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MIXT MiX Telematics

Filed: 9 Nov 20, 10:15am

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
—————————
FORM 10-Q
—————————
(Mark One)
☒    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2020

or

☐    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period ____ to ____

Commission File Number: 001-36027

MIX TELEMATICS LIMITED
(Exact name of Registrant as specified in its charter)

Republic of South AfricaNot Applicable
(State or other jurisdiction of incorporation or organization)(IRS Employer Identification No.)
750 Park of Commerce Blvd
Suite 100Boca Raton
Florida33487
(Address of principal executive offices)(Zip Code)
+1(877)585-1088
(Registrant’s telephone number, including area code)
N/A
(Former name, former address and former fiscal year, if changed since last report)

Securities registered pursuant to Section 12(b) of the Act:

Title of each classTrading Symbol(s)Name of each exchange on which registered
American Depositary Shares, each representing
25 Ordinary Shares, no par value
MIXTNew York Stock Exchange
Ordinary Shares, no par valueNew York Stock Exchange (for listing purposes only)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ]

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes [X] No [ ]

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act.

Large accelerated filerAccelerated filerNon-accelerated filerSmaller reporting company
Emerging growth company

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. [ ]

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). YesNo

As of October 16, 2020, the registrant had 604,880,384 ordinary shares, of no par value, outstanding.



TABLE OF CONTENTS
 
Page
Part I - FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheets (unaudited)
Condensed Consolidated Statements of Income (unaudited)
Condensed Consolidated Statements of Comprehensive Income (unaudited)
Condensed Consolidated Statements of Changes in Stockholders’ Equity (unaudited)
Condensed Consolidated Statements of Cash Flows (unaudited)
Notes to Condensed Consolidated Financial Statements (unaudited)
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Item 4. Controls and Procedures
Part II - OTHER INFORMATION
Item 1. Legal Proceedings
Item 1A. Risk Factors
Item 6. Exhibits
 


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PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
MIX TELEMATICS LIMITED
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except per share data)
(Unaudited)
March 31,
2020
September 30,
2020
ASSETS
Current assets:
Cash and cash equivalents$17,953 $33,836 
Restricted cash699798
Accounts receivables, net of allowances for doubtful accounts of $3.6 million and $4.3 million, respectively24,10018,876
Inventory, net3,271 3,742
Prepaid expenses and other current assets7,3756,802
Total current assets53,39864,054
Property and equipment, net30,01927,167
Goodwill37,92339,603
Intangible assets, net15,00716,059
Deferred tax assets3,108 3,497
Other assets4,200 4,070
Total assets$143,655 $154,450 
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Short-term debt$2,367 $3,185 
Accounts payables5,251 4,863
Accrued expenses and other liabilities14,83918,835
Deferred revenue5,0774,521
Total current liabilities27,53431,404
Deferred tax liabilities11,43610,540
Long-term accrued expenses and other liabilities5,6605,053
Total liabilities44,63046,997
Commitments and contingencies
Stockholders’ equity:
MiX Telematics Limited stockholders’ equity
Preferred stock: 100 million shares authorized but 0t issued
Common stock: 600.9 million and 604.9 million no-par value shares issued and outstanding as of March 31, 2020 and September 30, 2020, respectively66,522 67,347 
Less treasury stock at cost: 54 million shares as of March 31, 2020 and September 30, 2020(17,315)(17,315)
Retained earnings67,482 70,846 
Accumulated other comprehensive loss(11,070)(7,425)
Additional paid-in capital(6,599)(6,005)
Total MiX Telematics Limited stockholders’ equity99,020 107,448 
Non-controlling interest
Total stockholders’ equity99,025 107,453 
Total liabilities and stockholders’ equity$143,655 $154,450 

The accompanying notes are an integral part of these condensed consolidated financial statements.
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MIX TELEMATICS LIMITED
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share data)
(Unaudited)

Three Months Ended September 30,Six Months Ended September 30,
2019202020192020
Revenue
Subscription$32,099 $27,623 $63,737 $53,498 
Hardware and other4,562 3,325 9,207 4,947 
Total revenue36,661 30,948 72,944 58,445 
Cost of revenue
Subscriptions9,417 7,676 18,712 15,025 
Hardware and other3,028 2,621 5,961 3,850 
Total cost of revenue12,445 10,297 24,673 18,875 
Gross profit24,216 20,651 48,271 39,570 
Operating expenses
Sales and marketing3,148 2,447 6,729 5,193 
Administration and other14,616 13,631 29,402 27,122 
Total operating expenses17,764 16,078 36,131 32,315 
Income from operations6,452 4,573 12,140 7,255 
Other (expense)/income(52)(77)323 (175)
Net interest income/(expense)(70)77 (140)
Income before income tax expense6,404 4,426 12,540 6,940 
Income tax expense3,058 974 4,198 1,066 
Net income3,346 3,452 8,342 5,874 
Less: Net income attributable to non-controlling interest
Net income attributable to MiX Telematics Limited$3,346 $3,452 $8,342 $5,874 
Net income per ordinary share
Basic$0.01 $0.01 $0.01 $0.01 
Diluted$0.01 $0.01 $0.01 $0.01 
Net income per American Depository Share
Basic$0.15 $0.16 $0.37 $0.27 
Diluted$0.15 $0.15 $0.36 $0.26 
Ordinary shares
Weighted average554,781 548,008 558,401 547,569 
Diluted weighted average570,011 558,951 574,606 558,829 
American Depository Shares
Weighted average22,191 21,920 22,336 21,903 
Diluted weighted average22,800 22,358 22,984 22,353 


The accompanying notes are an integral part of these condensed consolidated financial statements.
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MIX TELEMATICS LIMITED
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS)/INCOME
(In thousands)
(Unaudited)

Three Months Ended September 30,Six Months Ended September 30,
2019202020192020
Net income$3,346 $3,452 $8,342 $5,874 
Other comprehensive (loss)/income
Foreign currency translation adjustments, net of tax(5,573)1,561 (3,846)3,645 
Total comprehensive (loss)/income(2,227)5,013 4,496 9,519 
Less: Total comprehensive income attributable to non-controlling interest
Total comprehensive (loss)/income attributable to MiX Telematics Limited$(2,227)$5,013 $4,496 $9,519 

The accompanying notes are an integral part of these condensed consolidated financial statements.






































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MIX TELEMATICS LIMITED
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
(In thousands)
(Unaudited)

Three Months Ended September 30, 2019 and 2020
Common StockTreasury StockAccumulated Other Comprehensive Income/(Loss)Additional Paid-In CapitalRetained EarningsTotal MiX Telematics Limited Stockholders’ EquityNon-Controlling InterestTotal Stockholder’s Equity
SharesAmount
Balance as of July 1, 2019602,472$68,200 $(9,227)$3,820 $(6,791)$65,943 $121,945 $$121,950 
Net income— — — — — 3,346 3,346 — 3,346 
Other comprehensive loss— — — (5,573)— — (5,573)— (5,573)
Issuance of common stock in relation to stock options and SARs exercised1,464 — — — — — — — 
Stock-based compensation— — — — 346 — 346 — 346 
Dividends of 4 South African cents (0.3 U.S. cents) per ordinary share declared— — — — — (1,532)(1,532)— (1,532)
Purchase of treasury stock— — (8,222)— — — (8,222)— (8,222)
Balance as of September 30, 2019603,936 $68,200 $(17,449)$(1,753)$(6,445)$67,757 $110,310 $5 $110,315 
Balance as of July 1, 2020601,019$66,522 $(17,315)$(8,986)$(6,306)$68,687 $102,602 $$102,607 
Net income— — — — — 3,452 3,452 — 3,452 
Other comprehensive income— — — 1,561 — — 1,561 — 1,561 
Issuance of common stock in relation to stock options and SARs exercised3,861 825 — — — — 825 — 825 
Stock-based compensation— — — — 301 — 301 — 301 
Dividends of 4 South African cents (0.3 U.S. cents) per ordinary share declared— — — — — (1,293)(1,293)— (1,293)
Balance as of September 30, 2020604,880 $67,347 $(17,315)$(7,425)$(6,005)$70,846 $107,448 $5 $107,453 











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MIX TELEMATICS LIMITED
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
(In thousands)
(Unaudited)

Six Months Ended September 30, 2019 and 2020
Common StockTreasury StockAccumulated Other Comprehensive Income/(Loss)Additional Paid-In CapitalRetained EarningsTotal MiX Telematics Limited Stockholders’ EquityNon-Controlling InterestTotal Stockholder’s Equity
SharesAmount
Balance as of April 1, 2019601,948 $68,200 $(9,227)$2,115 $(6,902)$62,750 $116,936 $$116,941 
Adjustment on initial application of
ASC 326, net of tax
— — — (22)— (240)(262)— (262)
Net income— — — — — 8,342 8,342 — 8,342 
Other comprehensive income— — — (3,846)— — (3,846)— (3,846)
Issuance of common stock in relation to stock options and SARs exercised1,988 — — — — — — — 
Stock-based compensation— — — — 457 — 457 — 457 
Dividends of 4 South African cents (0.2 U.S. cents) per ordinary share declared— — — — — (3,095)(3,095)— (3,095)
Purchase of treasury stock— — (8,222)— — — (8,222)— (8,222)
Balance as of September 30, 2019603,936 $68,200 $(17,449)$(1,753)$(6,445)$67,757 $110,310 $5 $110,315 
Balance as of April 1, 2020600,934 $66,522 $(17,315)$(11,070)$(6,599)$67,482 $99,020 $$99,025 
Net income— — — — — 5,874 5,874 — 5,874 
Other comprehensive income— — — 3,645 — — 3,645 — 3,645 
Issuance of common stock in relation to stock options and SARs exercised3,946 825 — — — — 825 — 825 
Stock-based compensation— — — — 594 — 594 — 594 
Dividends of 4 South African cents (0.2 U.S. cents) per ordinary share declared— — (2,510)(2,510)— (2,510)
Balance as of September 30, 2020604,880 $67,347 $(17,315)$(7,425)$(6,005)$70,846 $107,448 $5 $107,453 

The accompanying notes are an integral part of these condensed consolidated financial statements.
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MIX TELEMATICS LIMITED
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)

Six Months Ended September 30,
20192020
Cash flows from operating activities
Cash generated from operations$17,218 $22,295 
Interest received419 206 
Interest paid(156)(153)
Income tax paid(2,915)(1,590)
Net cash provided by operating activities14,566 20,758 
Cash flows from investing activities
Acquisition of property and equipment – in-vehicle devices(8,422)(2,590)
Acquisition of property and equipment – other(516)(160)
Proceeds from the sale of property and equipment1,327 
Acquisition of intangible assets(2,641)(1,972)
Loans to external parties(350)
Net cash used in investing activities(10,602)(4,722)
Cash flows from financing activities
Proceeds from issuance of ordinary shares in relation to stock options exercised825 
Cash paid for ordinary shares repurchased(8,222)
Cash paid on dividends to MiX Telematics Limited stockholders(3,084)(2,506)
Movement in short-term debt539 740 
Net cash used in financing activities(10,767)(941)
Net (decrease)/increase in cash and cash equivalents, and restricted cash(6,803)15,095 
Cash and cash equivalents, and restricted cash at beginning of the period27,838 18,652 
Effect of exchange rate changes on cash and cash equivalents, and restricted cash(294)887 
Cash and cash equivalents, and restricted cash at end of the period$20,741 $34,634 

The accompanying notes are an integral part of these condensed consolidated financial statements.



8


MIX TELEMATICS LIMITED

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

1. Organization and Summary of Significant Accounting Policies

Nature of the Business

MiX Telematics Limited (the "Company") is a leading global provider of fleet and mobile asset management solutions delivered as Software-as-a-Service ("SaaS"). The Company’s solutions provide enterprise fleets, small fleets and consumers with solutions for safety, efficiency, risk and security.

