Karooooo Ltd. (KARO) Q2 2021 Earnings Report, Transcript and Summary

Good day and thank you for standing by. Welcome to the Karooooo First Quarter 2022 Earnings Conference Call. At this time, all participants are in a listen-only mode. after the speakers' presentation, there will be a question-and-answer session. [Operator instructions] Please be advised that today's conference is being recorded. [Operator instructions]. I'd now like to hand the conference over to speaker today Mr. Zak Calisto, CEO, Founder. Thank you. Please go ahead Sir.

Thank you, AJ [ph]. I want to thank everybody that made time for our presentation, Q1 FY'22 results. I will go through the presentation and clearly, at the end I will answer as many questions as I possibly can. I founded the company in 2001.We launched in South Africa in 2004 and during April this year we [indiscernible] this to Singapore and the revolving [ph] to Karooooo and is now 100% of contract as from April this quarter. Since we stepped out in the business in 2004, we're always of the view that all vehicles will be connected and tied to all aspects of mobility in the future. This has taken much longer than anticipated, but our mission is certainly to both the both the leading mobility platform that maximizes the value of time [ph]. With over 76,000 commercial and approximately software [indiscernible] and collect over 58 billion data points on a monthly basis, a comprehensive data from customers in different industries, in different geographies using different types of vehicle, different key causes and all of this data, it allows us to contextualize a lot of different business practices and all in that allow us to comprehensive business intelligence support and predictive analytics to our customers whether they just fleet management and insurance industry and that's fundamentally what we do. We collect data from proprietary media [indiscernible]. We also collect data from third party AM vehicles, we store the data and fundamentally we then process the data to create the value. We have APIs into third party systems where we push and receive data from. We've got a relatively consistent history where we year-on-year consistently quarter-on-quarter consistently increase our customer base, our subscribers. We've grown our revenue on a consistently and operating profit is also growing consistently. Our EBIT from time to time a little bit over time, but over time the lineal the line is to me trend upwards. One of the things we found ourselves is the way we allocate capital. We got strong financial discipline and we're consistently monitoring our process on a daily basis. We're quite fortunate that our business is annuity based business. We've got realty subscription revenue growth. 97% of our revenue comes from annuity and that obviously gives us quite a bit of confidence into the what our revenue line look like. Our subscriber growth if we compare this quarter compared to the previous last year's quarter, we grew by 21%. Revenue growth grew by 17%. On a constant currency, we grew by 22%. I think it's important to note that on constant currency, our subscription revenue grew by 20%. We now are [indiscernible] is ZAR2.5 billion, which is at 18%. We did have quite a bit of pay in terms of currencies over this last year. We saw that rand substantiating the cost of currency that we operate in and if you then look at our in US dollars, you will be up 51% increase to $181 million. A lot of that is led by at appreciating South African rand. We had relatively good Q1. We grew compared to Q1 last in terms of mid subscription additions 760%. That could be a little bit out of context given that in Q1 last year, it was really the beginning of COVID. It's a very difficult time. The times are still difficult for this particular time, but we got a little bit more induced to trading in this current environment, but it is a picture of that. If you look back to Q1 of FY'20, our net quarterly subscriber additions is still more than 100% and I'd say that the last three quarters have been very good quarters and have adding net subscribers and typically our Q1 is not normally our strongest quarter given quite a lot of that Jewish and Christian holidays and also the Asian holidays. So we're quite content with the results and achievement in Q1. We continue to see growth of our customer base. What we are experiencing with COVID is we more than normally what we've seen is that different sizing of customers, where you'll have a customer that had 50 vehicles, now it's with 20 vehicles or there is a bit of more movement in the downsizing or increasing of vehicles throughout the