MiX Telematics Limited (MIXT) Q4 2019 Earnings Call Transcript

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MiX Telematics Limited (NYSE: MIXT) Q4 2019 Earnings Call May 14, 2019, 8:00 a.m. ET

Contents:

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  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Greetings and welcome to the MiX Telematics fourth quarter fiscal 2019 earnings conference call. At this time, all participants are in a listen-only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press *0 on your telephone keypad. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Interim CFO Paul Dell. Please go ahead, sir.

Paul Dell -- Interim Chief Financial Officer

Welcome to MiX Telematics' earnings results call for the fourth quarter and fiscal year which ended on March 31, 2019. Today, we will be discussing the results announced in our press release issued a few hours ago. I am Paul Dell, Interim Chief Financial Officer, and joining me on the call today is Stefan Joselowitz, or as many of you know him, Joss. He is President and Chief Executive Officer of MiX Telematics.

During the call, we will make statements relating to our business that maybe considered forward-looking pursuant to the Safe Harbor provision of the Private Securities Litigation Reform Act of 1995. These statements are subject to a variety of risks and uncertainties that could cause actual results to differ materially from expectations. For a discussion of the material risks and other important factors that could affect our results, please refer to those contained in our Form 20-F and other filings with the Securities and Exchange Commission, available on our website at www.mixtelematics.com under the Investor Relations tab. We will also be referring to certain non-IFRS financial measures. There is a reconciliation schedule detailing these results currently available in our press release, which is located on our website and filed with the Securities and Exchange Commission.

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Finally, when discussing our subscription and total revenue growth, we will be referring to constant currency growth rates. All U.S. dollar amounts referred to on the call have been translated at an average exchange rate of 14.48 rand to the U.S. dollar, which was the rand-dollar exchange rate reported by oanda.com as of March 31, 2019. With that, let me turn the call over to Joss.

Stefan Joselowitz -- President and Chief Executive Officer

Thanks, Paul. I would like to thank you all for joining the call today. Our performance in the fourth quarter was a continuation of the trends we experienced throughout the fiscal year, so let me start by providing a high-level summary of our 2019 results. We added nearly 74,000 net new subscribers, increasing our total base to over 750,000, a significant milestone for the company. This growth came primarily from fleet customers, and was a notable increase from the 55,000 subscribers we added in 2018.

Subscription revenue for the year grew 16.3% on a constant-currency basis. We expanded adjusted EBITDA margins in fiscal 2019 to 30.5%, the second straight year we increased margins by more than 450 basis points. We increased our long-term adjusted EBITDA margin target to 35%, up from 30%. We were pleased to generate free cash flow of 177 million rand, even after investing 192 million rand in in-vehicle devices, which drive a higher ROI through our bundled solutions.

We expect to generate significant free cash flow as our bundled contracts mature through the renewal cycles, leveraging previous investments in in-vehicle devices. And, we exceeded the rule of 40 benchmark of combined revenue growth and adjusted EBITDA margin for each quarter and the full fiscal 2019. This is a track record few SaaS companies can match.

Our performance in the fourth quarter drew a number of highlights. We added more than 14,000 subscribers, compared to 12,000 in Q4 fiscal 2018. Adjusted EBITDA margin reached a record 33% in Q4, up 400 basis points from this time last year, and subscription revenue of 444 million rand was up 13% year over year on a constant currency basis.

Our fourth-quarter results reflected somewhat softer than expected top-line performance, primarily related to the elections held in South Africa last week. We experienced the impact in March and April, but with elections now behind us, we're expecting our performance in that geography to return to normal. We remain well positioned to resume the momentum and enhance our market position locally, which is reflected in our strong initial fiscal 2020 guidance that Paul will walk through shortly.

I would like to highlight some Q4 customer wins that demonstrate our success around the world, including: In the Americas, one of the world's largest oilfield service companies is expanding its adoption of our premium solution of an additional 1,000 vehicles in its U.S. fleet. This global leader has been a customer of MiX Telematics for over 10 years, and has 5,000 vehicles under subscription worldwide.

Another longtime MiX customer in the U.S. chose to expand their adoption of our solution for an additional 200 vehicles in their Australian operation. A leading earth-moving operator in South Africa selected MiX to monitor over 400 of its specialty vehicles to accurately monitor engine hours and provide additional value by parsing data intelligence to their customers.