The Company is incorporated and domiciled in South Africa, with the principal executive office in Boca Raton, Florida.

Basis of preparation and consolidation
The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States ("GAAP") and reflect, in the opinion of management, all adjustments, consisting of normal recurring adjustments and accruals, which are necessary for a fair statement of the results of the interim periods presented. Certain information and footnote disclosures normally included in financial statements prepared in accordance with GAAP have been condensed or omitted in accordance with the rules and regulations of the Securities and Exchange Commission ("SEC"). The unaudited condensed consolidated financial statements include the accounts of the Company and its subsidiaries. All intercompany accounts and transactions have been eliminated on consolidation.

These unaudited condensed consolidated financial statements should be read in conjunction with the Company's Annual Report on Form 10-K for the year ended March 31, 2020 filed with the SEC on July 23, 2020.

Use of estimates
The preparation of condensed consolidated financial statements in conformity with GAAP requires the use of estimates and assumptions that affect the amounts reported and disclosed. Significant estimates include, but are not limited to, allowances for doubtful accounts, the assessment of expected cash flows used in evaluating goodwill and long-lived assets for impairment, the amortization period for deferred commissions, the determination of useful lives of the Company’s customer relationships, contingencies, the classification of devices and other hardware as in-vehicle devices (equipment) versus inventory based on the future expectation of the different types of customer contracts, income and deferred taxes, unrecognized tax benefits and valuation allowances on deferred tax assets. Actual results could differ from those estimates, and such differences may be material to the consolidated financial statements.

As of September 30, 2020, the global outbreak of COVID-19 has had and, we believe, will continue to have an adverse impact on global economies and financial markets. We have taken into account the impact of COVID-19, to the extent possible, on our financial statements. However, future changes in economic conditions related to COVID-19 could have an impact on future estimates and judgements used, particularly those relating to goodwill sensitivities and impairment assessments.

Summary of significant accounting policies

There have been no changes to the Company’s significant accounting policies disclosed in the Company’s Annual Report on Form 10-K for the year ended March 31, 2020, filed with the SEC on July 23, 2020, that have had a material impact on the Company’s Condensed Consolidated Financial Statements and related notes.


2. Revenue from contracts with customers

The Company provides fleet and mobile asset management solutions. The principal revenue streams are (1) Subscription and (2) Hardware and other. Subscription revenue is recognized over time and hardware and other revenue is recognized at a point-in-time.

To provide services to customers, a device is required which collects and transmits information collected from the vehicle or other asset. Fleet customers may also obtain other items of hardware, virtually all of which are functionally-dependent on the device. Some customers obtain control of the device and other hardware (where legal title transfers to the customer); while other customers do not (where legal title remains with the Company). A contract arises on the acceptance of a customer’s purchase order, which is typically executed in writing.



9



Contract modifications
As a result of the adverse impact that the COVID-19 pandemic has had on certain of the Company’s customers, various pricing concessions relating to subscriptions, in the form of payment holidays and discounts on monthly billings, were granted during the six months ended September 30, 2020. These pricing concessions were accounted for as contract modifications under ASC 606 Revenue from Contracts with Customers ("ASC 606"), which had the effect of reducing the transaction prices allocated to the remaining distinct performance obligations in the contracts. Accordingly, the effect of the pricing concessions is being recognized as those remaining subscription services are provided. A contract asset of $0.6 million, representing amounts that will only be billed in future periods, was recognized as of September 30, 2020, and is included in Prepaid expenses and other current assets on the Condensed Consolidated Balance Sheet.

Contract liabilities
When customers are invoiced in advance for subscription services that will be provided over periods of more than one month, or pay in advance of service periods of more than one month, contract liabilities are recorded. Deferred revenue as of March 31, 2020 and September 30, 2020 was $5.1 million and $4.5 million, respectively. During the quarter ended September 30, 2019 and September 30, 2020, revenue of $0.9 million and $0.6 million, respectively, was recognized which was included in the deferred revenue balances at the beginning of each quarter. Revenue of $2.8 million and $1.7 million was recognized for the six months ended September 30, 2019 and September 30, 2020, respectively, which had been included in deferred revenue balances at the beginning of each such financial year.

Contract acquisition costs
Commissions payable to sales employees and external third parties which are incurred to acquire contracts are capitalized and amortized, unless the amortization period is 12 months or less, in which instance they are expensed immediately. Deferred commissions were $3.6 million and $3.5 million as of March 31, 2020 and September 30, 2020, respectively, and are included in Other assets on the Condensed Consolidated Balance Sheet.

The following is a summary of the amortization expense recognized (in thousands):

Three Months Ended September 30,Six Months Ended September 30,
2019202020192020
Amortization recognized during the quarter:$(863)$(782)$(1,674)$(1,475)
Cost of revenue (external commissions)
(622)(563)(1,202)(1,048)
Sales and marketing (internal commissions)
(241)(219)(472)(427)

3. Credit risk related to accounts receivables

The movements in the allowance for doubtful accounts are as follows (in thousands):

Six Months Ended September 30,
20192020
Balance at April 1$3,019 $3,602 
Bad debt provision1,554 2,273 
Write-offs, net of recoveries(287)(1,748)
Foreign currency translation differences(162)153 
Balance at September 30$4,124 $4,280 


Overview of the Company’s exposure to credit risk from customers

The maximum exposure to credit risk at the reporting date is the carrying value of each receivable and loan to external parties, net of impairment losses where relevant. Other than 18% of the gross receivable balance relating to four debtors as of
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September 30, 2020 (as of March 31, 2020: 15% of the gross receivable balance relating to four debtors), the Company has no significant concentration of credit risk, due to its spread of customers across various operations and geographical locations.

The Company does not hold any collateral as security.

Net accounts receivables as of March 31, 2020 and September 30, 2020 of $2.9 million and $1.3 million, respectively, are pledged as security for the Company’s overdraft facilities.


4. Property and equipment

Property and equipment comprises owned and right of use assets. The Company leases many assets including property, vehicles, machinery and IT equipment.

The cost and accumulated depreciation of owned equipment are as follows (in thousands):


March 31,
2020
September 30,
2020
Owned equipment
Equipment, vehicles and other$6,114 $6,461 
In-vehicle devices52,824 53,564 
Less: accumulated depreciation and impairments(35,397)(39,033)
Owned equipment, net$23,541 $20,992 

Total depreciation expense related to owned equipment during the three months ended September 30, 2019 and 2020 was $3.4 million and $3.0 million, respectively. Depreciation relating to owned equipment was $6.7 million and $5.8 million during the six months ended September 30, 2019 and 2020, respectively. Depreciation expense related to in-vehicle devices is included in subscription cost of revenue.

The cost and accumulated depreciation of right-of-use property and equipment are as follows (in thousands):

March 31,
2020
September 30,
2020
Right-of-use assets
Property$7,724 $8,073 
Equipment, vehicles and other250 191 
Less: accumulated depreciation(1,496)(2,089)
Right of use property and equipment, net$6,478 $6,175 



5. Intangible assets

Intangible assets comprise the following (in thousands):

As of March 31, 2020As of September 30, 2020
Useful life (in years)Gross Carrying amountAccumulated amortizationNetGross Carrying amountAccumulated amortizationNet
Patents and trademarks3 - 20$76 $(45)$31 $60 $(31)$29 
Customer relationships2 - 152,600 (2,068)532 2,643 (2,195)448 
Internal-use software, technology and other1 - 1826,508 (12,064)14,444 29,785 (14,203)15,582 
Total$29,184 $(14,177)$15,007 $32,488 $(16,429)$16,059 
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For the three months ended September 30, 2019 and 2020, amortization expense of $0.9 million, and $0.9 million was recognized, respectively. Amortization expense was $1.9 million, and $1.7 million for the six months ended September 30, 2019 and 2020, respectively.


6. Accrued expenses and other liabilities

Accrued expenses comprise the following (in thousands):

March 31,
2020
September 30,
2020
Current:
Product warranties$601 $600 
Maintenance357 504 
Employee-related accruals5,296 7,096 
Lease liabilities1,094 1,489 
Accrued income tax payable736 1,546 
Other accruals6,755 7,600 
Total current$14,839 $18,835 
Non-current:
Lease liabilities$5,413 $4,824 
Other liabilities247 229 
Total non-current$5,660 $5,053 

Product warranties
The Company provides warranties on certain products and undertakes to repair or replace items that fail to perform satisfactorily. Management estimates the related provision for future warranty claims based on historical warranty claim information, the product lifetime, as well as recent trends that might suggest that past cost information may differ from future claims. The table below provides details of the movement in the accrual (in thousands):

Six Months Ended September 30,
20192020
Product warranties
Balance at April 1$777 $616 
Statement of Income charge156 43 
Utilized(268)(81)
Foreign currency translation difference(28)33 
Balance at September 30$637 $611 
Non-current portion (included in other liabilities)$18 $11 
Current portion$619 $600 


7. Income taxes

Our income tax provision reflects our estimate of the effective tax rates expected to be applicable for the full fiscal years, adjusted for any discrete events which are recorded in the period they occur. The estimates are re-evaluated each quarter based on our estimated tax expense for the full fiscal year.

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Our effective tax rate was 33.5% for the six months ended September 30, 2019 compared to 15.4% for the six months ended September 30, 2020. Our effective tax rate was 47.8% for the three months ended September 30, 2019 compared to 22.0% for the three months ended September 30, 2020. Ignoring the impact of foreign exchange gains and losses net of tax, the effective tax rate for the six months ended September 30, 2019 and 2020, was 28.6% and 29.0%, respectively, and for the three months ended September 30, 2019 and 2020, was 29.6% and 28.4%, respectively.


8. Earnings per share

Basic
Basic earnings per share is calculated by dividing the income attributable to ordinary shareholders of the parent by the weighted average number of ordinary shares in issue during the period.

The net income and weighted average number of shares used in the calculation of basic and diluted earnings per share are as follows (in thousands, except per share data):

Three Months Ended September 30,Six Months Ended September 30,
2019202020192020
Numerator (basic)
Net income attributable to ordinary shareholders$3,346 $3,452 $8,342 $5,874 
Denominator (basic)
Weighted-average number of ordinary shares in issue554,781 548,008 558,401 547,569 
Basic earnings per share$0.01 $0.01 $0.01 $0.01 
American Depository Shares*:
Net income attributable to ordinary shareholders$3,346 $3,452 $8,342 $5,874 
Weighted-average number of American Depository Shares in issue22,191 21,920 22,336 21,903 
Basic earnings per American Depository share$0.15 $0.16 $0.37 $0.27 
*One American Depository Share is the equivalent of 25 ordinary shares.

Diluted
Diluted earnings per share is calculated by dividing the diluted income attributable to ordinary shareholders by the diluted weighted average number of ordinary shares in issue during the period. Stock options, stock appreciation rights, performance shares and restricted share units granted to employees under the TeliMatrix Group Executive Incentive Scheme and the MiX Telematics Long-Term Incentive Plan ("LTIP") are considered to be potential ordinary shares. They have been included in the determination of diluted earnings per share if the required performance condition (if applicable) would have been met based on the performance up to the reporting date, and to the extent to which they are dilutive.
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Three Months Ended September 30,Six Months Ended September 30,
2019202020192020
Numerator (diluted)
Diluted net income attributable to ordinary shareholders$3,346 $3,452 $8,342 $5,874 
Denominator (diluted)
Weighted-average number of ordinary shares in issue554,781 548,008 558,401 547,569 
Adjusted for:
– potentially dilutive effect of stock appreciation rights13,482 9,339 14,358 9,517 
– potentially dilutive effect of stock options and restricted share units1,748 1,604 1,847 1,743 
Diluted-weighted average number of ordinary shares in issue570,011 558,951 574,606 558,829 
Diluted earnings per share$0.01 $0.01 $0.01 $0.01 
American Depository Shares*:
Diluted net income attributable to ordinary shareholders$3,346 $3,452 $8,342 $5,874 
Diluted weighted-average number of American Depository Shares in issue22,800 22,358 22,984 22,353 
Diluted earnings per American Depository share$0.15 $0.15 $0.36 $0.26 
*One American Depository Share is the equivalent of 25 ordinary shares.


