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MiX Telematics Limited (NYSE:MIXT)
Q1 2020 Earnings Call
Aug. 1, 2019, 8:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Greetings and welcome to the MiX Telematics First Quarter Fiscal 2020 Earnings Conference Call and Webcast. At this time, all participants are in listen-only mode. A question-and-answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press "*0" on your telephone keypad. As a reminder, this conference is being recorded.

It is now my pleasure to introduce your host, Paul Dell. Please go ahead, sir.

Paul Dell -- Head of Finance, Americas

Good day and welcome to MiX Telematics' earnings results call for the first quarter of fiscal year 2020, which ended on June 30, 2019. Today, we will be discussing the results announced in our press release issued a few hours ago.

I'm Paul Dell and joining me on the call today is MiX Telematics' new Chief Financial Officer, John Granara, and Stefan Joselowitz, or as many of you know him, Joss. He is President and Chief Executive Officer of MiX Telematics.

During the call, we will also make statements related to our business that may be considered forward-looking pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. These statements are subject to a variety of risks and uncertainties that could cause actual results to differ materially from expectations. For a discussion of material risks and other important factors that could affect our results, please refer to those contained in our Form 20-F and other filings with the Securities and Exchange Commission, available on our website at www.mixtelematics.com under the Investor Relations tab.

We will also be referring to certain non-IFRS financial measures. There is a reconciliation schedule detailing these results currently available in our press release, which is located on our website and filed with the Securities and Exchange Commission. All U.S. dollar amounts referred to on the call have been translated at an exchange rate of R14.8 to the U.S. dollar, which was the rand-dollar exchange rate reported by oanda.com as of June 30, 2019.

With that, let me turn the call over to Joss.

Stefan Joselowitz -- President and Chief Executive Officer

Thanks, Paul. I would like to thank you all for joining the call today. Before I get into this quarter's highlights, I would like to welcome John Granara as the company's new Chief Financial Officer. John brings to MiX over 20 years of broad financial and strategic experience. I'm looking forward to the positive contribution his insight will have on our growth strategy as MiX enters the next exciting phase of its evolvement.

As a reminder, Paul Dell remains an invaluable member of our leadership team and will continue to support MiX in his new role as Head of Finance for the Americas.

Turning to our financial results, despite the weak start to the quarter that we discussed on our last earnings call, MiX reported a solid report highlighted by double digit subscription revenue growth, strong subscriber additions, as well as continued EBITDA margin expansion and positive free cash flow. These results are further evidence we are continuing to benefit from our diversified geographic footprint and product portfolio, as well as bundled deals.

MiX's attractive combination of top-line growth and a highly scalable business model was evidenced by another quarter of solid cash generation. During the quarter, we generated R11 million in free cash flow even after investing R52 million in in-vehicle devices for bundled contracts. This reflects, in part, the positive impact of our bundling strategy. In addition, we were pleased with our adjusted EBITDA performance, which exceeded our expectations with 200 basis points of year-over-year margin expansion.

Our subscription revenue of R455 million grew over 11% year over year on a constant currency basis and was in line with guidance. We also added 16,400 net new subscribers during the quarter, bringing our total base to over 766,000, a year-on-year increase of 11% and reflects our fifth consecutive quarter of double digit net subscriber growth.

ARPU has trended up over time as we have expanded our premium services and bundled contracts have become a higher percentage of our subscription revenues. That said, ARPU remains directly correlated to product mix and can fluctuate from quarter to quarter.

We continue to be pleased with the broad regional performance, as all of our geographies contributed positively to both our top and bottom line. We typically don't provide much geographic detail on our Q1 call, but last quarter we mentioned the slowdown in South Africa as the buildup to the national elections proved a headwind to buying activity in both March and April. As expected, we saw a thawing in May with a return to a more normal cadence in June and we were pleased with the momentum in our Africa business exiting the quarter.

In the United States, we delivered another quarter of growth. However, we have begun to see some more cautious buying behavior among our energy and some multinational companies. We believe this reflects the uncertainty created by the current global trade environment and recent oil price volatility. It is too soon to tell how this may impact our growth in the U.S, if at all, but it is something we are monitoring closely.

As for MiX now, we are continuing to make progress building out our sales organization and laying the foundation for future growth. It still remains early in the process but we continue to be excited at the market opportunity for MiX now and the important role it can play in our growth and diversification strategy in the United States and abroad.