In Latin America, we will be rolling out our premium fleet management solution to 187 vehicles throughout Colombia for a fast-moving consumer goods company. MiX has a long-standing partnership with this global customer, and we're excited, as this contract represents our first expansion with them into South America. And, in Europe, we continue to grow our presence in [audio cuts out] vertical by providing Southwell's Transport with our premium fleet solution to address the safety, efficiency, and compliance requirements of their fleet.

From a regional perspective during fiscal 2019, we're extremely pleased that all our geographies grew subscription revenues strongly while expanding EBITDA margins. Our Africa, Americas, and Brazil operation performed particularly well. The economy in South Africa continues to be challenging, but our African team reported solid results yet again. Subscription revenue grew 11% year over year and adjusted EBITDA margins ticked up to 46.4% for fiscal year 2019.

Our Americas team continues to outperform, and, at 17% of revenues, is now our second largest operation. It is our fastest-growing region, with subscription revenue growth of 42%. Growth in the Americas is being driven by a healthy mix of new subscribers, subscription to add-on services, and the positive RP impact from bundled premium contracts. The high mix of bundled deals is also driving strong adjusted EBITDA margins, which were up more than 1,100 basis points, from 34.8% to 46.4%.

Our Americas business continues to benefit from strength in the energy market as well as the early impact from the go-to-market investments we have made in this region to diversify into additional verticals. Brazil continues to outperform in a very challenging socioeconomic environment. Subscription revenues increased 40% year over year as adjusted EBITDA margins grew to 40.3% for fiscal 2019, up from 30.8% in the comparative period. Our performance in the U.S. and Brazil is a strong indication of the inherent profitability of our bundled deal strategy, which will have a positive impact on our overall group margins as these regions become a bigger portion of the business.

Another highlight for fiscal 2019 was our Investor Day in December. I just want to take a moment to reiterate the themes we outlined at our event, which remain our key areas of focus in the year ahead. MiX is targeting a multibillion-dollar market opportunity, and we have multiple levers to deliver consistent, significant, and profitable growth. We are observing a trend whereby more and more multinationals are recognizing the value of big data and the Internet of Things. With our rare global distribution footprint and broad product range, we are ideally positioned to take advantage of this common phenomenon. We will continue to leverage these strengths to add new customers and subscribers around the world.

ARPU accretion has been a consistent growth driver for MiX in recent years, as we increased the number of solutions to our premium and light fleet customers and continue to drive the uptick of bundled deals. There continues to be a significant opportunity to invest in bundling and various add-on solutions that can drive incremental ARPU expansion at the time. In fiscal 2019, our ARPUs grew by approximately 5%. We will continue to scale our regional presence and broaden our customer segment focus. We believe the U.S. represents a substantial area for growth in both the premium as well as the light fleet segment. We have driven solid results in the U.S. in recent years and believe we are still in the early stages of benefiting from this opportunity.

To be clear, we believe we have a long runway for growth as we execute on our key initiatives and believe we can grow subscription revenue 15% or more on a constant-currency basis over time. A key area of focus in the U.S. is the introduction of MiX Now, a simple plug-and-play fleet management offering for smaller fleet operations. As a reminder, there are 12 million service fleet vehicles in the U.S. alone that are addressable with MiX Now, and this vertical represents an incremental market opportunity of more than $4 billion.

Q4 marked our first full quarter with MiX Now, and we remain enthusiastic about the opportunity. We signed a number of customers and we are making progress building out the new inside sales force and adapting our go-to-market process to attack this new greenfield vertical. As a reminder, although we are incurring all of the expenses today, we do not expect to begin seeing MiX Now have a meaningful impact on our growth until fiscal 2021. With that, let me turn it back over to Paul to run through the details on the quarter.

Paul Dell -- Interim Chief Financial Officer

Thanks, Joss. Now, let me walk through our fourth quarter and full year fiscal 2019 performance. Recall that our reporting currency is the South African rand. For convenience, we have translated our results into U.S. dollars, both for the 2019 and 2018 periods, using the March 31, 2019 spot rate. You can find these conversions in our press release. In addition, please note that our results are presented on an IFRS basis unless otherwise noted.

