around war in the Middle East -- sorry, war in the Middle East affecting oil prices. Covertrue's business has vinyl as a core input cost, which is an oil-based product. And probably the bigger problem is around its customer base. So wrapping vehicles that's exposed to the transport logistics industry. And so there have been a range of issues there with the slow imports, like delayed imports of vehicles, fleet managers deferring decisions and the like. So performance was pleasing in the first 3 months. The last 3 months have been weaker. Despite that weaker performance, the business is still generating a sound double-digit percentage return for us. So we're still very much comfortable with the investment. The most important thing for us is where the business is going in 5 years' time, 10 years' time. So at the moment, the critical thing is trying to assess the performance of the Covertrue business with its peers. And at the moment, it seems to be in line with its peers over this very short period of time. So it's not a case of Covertrue underperforming the peers. It's more just the environment is weaker. And so again, our focus working with the business is to help them increase the gap as an industry leader versus their smaller peers. So we're still very comfortable with the investment, and it's early days. Next question, can we expand more on the $0.2 million one-off expenses and the $0.1 million seasonal expense? Should we expect these to be absent from future quarters? So Ben has already answered this question. But in summary, the $0.2 million one-off expenses related primarily to GM Canada. So they are one-off expenses and they relate to that contract win. The $0.1 million seasonal expense is a recurring expense that we incur in this quarter, so the Q3 of the year. So we expect to incur something similar next Q3. Next question, great work on Canada win and executing it. Can you expand on how far into the rollout we are? Has there been significant take-up? We -- so national rollout is more or less complete. And it seems that for now, the take-up is approximately 85% of the Canadian retail network. We obviously do have plans on reviewing that remaining 15% and working with GM to see how we can capture that. But that's our current state. Next question, should we expect to see increasing revenue from Canada in future quarters? Is there scope for Fixed-Dollar SaaS work and service revenue at individual dealerships over time as there has been in the U.S.? Good question. We don't -- as you know, we don't make forecasts, but ostensibly, yes, there's nothing fundamentally different between Canada and the U.S. in terms of this contract. So we have executed and paid ECR, so revenue related to additional customization. We're not forecasting that there's going to be any significant amount, but there's nothing sort of really different in the contract. So yes, there's the potential that we may earn additional work in the future, and there's the potential that we may sell products to dealerships directly in the future. But as always, need to temper our expectations. But yes, the structure is fundamentally very, very similar.

And just one more point to add there. So the -- during Q3, we had 2 months of the Canada launch. So in Q4, there will be the third additional month where there will be revenue from GM Canada. So efficiency per mile should increase by that extra month in Q4.