I would like to highlight a few strategic victories that demonstrate our success around the world. In Mexico, we launched our go-to-market strategy by establishing a direct presence to work more closely with our channel partners and customers. MiX Telematics has been indirectly serving customers in Mexico through a long-term channel partner for over 10 years and while this strong relationship remains in place, the size of the addressable market justifies a more direct presence to seize greater opportunity.

Furthermore, an industry-leading Mexican-based recycling company will be using MiX's solutions to manage its fleet of heavy commercial vehicles. This customer wanted to enable a culture of safe and socially responsible drivers through adopting MiX Telematics' premium fleet management solution.

We continue to expand our footprint within a large global FMCG with the addition of over 100 vehicles in Malaysia. We started with this customer more than two years ago and now underpin their commitment to safety and efficiency in close to 1,000 vehicles throughout Africa, Europe, South America, and Asia.

And, finally, a large global humanitarian organization will be expanding their reduction of MiX Telematics' solutions. Their fleets in Senegal, India, Papua New Guinea, and Central African Republic will be equipped with a combination of MiX's light and premium fleet solutions.

On a non-financial note, our central services organization was recently certified to the ISO 27001 international standard for information security management. This further demonstrates our strong commitment to protecting the confidentiality, integrity, and availability of information we gather, process, and deliver to our customers. Most telematics companies rely fully on the certifications of their cloud providers and few, if any, have achieved both ISO 27001 and 9001 certification themselves.

So, in summary, we started fiscal 2020 with a solid first quarter, which reflects our unique global presence and the strategic investments we have made over the years. As a result, I continue to believe we are executing on an opportunity to create a large global company with a compelling financial profile, driven by double digit subscription revenue growth, enhanced scalability, and growing cash flow.

With that, let me turn it over to John to run through the details on the quarter.

John Granara -- Chief Financial Officer

Thanks, Joss. Before I review the financial results, I wanted to share that I'm excited by the opportunity to take on the role of CFO as we move into our next stage of growth. I'm thrilled by both the tremendous global opportunity we have in front of us and the platform strategy we have in place to achieve it. I'm looking forward to sharing the MiX story and getting to know all of you better in the months ahead.

I'll start by first reviewing the financial results for Q1 and then I'll discuss our outlook for Q2 and the full fiscal year. As a reminder, our reporting currency is the South African rand and our results are represented on an IFRS basis unless otherwise noted. For convenience, we have translated our results into U.S. dollars in our press release using the June 30, 2019 spot rate. Please keep in mind that all figures refer to the first quarter 2020 and all comparisons are for the year-over-year changes unless I say otherwise.

As Joss mentioned, we are pleased to start the year with solid first quarter results. Starting with the P&L, total revenue came in at R522 million. Of this total, subscription revenues were R455 million, up 16.5%, or 11.1% on a constant currency basis, and in line with our guidance range. Subscription revenue continues to trend up on a year-over-year basis toward our long-term goal and now represents more than 87% of total revenue.

This strong performance was driven by the ongoing positive traction from our broad subscriber portfolio, including our premium fleet customers across all geographies and key vertical markets. We added more than 16,500 subscribers in the quarter and ended with nearly 767,000 subscribers, an increase of 11% year over year.

Hardware and other revenue of R67 million rand was essentially flat.

Our gross profit margin was 65.7%, down 120 basis points from the first quarter last year. The gross margin decline was primarily the result from a higher mix of hardware sales that went through our dealer distribution channel where we share our profit margin. Subscription margin was greater than 70%, consistent with prior year.

As a reminder, gross profit includes depreciation charges related to in-vehicle devices and high-value peripherals used in certain of our bundled fleet contracts. These contracts generate higher ARPUs and as they go through contract renewal cycles, are expected to drive an increase in gross profit margins, which we expect to trend up toward 70% in the longer term.

Operating expenses were 50% of total revenue, compared to 52% of revenue last year, which highlights our improved economies of scale and ongoing cost management initiatives. Recall that our G&A costs include R&D costs not capitalized. For those of you interested to see our historical capitalization and development cost expense, we have provided a table in our earnings press release.