customers. Now, commercial customer retention has remained strong at 95% and we've had very low industry and customer concentration risk, the core industry, which is considered to be quite risky given COVID. We listed 1.1% of our base and our largest customer is less than 1.7% of our revenue. And also I must add that the largest customer, the 1.7 in terms of bottom line is due to the discounts, it's substantially less than 1%. And in terms of cash plan, our operating activities, we actually up 90% compared to Q1 of FY'21. Clearly with the growth, we've invested more into PPE. So we've seen a 77% growth in PPE and our free cash flow is down 12% primarily on the back of outright and investing in our growth of our business. We believe one of our advantages over and above our internal systems and our platform is over years, we've -- we are improving substantially in our ability to acquire -- customers to acquire subscribers, subscriber being the vehicle that belongs to customers. I always tell, here we have a certain element of control on retaining customers, but the vehicles are the subscribers. That's really our default. We subscribe [ph] to our customers, how long they retain the vehicle on our platform. So we do see customers selling the vehicles often had been the platform for 12 months, others after 18 months, but all of these units economics, we take into concentration to build out our model. So what we saw in Q1 this year compared to Q1 of last year, we saw an awkward drop from ZAR155 to ZAR151. Predominantly that drop is actually got to do with the currency. The strong rand had a negative impact on our ARPU and it's also partly due with quite a lot of customers in some Asian countries and in Africa, outside South Africa where they're getting holidays where they're not actually using the vehicles. So that's had a negative impact, but I think overall on a constant currency, our actual ARPU has actually increased compared to last year, but it's still trading in the range that we find out range which is between ZAR 150 and ZAR160. Our subscriber contact last cycle remains very consistent just over 60 months. We depreciate in the capitalization of customer acquisition or subscriber acquisition over 60 months. It's more subscriber acquisition. What you do see is a huge decline in our cost of acquiring a subscriber from 2,636 range through 2005. There is a little bit of noise in that, in the sense that in Q1 last year, we had substantially less overheads in terms of sales people, but there was substantially much less -- the productivity is substantially less because of COVID. At this point in time, our productivity is still not where we wanted because we on boarded a substantial amount of sales and marketing stuff. But nevertheless, we've seen that improvement from ZAR2,656 to ZAR2005. In terms of what we capitalized that dropped from ZAR1,624 to ZAR1,489 and that's got predominantly to do with our new generation telematics hardware. Subscription revenue growth, profit margin that dropped to 72%, as opposed to 74%, but once again, that is also driven by the ARPU, the revenue in ARPU, which is lower because of the currency predominantly exchange rates against the rent. It's important to note on the slide that the portion that we experience upfront is normally related strongly to customers that we've on-boarded and these customers will have the second cycle of vehicle coming where they deplete the vehicles and bring in more vehicles that would normally, we wouldn't be incurring the south salaries again nor the marketing costs. So over time, it would stand to reason that your cost of acquiring a subscriber will decline. Now, if we see that, that every change with 5G units that we will have in the year, probably within the next year or two, and that could also have an impact on the unit economics. We operate in a large underpenetrated market. South Africa is just a sound [ph] estimates, and sometimes it's very difficult to get numbers with huge amounts of accuracy and it's just over 10 million vehicles. It's, some people talk about 12 million vehicles. We've got just under 1.1 million vehicles. So we have at this point in time, we believe about 8% of the market. We believe that allows us to grow at very good rights specifically so for another five years before we slow down growth. In Africa, we believe we've got 62,000, so we can really grow Africa. It hasn't been one of our priorities. We will focus on that priority probably in four years' time once we believe South Africa has reached a certain level where we've moved that 1 million customers to 2 million and then we can use our stronghold in South Africa and the