Connexion Mobility Ltd

ASX:CXZ

Connexion Mobility Ltd

ASX:CXZ
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$0.030 (0%)
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#86
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Forum Topics CXZ CXZ A good little business

Pinned straw:
Slideup
Last edited 2 months ago

Connexion is an interesting little business and one that I probably would never have either, come across or looked twice at if it wasn't for this platform. @TEPCapital (not sure if he is still around) did some really good work on this a year or two ago and then we had a CEO interview last year which was informative. @wtsimis did a good summary of the recent half year results, which have continued into the recent quarterly. The stability of the earnings in this business really are impressive.

The big risk is customer concentration as they are almost entirely dependent on General Motors, and initially this was enough for me to stay clear, but having watched how this dynamic works I am less concerned about this risk, although if anything changes at GM then this would seriously impact CXZ. The GM contract will be up for renewal again next year but this is now a long standing relationship and this will be the 3rd renewal, and I think this is more of a partnership than a dependency type setup. The other reason I have less concern about this risk was the announcement in Jan 23, about how GM would now pay to have the CXZ software rolled out to all of its dealerships where as previously it was the preferred supplier this boosted ARR by US$3m. There is good detail on all this in the straws but I can't see why they would terminate the partnership if they see value in what CXZ is providing which they clearly do. A negative is that they have struggled to penetrate the non-GM dealers.

What I have been impressed with is the management team, they have very clearly articulated hoe they see the priorities of the business and how they are tracking their progress against these. Its worth checking out the quarterlies on how they are measuring return on growth spend and maintainable earnings. It is refreshing to have a CEO that spells out their metrics and holds themselves accountable to these measures. These guys aren't going to burn cash on unproductive ventures or dilute the share base. Management competency and trustworthiness gets a big tick here for me.

The interesting news recently was the launch of a new product. Given that CXZ is generally pretty conservative in the way they release things I thought this announcement was interesting. Basically they have partnered with a Global ride-share company to provide a dealer shuttle service called Connexion OnDemand. Its a pretty clever initiative to remove a cost and hassle from the dealer side and outsource the shuttle service to a third party. The details were light as it will launch next quarter, but the gist I got from listening into the quarterly call was that they are pretty excited about the potential of it.

At the current 2.9c mark I think it is valued at the status quo with minimal growth expectations. This isn't going to spit off free cash for a while as most of the earnings are being put back into the business and product development, which I think is the right decision, if you want a dividend buy a bank. The important thing for me though is that this product investment is coming from cashflow. This is a $3-3.5m NPAT business with a market cap of $26m. The secret sauce here is the competent management.

@Strawman it would be good to get Aaroyn back on for an update later this year.
Strawman
2 months ago

Just emailed Aaryn now @Slideup -- I agree it'd be great to get a progress report from the CEO

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McLovin
3 weeks ago

+ 1 very interested in hearing from Aaryn. Also by then, the Ridehail product "On Demand" should have launched and perhaps it could be determined if the market has any interest (currently in beta: https://connexionmobility.com/ridehail-beta-program/).

@Slideup Do you have any indication of who their main competitors are? My analysis seems to show Etherstack, Orcoda and ActivePort who by no means are behemoths in their own right.

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wtsimis
3 weeks ago

@Slideup @McLovin I continue to be impressed by Aaryn's leadership and the team and alignment that has been built.

When you consider some of the top priorities for a CEO is capital allocation and organisational culture Aaryn gets passes both solidly.

The capital skills particularly has been impressive whether this relates to buy back of connexion stock (130m to date @ 1-2.2c) or investment of capital or delivery of strong quarterly operational results.

Would love to see Aaryn add some BTC to the balance sheet and give the 7.5% earnt in past 12 months a kicker (would be the first ASX listed entity to do so as far as i am aware). I take the last line on the Q3 quarterly as some hope, see below.

"Our mix of investments may change at any time, without notice"

Aaryn takes a cautious approach to growth in seeking to convert GM dealers to Connexion Software.

In the last quarterly it appears some traction is coming through the Tollaid division with trials increasing and conversions coming through. The deep relationship process the team focus requires patience as an investor but it is NOT coming at the expense of destroying capital requiring shareholders to foot the bill to continue on the growth journey. This i feel is unique for ASX listed companies . I also feel that once traction occurs the momentum will see uptake and conversion occur much quicker (time will tell).

Combine this with the increase spend to the sales and marketing team of 34.9% in Q3 2024 versus Q2 i would expect to see sales flow through. See below quote from CXZ from March 2024 Qrtly :

"Tollaid: during the Quarter, multiple dealerships signed up to trial, from which we anticipate a strong conversion rate, as we have seen with our other trial users to date. This brings the total number of paying subscriptions to 24, at quarter-end. Revenue continues growing off a low base, with heightened demo activity at quarter-end"

"Growth Spend Connexion’s Growth Spend consists of discretionary Research & Development plus Sales & Marketing expenditure, and is generally expensed as incurred. In Q3 FY24, our Research & Development expenditure decreased, and Sales & Marketing expenditure increased over the prior quarter, by 34.1% and 16.9% respectively. The decrease in Research & Development expenditure relates to the culmination of several upgrades to features and products, which had significant costs in Q1 and Q2 FY24. These upgrades were reported in our previous Quarterly Report, in our Product Enhancement section. Our growth spend reflects our investment into product-based growth initiatives".


@Slideup i agree that the biggest risk is customer concentration but i sense like you do that this arrangement is mutually beneficial and would be surprised if this was not renewed.

Look forward to getting an update from Aaryn again but mindful on the limited information he is able to disclose in terms of data and detail as well his conservative nature.

Remain bullish on Connexion Mobility prospects and feel the stock slides under the radar due to it not doing business within Australia and its size.

Disc: Held SM and RL

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McLovin
2 weeks ago

Still looking further into this little business. I think what's also impressive here is the lack of staff turnover. It shows the incentives are strong and that staff enjoy working there. Worked in my fair share of SaaS companies throughout my tenure as an Account Manager / Account Executive. It's amazing what a constant churn of staff does to customer sentiment (having a new salesperson contact them every 6 months). It's not a good look, and causes customers to churn as a result.

They also don't offer their initial "tool" for free like many other "Desperate" companies do, in order to attract customers at a loss, and look to generate revenues down the track through up-sells. The fact that customers are paying for this initial tool or "kindling" as they call it in their annual report to start to stoke the fire for growth is impressive.



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