Adjusted EBITDA increased 22% to R155 million, or 29.7% of revenue, compared to R126 million or 27.7%. As Joss mentioned, the 200 basis point year-over-year improvement exceeded our expectations. We are pleased with the continued improvement in our adjusted EBITDA margin, which demonstrates our ability to invest for growth while successfully leveraging a return on a historical investment. As a reminder, typically, Q1 is our seasonally lowest adjusted EBITDA margin quarter and it then increases over the course of the year.

Adjusted earnings for the quarter was R61 million, or 10 South African cents per diluted share, which was up from R49 million or 8 South African cents per diluted share. The group's effective tax rate for the quarter was 19.5% compared to 78.7%. The tax rate which is used in determining adjusted earnings was 29.1% compared to 28.4%. We have included a reconciliation of adjusted earnings in the financial tables which accompany the press release.

Our balance sheet continues to be very strong. We ended the quarter with R345 million, or $24.5 million of cash, and we have no debt. We believe our balance sheet is a strategic asset for the company and provides us with the flexibility to pursue opportunities to create shareholder value.

From a cash flow perspective, we generated R91 million in net cash from operating activities and invested R80 million in capital expenditures, leading to free cash flow of R11 million for the first quarter, an improvement compared with negative free cash flow of R56 million during the same period last year. The use of cash includes investments in in-vehicle devices of R52 million, which is driven by the demand for our bundled offering. Thirty-two percent of our premium fleet subscriber base are now bundled subscribers.

Now, turning to our financial outlook, in regards to our expectations for fiscal 2020, we are maintaining the guidance we provided on our last earnings call. As a reminder, our current guidance is for total revenue of R2.197 billion, which would represent constant currency growth of 9.7%, and subscription revenue of R1.945 billion, which represents constant currency year-over-year growth of 13.4%.

We remain confident in our ability to achieve this given the momentum in the first quarter as well as the strong pipeline of firm orders and sales opportunities.

At the midpoint of our guidance range, we are targeting adjusted EBTIDA of R691 million, which represents an adjusted EBITDA margin of 31.4%. In regards to adjusted diluted EPS for fiscal 2020, we are expecting 47.7 South African cents at the midpoint of the guidance range. Based on an exchange rate of R14.23 to the U.S. dollar, this translates to $0.837 per ADS. This guidance is based on 585 million diluted ordinary shares and an effective tax rate of 28%.

As we have discussed previously, our intention is to focus on annual targets as this is how our management is focused and we do not wish to close deals on suboptimal terms in order to achieve quarterly objectives. This is most relevant as it relates to the hardware and other revenue line items in our P&L. The area of revenue where we have the highest level of visibility and predictability is our subscription revenue, which as we've discussed, is the largest, fastest growing, and highest margin component of our business.

For the second quarter of 2020, we are targeting subscription revenues in the range of R465 million to R471 million, which would represent year-over-year growth of 10.4% to 11.8% on a constant currency basis.

In summary, MiX has gotten off to a strong start in fiscal 2020. We are pleased with the subscription revenue growth, continuing improvement in our adjusted EBITDA margins, and our free cash flow in the first quarter. Looking ahead, we believe that MiX is well positioned to continue the momentum in fiscal 2020 and beyond, given our industry-leading integrated telematics platform, diverse product portfolio, ongoing traction in key verticals and geographies, and our commitment to sustaining profitable growth.

I will now hand it back over to Joss for some closing remarks.

Stefan Joselowitz -- President and Chief Executive Officer

Thanks, John. In closing, we got off to a solid start to the fiscal year in the first quarter. We delivered double digit subscription revenue growth, strong subscriber additions, as well as continued EBITDA margin expansion and positive free cash flow. These results are further evidence that our strategy is working and we remain confident in our ability to achieve our long-term adjusted EBITDA margin target of 35%-plus.

Furthermore, as John pointed out, our untapped balance sheet is a powerful strategic asset and provides us with flexibility to pursue opportunities to create shareholder value.

With that, we will turn the call over to the operator to begin the Q&A session.

Questions and Answers:

Operator

Thank you. We'll now be conducting a question-and-answer session. If you would like to be placed in the question queue, please press "*1" on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press "*2" if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing "*". Once again, that is "*1" to be placed in the question queue. One moment, please, while we poll for questions.

Our first question today is coming from Matt Pfau from William Blair. Your line is now live.

