Since Feb 2023 when Connexion Mobility announced its agreement with General Motors (GM) in the US and following Aaryn Nania appearance on Strawman in the same month i have been impressed with how two key areas of CXZ have evolved :

1. Culture of the organisation and
2. Capital allocation at CXZ.

I will step through why such a view has been formed.

Firstly having held Connexion Mobility from mid 2021 and having monitored the progress via (Quarterly 4C release as well as half yearly and annual results) the risk reward to the upside is more evident today than ever.

Recognising that Connexion Mobility revenue is heavily dependant on GM and due to confidentiality any investment MUST factor this into the risk.

Much of the 7,000 GM dealerships are independent and thus even though GM has an agreement with CXZ it is the dealership discretion to determine the best software. No dealership is obligated to shift to CXZ platform and can make their own decisions on which platform is most suitable in seeking to effectively manage loan car as well test drive systems.

As an investor what is appealing about this model is the incentive for CXZ to develop and show the merits of their system is their for them to show. Failure to do this well will not only led to poor uptake but ultimately loss of contract longer term.

CXZ led by Aaryn recognise this and have not only invested into product development and resources but taking a considered approach to ensure the product is meeting the needs and is of great value.

Results over the past year 2023 and expectations for 2024 and beyond

Hard to fault with positive CF , earnings and NPAT and in doing this reinvestment back into the business to drive improved sales and margins.

Back to my two original points re the Culture and Capital allocation in which CXZ have done very well.

Culture of Organisation

Over the past year CXZ have recruited in a manner which is prudent and in line with revenues rising which has ensured financially profitability is still in check but at the same time place the appropriate resources on the sales and product focus to grow the number of GM dealers whom seek to convert to the platform. This is unfolding and expect this investment to deliver meaningful lift to revenue and profitability going forward.

Second Half 2023 Management brought in metrics to align and improve the accountability of the team. The two metrics which are key to future are,

1. Diluted Maintainable Earnings Per Share or (DMEPS)
2. Return on Growth Spend (RGS)

If the previous guidance by Aaryn and the leadership team on focus on gross profit is anything to go by whereby in Q23 2022 GP was 605k and by Q2 2024 this increased to $3.83m the evolution of these two metrics provide optimism on the customer penetration that may be achieved and thus improved financial results that will flow.

Below is a extract from October 16th 2023 press release re both definitions and the link to management LTIP.

In respect to Capital Allocation i am very positive of the actions taken by Aaryn. His finance background as Co - Founder and Chief Investment officer at Lucerne Investment Partners is no doubt proving to be a real strength for the organisation. Below data speaks for itself.

• Share Count Reduction in 2023 of 45,233,733 ordinary shares or 4.7% of total share count which brings the share count down to under 900m.
• Investment into new product has been done without the need to raise monies or dilute shareholders.
• Cash on Hand of $4.3 mil
• No debt on balance sheet

From a valuation standpoint i will complete an update but support the 3.2c listed last year.

Disc : Held on SM and RL

CXZ H1 2024 Interim-Report-Highlights.pdf

CXZ Feb 9th 24 -Half-Yearly-Report-and-Accounts.pdf

CXZ GM Agreement 2023 Market-Update.pdf

Aaryn (CXZ's CEO) has just bought 5,500,000 units at 1.8c on market with his own cash. In other words, he's just sunk ~A$100K of his own cash into CXZ shares. When you account for tax, that's 75% of a full year's worth of his after-tax CXZ salary. This is a huge vote of confidence in my eyes.

Great to have the CEO on Strawman to explain the business. Here are some of my takeaways.

The business is growing see ann CXZ_ASX Market Update Feb 2023 According to Aaryn this additional $US 250k/mth revenue is immediate and at similar gross margin to existing revenue. (GM on the last half year was 80% so this should add about $2.4M gross profit.) (All figures in USD)

The business strategy is to self-fund growth. They are looking to spend money on growth (sales, marketing, R&D) where it will make a better return than investors can get on the market. He didn't give a % return but did say that there are often long delays in spend turning into revenue. Thus, their key metric will be gross profit. If the market doesn't value this, I'm sure an acquirer will.

Aaryn was very aware of the risks, particularly of having only one major customer (GM) but says that the recent contractual increase shows that they are happy and, by implication, not likely to go anywhere.

One interesting moon-shot that they are looking at, is allowing a dealer network to rent out their loan vehicles to the public. If dealers can increase utilisation on their fleet from, say, 75% to 85%, this would go straight to the bottom line. Note that this benefits from the network effect. A single dealer wouldn't be able to market this but Connexion, in conjunction with GM (+ Ford etc) could create a rival to Hertz. They already have the locations, the fleet and the ability to service that fleet.

Another growth opportunity is to expand into Canada and Mexico. I assume that this would be with GM but he didn't say that.

In summary, the business is run to create long-term value for shareholders. Music to my ears!

From the $3m USD boost to ARR ($4.35m AUD), the most important task is to now work out what proportion would fall to the bottom line. Aaryn may choose to reinvest these profits for further growth (I think that's a smart play), but investors will look to see what the level of underlying profit is (even if the company does choose to reinvest these new profits). We know that CXZ has a gross margin of ~80%, so they will take circa 80% of the A$4.35m revenue as gross profit, that's $3.48m AUD in GP. From here, CXZ doesn't actually need to expand its sales & marketing (S&M), nor R&D (although it is likely to reinvest in R&D). So this boost to revenue is being serviced from the same cost base as before. We know that there are 3 new customer success managers who are joining. Let's assume they are on $100K AUD each. That's a $300K AUD increase in fixed costs. Other than that, there's no need to increase costs in line with this increase in revenue. This is what I love about SaaS companies - excellent scalability. So we might see around $3.48m AUD - $300K AUD - $180K AUD other costs (just to be conservative) = ~$3m AUD of the $3.48m AUD in GP (and $4.35m AUD in rev) fall to the bottom line as profit before tax (PBT). That's about ~A$2.1m net profit after tax (NPAT). On a 10x multiple of that, we have a market cap of A$21m (2.3c/share). I think a 10x multiple would be fair for minimal future growth. If we bake in some prospects of solid future growth, on a 20x PE, we have a market cap of A$42m (4c+/share).