Yes, that's right. Thank you, Ben. The next 2 questions quite similar. They relate to the U.S. contract renewal and the timing of that. Clearly, it's very, very material contract for GM. So we naturally need to be very careful in what we communicate to the market. The contract is due to expire mid this calendar year. We are in discussion with GM, but there's really not much else that we can say. And we've explained this before that either way, whether negotiations go positively or negatively, we're just unable to guide the market, so to speak. So yes, it is a very, very material contract for the company. So as investors, I hope that everyone is aware of that and considers their position sizing accordingly. But there's nothing else that we can communicate to the market until we have something either signed or worst-case scenario, we don't get in someone else sign a contract. But either way, there needs to be a decision made before we can share anything with the market. Do we expect to maintain a field team of 2 people? Or will this expand or contract? So at the end of last year, we had -- so putting aside support personnel, I think this question really relates to personnel that sell products to dealers. So at the end of last year, we had 4 individuals in the team, so 3 at a dealership level and 1 at an OEM level. We have since parted ways with 1 dealership level individual and 1 OEM level salesperson. And we have since hired another dealership level individual to support the Canadian launch. So we have a team of -- field team of 2 in the U.S. and 1 in Canada. And one of our field team members in the U.S. is also supporting the Canadian launch in the early days, where, as you would imagine, there's a much heavier lift training-wise. So that's our current state. There are no immediate plans to change the makeup of that team. Do we have any updates with the rideshare agreement? So that would refer to our on-demand product, which is -- has an integration with Uber. No, there's no material update to share. We have a number of dealers using the product, but it hasn't achieved the take-up that we had originally hoped for. We have recently -- very recently migrated the dealerships using on-demand from the paid subscription model that we had in place to a free version. So that migration occurred at the start of April. And the ultimate plan there is to basically run a renewed campaign at the dealership level to promote the product now being a free product rather than a paid product. We do receive or we are contracted to receive a very small commission from Uber based on volume. So there is a prospect of any revenue there, but we need to see a significant volume. And we're also working with Uber and GM at that OEM level as well to see what support we can get. So we'll keep you posted in future quarters. GM recently announced a significant recall of vehicles for repair and a reverse camera issue. Do we benefit from this scenario? I recall that we're looking to -- that we were looking to develop a specific product for recalls. The very short answer is we do not necessarily benefit or feel any material impact from this recall. So OEMs, and this is not just GM, but all of the major OEMs have actually a surprising number of current recalls outstanding. So in the U.S., there are at any point in time, I think it's roughly 9 million vehicles with an open recall. So it is an ongoing issue. Occasionally, we'll see headlines of there being a major recall announced. But actually, in practice, it's a very common thing for recalls to be pushed out into the market. So there's no direct change to our business. Very occasionally, if there's a really meaningful recall, a dealer might need to increase the size of their courtesy fleet. And historically, our program, this is going back a few years now, was a little more sensitive to that. So we'd see a spike in the number of vehicles in the fleet. But the benefit to us is minor in the scheme of things. So no, there's no real benefit. Regarding us looking to develop a similar specific product for recalls, it's still something that we're considering. So the question for us is build or buy, so build or partner with an existing product in the market. That's something we're looking at. In the background, it was deprioritized. So it was flagged as being interesting a little while ago. It was then deprioritized. We're starting to look at it again, but there's nothing sort of meaningful to note there for now. The next question, when can we expect to see new customers or some news that will help move the share price? In the many years I've been holding, there's been no benefit. And I keep hope that keep getting disappointed with the lack of forward momentum. Fair question. So we have recently won Canada, as we shared. We've also shared that we're not pleased with our lack of progress beyond General Motors. So yes, we definitely acknowledge that. We do feel like we're overdue for a win. But of course, we can't forecast if and when that might be. So I know this is not a particularly helpful answer, I think, as far as the share price is concerned. So Ben mentioned earlier that our fundamental objective is to increase the size, sustainability and diversification of our earnings per share. We have done, I believe, quite a reasonable job of meeting those objectives despite the lack of progress within what beyond General Motors. So if you look at our earnings per share over time, really over almost any period, it has improved over time. The diversification of those earnings is still low, but it has been improving each and every quarter. The sustainability of the earnings that comes down to basically how sticky are our contracts, how reliable is our revenue. We have improved the stickiness of all of our earnings. However, we have to acknowledge the fundamental risk here, which is the expiry of the GM contract. So that was a 5-year agreement with an expiry this year. So that risk is still there today. So what it's worth, I'd say that is the major driver of valuation of the shares and quite rightly so. So I mean, that just takes time to solve. Unfortunately, that's the reality of our situation. The next question, over the past 3 years, Q4 has been the strongest revenue and profitability quarter. Is this seasonal? Do you expect the same this year? I'll hand over to Ben on that question.

Thank you, Aaryn, and great question. So in terms of Q4 being the strongest for revenue, we have -- until the most previous quarter, revenue had grown, I believe, it was 14 straight quarters. So yes, Q4 being the last one was always higher than the previous one. That is not seasonal. That is more just a benefit from growing within General Motors and growing our marketplace subscription. The more seasonal aspect would be the profit before tax for Q4 that is -- that relates strongly to the government grants being the R&D tax incentive and also the export market development grant. So most commonly, they do come towards the end of the financial year for the previous year, which is briefly mentioned in our full year annual report. In the revenue note, there is a section for the government grants. And if you are familiar with how those grants occur, it does tend to take a majority of the year before they are reviewed, processed and paid. From an accounting perspective, we recognize the revenue upon receipt. We do not accrue it over time due to all the grant income being at the discretion of the Australian government and there's no liability over the amount until the return or the grant has been lodged. So that is why it's not accrued on a monthly or quarterly basis, and that's why it typically hits our Q4 net profit before tax.

Thank you, Ben. Next question, can we provide a guide to expected annualized revenue from Canada? We have shared before that we're unable to comment on that directly. What we can share is public knowledge that Canada is roughly as far as a -- there's a lot of things actually. But in relation to this contract, Canada is roughly 10% the size of the U.S. So if we look at the number of dealers involved, roughly 10% the size of the U.S. Do you have any plans to increase the sales and marketing team? No, we don't have any current plans to increase sales and marketing team. We need to generate a better return on that spend before we consider increasing our expenditure. Without disclosing anything sensitive, are we currently in talks with new potential customers or partners? We are in current talks with new potential customers, and that is all we can share at this point. That looks to be the end of the Q&A. So we'll leave it there. Again, as always, please e-mail Ben or myself after this call if you have any additional questions, always happy to discuss the business. So thank you again for your time and support, and we will see you in the next quarter. I did just see a question drop in. So see if we can answer that. Do we expect to continue with the buyback? So there's no change to our stance regarding the buyback. So we've explained in detail before our general approach to the buyback and our willingness to repurchase shares when we can and when we believe that they present good value. So there's no change to our position there. Okay. That seems to be the end of the Q&A. So thanks again for your time, and we will reconvene next quarter. Take care, everyone. Bye-bye.

Thanks, everyone. Bye.