Matthew Pfau -- William Blair -- Analyst

Hey, guys. Thanks for taking my questions. I wanted to start out, Joss, with perhaps could you give us an update on mix now and how that's progressing relative to your expectations?

Stefan Joselowitz -- President and Chief Executive Officer

Thanks, Matt. And with regards to mix now, we're certainly making progress as the months have progressed. It's still relatively early for us but we're perfecting, I guess, the new go-to-market strategy, or process rather, that is new from our perspective in terms of internal sales team building out and generating subscribers through a combination of filing out and obviously lead generation. And I'm pleased to say we are making progress. We've got a long way to go but we're excited about the opportunity and remain convinced it will be an important part of our growth and diversification strategy, not only in the United States but globally as well.

Matthew Pfau -- William Blair -- Analyst

Great. And then I just wanted to ask a follow-up on the comments around the energy customers in the U.S. So, is the caution you're seeing related to new purchases or are existing customers also reducing their fleet count with you? And then is this just isolated to energy customers within the U.S. and are you seeing this trend with energy customers anywhere else in the world?

Stefan Joselowitz -- President and Chief Executive Officer

So, let me start by saying that we did grow in that sector in the quarter. So, we haven't observed any contraction that you referred to from existing customers. What we are seeing is certainly a slowdown in the pace of growth or the pace of fleet expansion. So, that's one of the observations that we've seen. We are seeing, with regards to new customers, I guess could be described as an elongation of sales cycles. So, sales cycles have gotten a little bit longer. And it's not just the U.S., I guess. When it comes to the energy sector, it's certainly a global observation. But I will close by saying again that we did grow in that sector during the quarter.

Matthew Pfau -- William Blair -- Analyst

Got it. That's helpful. That's it for me. Thanks a lot.

Stefan Joselowitz -- President and Chief Executive Officer

Thank you, Matt. Appreciate it.

Operator

Thank you. Our next question today is coming from Mike Walkley from Canaccord Genuity. Your line is now live.

Michael Walkley -- Canaccord Genuity -- Analyst

Great. Thank you. And, John, looking forward to working with you.

John Granara -- Chief Financial Officer

Yeah. Thank you, Mike.

Michael Walkley -- Canaccord Genuity -- Analyst

Just to build on that last question, in the U.S. market, we have seen for a lot of the industrial, bigger, large companies to have tough earnings and there seems to be some excess inventory of trailers and other things. You have kind of slowing adoption. So, just maybe dig in a little more, Joss. Are you seeing it in any other verticals outside of energy in the U.S. or maybe you can just discuss -- you guys talked on the call of strong pipeline. Maybe you can just maybe discuss that pipeline, if there's been any change to that in terms of customers maybe slowing purchases or pushing things out within that pipeline.

Stefan Joselowitz -- President and Chief Executive Officer

Thanks, Mike. Certainly, when it comes to large, global, multinationals, not only U.S.-based but in other geographies as well, the conversations that I've been having is there's definitely an enhanced nervousness around global growth prospects and I think that concern probably emanates, or definitely emanates, out of tariff war concerns. But this is really just conversations and I guess we'll have to see how it plays out with time. But outside of the energy sector, other multinational customers in other sectors, we had a decent performance during the quarter. So, that's our current position.

Michael Walkley -- Canaccord Genuity -- Analyst

Great. Thanks. And maybe just go into South Africa. It sounds like things are improving there. Can you just talk about maybe it sounds like it ended the quarter stronger than it began and if that momentum you think is going to continue now for the rest of your fiscal year?

Stefan Joselowitz -- President and Chief Executive Officer

Yeah. That categorizes it well. As you know from our prior earnings call from three months ago, we were pretty disappointed with the way we started the quarter, particularly in that geography, and we attributed it to the build up to the national elections which impacted the closing month of our prior year and opening month of this year. The results of those elections were positive, we believe. And as we expected and as we alluded to, business started normalizing. So, we definitely saw a thawing out in the second month of the quarter and a strong finish to the quarter. So, we were very happy with the momentum that we exited the quarter on. And bearing in mind the economy in that region is a tough economy and has been for a number of years, we continue to be pleased with the performance of our team there and happy with way we finished the quarter and the way we -- we're feeling that it's probably a more normalized cadence now for the balance of the year and time will tell.