9. Segment information

The Company has 6 reportable segments, which are based on the geographical location of the 5 Regional Sales Offices ("RSOs") and also includes the Central Services Organization ("CSO"). CSO is the central services organization that wholesales products and services to RSOs which, in turn, interface with our end-customers, distributors and dealers. CSO is also responsible for the development of hardware and software platforms and provides common marketing, product management, technical and distribution support to each of the other reportable segments. CSO is a reportable segment because it produces discrete financial information which is reviewed by the chief operating decision maker ("CODM") and has the ability to generate external revenues.

The CODM has been identified collectively as the executive committee and the Chief Executive Officer who make strategic decisions. The performance of the reportable segments has been measured and evaluated by the CODM using Segment Adjusted EBITDA, which is a measure that uses net income, determined under International Financial Reporting Standards ("IFRS") as issued by the International Accounting Standards Board, as a starting point.

Segment assets are not disclosed because such information is not reviewed by the CODM.















14



The following table provides revenue and Segment Adjusted EBITDA (in thousands):

Three Months Ended September 30, 2019
Subscription
revenue (1)
Hardware
and other
revenue (2)
Total revenueSegment Adjusted EBITDA
Regional Sales Offices
Africa$17,868 $1,438 $19,306 $8,585 
Europe2,862 760 3,622 1,367 
Americas5,675 454 6,129 3,006 
Middle East and Australasia4,317 1,623 5,940 2,814 
Brazil1,350 286 1,636 671 
Total Regional Sales Offices32,072 4,561 36,633 16,443 
Central Services Organization27 28 (2,530)
Total Segment Results$32,099 $4,562 $36,661 $13,913 

1.Subscription revenue is recognized over time.
2.Hardware and other revenue is recognized at a point in time.

Three Months Ended September 30, 2020
Subscription
revenue (1)
Hardware
and other
revenue (2)
Total revenueSegment Adjusted EBITDA
Regional Sales Offices
Africa$14,855 $1,635 $16,490 $7,249 
Europe2,919 474 3,393 1,536 
Americas4,786 240 5,026 2,170 
Middle East and Australasia4,118 948 5,066 2,405 
Brazil928 28 956 363 
Total Regional Sales Offices27,606 3,325 30,931 13,723 
Central Services Organization17 17 (1,674)
Total Segment Results$27,623 $3,325 $30,948 $12,049 

1.Subscription revenue is recognized over time.
2.Hardware and other revenue is recognized at a point in time.




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Six Months Ended September 30, 2019
Subscription
revenue (1)
Hardware
and other
revenue (2)
Total revenueSegment Adjusted EBITDA
Regional Sales Offices
Africa$35,554 $2,819 $38,373 $16,942 
Europe5,649 1,317 6,966 2,438 
Americas11,337 1,340 12,677 5,364 
Middle East and Australasia8,578 3,246 11,824 5,568 
Brazil2,567 447 3,014 1,294 
Total Regional Sales Offices63,685 9,169 72,854 31,606 
Central Services Organization52 38 90 (5,175)
Total Segment Results$63,737 $9,207 $72,944 $26,431 

1.Subscription revenue is recognized over time.
2.Hardware and other revenue is recognized at a point in time.

Six Months Ended September 30, 2020
Subscription
revenue (1)
Hardware
and other
revenue (2)
Total revenueSegment Adjusted EBITDA
Regional Sales Offices
Africa$28,778 $2,236 $31,014 $14,494 
Europe5,769 608 6,377 2,838 
Americas8,961 395 9,356 3,578 
Middle East and Australasia7,999 1,657 9,656 4,323 
Brazil1,959 51 2,010 773 
Total Regional Sales Offices53,466 4,947 58,413 26,006 
Central Services Organization32 32 (3,537)
Total Segment Results$53,498 $4,947 $58,445 $22,469 

1.Subscription revenue is recognized over time.
2.Hardware and other revenue is recognized at a point in time.




















16


A reconciliation of the segment results to income before income tax expense is disclosed below (in thousands).

Three Months Ended September 30,Six Months Ended September 30,
2019202020192020
Segment Adjusted EBITDA$13,913 $12,049 $26,431 $22,469 
Corporate and consolidation entries(2,221)(2,507)(3,977)(4,837)
Operating lease costs (1)
(419)(399)(727)(791)
Product development costs (2)
(299)(271)(690)(514)
Depreciation and amortization(4,401)(3,836)(8,653)(7,464)
Impairment of long-lived assets(1)(1)
Stock-based compensation costs(178)(301)(289)(594)
Decrease/(increase) in restructuring costs (3)
(153)(997)
Net profit/(loss) on sale of property and equipment40 (7)356 (8)
Net foreign exchange (losses)/gains(36)(78)11 (183)
Net interest income/(expense)(70)77 (140)
Income before income tax expense for the period$6,404 $4,426 $12,540 $6,940 
1.For the purposes of calculating Segment Adjusted EBITDA, operating leases have been capitalized, except for leases with a term of no more than 12 months or leases of low value assets. Where operating leases are capitalized for segment purposes, the amortization of the right-of-use asset and the interest on the operating lease liability are excluded from the Segment Adjusted EBITDA. Therefore, in order to reconcile Segment Adjusted EBITDA to income before taxes, the total lease expense in respect of operating leases needs to be deducted.
2.For segment reporting purposes, product development costs, which do not meet the capitalization requirements under ASC 730 Research and Development or under ASC 985 Software, are capitalized and amortized. The amortization is excluded from Segment Adjusted EBITDA. In order to reconcile Segment Adjusted EBITDA to net income before taxes, product development costs capitalized for segment reporting purposes need to be deducted.
3.For the three months ended September 30, 2020, $0.1 million of the restructuring costs related to the North America reporting segment. For the six months ended September 30, 2020, $0.6 million, $0.2 million and $0.1 million of the restructuring costs related to the CSO, Africa, and North America reporting segments, respectively.

No single customer accounted for 10% or more of the Company’s total revenue for the three or six months ended September 30, 2019 and 2020. No single customer accounted for 10% or more of the Company’s accounts receivables as of March 31, 2020 or September 30, 2020.


10. Stock-based compensation plan

The Company has issued share incentives under 2 equity-classified incentive plans, the TeliMatrix Group Executive Incentive Scheme and the LTIP, to directors and certain key employees within the Company. Since the introduction of the LTIP during 2014, no further awards have been made in terms of the TeliMatrix Group Executive Incentive Scheme.

The LTIP provides for three types of grants to be issued, namely performance shares, restricted share units ("RSUs") or stock appreciation rights ("SARs").

As of September 30, 2020, there were 47,090,000 shares reserved for future issuance under the LTIP.

The total stock-based compensation expense recognized during the three months ended September 30, 2019 and 2020 was $0.2 million and $0.3 million, respectively. Total stock-based compensation expense recognized during the six months ended September 30, 2019 and 2020 was $0.3 million and $0.6 million, respectively.

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Stock appreciation rights granted under the LTIP

The following table summarizes the activities for the unvested SARs:

Number of SARsWeighted-
Average
Award Price in U.S. Cents*
Weighted Average Contractual Remaining Term (years)Aggregate Intrinsic Values (in thousands)
Outstanding as of April 1, 202032,943,750 31
Granted11,200,000 35
Exercised(900,470)19
Forfeited(33,905)19
Outstanding as of September 30, 202043,209,375 323.76
Vested and expected to vest as of September 30, 202041,702,500 322.963,206
Vested as of September 30, 202013,071,875171.792,367

As of September 30, 2020, there was $2.4 million of unrecognized compensation cost related to unvested SARs. This amount is expected to be recognized over a weighted-average period of 4.62 years.

Share Options

During the three months ended September 30, 2020, the remaining 3,500,000 share options under the Telimatrix Group Executive Incentive Scheme were exercised by the group executives at an award price of 24 U.S. cents* per share.

* The award price was denominated in South African cents. U.S. currency amounts are based on a ZAR:USD exchange rate of R17.003 as of September 30, 2020.

Restricted share units granted under the LTIP

Under the LTIP, RSUs may be issued to certain directors and key employees. The scheme rules allow for a maximum of 2 million RSUs to be granted in any financial year and for a maximum of 12 million RSUs to be granted in aggregate over the life of the plan.

2 million time-based RSUs were granted for the first time under the scheme on June 1, 2020, and will vest in tranches of 50% per annum, commencing on the second anniversary of the grant date. Vesting is conditional upon remaining employed with the Company. Management estimates forfeiture to be approximately 5%. Settlement will take place in the Company’s shares. The Company has no legal or constructive obligation to settle the RSUs in cash. The weighted average grant date fair value per RSU granted was 30 U.S. cents**. The grant date fair value was determined by deducting the present value of expected dividends to be paid per share prior to vesting from the closing market price of the Company’s shares on the grant date. The unrecognized compensation cost related to unvested RSUs as of September 30, 2020 was $0.5 million, which will be recognized over a weighted average period of 2.5 years.

**U.S. currency amounts are based on a ZAR:USD exchange rate of R17.003 as of September 30, 2020.


11. Debt

The Company and its subsidiaries have unlimited borrowing capacity as specified in their respective Memorandums of Incorporation.

As of March 31, 2020 and September 30, 2020, debt comprised bank overdrafts of $2.4 million and $3.2 million, respectively. Net accounts receivables as of March 31, 2020 and September 30, 2020 of $2.9 million and $1.3 million, respectively, are pledged as security for the Company’s overdraft facilities.
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Details of undrawn facilities are shown below:

Interest rateMarch 31,
2020
September 30,
2020
Undrawn borrowing facilities at floating rates include:
– Standard Bank Limited:
OverdraftSA Prime* less 1.2%$1,204 $579 
Vehicle and asset financeSA Prime* less 1.2%474 500
Working capital facilitySA Prime* less 0.25%1,395 1,470 
– Nedbank Limited overdraftSA Prime* less 2%558 588
$3,631 $3,137 
*South African prime interest rate

As of March 31, 2020 and September 30, 2020, the prime interest rate was 8.75% and 7.00%, respectively. The Standard Bank Limited and Nedbank Limited facilities have no fixed renewal date and are repayable on demand. The facility from Nedbank Limited is unsecured.


12. Restructuring costs

During the three and six months ended September 30, 2020, the Company incurred $0.2 million and $1.0 million of restructuring costs, respectively, as a result of measures to minimize the adverse economic and business effect of the COVID-19 pandemic and to re-align resources with the Company's current business outlook and cost structure. The restructuring costs comprised employee termination benefits. $0.6 million, $0.2 million and $0.1 million of the restructuring costs for the six months ended September 30, 2020, related to the CSO, Africa, and North America reporting segments, respectively. As of September 30, 2020, all of the restructuring costs had been paid except for $0.1 million in respect of the Africa reporting segment, which is expected to be settled by December 31, 2020. Restructuring costs are included in Administration and other expenses in the Condensed Consolidated Statement of Income.


13. Contingencies

Service agreement

In terms of an amended network services agreement with Mobile Telephone Networks Proprietary Limited ("MTN"), MTN is entitled to claw back payments from MiX Telematics Africa Proprietary Limited, a subsidiary of the Company, in the event of early cancellation of the agreement or certain base connections not being maintained over the term of the agreement. No connection incentives will be received in terms of the amended network services agreement. The maximum potential liability under the arrangement as of March 31, 2020 and September 2020 was $1.9 million and $1.9 million, respectively. No loss is considered probable under this arrangement.