human capital got in South Africa to move into Africa. In Southeast Asia, it's a huge opportunity with well, over a 100 million vehicles; it's substantially more than a 100 million vehicles. We've only got 124,000 vehicles. And we approximately two years ago, we have been very positives about growing Asia and we are at our best. When COVID came, which is basically now 15 months ago, 16 months ago and that's really made it difficult for us to be able to move around Asia to be able to onboard people. We were hoping, if you ask me five months ago, six months ago, how would Asia look like? I would have thought by middle of the year, it would have looked the market's, sort of opened up much more. The reality is they're actually closing out more. So Southeast Asia is we see, Singapore is coming to a relatively, they're closing, most people working from home. They are closing all the restaurants from tomorrow. So the trading conditions don't seem to be very favorable, but we very well positioned to grow in Asia, once the market opens up. We have employed about 150 people in this last quarter in Asia in the hope of the market opening up and we are all moving some of our staff that are sitting here in America and in South Africa, that remains going to Asian countries and we are bringing them to Singapore and hopefully they will -- with the Singapore team and we'll start gathering momentum, hopefully many future in Asia, because we certainly believe that's how big this opportunity. Europe also a massive opportunity for us. Europe is what we're waiting for. We certainly want to start really investing for growth in Europe. What we do see in Europe is, they go from lockdown to open up the market and it's quite -- it fluctuates. The policy seems to change quite frequently. And we would like to see Europe through this next winter and then off to that start investing substantially in Europe, just the same way as we invested in South Africa in the last six months or seven months where we've actually employed in the region of about 700 people, 650 people and we look forward to the opportunity. We believe it's huge. We will focus on customer acquisition and as the markets become more penetrated in at that point in time, we can focus on increasing our ARPU by charging for the value added services that we continuously add on to our platform, that at this point in time, we're giving to our loyal customers just to put customer retention and to create customer stickiness, and to make our proposition video [ph]. If we look at our subscribers in this quarter, quarter on quarters, South Africa grew by 22%, Africa by 5%, Europe by 14% and Asia by 17%. During this quarter and actual fact, I would say actually for the last six to seven months, we've been investing quite heavily for growth. And if you look at the amount of capital that you've allocated to sales and marketing, that's gone up by 71%, R&D by 44% and G&A approximately 21%. We did experience growth in the G&A, but it is also expansion costs for Asia and even for South Africa there. So we believe we have reaped the rewards of this investment in months to come. We've on-boarded a lot of people. They'll probably take a few months to become totally productive and given COVID, which obviously slows down the process of the transfer of knowledge, we believe that by Q4 of this year we'll get the results that we've desired out of all the staff that you've on-boarded and we've been excited about the future that holds us. Our operating metrics, our subscription revenue grew from ZAR526 million to ZAR606 million ARPU, dropped from ZAR155 million to ZAR 151 million. Our gross profit margin dropped from 70% to 71%. Most of this is really due to the foreign exchange on the ARPU, it brings those margins down. In research and development, that we increased from 4% as a percentage of subscriptions revenue to 5%. Sales and marketing, that's been increased from 10% to 15%, all in line without plans and G&A that's increased from 20% to 21%. Our adjusted EBITDA margin last year was 50%, this year it's 44%. It's very much in keeping with our expectations and we believe that adjusted EBITDA margin will increase above 45% by the financial year end. Our outlook, that we gave at the end of FY '21, we maintained the same outlook and that is to get subscribers to be between 1.5 million and 1.6 million. Our subscription revenue between ZAR2.5 and ZAR2.7 billion and our adjusted EBITDA margin between 45% and 50%. It's just important that our ARR is actually at ZAR2.5 billion as of May. On that note, I'd like to thank everybody for taking the time to listen to us and I will open up for questions.