Michael Walkley -- Canaccord Genuity -- Analyst

Great. Last question for me and I'll pass it on. Just as you continue to scale the business in new markets, can you discuss any new opportunities you're seeing? It sounds like Mexico is one that you see as a direct channel to invest in but are you seeing opportunities and any maybe changing competition that you see some opportunities to take advantage of in different regions? Thank you.

Stefan Joselowitz -- President and Chief Executive Officer

I appreciate it. Thank you. And, yes, definitely. We're fortunate to be in a space where, to a degree, we're spot for trace so we're awash with opportunities. You mentioned one of them being Mexico. We're making good progress in that geography and it really plays to a lot of our strengths in terms of, if you look at the primary pillars of our product offering, the combination of very strong data fleet management and security plays very well -- safety and security -- in that geography. So, we believe that's going to be a good investment for us as we look to engage more directly than we have been in the past with a number of large customers in that geography. And, certainly, there's other opportunities in other geographies and other verticals in various parts of the globe that we're pretty excited about, including the United States. So, overall, we're pleased with, I guess, the myriad of options we have to grow our business going forward.

Michael Walkley -- Canaccord Genuity -- Analyst

Great. Thank you.

Operator

Thank you. Our next question today is coming from Brian Peterson from Raymond James. Your line is now live.

Brian Peterson -- Raymond James -- Analyst

Hi, Joss, and hi, John. Welcome to the call. Looking forward to working with you. So, just maybe first on the Mexico opportunity, Joss, is there any way to frame how big that market is relative to the other markets today? And anything longer term on how that could contribute to revenue? I know its early days. I'm just trying to put that opportunity into context.

Stefan Joselowitz -- President and Chief Executive Officer

It is early days but bear in mind it is a very large economy and there are a lot of verticals that we have a lot of strength in and that we've been successful in many other geographies. It's a market where, for instance, public transportation is a big factor, much more than it is in the United States by way of example. So, certainly, the use of public transport in that market is a huge opportunity for us and there are a number of very large fleets, some of which have engaged with us prior to us establishing a direct presence and asking when we were considering doing that. So, I guess we've sort of followed a similar process to what's taken us into other geographies in the past. To a degree, it's been some customer motivational influence in terms of getting us there.

So, we've established an office. They're at the stage it's a sales and marketing presence and we'll build it out from there. We still have our dealer relationships, third-party relationships, which we will continue with in that territory, but we now do definitely have an opportunity to engage directly there. And I see, with time -- it's not going to happen overnight. It'll take some years. I see it evolving, I guess, to a similar degree that our Brazilian business has evolved where it'll steadily become a meaningful piece of our business from a percentage perspective.

Brian Peterson -- Raymond James -- Analyst

Thanks, Joss. And maybe just a follow-up for me on M&A opportunities. You guys haven't been shy about indicating your desire to expand through M&A, particularly in the Americas. Any update you can share there in terms of those efforts? Thanks, guys.

Stefan Joselowitz -- President and Chief Executive Officer

Thank you. We continue to engage in possible opportunities and all of our decisions around capital allocation is really based around one fundamental principle -- what's going to drive the best enhancement in intrinsic value per share. And it makes it tough for us to do deals. We recognize there's incredible value in our own stock. We've looked at stuff. We've bid on some opportunities. But the reality is that, as we've demonstrated over many years, we're pretty measured in our approach to capital allocation and if we find something that we believe is going to deliver fair value and it's going to be accretive in the short term from a shareholder perspective, we'll certainly take a hard run at it. But, in the meantime, we remain patient and we'll continue looking.

Brian Peterson -- Raymond James -- Analyst

Thanks, Joss.

Stefan Joselowitz -- President and Chief Executive Officer

Thank you.

Operator

Thank you. Our next question is coming from David Gearhart from First Analysis. Your line is now live.

David Gearhart -- First Analysis -- Analyst

Hi, good morning. Thank you for taking my questions. First question, I wanted to ask about the gross margin down sequentially. And you mentioned greater volume of things going through the dealer channel. I'm just wondering how we should think about the cadence for the rest of the year for gross margin? Is this a one-time stepdown in the quarter? Should we see it progress from here? Because I know you said, longer term, moving toward 70%. But just if you can give us some color on the cadence for the year.

