Connexion reported FY results and pleasing overall.

ALL the reported numbers are in USD.

I have pasted the key elements of the report below but in summary

• Strategy outlined by Arryn found interesting, "come for the tool, stay for the network". As has been consistent Connexion are playing the long game growing and enhancing dealership usage and product offerings. This creates stickiness / high retention.
• Top line growth strong with revenue growing at 47% to $9,841,340 USD and Gross profit 78% to $7,680,585USD. It was a 200 basis point decline from 2023 but considering Connexion expense the R&D this is a plus.
• NPAT rose 7% to $1,882,127
• From a Capital allocation perspective just under 7% of shares were repurchased at a favourable purchase price.
• Balance is solid with NO debt and total current assets growing by 29.97% to $7,9120,38. Total equity also grew by 19.3% to $6,280,349.
• Long term alignment across the organisation via LTIP is a feature and is intended to assist with retention which s crucial in capturing new dealerships long term.
• Guidance was non existent for 2025 but this reflects the nature of the Connexion business which has 99% of revenue coming from General Motors dealership in the USA. The ability for Connexion to shift out of this single customer focus will be the challenge over the next 2-3 years. It also reflects the conservative style of Aaryn.
• Connexion is clearly growing well and doing so profitably.

FY 2025 Projections (my projections)

1. Revenue grow - 15% plus
2. EPS and NPAT - grow faster than revenue
3. Share repurchase to continue as opportunity presents itself.

Disc: Held on SM and RL

Connexion Mobility released Q4 results Friday 19th July.

Solid quarter to finish the year with no change to the thesis in terms of Connexion mobility being a long term buy and hold.

Difficulty in assessing CXZ is the lack of client transparency to understand the traction they are getting with dealerships or OEM but the revenue does provide a solid guide as the direction.

It is important to point out that this lack of transparency means understanding the customer concentration is not clear but something Aaryn (CEO) is seeking to reduce and something as shareholders we must keep at the back of our mind as a risk.

CXZ have and are placing a high priority when working with dealers and OEM's to build a solution that solves their problem in managing their fleet of cars and associated issues. Ultimately the uptake will be seen in revenue.

High level Results were as follows:

• 2024 FY Rev 9.8m USD v 2023 6.6m USD . 32% Higher YOY.
• Subscription revenue in Q4 was a significant driver of this growth hitting a all time high to 1.92m of. Total Q4 revenue of 2.6million.
• 

• Currently there are 46 partners as subscribers with a trial underway to have many more join the network.
• To ensure this occurs and is supported the additional 3.5 FTE during the quarter reflects the priority to develop deep relationships with dealers and OEM's.
• This is also being supported by 5% plus increase in the past quarter in costs in the areas of Sales and Marketing and Research and Development.
• With these additional costs profitability for the year remained flat to 2.63m implying a 26.8% net profit margin. Very healthy and positive.

Capital Management strength continues to shine through.

Net cash under Aaryn's leadership has grown from 2.8m in Q4 2022 to 5m in Q4 2024.

Share Buybacks similarly have been used very well to be value for shareholders.

The buyback and retiring of 153million shares since 2022 at a price range of 1c-2.74 (all below current share price of 2.8c) is solid and not something common on the ASX, especially in small cap land (see below)

Looking to the future the best results for Connexion is ahead of them.

It is pleasing to see a CEO take a long term view to build what is necessary to deliver products which are sticky and when scaled will see net profit grow to be 30% plus. How wide can this software be applied time will tell ?

Mission and Vision is clear as noted below :

Finally from a valuation standpoint CXZ @2.8c has MC of 24m AUD.

Converting the key metrics from USD to AUD @ 1.5x

Rev AUD 14.7m

Cash AUD 7.5m

Net Profit 3.9m

Disc Held RL and on SM

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

As @TEPCapital outlined another solid quarter for connexion.

Alot to like in terms of business performance and execution.

Reading into the results its fair to say Connexxion Telematics led by Aaryn Nania are conservative in terms of guidance and outlook.

This should not be mistaken however on the direction the business is heading and disciplined approach in execution.

CXZ focus on Gross profit as outlined at AGM is occurring with gross profit growing form 500k in Q2 2021 to 891k in last quarter.

This focus on gross profit is all about the long game in terms of growing the 'priority on deepening and expanding the current customer relationships'.

The customer focus and investment is best seen in the recruitment of customer success managers across the US in the past several weeks . This has enhanced customer engagement with dealerships and will yield results over from 2024 and beyond.

Tollaid which is a CXZ toll management solution allows dealerships to improve operational efficiency, cost recovery, and customer experience has signed various dealerships in the free trial stage with the expectation of conversion to a paid service to come through in 2023.

Capital Management

• Connnexion Telematics have 881million shares on issue and 37million or 4.2% of shares were repurchased in the past quarter at 1c (Dec 2022)
• Share allocation to the leadership team are linked long term success and retention with specific hurdles.
• In the passed 12 months CEO and management have made share purchases and insider ownership is at 27%

From a valuation standpoint with revenue at 4.5m- 5.5mil in 2023 and net profit before tax of approx 400-600k in 2023 CXZ is trading at 10x net profit before tax and 2x sales.

With clear leadership alignment and a disciplined approach to operations and good capital management connexion telematics presents as good value for the patient long term investor

Thanks TEP and great summary in analysing such a small company and if the challenges with chips are subsiding goes well for the next 1-3yrs .

Connexion is now a play which providing much upside and limited down along the lines of SGI . Why?

Team have developed many ways to win (see below)

1. High gross margins (75%+ in Q4) and focus to hold or grow this level
2. Ford & Lincoln approval provides upside to grow the business and add value . This will be product led and CXZ sit at a very competitive end of the spectrum
3. Strategic alliance with Infomedia in the US . Opportunity to accelerate this in light of the Ford and Lincoln approved vendor .
4. Toll aid roll out assisting dealerships to improve operational efficiencies , cost recovery and customer experience
5. Marketplace development enabling CXZ to attract and retain participants to the CXZ software ecosystem.

This positive aspect to these elements is that CXZ don't need to win on all fronts to drive great results but if they are able to improve over time across one or more at the gross margins of 75% this will transpire to healthy returns.

The reference and focus on the long game ie building out / deepening relationships with customers to meet their needs and adding products over time presents real appeal and will show up over time.

Management also aren't selling the TAM and aggressively selling the opportunities that lie ahead.

Finally the capital management and employee retention strategy is worth a mention

From a capital perspective currently working through a 20% on market share repurchase . Small holding under $500 are being repurchased . SP have fallen to 1c from under 2c over the past year so a good long term use of capital.

Secondly in terms of the building a retention strategy as the business looks to build teams, awarding shares which vest essentially 6yrs after commencement with the assumption that the share price is higher than it is at the time the team start is also good alignment with shareholders.

Stock to watch that's for sure

Holder in RL

Positive announcement on both the customer front with Ford and Share buyback.

Big fan when businesses look to align all stakeholders especially over a 5 yr period driving retention and performance .

With a profitable business and good cashflows and now outlook for growth improved happy to be accumulate at current prices.

Discipline approach to capital allocation at play which is nice to see.

Risk reward is definitely favourable .