Competition Commission of South Africa matter

On April 15, 2019 the Competition Commission of South Africa ("Commission") referred a matter to the Competition Tribunal of South Africa ("Tribunal"). The Commission contends that the Company and a number of its channel partners have engaged in market division. Should the Tribunal rule against MiX Telematics, the Company may be liable to an administrative penalty in terms of the Competition Act, No. 89 of 1998. The Company had cooperated fully with the Commission during its preliminary investigation. We cannot predict the timing of a resolution or the ultimate outcome of the matter, however, the Company and its external legal advisers continue to believe that we have consistently adhered to all applicable laws and regulations and that the referral from the Commission is without merit. We have therefore not made any provisions for this matter as we do not believe that an outflow of economic resources is probable.





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The Ugandan Value Added Tax ("VAT") matter

The Ugandan Revenue Authorities (“URA”) have reviewed MiX Telematics’ cross-border services and assert that VAT is payable on these imported services in terms of the place of supply rules included within its local VAT legislation. On January 18, 2018, MiX Telematics East Africa Limited (“MiX East Africa”) instituted proceedings in the Tax Appeals Tribunal to challenge the URA’s decision on this matter based on the interpretation of the law and calculation errors by the URA. MiX East Africa appeared in front of the Tax Appeals Tribunal on a number of occasions to present its defense, but the Tax Appeals Tribunal ruled in favor of the URA. On September 19, 2019, MiX East Africa appealed the decision to the High Court of Uganda. This matter is ongoing, and provisions have been made based on current information at hand.


14. Subsequent events

Other than the items below, the directors are not aware of any matter material or otherwise arising since September 30, 2020 and up to the date of this report, not otherwise dealt with herein.

Dividend declared
The Board of Directors declared, in respect of the three months ended September 30, 2020, a dividend of 4 South African cents per ordinary share and 1 South African Rand per ADS, which will be paid on December 8, 2020 to shareholders on record as of the close of business on November 20, 2020.
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FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q includes certain “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995, including without limitation, statements regarding our position to execute on our growth strategy, and our ability to expand our leadership position. These forward-looking statements include, but are not limited to, Company’s beliefs, plans, goals, objectives, expectations, assumptions, estimates, intentions, future performance, other statements that are not historical facts and statements identified by words such as “expects”, “anticipates”, “intends”, “plans”, “believes”, “seeks”, “estimates” or words of similar meaning. These forward-looking statements reflect our current views about our plans, intentions, expectations, strategies and prospects, which are based on the information currently available to us and on assumptions we have made. Although we believe that our plans, intentions, expectations, strategies and prospects as reflected in, or suggested by, these forward-looking statements are reasonable, we can give no assurance that the plans, intentions, expectations or strategies will be attained or achieved.

Furthermore, actual results may differ materially from those described in the forward-looking statements and will be affected by a variety of known and unknown risks and uncertainties, some of which are beyond our control including, without limitation:
our ability to attract, sell to and retain customers;
the severity and duration of the COVID-19 pandemic, the pandemic’s economic impact on the geographical locations of our regional service organizations and central service organization, the impact of the pandemic on our customers’ ability to meet their financial obligations, our ability to implement cost containment and business recovery strategies during the pandemic, local and foreign government regulations implemented to combat the pandemic and any future developments on the pandemic;
our ability to improve our growth strategies successfully, including our ability to increase sales to existing customers;
our ability to adapt to rapid technological change in our industry;
competition from industry consolidation;
loss of key personnel or our failure to attract, train and retain other highly qualified personnel;
our ability to integrate any businesses we acquire;
the introduction of new solutions and international expansion;
our dependence on key suppliers and vendors to manufacture our hardware;
our dependence on our network of dealers and distributors to sell our solutions;
businesses may not continue to adopt fleet management solutions;
our future business and system development, results of operations and financial condition;
expected changes in our profitability and certain cost or expense items as a percentage of our revenue;
changes in the practices of insurance companies;
the impact of laws and regulations relating to the Internet and data privacy;
our ability to protect our intellectual property and proprietary technologies and address any infringement claims;
our ability to defend ourselves from litigation or administrative proceedings relating to labor, regulatory, tax or similar issues;
significant disruption in service on, or security breaches of, our websites or computer systems;
our dependence on third-party technology;
fluctuations in the value of the South African Rand;
economic, social, political, labor and other conditions and developments in South Africa and globally;
our ability to issue securities and access the capital markets in the future; and
other risks set forth under “Item 1A. Risk Factors” and in our other filings with the U.S. Securities Exchange Commission.

We assume no obligation to update any forward-looking statements contained in this Quarterly Report on Form 10-Q and expressly disclaim any obligation to do so, whether as a result of new information, future events or otherwise, except as required by law.
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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our consolidated financial statements and the accompanying notes included in Item 1 of this Quarterly Report on Form 10-Q.
This discussion contains forward-looking statements that involve risks, uncertainties and assumptions. Our future results may vary materially from those indicated as a result of the risks that affect our business, including, among others, those identified in “Forward-Looking Statements” and Part II “Item 1A. Risk Factors”.
Overview
We are a leading global provider of fleet and mobile asset management solutions delivered as SaaS. Our solutions deliver a measurable return by enabling our customers to manage, optimize and protect their investments in commercial fleets, mobile assets or personal vehicles. We generate actionable intelligence that enables a wide range of customers, from large enterprise fleets to small fleet operators and consumers, to reduce fuel and other operating costs, improve efficiency, enhance regulatory compliance, promote driver safety, manage risk and mitigate theft. Our solutions mostly rely on our proprietary, highly scalable technology platforms, which allow us to collect, analyze and deliver information based on data from our customers’ vehicles. Using intuitive, web-based interface, reports or mobile applications, our fleet customers can access large volumes of real-time and historical data, monitor the location and status of their drivers and vehicles and analyze a wide number of key metrics across their fleet operations.
We were founded in 1996 and we have offices in South Africa, the United Kingdom, the United States, Uganda, Brazil, Australia, Romania, Thailand and the United Arab Emirates, as well as a network of more than 130 fleet partners worldwide. MiX Telematics’ shares are publicly traded on the Johannesburg Stock Exchange (JSE: MIX) and MiX Telematics’ American Depositary Shares are listed on the New York Stock Exchange (NYSE: MIXT).

We derive the majority of our revenues from subscriptions from our fleet and mobile asset management solutions. Our subscriptions generally include access to our SaaS solutions, connectivity, and in many cases, use of an in-vehicle device. We also generate revenues from the sale of in-vehicle devices, which enable customers to use our subscription-based solutions, installation services of our in-vehicle-devices and driver training for fleet customers. We generate sales through the efforts of our direct sales teams, staffed in our regional sales offices, and through our global network of distributors and dealers. Our direct sales teams focus on marketing our fleet solutions to global and multinational enterprise accounts and to other large customer accounts located in regions of the world where we maintain a direct sales presence. Our direct sales teams have industry expertise across multiple industries, including oil and gas, transportation and logistics, government and municipal, bus and coach, rental and leasing, and utilities. In some markets, we rely on a network of distributors and dealers to sell our solutions on our behalf. Our distributors and dealers also install our in-vehicle devices and provide training, technical support and ongoing maintenance for the customers they support.
Impact of COVID-19
In December 2019, a novel strain of coronavirus was reported in China (“COVID-19”). In January 2020, the World Health Organization (“WHO”) declared this outbreak a Public Health Emergency of international concern and, subsequently, it was declared a pandemic in March 2020. The outbreak continued to spread globally, affecting global economic activity and financial markets. We are unable to accurately predict the impact that COVID-19 will have due to numerous uncertainties, including the severity of the disease, the duration of the outbreak, actions that may be taken by governmental authorities, the impact on our customers and other factors identified in Part II Item 1A. “Risk Factors”.

Business, employees and operations

Due to extensive measures implemented by various governments, all of our employees were required to work remotely, with the exception of our staff working in our monitoring centers, which were classified as an essential service. We have implemented appropriate safeguards for these centers. In addition, we have modified certain business and workforce practices (including extended work from home requirements, suspension of certain business travel and cancellation of physical participation in meetings, events and conferences) and implemented new protocols to promote social distancing and enhance sanitary measures in our offices and facilities to conform to government restrictions and best practices encouraged by governmental and regulatory authorities.
22


During the first quarter of fiscal year 2021, we implemented various cost-saving measures, including headcount reductions, deferred salary increases, a hiring freeze across the business, and significant reductions in discretionary spending. We started to realize the benefit of these actions in the second quarter. We expect the full benefit will be realized during the remainder of fiscal year 2021 and beyond. As part of the headcount reductions in the first half of fiscal 2021, we incurred a $1.0 million restructuring charge as we committed to plans to restructure certain parts of our business as a measure to minimize the adverse economic and business effect of the COVID-19 pandemic and to re-align resources to our current business outlook and cost structure. The restructuring activities mainly related to the CSO, Africa and North America reporting segments.
COVID-19 has disrupted the operations of our customers and channel partners, our operations and the results of our operations. COVID-19 currently has had and, we believe, will continue to have an adverse impact on global economies and financial markets. For example, the continued economic uncertainty in the oil and gas sector has resulted in significant declines in our customer’s fleet sizes whilst similar disruption is evident in our bus and coach vertical following significantly reduced demand for public transport as a result of various governmental shut downs in multiple jurisdictions where we operate. This has and will continue to have a negative impact on our revenue and our results of operations, the size and duration of which we are currently unable to predict. During the first quarter of fiscal year 2021, we experienced a contraction of 30,700 subscribers and, during the second quarter of fiscal year 2021, we experienced a contraction of 20,000 subscribers, as a result of the economic conditions attributable to the COVID-19 pandemic. We expect further subscriber contraction in the third quarter of fiscal year 2021, primarily driven by oil and gas and asset tracking subscribers. The net contraction in subscribers resulted in a decrease in reported subscription revenues.

Cash resources and liquidity

Based on our internal projections, we believe that we have sufficient cash reserves to support us for the foreseeable future. Further details on our cash resources and borrowings available under our credit facilities are provided in the liquidity and capital resources section below.

Financial position and impairments

We have taken into account the impact of COVID-19, to the extent possible, on our financial statements as of the reporting date. However, future changes in economic conditions related to COVID-19 could have an impact on future estimates and judgements used, particularly those relating to goodwill and impairment assessments, as well as expected credit losses. We will continue to evaluate the nature and extent of the impact to our business, consolidated results of operations, and financial condition.

Key Financial Measures and Operating Metrics
In addition to financial measures based on our consolidated financial statements, we monitor our business operations using various financial and non-financial metrics.
Subscription Revenue
Subscription revenue represents subscription fees for our solutions, which include the use of our SaaS fleet management solutions, connectivity, and in many cases, our in-vehicle devices. Our subscription revenue is driven primarily by the number of subscribers and the monthly price per subscriber, which varies depending on the services and features customers require, hardware options, customer size and geographic location.
Subscription revenue has increased as a percentage of total revenue due to a reduction in hardware and other revenue. In the three months ended September 30, 2019 and 2020, subscription revenue represented 87.6% and 89.3% respectively, of our total revenue. In the six months ended September 30, 2019 and 2020, subscription revenue represented 87.4% and 91.5% respectively, of our total revenue.