John Granara -- Chief Financial Officer

Hey, David. So, we are looking at this. As Joss mentioned, this can have some lumpiness in terms of quarter to quarter. But we are expecting to be 66.5%, probably, for the year. So, we're looking at it on an annual basis. The timing quarter to quarter can vary though.

David Gearhart -- First Analysis -- Analyst

Thank you. And then with the guidance for Q2 on the subscription revenue side and then taking the full year in context, it implies a pretty strong ramp or acceleration in Q3 and Q4. And with Joss' commentary around some hesitation, some longer sales cycle, I just wanted to dig in a little bit more in terms of what gives you the confidence for hitting the number for the rest of the year.

Stefan Joselowitz -- President and Chief Executive Officer

Thanks, David. Again, guidance is based on, as I've said in the past on numerous occasions, our best judgment at a point in time. So, we look at a number of factors, not least of which, of course, is our pipeline of committed orders and then our pipeline of, let's say, uncommitted but potential orders that are reasonably close to fruition and we apply a percentage likelihood to those. We look at the macro environment in our various geographies and we have to make a judgment call. And as things currently stand, having a back loaded subscription revenue growth year is not unusual for us so we do, depending on ARPUs from various deals, we factor in the layering effect of that. So, as things stand today, we're still feeling good about our full-year guidance and we'll certainly review it on a regular basis, as we do, and update the market accordingly.

David Gearhart -- First Analysis -- Analyst

Okay. And then lastly for me, if you can give us an update on the mix of the gross sub-additions between fleet and the lower value asset tracking, as well as just give us an idea or an update on the energy percentage of overall revenue, because it's been a while since I think we've heard that metric.

John Granara -- Chief Financial Officer

Yeah. So, I'd say it's actually been consistent with the premium fleet and light fleet representing over 70% and the asset tracking approximately 30%.

David Gearhart -- First Analysis -- Analyst

And that's of gross additions for the quarter?

John Granara -- Chief Financial Officer

Yes. Yeah, for the quarter.

David Gearhart -- First Analysis -- Analyst

Okay. And then the energy side?

John Granara -- Chief Financial Officer

Energy side is just still a major part of our business in terms of the additions. So, there's been no change in the composition of our verticals. So, it still remains toward the top. So, I would say that the vertical, in terms of the additions, the vertical composition remains consistent with the past.

David Gearhart -- First Analysis -- Analyst

Okay. Thank you for the color.

Operator

Thank you. Our next question today is coming from Brian Schwartz from Oppenheimer. Your line is now live.

Brian Schwartz -- Oppenheimer -- Analyst

Yeah. Hi. Thanks for taking my questions here this morning. Maybe afternoon in South Africa.

Stefan Joselowitz -- President and Chief Executive Officer

Thanks.

Brian Schwartz -- Oppenheimer -- Analyst

I've got a few here for you, Joss. Just a quick follow-up on maybe the trends that you're seeing here in that U.S. energy sector in the first month of fiscal 2Q. Maybe just if you're looking at really more of the pipeline activity than the deal activity, are you seeing any improvements or any changes from the trends that you saw in the first quarter?

Stefan Joselowitz -- President and Chief Executive Officer

No. No. Pretty consistent with Q1.

Brian Schwartz -- Oppenheimer -- Analyst

Okay. And then, Joss, maybe diving into it a little bit, I think some of the causes that you talked about, it sounds like there's some increased uncertainty about the future from these customers. But just kind of challenging that a little bit, do you think it's all about the future? Could any of it be either competition or maybe the internal sales processes? Did you analyze that? And just wondering your thoughts.

Stefan Joselowitz -- President and Chief Executive Officer

Brian, I'm hoping I'm understanding the question correctly. But in terms of global growth outlook, a lot of it is, I guess, around conversations, as I've said. In terms of our pipeline analysis, we've got a reasonable picture of what that looks like and that's what really guides the numbers, the future view that we give the market. So, that's certainly one way that we formulate that. But I don't think this is a unique thing to MiX, particularly. I think there's really just a nervousness, I don't think it's anything specific at this stage, around whether these tariff wars can be really timely resolved and, if not, what the longer term impact might be on global growth. So, we're paid to drive a business success irrespective of what the macro situation is so I don't want to come across as making excuses because we're not. I think we're pleased with the way we're building our business. And despite some macro headwinds, it's beholden on us to continue to deliver, and that's what we intend to do.