Question number one, from Deepa Malhotra [Indiscernible].

What do you honestly think about prospects about expanding into mature markets like Europe and the U.S.? Don't you think it's too risky or do you think the competitive advantage we have is strong enough to compete in such markets? And if yes, what makes you concerned?

So it's quite a long question. So we not -- we put a very small office in the U.S. I think the U.S market is a very exciting market with full of opportunity that we just haven't got the human -- we haven't got enough -- we spread too thin to go tackle the U.S. We in Europe, we compete very favorably with our competitors there and actual fact, we won a lot of the business over there and we believe that that's definitely an area where we want to certainly invest in Europe. And I think the U.S over time to come. We've got enough on our plate, that probably the best solution for us would be an acquisition or a merger in the U.S. at a later time to come. I don't think right now. Right now I think we've got enough in our plate and a lot to do.

Next question from [indiscernible]. What was the impact of COVID restrictions during the period? Aren't, you think your net adds with company if we had zero COVID restrictions in your operating regions.

It really are -- obviously I haven't got a crystal ball, but my gut feel is and the way we've prepared is to obviously be growing much faster than what we are growing yet. I think under the circumstances we had to focus on the market that we believe was the easiest to trade under COVID. South Africa is a very open market just like the U.S. Europe was half open, Asia was very closed, it was a very closed market. So we focused where we could do best and we've seen the results we achieved. Obviously, under COVID we believe, and our targets in turn for our management would certainly be to be doing better than we currently doing.

Great subscriber growth. Can you provide more color on the geographic breadth of sales and marketing spend, please? Where are you spending the extra money and when do you think the fruit of this investment will be evident? Also the travel restrictions and so most of Africa right now, is your team able to travel in the region?

So, the temporary restriction with anything that intensified, still very difficult to travel in the region and I think Anthony, quite frankly, our profile [ph] now, it seems would look very different, but it's really, I would say it's even tougher now than it was three months ago. Where did we spend most of our sales -- allocation of sales and marketing? It was predominantly South Africa and a bit of Asia. We want to spend the growth in Europe just, I would say in about two quarters time, we just wanted to see after the summer holidays of Europe what that would look like. And the, but the minute we see Asia will open up, that's where we really want to allocate a lot of capital to. We see Asia as a big opportunity. But at the moment, very tough to do business there especially if you haven't caught the strong presence on the ground and you're busy growing the business, it's quite difficult.

Daniel Bartus. Okay. Okay. Daniel since you asked the question, we will have it that way. Okay, I'll do it after it. Could you talk through the seasonality embedded in your four quarters in a normalized environment?

So our business is not very seasonal, although our two weakest quarters is Q4 and Q1 and those quarters are normally quite weak quarters given all the holidays specifically in South Africa, in December and then obviously with the Easter and the Jewish holidays and some Asian holidays around the first quarter that makes -- because for us, it's all about trading days. The less trading days we have, that slightly impact us. It's not really the weather. It's more, the trading day if one had to take it directly. I'm not sure if I have answered your question, but I think I am.

AJ, can you ask the questions from Mike from Canaccord?

Perfect Sir. Mike, your line is open now. You can ask your question.

Great. Thank you. Zak, congratulations on the strong start to fiscal '22 despite probably some of these markets more locked down than you anticipated when you gave the initial guidance. Can you just talk longer term, just, should some of these regions such as Southeast Asia start to reopen, how do you think the business might reaccelerate in terms of longer-term growth, particularly with the sales and marketing headcount additions you've made over the past year.

Must of sales was actually in South Africa, although that about 157 people in terms of the new last few months in Asia, in anticipation of the market opening. We believe we all do really well in Asia. We feel very confident and our management feels very confident and we'll have to bold our expansion in terms of distribution. Our distribution is quite limited, even in terms of Asia. We're shifting from allocating capital and we believe we will do well. So where we have got traction, we believe we waiting on the ground. I certainly believe that our platform is way far superior and absolutely it's very comprehensive. So we grew really well in it.

Great. Just a follow-up question for me and I'll pass the line. Zak, are you seeing any change in competitive dynamics in South Africa, in [indiscernible] their seat track business, AMIX Telematics made some, headcount reductions last year, and then there's companies such as Samsung are moving in there. So could you talk about competitive dynamics as it looks like you guys continue to do very well in the South African market?

These are very competitive it's also one of the most highly penetrated markets in the world. It's very competitive and that always have what our peers are doing. But we're winning on the ground and we are growing our business and I think that maybe the most the thing we've really focused on and at the end of the day, we've only got 8% of the full markets. So we believe we'll continue to grow.

And maybe just one quick follow-up to this, just on South Africa, there's been some social unrest in the news there, any impact to your business in the current quarter or do you feel like turns remained pretty strong in that region? Thank you.