Subscribers
Subscribers represent the total number of discrete services we provide to customers at the end of the period.
23



 As of September 30,
 20192020
Subscribers789,559 767,749 

Basis of Presentation and Key Components of Our Results of Operations
In the second quarter of fiscal year 2021, we managed our business in six segments which include Africa, Americas, Brazil, Europe and the Middle East and Australasia (our regional sales offices (“RSOs”)), and our CSO. CSO is our central services organization that wholesales our products and services to our RSOs which, in turn, interface with our end-customers, distributors and dealers. CSO is also responsible for the development of our hardware and software platforms and provides common marketing, product management, technical and distribution support to each of our other operating segments.
The CODM, who is responsible for allocating resources and assessing performance of the reportable segments, has been identified collectively as the executive committee and the Chief Executive Officer who make strategic decisions. Segment performance is measured and evaluated by the CODM using Segment Adjusted EBITDA, which is a non-GAAP measure which uses net income, determined under International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board, as a starting point. Prior to the publication of the financial results for the year ended March 31, 2020, we published results under IFRS only, which is the reason for the CODM continuing to use a segment performance measure based on IFRS.
In determining Segment Adjusted EBITDA, the margin generated by CSO, net of any unrealized intercompany profit, is allocated to the geographic region where the external revenue is recorded by our RSOs. The costs remaining in CSO relate mainly to research and development of hardware and software platforms, common marketing, product management and technical and distribution support to each of the RSOs.
Each RSO’s results reflect the external revenue earned, as well as the Segment Adjusted EBITDA earned (or loss incurred) before the remaining CSO and corporate costs allocations. Segment assets are not disclosed as this information is not reviewed by the CODM.
Revenue
The majority of our revenue is subscription-based. Consequently, growth in subscribers influences our subscription revenue growth. However, other factors, including, but not limited to, the types of new subscribers we add and the timing of entry into subscription contracts also play a significant role. The price and terms of our customer subscription contracts vary based on a number of factors, including fleet size, hardware options, geographic region and distribution channel. In addition, we derive revenue from the sale of in-vehicle devices, which are used to collect, generate and transmit the data used to enable our SaaS solutions.
Our customer contracts typically have a three to five year initial term. Following the initial term, most fleet customers elect to renew for fixed terms ranging from one to five years. Our third party dealers are typically billed monthly based on active connections. Some of our customer agreements, including our consumer subscriptions, provide for automatic monthly or yearly renewals unless the customer elects not to renew its subscription. Our consumer customer contracts in South Africa are governed by the Consumer Protection Act, which allows customers to cancel without paying the full balance of the contract amount. Our fleet contracts and our customer contracts outside of South Africa are generally non-cancellable.
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Cost of Revenue
Cost of revenue associated with our subscription revenue consists primarily of costs related to cellular communications, infrastructure hosting, third-party data providers, service contract maintenance costs, commission expense related to third party dealers or distributors (commission is capitalized and amortized unless the amortization period is 12 months or less) and depreciation of our capitalized installed in-vehicle devices. Cost of sales associated with our hardware revenue includes the cost of the in-vehicle devices, cost of hardware warranty, shipping costs, custom duties, and commission expense related to third-party dealers or distributors. We capitalize the cost of in-vehicle devices utilized to service customers, for customers selecting our bundled option, and we depreciate these costs from the date of installation over their expected useful lives.
We expect that cost of revenue as a percentage of revenue will vary from period to period depending on our revenue mix, including the proportion of our revenue attributable to our subscription-based services. The majority of the other components of our cost of revenue are variable and are affected by the number of subscribers, the composition of our subscriber base, and the number of new subscriptions sold in the period.
Operating Expenses
Sales and Marketing
Sales and marketing expenses consist primarily of salaries and wages, commissions paid to employees, travel-related expenses, and advertising and promotional costs. We pay our sales employees commissions based on achieving subscription targets and we capitalize commission and amortize it (unless the amortization period is 12 months or less). Advertising costs consist primarily of costs for print, radio and television advertising, promotions, public relations, customer events, tradeshows and sponsorships. We expense advertising costs as incurred. We plan to continue to invest in sales and marketing in order to grow our sales and build brand and category awareness.
Administration and Other Charges
Administration and other charges consist primarily of salaries and wages for administrative staff, travel costs, professional fees (including audit and legal fees), real estate leasing costs, expensed research and development costs and depreciation of fixed assets including vehicles and office equipment and amortization of intangible assets. We expect that administration and other charges will increase in absolute terms as we continue to grow our business.
Research and Development
For additional disclosures in respect of research and development, technology and intellectual property please refer to “Item 1. Business” in our Annual Report on Form 10-K for the year ended March 31, 2020, which we filed with the Securities and Exchange Commission on July 23, 2020.

Taxes
During the three months ended September 30, 2019 and 2020 our effective tax rates were 47.8% and 22.0% respectively, and during the six months ended September 30, 2019 and 2020 our effective tax rates were 33.5% and 15.4% respectively, compared to a South African statutory rate of 28%. Taxation mainly consists of normal statutory income tax paid or payable and deferred tax on any temporary differences.
Our effective tax rate may vary primarily according to the mix of profits made in various jurisdictions and the impact of certain non-deductible/(non-taxable) foreign exchange movements, net of tax. Further information on this is disclosed in Note 7. Income Taxes contained in the “Notes to Condensed Consolidated Financial Statements” included in Part I of this Quarterly Report on Form 10-Q. As a result, significant variances in future periods may occur.




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Non-GAAP Financial Information
We use certain measures to assess the financial performance of our business. Certain of these measures are termed “non-GAAP measures” because they exclude amounts that are included in, or include amounts that are excluded from, the most directly comparable measure calculated and presented in accordance with GAAP, or are calculated using financial measures that are not calculated in accordance with GAAP. These non-GAAP measures include Adjusted EBITDA, Adjusted EBITDA margin, non-GAAP net income, non-GAAP net income per share and constant currency information.
An explanation of the relevance of each of the non-GAAP measures, a reconciliation of the non-GAAP measures to the most directly comparable measures calculated and presented in accordance with GAAP and a discussion of their limitations is set out below. We do not regard these non-GAAP measures as a substitute for, or superior to, the equivalent measures calculated and presented in accordance with GAAP or those calculated using financial measures that are calculated in accordance with GAAP.
Adjusted EBITDA and Adjusted EBITDA Margin
Adjusted EBITDA and Adjusted EBITDA margin are two of the profit measures reviewed by the CODM. We define Adjusted EBITDA as the income before income taxes, net interest income, net foreign exchange gains/(losses), depreciation of property and equipment including capitalized customer in-vehicle devices, amortization of intangible assets including capitalized internal-use software development costs and intangible assets identified as part of a business combination, stock-based compensation costs, restructuring costs and profits/(losses) on the disposal or impairments of assets or subsidiaries. We define Adjusted EBITDA margin as Adjusted EBITDA divided by total revenue.
We have included Adjusted EBITDA and Adjusted EBITDA margin in this Quarterly Report on Form 10-Q because they are key measures that our management and Board of Directors use to understand and evaluate its core operating performance and trends; to prepare and approve its annual budget; and to develop short and long-term operational plans. In particular, the exclusion of certain expenses in calculating Adjusted EBITDA and Adjusted EBITDA margin can provide a useful measure for period-to-period comparisons of our core business. Accordingly, we believe that Adjusted EBITDA and Adjusted EBITDA margin provide useful information to investors and others in understanding and evaluating our operating results.

A reconciliation of net income (the most directly comparable financial measure presented in accordance with GAAP) to Adjusted EBITDA for the periods shown is presented below.
Reconciliation of Net Income to Adjusted EBITDA for the Period
Three Months Ended September 30,Six Months Ended
September 30,
2019202020192020
(In thousands)
Net income$3,346 3,452 $8,342 5,874 
Plus: Income tax expense3,058 974 4,198 1,066 
(Less)/plus: Net interest (income)/expense(4)70 (77)140 
Plus/(less): Foreign exchange losses/(gains)36 78 (11)183 
Plus: Depreciation (1)
3,465 2,946 6,742 5,782 
Plus: Amortization (2)
936 890 1,911 1,682 
Plus: Impairment of long-lived assets— 1 — 1 
Plus: Stock-based compensation costs178 301 289 594 
(Less)/plus: Net (profit)/loss on sale of property and equipment(40)7 (356)8 
(Less)/plus: Restructuring costs(1)153 (1)997 
Adjusted EBITDA$10,974 $8,872 $21,037 $16,327 
Adjusted EBITDA margin29.9 %28.7 %28.8 %27.9 %

(1) Includes depreciation of owned equipment (including in-vehicle devices).
(2) Includes amortization of intangible assets (including intangible assets identified as part of a business combination).
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Our use of Adjusted EBITDA and Adjusted EBITDA margin have limitations as analytical tools, and should not be considered as performance measures in isolation from, or as a substitute for, analysis of our results as reported under GAAP.
Some of these limitations are:
although depreciation and amortization are non-cash charges, the assets being depreciated and amortized may have to be replaced in the future, and Adjusted EBITDA does not reflect cash capital expenditure requirements for such replacements or for new capital expenditure requirements;
Adjusted EBITDA does not reflect changes in, or cash requirements for, our working capital needs;
Adjusted EBITDA does not consider the potentially dilutive impact of equity-based compensation;
Adjusted EBITDA does not reflect tax payments that may represent a reduction in cash available to us;
other companies, including companies in our industry, may calculate Adjusted EBITDA differently, which reduces its usefulness as a comparative measure; and
certain of the adjustments (such as restructuring costs, impairment of long-lived assets and others) made in calculating Adjusted EBITDA are those that management believes are not representative of our underlying operations and, therefore, are subjective in nature.

Because of these limitations, Adjusted EBITDA and Adjusted EBITDA margin should be considered alongside other financial performance measures, including operating profit, profit for the period and our other results.
Basic and Diluted Non-GAAP Net Income Per Share
Non-GAAP net income is defined as net income excluding net foreign exchange gains/(losses) net of tax.
We have included non-GAAP net income per share in this quarterly report because it provides a useful measure for period-to-period comparisons of our core business by excluding net foreign exchange gains/(losses) from earnings. Accordingly, we believe that non-GAAP net income per share provides useful information to investors and others in understanding and evaluating our operating results.

Reconciliation of net income to non-GAAP net income
Three Months Ended
September 30,
Six Months Ended
September 30,
2019202020192020
(In thousands)
Net income for the period$3,346 3,452 $8,342 5,874 
Net foreign exchange losses/(gains)36 78 (11)183 
Income tax effect of net foreign exchange gains/losses1,150 (305)618 (1,003)
Non-GAAP net income$4,532 $3,225 $8,949 $5,054 
Weighted average number of ordinary shares in issue
Basic554,781 548,008 558,401 547,569 
Diluted570,011 558,951 574,606 558,829 

Constant Currency Information
Constant currency information has been presented in the sections below to illustrate the impact of changes in currency rates on our results. The constant currency information has been determined by adjusting the current financial reporting quarter’s results to the prior quarter’s average exchange rates, determined as the average of the monthly exchange rates applicable to the quarter. The measurement has been performed for each of our currencies, including the U.S. Dollar and British Pound. The constant currency growth percentage has been calculated by utilizing the constant currency results compared to the prior quarter results.