Brian Schwartz -- Oppenheimer -- Analyst

Yeah, that's real helpful, Joss. I appreciate that. One other area that's been kind of pointed out as weakness from other software businesses this quarter was UK in regards to what's happening over there and Brexit. Clearly, your business has a good presence over there in the UK. Is it possible just to comment on what you're seeing over there in that market?

Stefan Joselowitz -- President and Chief Executive Officer

Yeah. We grew in the quarter. So, that's always, obviously, the first key metric for me and for us. And so we grew subscribers and profit specifically in that geography. Again, there's no doubt that Brexit is another -- from a growth concern perspective globally, it's one of those issues that everybody continues to monitor and is certainly something that we monitor and we look at. I try not to sweat the stuff that I can do nothing about. So, again, we focus on the opportunities that are presented to us or that we can jump into that will keep us immune from whatever happens there. And we've got to focus on building the business. But, so far, our business there is continuing to grow and our view for the year forward -- and we certainly baked in, in our numbers, that we're not expecting our best year ever in Europe because of this Brexit issue this year. So, that's already baked into our numbers. And we'll continue, like everybody, to monitor it.

Brian Schwartz -- Oppenheimer -- Analyst

Last question. Thank you for that update. And last question, Joss, I wanted to ask is just on the M&A topic that's been a topic here on the call. If I look at the M&A activity in the past, typically, mostly it's been technology tuck-in acquisitions, new products through M&A. And I'm just wondering how you're thinking about prioritizing the balance sheet for M&A. If you think about these three different categories, using it for growth through consolidation, if you're using it for growth through new products like you've done in the past, or using it to potentially enter new markets or new geographies, can you maybe just share with us how you think about using the balance sheet in terms of the priority between those three opportunities for growth? Thanks.

Stefan Joselowitz -- President and Chief Executive Officer

Thank you. So, certainly, buying a third-party business is only one of the options that we have in terms of capital allocation. And as I've alluded to, our preference is -- at least our next one would be to buy a business with United States' revenues and profits. That would be, by far, our preference. So, we're certainly not putting a huge amount of effort into analyzing alternate geographies. Most of our efforts have been exclusively on this continent. And our preference, if we're going to do a deal, on the assumption we could find one at the right valuation, if we're going to do a deal is to build scale in our business for, again, our next transaction. So, something that we could consolidate onto our existing platforms, something that would build scale, and drive margins, etcetera, etcetera. So, that would be our preference.

Having said that, we are open to looking at, let's call it outside opportunities that aren't directly in what we would define as a telematics business but technology that could be aligned to that. And, Brian, we'll continue to evaluate opportunities as they come along. We recognize that there continues to be a huge valuation gap between what these deals are trading at and where we are and, of course, that's something we're very aware of. And as I said earlier in the call, we will continue to remain very measured in terms of our approach to capital allocation. We recognize that we've got a strategic asset in our untapped balance sheet and we're going to make sure that we leverage that to drive maximum shareholder value at the appropriate time.

Brian Schwartz -- Oppenheimer -- Analyst

Thank you very much for taking my questions today.

Stefan Joselowitz -- President and Chief Executive Officer

Appreciate it. Thank you for your time.

Operator

Thank you. We have reached the end of our question-and-answer session. I'd like to turn the floor back over to management for any further or closing comments.

Stefan Joselowitz -- President and Chief Executive Officer

Thank you. And thank you for joining us today on the call. We really appreciate your attention and your questions. Bear in mind, we will be presenting at the Oppenheimer and Canaccord conferences in Boston next week and John and I hope to see some of you there. Until then, thanks very much.

Operator

Thank you. That does conclude today's teleconference and webcast. You may disconnect your line at this time and have a wonderful day. We thank you for your participation today.

Duration: 43 minutes

Call participants:

Paul Dell -- Head of Finance, Americas

Stefan Joselowitz -- President and Chief Executive Officer

John Granara -- Chief Financial Officer

Matthew Pfau -- William Blair -- Analyst

Michael Walkley -- Canaccord Genuity -- Analyst

Brian Peterson -- Raymond James -- Analyst

David Gearhart -- First Analysis -- Analyst

Brian Schwartz -- Oppenheimer -- Analyst

More MIXT analysis

All earnings call transcripts

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