So they certainly have been impacting this quarter. So what the social unrest was profit losses. If my memory serves me correctly, about two weeks, it appears that it's all calmed down, it's all back to normal. But all that would be a situation that we're not assessing. So we think we have a great month and we probably think that of the business that we would have momentary. However, in August we'll have another aggressive plan. So it relies it's probably 4G more than half or sales. So under the circumstances, I think it will impact the quarter, but it will not if obviously some of us small medium businesses survive a bit. This could happen on us in terms of having lost some customers with COVID, but nevertheless I think even we're really some of our customer base within indictable I believe it's going to impact us.

Thanks for taking my questions and best wishes for ongoing success. Matt Pfau from William Blair.

Sure, Sir. We have our next question. Your line is open. You can ask your question now.

Thanks for taking my questions, Zak. Just wanted to follow up on your supply chain and how you feel about your inventory levels and ability to source new inventory. And is there any sort of concern about that being a constraint from a growth perspective?

At this point upon Matt, I don't believe so. We've got certainly enough in Vinci at this point in time to conduct business as normal. And if we did ever get into a situation where we have a lot of inventory, I would say it's probably in the next financial year, shoot something that we cannot think about go wrong in terms of supply chain. But we believe this financial year, we certainly feel very comfortable. We can have no issues.

Great. And then, and then just one more question for me, just wondering if you could provide some detail on some of your newer growth initiatives, such as [indiscernible] or the insurance initiative that you have,

What's caused [indiscernible] we're hoping to launch in Q4 of this year. With COVID we've been -- we've always put out our launch in the latter part of this financial year. We're doing the tests at this point of time and we feel very confident we're going to do well. And we're going to build this business over the next two to three years, and I believe we'll grow it into a big business. I don't want to promise the market or promise anybody expectations, clear expectations, but myself and management feel that we're doing the right thing and that we believe that's going to create a tremendous amount of value, not only for us, but for our customers as well.

Great. Thanks a lot for taking my questions Zak.

Thank you.

The next question is Daniel Bartus.

Okay, Great. Hey Zak, thanks for taking the question. First I noticed the large fleets continue to grow as well. Can you just talk a little bit about what you're thinking in terms of second half or next year, how much of the growth should be coming from larger fleets versus a smaller fleets and are you changing strategy in all to, to go after that opportunity more?

So, Matthew Daniel it is large fleet at our extra, very small percentage of the vehicle park in the world. So we've taken the view that we go for the small medium enterprises and then upon going into the large fleet. So we will talk about the large fleet. The Penetration Rate in large fleets is larger than the small and medium enterprises and that we certainly all got installed at the large fleet. And we are already to a lot of quite a few of the large fleet switching from the current providers to us.

That makes sense. And then I'm just wondering if you could talk a little bit about what you're seeing in Africa outside of South Africa, that's, that's kind of the one area where you can a little bit of weaker growth. Are there things that you see that you can leverage, you can pull to improve growth outside of South Africa in the African region?

I think it's on our core focus to grow at this point in time to grow Africa. It hasn't been a focus for the last four years. We have put in a bit more focus, but with COVID and the traveling restrictions, it's become a bit more difficult. I think we need to focus on Asia, Europe and South Africa. And obviously we will focus on Africa and it's not that we're not focusing on it. And we all driving the Africa business, but it's not our major focus, although we are investing we've now done quite a comprehensive deal with Toyota for all of Africa. So we are investing that relationship. And but I think fundamentally the real growth is the right now in the next two to three years, it's not going to come from Africa, it's going to come from other segments. Africa, at this point in time is also being quite odd with COVID. Its specifically to Q4 last year and we see Q1 this year, COVID even taking a more deadly poll in Africa. Where, medical assistance is not the greatest. And so Africa is that COVID is definitely having a strong impact on it on Africa, specifically on South Africa.

Just quickly, lastly, you, the travel restrictions have been hurting you guys in certain regions and, we we've talked a lot about it. It's, it's holding back your growth to some degree in certain pockets of the world, but are there ways that you can adjust the business to operate more efficiently, remotely and not, needing to travel on the ground? And I'm wondering if you could just give us some color on, is it sales and marketing that's being hurt by the travel restrictions? Is it more G&A and getting management on the ground or, or is it mostly related to the implementation of the devices? Thanks.