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The constant currency information represents non-GAAP information. We believe this provides a useful basis to measure the performance of our business as it removes distortion from the effects of foreign currency movements during the period.
Due to the significant portion of our customers who are invoiced in non-U.S. Dollar denominated currencies, we also calculate our subscription revenue growth rate on a constant currency basis, thereby removing the effect of currency fluctuation on our results of operations.
The following tables provide the constant currency reconciliation to the most directly comparable GAAP measure for the periods shown:
Subscription Revenue
Three Months Ended September 30,Six Months Ended September 30,
20192020% Change20192020% Change
(In thousands, except for percentages)
Subscription revenue as reported$32,099 $27,623 (13.9)%$63,737 $53,498 (16.1)%
Conversion impact U.S. Dollar/other currencies— 2,229 6.9 %— 6,033 9.5 %
Subscription revenue on a constant currency basis$32,099 $29,852 (7.0)%$63,737 $59,531 (6.6)%

Hardware and Other Revenue

Three Months Ended September 30,Six Months Ended September 30,
20192020% Change20192020% Change
(In thousands, except for percentages)
Hardware and other revenue as reported$4,562 $3,325 (27.1)%$9,207 $4,947 (46.3)%
Conversion impact U.S. Dollar/other currencies— 148 3.2 %— 297 3.3 %
Hardware and other revenue on a constant currency basis$4,562 $3,473 (23.9)%$9,207 $5,244 (43.0)%


Total Revenue

Three Months Ended September 30,Six Months Ended September 30,
20192020% Change20192020% Change
(In thousands, except for percentages)
Total revenue as reported$36,661 $30,948 (15.6)%$72,944 $58,445 (19.9)%
Conversion impact U.S. Dollar/other currencies— 2,377 6.5 %— 6,330 8.7 %
Total revenue on a constant currency basis$36,661 $33,325 (9.1)%$72,944 $64,775 (11.2)%






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Results of Operations
The following table sets forth certain consolidated statement of income data:

Three Months Ended
September 30,
Six Months Ended
September 30,
2019202020192020
(In thousands)
Total revenue$36,661 $30,948 $72,944 $58,445 
Total cost of revenue12,445 10,297 24,673 18,875 
Gross profit24,216 20,651 48,271 39,570 
Sales and marketing3,148 2,447 6,729 5,193 
Administration and other14,616 13,631 29,402 27,122 
Income from operations6,452 4,573 12,140 7,255 
Other (expense)/income(52)(77)323 (175)
Net interest income/(expense)(70)77 (140)
Income tax expense3,058 974 4,198 1,066 
Net income for the period3,346 3,452 8,342 5,874 
Net income attributable to MiX Telematics Limited stockholders3,346 3,452 8,342 5,874 
Net income attributable to non-controlling interest—  —  
Net income for the period$3,346 $3,452 $8,342 $5,874 
The following table sets forth, as a percentage of revenue, consolidated statement of income data:
Three Months Ended
September 30,
Six Months Ended
September 30,
2019202020192020
(Percentage)
Total revenue100.0 %100.0 %100.0 %100.0 %
Total cost of revenue33.9 33.3 33.8 32.3 
Gross profit66.1 66.7 66.2 67.7 
Sales and marketing8.6 7.9 9.2 8.9 
Administration and other39.9 44.0 40.3 46.4 
Income from operations17.6 14.8 16.7 12.4 
Other (expense)/income(0.1)(0.2)0.4 (0.3)
Net interest income/(expense)— (0.2)0.1 (0.2)
Income tax expense8.3 3.1 5.8 1.8 
Net income for the period9.2 11.3 11.4 10.1 
Net income attributable to MiX Telematics Limited stockholders9.2 11.3 11.4 10.1 
Net income attributable to non-controlling interest—  —  
Net income for the period9.2 11.3 11.4 10.1 



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Results of Operations for the Three Months Ended September 30, 2019 and 2020
Revenue
Three Months Ended September 30,
20192020% Change% Change at constant currency
(In thousands, except for percentages)
Subscription revenue$32,099 $27,623 (13.9)%(7.0)%
Hardware and other revenue4,562 3,325 (27.1)%(23.9)%
$36,661 $30,948 (15.6)%(9.1)%

Our total revenue decreased by $5.7 million or 15.6%, from the second quarter of fiscal year 2020. The principal factors affecting our revenue contraction included:
Subscription revenues decreased by 13.9% to $27.6 million, compared to $32.1 million for the second quarter of fiscal year 2020. Subscription revenues represented 89.3% of total revenues during the second quarter of fiscal year 2021. Subscription revenues decreased by 7.0% on a constant currency basis, year over year. The decline in constant currency subscription revenue was primarily due to the contraction in our subscriber base as a result of economic conditions attributable to the COVID-19 pandemic. From June 30, 2020 to September 30, 2020, our subscriber base contracted by 20,000 subscribers primarily due to significantly lower gross additions. Furthermore, we experienced fleet contraction in a number of key verticals such as the consumer and the leasing vertical which impacted both our subscriber-count and subscription revenue line.

The majority of our revenues and subscription revenues are derived from currencies other than the U.S. Dollar. Accordingly, the strengthening of the U.S. Dollar against these currencies (in particular against the South African Rand) following currency volatility arising from the economic disruption caused by COVID-19, has negatively impact our revenue and subscription revenues reported in U.S. Dollars. Compared to the second quarter of fiscal year 2020, the South African Rand weakened by 15.2% against the U.S. Dollar. The Rand/U.S. Dollar exchange rate averaged R16.91 in the current quarter compared to an average of R14.68 during the second quarter of fiscal year 2020. The impact of translating foreign currencies to U.S. Dollars at the average exchange rates during the second quarter of fiscal year 2021 led to a 6.9% reduction in reported U.S. Dollar subscription revenues.

Hardware and other revenue decreased by $1.2 million, or 27.1%, from the second quarter of fiscal year 2020 primarily as a result of a global economic slowdown following the disruption caused by the COVID-19 pandemic. As shown in the table below, hardware and other revenue was lower across all geographical segments except for Africa which was $0.2 million higher.

The impact of translating foreign currencies to U.S. Dollars at the average exchange rates during the second quarter of fiscal year 2021 led to a 6.5% reduction in reported U.S. Dollar revenues.











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A breakdown of third-party revenue by segment is shown in the table below:
 Three Months Ended September 30,
 201920202019202020192020
 (In thousands)
Total RevenueSubscription RevenueHardware and Other Revenue
Africa$19,306 $16,490 $17,868 $14,855 $1,438 $1,635 
Americas6,129 5,026 5,675 4,786 454 240 
Europe3,622 3,393 2,862 2,919 760 474 
Middle East and Australasia5,940 5,066 4,317 4,118 1,623 948 
Brazil1,636 956 1,350 928 286 28 
CSO28 17 27 17  
Total$36,661 $30,948 $32,099 $27,623 $4,562 $3,325 

In the Africa segment, subscription revenue declined by $3.0 million, or 16.9%. On a constant currency basis, the contraction in subscription revenue was 5.0%. Subscribers have decreased by 3.4% since October 1, 2019. Hardware and other revenue increased by $0.2 million, or 13.7%. Total revenue declined by $2.8 million, or 14.6%. On a constant currency basis, the total revenue decline was 2.7%.
In the Americas segment, subscription revenue declined by $0.9 million, or 15.7% as a result of both a 9.7% decrease in subscribers since October 1, 2019 and as a result of economic conditions in the oil and gas vertical. Hardware and other revenue declined by $0.2 million, or 47.1%. Total revenue declined by $1.1 million, or 18.0%.

In the Europe segment, subscription revenue growth was $0.1 million, or 2.0%. On a constant currency basis, the decline in subscription revenue was 2.3%. Subscribers have increased by 0.7% since October 1, 2019. Total revenue decreased by $0.2 million, or 6.3%, due to a decrease in hardware and other revenues of $0.3 million compared to the three months ended September 30, 2019. Total revenue declined by 10.2% on a constant currency basis.
Subscription revenue in the Middle East and Australasia segment declined by $0.2 million or 4.6%. On a constant currency basis, the decline in subscription revenue was 7.0% following pricing concessions granted to customers as a result of economic conditions attributable to the COVID-19 pandemic. Subscribers have decreased by 0.2% since October 1, 2019. Hardware and other revenue declined by $0.7 million or 41.6%. Total revenue declined by $0.9 million or 14.7%. Total revenue in constant currency declined by 16.6%.
In the Brazil segment, subscription revenue declined by $0.4 million or 31.3%. On a constant currency basis, subscription revenue decreased by 6.8%. Subscribers have increased by 9.0% since October 1, 2019 which was offset by pricing concessions granted to customers as a result of economic conditions attributable to the COVID-19 pandemic. Hardware and other revenue declined by $0.3 million, or 90.2%. Total revenue declined by $0.7 million or 41.6%. On a constant currency basis, total revenue decreased by 20.8%.
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Cost of Revenue
Three Months Ended September 30,
20192020
(In thousands, except for percentages)
Cost of revenue - subscription$9,417 $7,676 
Cost of revenue - hardware and other3,028 2,621 
Gross profit$24,216 $20,651 
Gross profit margin66.1 %66.7 %
Gross profit margin - subscription70.7 %72.2 %
Gross profit margin - hardware and other33.6 %21.2 %
Compared to a decrease in total revenue of $5.7 million or 15.6%, cost of revenues decreased by $2.1 million, or 17.3%, from the second quarter of fiscal year 2020. This resulted in a higher gross profit margin of 66.7% in the second quarter of fiscal year 2021 compared to 66.1% in the second quarter of fiscal year 2020.
Subscription revenue, which generates a higher gross profit margin than hardware and other revenue, contributed 89.3% of total revenue in the second quarter of fiscal year 2021 compared to 87.6% in the second quarter of fiscal year 2020.
During the second quarter of fiscal year 2021, hardware and other margins were lower than in the second quarter of fiscal year 2020, mainly due to the geographical sales mix and the distribution channels. Hardware sales via our dealer channel generate lower gross margins.

Sales and Marketing
Three Months Ended September 30,
20192020
(In thousands, except for percentages)
Sales and marketing$3,148 $2,447 
As a percentage of revenue8.6 %7.9 %

Sales and marketing costs decreased by $0.7 million, or 22.3%, from the second quarter of fiscal year 2020 to the second quarter of fiscal year 2021 against a 15.6% decrease in total revenue. The decrease in the second quarter of fiscal year 2021 was primarily as a result of savings of $0.4 million in employee costs and $0.2 million in travel costs. In the second quarter of fiscal year 2021, sales and marketing costs represented 7.9% of revenue compared to 8.6% of revenue in the second quarter of fiscal year 2020.
Administration and Other Expenses
Three months ended September 30,
20192020
(In thousands, except for percentages)
Administration and other$14,616 $13,631 
As a percentage of revenue39.9 %44.0 %

Administration and other expenses decreased by $1.0 million, or 6.7%, from the second quarter of fiscal year 2020 to the second quarter of fiscal year 2021.
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The decrease mainly relates to savings of $1.2 million in salaries and wages, bonuses of $0.6 million primarily due to the decline in subscription revenue as a result of COVID-19, travel costs of $0.2 million, offset by restructuring costs of $0.2 million and increases in expected credit loss provision of $0.5 million and other increases of $0.3 million, none of which were individually significant.

Taxation
Three months ended September 30,
20192020
(In thousands, except for percentages)
Income tax expense$3,058 $974 
Effective tax rate47.8 %22.0 %

Taxation expense decreased by $2.1 million, or 68.2%. In the second quarter of fiscal year 2021, the income tax expense decreased due to lower profitability and also included a $0.3 million deferred tax credit on a U.S. Dollar intercompany loan between MiX Telematics Limited and MiX Telematics Investments (Proprietary) Limited (“MiX Investments”), a wholly-owned subsidiary. During the second quarter of fiscal 2020, the income tax expense included a $1.3 million deferred tax charge on a U.S. Dollar intercompany loan between MiX Telematics Limited and MiX Investments. Ignoring the impact of net foreign exchange gains and losses net of tax, the tax rate which was used in determining non-GAAP net income, was 28.4% in the second quarter of fiscal year 2021 compared to 29.6% in the second quarter of fiscal year 2020.

Results of Operations for the Six Months Ended September 30, 2019 and 2020

Revenue
Six Months Ended September 30,
20192020% Change% Change at constant currency
(In thousands, except for percentages)
Subscription revenue$63,737 $53,498 (16.1)%(6.6)%
Hardware and other revenue9,207 4,947 (46.3)%(43.0)%
$72,944 $58,445 (19.9)%(11.2)%

Our total revenue decreased by $14.5 million or 19.9%, from the first half of fiscal year 2020. The principal factors affecting our revenue contraction included:
Subscription revenues decreased by 16.1% to $53.5 million, compared to $63.7 million for the first half of fiscal year 2020. Subscription revenues represented 91.5% of total revenues during the first half of fiscal year 2021. Subscription revenues decreased by 6.6% on a constant currency basis, year over year. The decline in constant currency subscription revenue was primarily due to the contraction in our subscriber base as a result of economic conditions attributable to the COVID-19 pandemic. From March 31, 2020 to September 30, 2020, our subscriber base contracted by 50,700 subscribers primarily due to significantly lower gross additions. Furthermore, we experienced fleet contraction in a number of key verticals such as the oil and gas vertical, consumer vertical and leasing vertical which impacted both our subscriber-count and subscription revenue line.