I think it's a combination of everything, but I think fundamentally if you get to the bottom line is if you look at Asia, we've got very strong team in Singapore, we've got a relatively strong team in Thailand, but our teams on strong in that in a lot of countries and approximately two years ago, we had a lot of managers and I think where we went wrong, we had American, South African, Singaporeans, Europeans to go run in these countries and work side by side, and localize the business. The reality is that we thought ladder the people on the ladder, getting to the countries. It's very difficult to get the name. And even if they do get in to get out and visit their families, it's very difficult. So we need to -- it's very difficult to un-board people, train them through zoom, get the cultural one, get the distributions quite difficult. Every known that Asia was going to be a little bit difficult on kitties today, we would probably pick the focusing, which is much less there's much less risk picture. And what we will see now is you'll probably find that, if Asia continues, this way, we're just going to pick up our business into Europe to grow there and South Africa. So but the real opportunity is really Asia. Asia is a massive opportunity, but so is Europe. And we just don't want to allocate capital at this point in time. And so after that, the summer holidays, because just judging by what happened last year, October summit in all of Europe went in total title lockdowns, cause it starts getting cold. So, I'm not a specialist on this, but I don’t think anyone [Indiscernible] I just want to be quite thinking why we allocate that capital.

Okay, great. That's really helpful. Thanks Zak.

And then we've got Alex from Raymond James, certainly. Alex, your line is open up.

Great. Thanks Zak. I have two questions on the pricing environment. You mentioned some pricing uplift, constant currency. I'm just wondering if you could, can talk about what drove that increase absent theft impact. And then you also talked about providing some support still to certain customers that were impacted in the quarter. Could you just help us quantify that impact as a five percent of the base and how that level of support kind of trended over the past 16 months? Thanks.

So in terms of the ARPU, we've, it's pretty difficult to keep your art to absolutely consistent. So we believe that ARPU between 150 to 160 is really consistent, we've done, otherwise you start speaking about your art preset makes any sense. And I think it's just it's really it's quite a fire approximately a few ranks, I think in constant currency, it's gone up by ZAR3, if I'm not mistaken, we've not that material, but that gets offset the time, the currency. And again, the customers that we've given them, either discounts or we allow them two months or three months. How we do that, we have visibility of the piece about vehicle, or their customer's vehicle. And if we see the customer is not using the vehicles and the vehicles are parked at the Ola and then the issues with the vehicles, then obviously we cooperate with him if you're not interest to get the patrol. And I believe in the long-term retain great relationships and we have approximately outside proposal comp about four to five percent of our base have got some level of discounts, I would say approximately four to five percent of full base. Most of that would be some in South Africa, some in Africa and quite a lot in Asia.

Okay. That's great. That's great color. One, one thing I don't think we've talked about as much and you kind of tease this when talking about customer acquisition costs, but can you just talk about the 5G refresh cycle? What it's going to mean for the business down the road in terms of costs and what are some of the incremental revenue opportunities that you're working on?

I think so the base price to look at, some, sometimes it's quite difficult to differentiate between customer acquisition and subscriber acquisition.So, customer acquisition, once you have the customer service, the customer safe with the time that tomorrow we're not going to acquire any more customers then speedy about customer service and tiny and looking after those relationships, which is a very different thing to necessarily the marketing pal salaries.I don't want to say they will be no south heritage or marketing, but it will be substantially different in terms of the amount of money that you spend on sounds and marketing. And obviously this subscriber costs is really when someone, one of our customers and that's really what recaps the monitors, it's the vehicle, the technology, the guys, the vehicle, the customer acquisition as such that things front. So when you're buying customers, you have the negative effects on your P&L today that you could have that customer for the next 20, 30, 40 years where you've got very little marketing to read. Does that make sense?

Yeah. Yeah, that makes sense, but I guess a little bit more specifically, I'm just curious what 5G in going to mean in the terms of the refresh, the refresh cycle and some of the incremental revenue opportunities that you're already working on now for when 5G comes under your base?