The majority of our revenues and subscription revenues are derived from currencies other than the U.S. Dollar. Accordingly, the strengthening of the U.S. Dollar against these currencies (in particular against the South African Rand) following currency volatility arising from the economic disruption caused by COVID-19, has negatively impacted our revenue and subscription revenues reported in U.S. Dollars. Compared to the first half of fiscal year 2020, the South African Rand weakened by 20.0% against the U.S. Dollar. The Rand/U.S. Dollar exchange rate averaged R17.44 in the current six month period compared to an average of R14.53 during the first half of fiscal year 2020. The impact of translating foreign currencies to U.S. Dollars at the average exchange rates during the first half of fiscal year 2021 led to a 9.5% reduction in reported U.S. Dollar subscription revenues.

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Hardware and other revenue decreased by $4.3 million, or 46.3%, from the first half of fiscal year 2020 primarily as a result of a global economic slowdown following the disruption caused by the COVID-19 pandemic. As shown in the table below, hardware and other revenue was lower across all geographical segments.

The impact of translating foreign currencies to U.S. Dollars at the average exchange rates during the first half of fiscal year 2021 led to an 8.7% reduction in reported U.S. Dollar revenues.
A breakdown of third-party revenue by segment is shown in the table below:
 Six Months Ended September 30,
 201920202019202020192020
 (In thousands)
Total RevenueSubscription RevenueHardware and Other Revenue
Africa$38,373 $31,014 $35,554 $28,778 $2,819 $2,236 
Americas12,677 9,356 11,337 8,961 1,340 395 
Europe6,966 6,377 5,649 5,769 1,317 608 
Middle East and Australasia11,824 9,656 8,578 7,999 3,246 1,657 
Brazil3,014 2,010 2,567 1,959 447 51 
CSO90 32 52 32 38  
Total$72,944 $58,445 $63,737 $53,498 $9,207 $4,947 

In the Africa segment, subscription revenue declined by $6.8 million, or 19.1%. On a constant currency basis, the contraction in subscription revenue was 4.0% as a result of a 3.4% decrease in subscribers since October 1, 2019. Hardware and other revenue declined by $0.6 million, or 20.7%. Total revenue declined by $7.4 million, or 19.2%. On a constant currency basis, the total revenue decline was 4.6%.
In the Americas segment, subscription revenue declined by $2.4 million, or 21.0% as a result of both a 9.7% decrease in subscribers since October 1, 2019 and pricing concessions granted to customers as a result of economic conditions attributable to the COVID-19 pandemic. Hardware and other revenue declined by $0.9 million, or 70.5%. Total revenue declined by $3.3 million, or 26.2%.
In the Europe segment, subscription revenue growth was $0.1 million, or 2.1%. On a constant currency basis, the growth in subscription revenue was 1.1%. Subscribers have increased by 0.7% since October 1, 2019. Total revenue decreased by $0.6 million, or 8.5%, due to a decrease in hardware and other revenues of $0.7 million compared to the six months ended September 30, 2019. Total revenue declined by 9.4% on a constant currency basis.
Subscription revenue in the Middle East and Australasia segment declined by $0.6 million or 6.7%. On a constant currency basis, the decline in subscription revenue was 6.1% following pricing concessions granted to customers as a result of economic conditions attributable to the COVID-19 pandemic. Subscribers have decreased by 0.2% since October 1, 2019. Hardware and other revenue declined by $1.6 million or 49.0%. Total revenue declined by $2.2 million or 18.3%. Total revenue in constant currency declined by 17.8%.
In the Brazil segment, subscription revenue declined by $0.6 million or 23.7%. On a constant currency basis, subscription revenue increased by 3.9%. The increase was mainly due to an increase in subscribers of 9.0% since October 1, 2019 partially offset by pricing concessions granted to customers as a result of economic conditions attributable to the COVID-19 pandemic. Hardware and other revenue declined by $0.4 million, or 88.6%. Total revenue declined by $1.0 million or 33.3%. On a constant currency basis, total revenue decreased by 9.2%.
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Cost of Revenue
Six Months Ended September 30,
20192020
(In thousands, except for percentages)
Cost of revenue - subscription$18,712 $15,025 
Cost of revenue - hardware and other5,961 3,850 
Gross profit$48,271 $39,570 
Gross profit margin66.2 %67.7 %
Gross profit margin - subscription70.6 %71.9 %
Gross profit margin - hardware and other35.3 %22.2 %

Compared to a decrease in total revenue of $14.5 million or 19.9%, cost of revenues decreased by $5.8 million, or 23.5%, from the first half of fiscal year 2020. This resulted in a higher gross profit margin of 67.7% in the first half of fiscal year 2021 compared to 66.2% in the first half of fiscal year 2020.
Subscription revenue, which generates a higher gross profit margin than hardware and other revenue, contributed 91.5% of total revenue in the first half of fiscal year 2021 compared to 87.4% in the first half of fiscal year 2020.
During the first half of fiscal year 2021, hardware and other margins were lower than in the first half of fiscal 2020, mainly due to the geographical sales mix and the distribution channels. Hardware sales via our dealer channel generate lower gross margins.

Sales and Marketing
Six Months Ended September 30,
20192020
(In thousands, except for percentages)
Sales and marketing$6,729 $5,193 
As a percentage of revenue9.2 %8.9 %

Sales and marketing costs decreased by $1.5 million, or 22.8%, from the first half of fiscal year 2020 to the first half of fiscal year 2021 against a 19.9% decrease in total revenue. The decrease in the first half of fiscal year 2021 was primarily as a result of savings of $0.7 million in employee costs, $0.2 million in bonuses, $0.4 million in travel costs and $0.1 million decrease in advertising spend. In the first half of fiscal year 2021, sales and marketing costs represented 8.9% of revenue compared to 9.2% of revenue in the first half of fiscal year 2020.
Administration and Other Expenses
Six months ended September 30,
20192020
(In thousands, except for percentages)
Administration and other$29,402 $27,122 
As a percentage of revenue40.3 %46.4 %

Administration and other expenses decreased by $2.3 million, or 7.8%, from the first half of fiscal year 2020 to the first half of fiscal year 2021.
The decrease mainly relates to savings of $2.1 million in salaries and wages, bonuses of $1.1 million primarily due to the decline in subscription revenue as a result of COVID-19, travel costs of $0.4 million, and other decreases of $0.5 million, none of which were individually significant, offset by restructuring costs of $1.0 million and increases in the expected credit loss provision of $0.8 million.
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Taxation
Six months ended September 30,
20192020
(In thousands, except for percentages)
Income tax expense$4,198 $1,066 
Effective tax rate33.5 %15.4 %

Taxation expense decreased by $3.1 million, or 74.6%. In the first half of fiscal year 2021, the income tax expense decreased due to lower profitability and also included a $1.0 million deferred tax credit on a U.S. Dollar intercompany loan between MiX Telematics Limited and MiX Investments. During the first half of fiscal 2020, the income tax expense included a $0.8 million deferred tax charge on a U.S. Dollar intercompany loan between MiX Telematics Limited and MiX Investments. Ignoring the impact of net foreign exchange gains and losses net of tax, the tax rate which was used in determining non-GAAP net income, was 29.0% in the first half of fiscal year 2021 as compared to 28.6% in the first half of fiscal 2020.


Critical Accounting Policies and Estimates
Our consolidated financial statements are prepared in accordance with GAAP. Management believes that there have not been any significant changes in our critical accounting policies and estimates during the first half of fiscal year 2021 as compared to the items that we disclosed as our critical accounting policies and estimates in the Management’s Discussion and Analysis of Financial Condition and Results of Operations in our Annual Report on Form 10-K for the year ended March 31, 2020, which we filed with the Securities and Exchange Commission on July 23, 2020.
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Liquidity and Capital Resources
We believe that our cash and borrowings available under our credit facilities will be sufficient to meet our liquidity requirements for the foreseeable future. We have minimum liquidity risk due to the recurring nature of its income and the availability of the cash resources set out below.
The following tables provide a summary of our cash flows for each of the six months ended September 30, 2019 and 2020:
Six Months Ended
September 30,
 20192020
(In thousands)
Net cash provided by operating activities$14,566 $20,758 
Net cash used in investing activities(10,602)(4,722)
Net cash used in financing activities(10,767)(941)
Net (decrease)/increase in cash and cash equivalents and restricted cash(6,803)15,095 
Cash and cash equivalents, and restricted cash at beginning of the period27,838 18,652 
Effect of exchange rate changes on cash and cash equivalents, and restricted cash(294)887 
Cash, and cash equivalents and restricted cash at the end of the period$20,741 $34,634 

We fund our operations, capital expenditure and acquisitions through cash generated from operating activities, cash on hand and our undrawn borrowing facilities.

It is currently our policy to pay regular dividends, and we consider such dividend payments on a quarter-by-quarter basis.
On May 23, 2017, our Board approved a share repurchase program of up to R270 million (equivalent of $15.9 million as of September 30, 2020) under which we may repurchase our ordinary shares, including ADSs. We expect any repurchases under this share repurchase program to be funded out of existing cash resources. During the six months ended September 30, 2020, there were no additional share repurchases. Refer to “Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities” in our Annual Report on Form 10-K for the year ended March 31, 2020, which we filed with the Securities and Exchange Commission on July 23, 2020, for information regarding our share repurchase program.

Operating Activities
Net cash provided by operating activities during the six months ended September 30, 2019 consisted of our cash generated from operations of $17.2 million, net interest received of $0.3 million and taxes paid of $2.9 million.

Net cash provided by operating activities during the six months ended September 30, 2020 increased to $20.8 million compared to $14.6 million in the six months ended September 30, 2019, which is primarily attributable to improved cash generated from operations of $5.1 million, lower net interest received of $0.2 million and decreased taxation paid of $1.3 million. The improved cash generated from operations is primarily as a result of improved working capital management of $9.6 million (specifically an improvement in accounts receivables of $10.8 million due to our improvement in management of receivables, foreign currency translation adjustments of $1.3 million and capitalized commissions of $1.0 million offset by accounts payables of $3.2 million and inventories of $0.2 million), offset by lower net income (after excluding non-cash charges) of $4.5 million.
Net cash provided by operating activities during the six months ended September 30, 2020 consisted of our cash generated from operations of $22.3 million, net interest received of $0.1 million and taxes paid of $1.6 million.


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Investing Activities
Net cash used in investing activities in the six months ended September 30, 2019 was $10.6 million. Net cash used in investing activities during the six months ended September 30, 2019 primarily consisted of capital expenditures of $11.5 million and loans to external parties of $0.4 million. Capital expenditures during the six months included purchases of intangible assets of $2.6 million, and cash paid to purchase property and equipment of $8.9 million, which included in-vehicle devices of $8.4 million. Offset by proceeds on sale of property and equipment and intangible assets of $1.3 million.
Net cash used in investing activities in the six months ended September 30, 2020 decreased to $4.7 million from $10.6 million in the six months ended September 30, 2019. Net cash used in investing activities during the six months ended September 30, 2020 primarily consisted of capital expenditures of $4.8 million. Capital expenditures during the six months included purchases of intangible assets of $2.0 million and cash paid to purchase property and equipment of $2.8 million, which included in-vehicle devices of $2.6 million. The $5.8 million decline in in-vehicle device purchases during the six months ended September 30, 2020 is primarily due to lower sales activity following the disruption caused by the COVD-19 pandemic.
Financing Activities
In the six months ended September 30, 2019, the cash used in financing activities of $10.8 million primarily consisted of $8.2 million for the repurchase of ordinary shares, dividends paid of $3.1 million offset by facilities utilized of $0.5 million.
In the six months ended September 30, 2020, the cash used in financing activities of $1.0 million includes dividends paid of $2.5 million offset by proceeds of $0.8 million from the issue of ordinary shares in relation to the exercise of stock options and $0.7 from facilities utilized.
Credit Facilities
At September 30, 2020, our principal sources of liquidity were net cash balances of $30.6 million (consisting of cash and cash equivalents of $33.8 million less short-term debt (bank overdraft) of $3.2 million) and unutilized borrowing capacity of $3.1 million available through our credit facilities.
Our principal sources of credit are our facilities with Standard Bank Limited and Nedbank Limited. We have an overdraft facility of R64.0 million (equivalent of $3.8 million as of September 30, 2020), an unutilized working capital facility of R25.0 million (equivalent of $1.5 million as of September 30, 2020) and an unutilized vehicle and asset finance facility of R8.5 million (equivalent of $0.5 million as of September 30, 2020) with Standard Bank Limited that bear interest at South African Prime less 1.2%.
At September 30, 2020, $3.2 million was utilized under the overdraft facility. We use this facility as part of our foreign currency hedging strategy. We draw down on this facility in the applicable foreign currency in order to fix the exchange rate on existing balance sheet foreign currency exposure that we anticipate settling in that foreign currency. Our obligations under the overdraft facility with Standard Bank Limited are guaranteed by MiX Telematics Limited and our wholly-owned subsidiaries, MiX Telematics Africa Proprietary Limited and MiX Telematics International Proprietary Limited, and secured by a pledge of accounts receivable by MiX Telematics Limited and MiX Telematics International Proprietary Limited.
During fiscal year 2020, we entered into a R25.0 million (equivalent of $1.5 million as of September 30, 2020) working capital facility from Standard Bank Limited that bears interest at South African Prime less 0.25%. As of September 30, 2020, the facility was undrawn. We use this facility for working capital purposes in our Africa operations.
During fiscal year 2014, we entered into a R10.0 million (equivalent of $0.6 million as of September 30, 2020) facility from Nedbank Limited that bears interest at South African Prime less 2%. As of September 30, 2020, the facility was undrawn. We use this facility for working capital purposes in our Africa operations.
Our credit facilities with Standard Bank Limited and Nedbank Limited contain certain restrictive clauses, including without limitation, those limiting our and our guarantor subsidiaries’, as applicable, ability to, among other things, incur indebtedness, incur liens, or sell or acquire assets or businesses. These facilities are not subject to any financial covenants such as interest coverage or gearing ratios.
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Off-balance sheet arrangements
We do not engage in any off-balance sheet financing activities. We do not have any interest in entities referred to as variable interest entities, which include special purpose entities and other structured finance entities which are not consolidated.
Tabular disclosure of contractual obligations
As a “smaller reporting company”, we are not required to provide this information.


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Item 3. Quantitative and Qualitative Disclosures About Market Risk
As a “smaller reporting company”, we are not required to provide the information required by this Item 3.

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Item 4. Controls and Procedures
EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES
Under the supervision and with the participation of our management, including our Chief Executive Officer and our Chief Financial Officer, we evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a – 15(e) and 15d – 15(e) under the Exchange Act) as of September 30, 2020. Based on that evaluation, we concluded that, as of such date, our disclosure controls and procedures were not effective as a result of a material weakness in our internal control over financial reporting that was disclosed in our Annual Report on Form 10-K for fiscal year ended March 31, 2020. The material weakness related to the ineffective design and operation of the financial statement close and reporting controls in areas of management review of financial statement information and independent review of journal entries in our Africa operating segment.
Remediation

As described in “Item 9A. Controls and Procedures” in Part II of our Annual Report for the fiscal year ended March 31, 2020, we began implementing a remediation plan to address the material weakness mentioned above. This plan includes:
Investigating and understanding the root causes of the control weakness that resulted in the material weakness;
The development and refinement of policies and procedures to enhance the precision of management review of financial information;
Review and updating of risk and control matrices;
Updating management review control descriptions;
Developing and adopting guidelines regarding the control documentation requirements; and
Review the capabilities and capacity of the financial teams in the respective reporting segments and align roles and responsibilities accordingly.

We have already updated the configuration of the journal workflow in the ERP system to enforce independent review and release of journal entries and have reinforced the procedures and controls for the independent review of journal entries.

Management will continue to reassess and test the design and operating effectiveness of controls. The material weakness will not be considered remediated, until applicable controls operate for a sufficient period of time and management has concluded, through testing, that these controls are operating effectively. We expect the remediation of this material weakness to be completed prior to the end of fiscal year 2021.

CHANGES IN INTERNAL CONTROLS OVER FINANCIAL REPORTING
Other than the changes intended to remediate the material weakness noted above, there were no changes in controls for the period covered by this Quarterly Report on Form 10-Q to our internal control over financial reporting that has affected, or are reasonably expected to materially affect our controls over financial reporting. We have not experienced any material impact on our internal controls over financial reporting despite the fact that some of our employees continue working remotely due to the COVID-19 pandemic. We continue to assess and monitor the COVID-19 situation, the impact thereof on our operations and financial results and on the controls over financial reporting.
As required by Rule 13a-15(d), under the Securities Exchange Act of 1934, as amended, our management, including our Chief Executive Officer and Chief Financial Officer, conducted an evaluation of our internal control over financial reporting to determine whether any change occurred during the period covered since the last annual report that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting. Based on this evaluation, management determined that there has been no change during the period covered by this Quarterly Report on Form 10-Q that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

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PART II - OTHER INFORMATION

Item 1. Legal Proceedings
There have been no material developments in our legal proceedings since we filed our Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2020. Refer to “Part II. Item 1. Legal Proceedings” in our Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2020 and “Part I. Item 3. Legal Proceedings” in our Annual Report on Form 10-K for the fiscal year ended March 31, 2020 for additional information regarding legal proceedings.
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Item 1A. Risk Factors

As of September 30, 2020, there have been no material changes to the risk factors previously disclosed in “Item 1A. Risk Factors” of our Annual Report on Form 10-K for the fiscal year ended March 31, 2020, except for the following risk factor under the heading “Risks Related to Our Business” and replaced in its entirety with the following:

Risks Related to Our Business

The extent to which the coronavirus (“COVID-19”) outbreak and measures taken in response thereto impact our business, results of operations and financial condition will depend on future developments, which are highly uncertain and difficult to predict.

The global impact of the COVID-19 outbreak and measures taken to reduce the spread of the virus have had an adverse effect on the global macroeconomic environment and have significantly increased economic uncertainty and reduced economic activity. Governments globally, including the foreign jurisdictions in which we have offices, have declared a state of emergency related to the spread of COVID-19. The outbreak has resulted in authorities implementing numerous measures to try to contain the virus, such as travel bans and restrictions, quarantines, shelter-in-place or total lock-down orders, and business limitations and shutdowns. Although governments around the globe have taken steps to mitigate some of the more severe economic effects of the virus and the impact of the outbreak on the economic activity globally is unfolding, there can be no assurance that such steps will be effective or achieve their desired results in a timely and sustainable manner or at all.

Nearly all of our employees were required to work remotely, with the exception of our staff working in our monitoring centers, which were classified as an essential service. Some employees have subsequently returned to our offices; however, a number of employees continue to work from home. In addition, we have modified certain business and workforce practices (including suspension of the majority of business travel and cancellation of physical participation in meetings, events and conferences) and implemented new protocols to promote social distancing and enhance sanitary measures in our offices and facilities to conform to government restrictions and best practices encouraged by governmental and regulatory authorities. There is no certainty that such measures will be sufficient to mitigate the risks posed by the virus, in which case our employees or other individuals may become sick, our ability to perform critical functions could be harmed, and we may be unable to respond to some of the needs of our global business. Further, our increased reliance on remote access to our information systems increases our exposure to potential cybersecurity breaches. We continue to monitor the design and effectiveness of internal controls, taking into account that employees may be working remotely. We may take further actions as government authorities require or recommend or as we determine to be in the best interests of our employees, customers, suppliers and other business counterparties.

The extent to which the COVID-19 outbreak impacts our business, results of operations and financial condition in the longer term will depend on future developments, which are highly uncertain and are difficult to predict, including, but not limited to, the duration, spread and severity of the outbreak, the actions taken to contain the virus or treat its impact, and how quickly and to what extent normal economic and operating conditions broadly resume.

In particular, we may experience reduced revenues and/or financial losses as a result of a number of operational factors, including:

Customer pricing pressure, payment term extensions, contract amendments and insolvency risk – As our customers face reduced demand for their products and services, reduce their business activity and face increased financial pressure on their businesses, we have faced downward pressure on our pricing and gross margins as a result of making pricing concessions to customers. In addition, in response to the requests of some of our customers, we have granted extended payment terms. We expect that some of our customers will continue to make such requests, which may have an adverse effect on our cash flows from operations. We may also face a significantly elevated risk of customer insolvency, bankruptcy or liquidity challenges, which may result in a failure to be paid for services we have performed and expenses we have incurred, which could in turn result in us having to take a charge in the period in which the related receivable was written down or written off.

Reduced customer demand for services – As a result of the pandemic’s impact on our customers, we have experienced reduced demand for our services. Among other things, our customers have postponed, canceled or scaled back existing and potential projects with us.

Increased costs – We face increased costs from the pandemic, including as a result of mitigation efforts such as enabling increased work-from-home capabilities and additional health and safety measures.

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Diversion of and strain on management and other corporate resources – Addressing the significant personal and business challenges presented by the pandemic, including various business continuity measures and the need to enable work-from-home arrangements for our employees, has demanded significant management time and attention and strained other corporate resources, and is expected to continue to do so. Among other things, this may adversely impact our recruitment and retention, our customers and employee development and our ability to execute our strategy and various transformation initiatives and may increase our exposure to security breaches or cyberattacks.

In addition, the impact of COVID-19 on the global financial markets has resulted in, and may continue to result in, significant economic volatility and uncertainty in U.S. and international financial markets, which could adversely affect our access to capital markets and investment activity, negatively impacting the availability of capital, the terms and conditions of financing arrangements and the related costs of such financing. This could result in situations where financing may not be available to us at all, or at terms formerly available to us.

There are no comparable recent events that provide guidance as to the effect the spread of COVID-19 and the measures taken in response thereto may have on our business, and, as a result, the ultimate impact of the outbreak is highly uncertain and subject to change. We do not yet know the full extent of the impact on our business, the countries in which we operate and in which our customers do business, or the global economy as a whole. The nature of the crisis, the public health measures to contain it, and the economic impact are all developing rapidly, and they vary among the different jurisdictions where we and our customers operate. We continue to monitor the effects of the outbreak on our business, results of operations, financial condition and liquidity as well as on our risk factors and the effectiveness of the control environment.
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Item 6. Exhibits


Exhibit No.Description
101.INSXBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.
101.SCHXBRL Taxonomy Extension Schema Document.
101.CALXBRL Taxonomy Extension Calculation Linkbase Document.
101.DEFXBRL Taxonomy Extension Definition Linkbase Document.
101.LABXBRL Taxonomy Extension Label Linkbase Document.
101.PREXBRL Taxonomy Extension Presentation Linkbase Document.
104Cover Page Interactive Data File (formatted as inline XBRL and contained in Exhibit 101).
* The certification attached as Exhibit 32 that accompanies this Quarterly Report on Form 10-Q is not deemed filed with the Securities and Exchange Commission and is not to be incorporated by reference into any filing of the Company under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended, whether made before or after the date of this Quarterly Report on Form 10-Q, irrespective of any general incorporation language contained in such filing.
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
MIX TELEMATICS LIMITED
By: /s/ Stefan Joselowitz
Stefan Joselowitz
Chief Executive Officer
By: /s/ John Granara
John Granara
Chief Financial Officer
Date: November 6, 2020

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