It's all really about data and it's all about evolving our platform. We're able to deal with much more data much quicker. I do believe we had that sort of environment we probably three years before we did into that. We're really getting very much stronger and to be much stronger. So we're busy improving our business. We're busy building our data capabilities and I believe with that, we'll be able to drive more value to our customers. But fundamentally at the end of the day, it's just going to be a faster and more comprehensive service. It's going to be [indiscernible]. That's the way we see it, but that's all going to take a little bit of time to get to that level where we've got a total 5G base. At this point in time, we have no time and that obviously will impact your cost of acquiring a customer or a subscriber if having said that what we also expect to find prices but also substantially drop over. It's the same way as 2G and 3G and 4G. we don’t believe that's going to be there.

Okay. Very helpful. Thanks.

Thank you very much Alex. We got one from Parker from Stifel.

Parker, your line is open now.

Great. Thanks for taking my question. Just one for me today. If I look at the consumer and the proprietor aspect of your business, can your remind us how you go to market there? Is that primarily a self-service approach where consumers are buying your platform online and do you see any heightened levels of churn and contraction right now in that area of the business relative to small enterprise, medium enterprise in those large fleets?

We're trying to actually over 16 months. We see the business not very different to what it was five years ago. We've proved out that internal business to deal with the reality that we're seeing that side of the business we would have faced had we not -- we've really invested a lot in our internal systems in the last three years and I think it's also allowing us and the customers service the customer continue to fill in the market. Have I answered your question Parker? I might have missed a point.

Yeah, I am just trying to figure out when we think about the opportunity for you to sell to a large fleet that seems like a very involved sales process, but if it's just a person that is buying your technology for one car or their families vehicles, the sales process seems quite different in those situations. I am just wondering if there's been any change in a more distributed world where sales people can't be on the ground in the way you are actually selling to those smaller customers.

So what we find is for instance in South Africa, in America as you know, a lot of the business can be done over telephone. South Africa was not that way inclined but things have changed substantially in the last three years and today we can do quite a lot of business with them on the phone and we're becoming quite successful and we're certainly increasing on month-on-month and we're getting just at it. So I'd say most of ourselves today very much in the way they get conducted in America which is there most and over the phone.

Got it. Congrats on the quarter and thanks for taking my questions.

Thank you very much. We've got one question from Chris [ph].

There was a big decrease from the unit cost of acquiring subscriber from 2016. Is this sustainable and see more decline in cost?

Chris, I think on to that, what I'll do Chris if you don't mind, I'll give you a core a bit just to take you through more detail in case I did not pick it up myself in that.

Then can you provide a bit more color on the South African subscriber basis? Are you doing particularly well in gaining corporate clients or do you think corporate clients need a vehicle. If that seem like really strong results, well done, thanks.

So Anthony what we've seen in South Africa is we're winning both on the business front and on the consumer front and we're winning equally on both trends. What we exclude is the mouth of customer that we're on-boarding with that our business customers that would up the same that we're starting to increase substantially quicker than consumer. Really what causes sustaining the business [indiscernible] additional vehicles make a margin only to see if there is any more sophisticated online market place. Sp really the way we see our business in terms of cost very much a growing model the make in model where we've take and we buy the vehicles from our customers. We actually keep inventory and we sell them. I think the today it's all of our convenience just the platform the way it used to be in olden days I think it's an old model. I don’t believe it's got legs anymore. Today everybody wants convenience and one certain level of warranties. We're in a very strong position that we now own the vehicle where that comes from the vehicle. The top of the age that if the way the vehicle is being driven. So that gives us quite a strong position. So for us it's all about bringing value to the seller and to the buyer and to give him a level of comfort and that's where the industry is actually going.

I think that's all the questions for today. I want to thank everybody that stayed on the call. Thank you very much and the quarter talking to you again in approximately three months time. Thank you. Bye, bye.

Thank you. Ladies and gentlemen, that does conclude the conference for today. Thank you for participating. You may all disconnect.