In the fourth quarter, total revenue came in at 508 million rand. Of this total, subscription revenues were 443.8 million rand, up over 13% on a constant-currency basis and in line with our guidance range, despite challenging market conditions in South Africa, compounded by the buildup to Tuesday's election. Our performance was driven by the ongoing positive traction from our broad subscriber portfolio, including our premium fleet customers across all geographies and vertical markets. We ended the fiscal year with over 750,000 subscribers, an increase of 10.9% year over year, as we added over 14,000 subscribers in the fourth quarter. Subscription revenues represented 87.4% of total revenues, compared to 82.4% in the fourth quarter of fiscal 2018.

The hardware component of our business is more volatile, and depends on whether our customers elect our bundled or cash offerings. In the fourth quarter, hardware and other revenue was 64 million rand, a decline of 19.8% year over year. Over time, we continue to expect the ongoing shift toward bundled deals to increase our subscription revenue as a percentage of total revenue, which will provide us both improved visibility and higher margins.

Our gross profit margin in the fourth quarter was 66.9%, up 160 basis points from last year. As a reminder, gross profit includes depreciation charges related to in-vehicle devices and hardware peripherals used in certain of our bundled fleet contracts. These contracts generate higher ARPUs, and as they go through contract renewal cycles, they are expected to drive an increase in gross profit margins, which we expect to trend toward 70% in the longer term. Operating expenses were 47.7% of total revenue compared to 49.3% of revenue in the fourth quarter last year, which highlights our ongoing commitment to cost controls and scale in the business.

Recall that our general and administration costs include research and development costs not capitalized. For those of you interested to see our historical capitalization and development cost expense, we have provided a table in our earnings press release. To provide investors with additional information regarding our financial results, we disclosed adjusted EBITDA and adjusted EBITDA margin, as well as adjusted earnings for the period, which are non-IFRS measures, so we have provided full reconciliation tables in our press release.

Fourth quarter adjusted EBITDA increased 29% to 168 million rand or 33% of revenue, compared 130 million rand or 28.7% of revenue last year. This represented a 430-basis-point year-over-year improvement in the adjusted EBITDA margin. The continued improvements in our adjusted EBITDA margins highlight our ability to grow margins year over year as we scale the business globally and by successfully leveraging a return on our historical investments, while remaining focused on cost management throughout the business.

Adjusted earnings for the quarter was 81 million rand or 14 South African cents per diluted ordinary share, which translates to $0.24 per diluted American depository share. This was up from the 55 million rand or 10 South African cents per share we posted a year ago. From a cash flow perspective, we generated 129 million rand in net cash from operating activities and invested 50 million rand in capital expenditures. This led to a positive free cash flow of 80 million rand for the fourth quarter, compared with free cash flow of 58 million rand during the same period last year. As Joss mentioned, we are very pleased with our ability to generate cash given the ongoing investments in in-vehicle devices driven by the demand for our bundled offering.

Now, turning to our financial outlook, at the midpoint of our total revenue guidance, we expect fiscal 2020 revenue of 2,197 million rand, which would represent constant-currency growth of 9.7%. At the midpoint, we expect subscription revenue to be 1,945 million rand, which represents constant-currency year-on-year growth of 13.4%. At the midpoint of our guidance range, we are targeting adjusted EBITDA of 691 million rand, which represents an adjusted EBITDA margin of 31.4%. The adjusted EBITDA margin guidance at the midpoint represents an increase of 90 basis points compared to fiscal 2019.

In regards to adjusted diluted earnings per share for fiscal 2020, we are expecting 47.7 South African cents at the midpoint of the guidance range. Based on an exchange rate of 14.38 rand to the U.S. dollar, this translates to $0.828 per ADS. Our new guidance is based on 585 million diluted ordinary shares and an effective tax rate of 28%.

As we have discussed previously, our intention is to focus on annual targets, as this is how our management is focused, and we do not wish to close deals on suboptimal terms in order to achieve quarterly objectives. This is most relevant as it relates to the hardware and other revenue line items in our profit and loss. The area of revenue where we have the highest level of visibility and predictability is our subscription revenue, which, as we have discussed, is the largest, fastest-growing, and highest-margin component of our business. For the first quarter of 2020, we are targeting subscription revenues in the range of 451-457 million rand, which would represent year-over-year growth of 10.5-12.1% on a constant-currency basis. We anticipate that our growth will accelerate post the first quarter of fiscal 2020.

Stefan Joselowitz -- President and Chief Executive Officer

Thanks, Paul. In closing, we are well positioned to maintain our momentum in fiscal 2020 and beyond. MiX continues to leverage its global reputation and is executing its strategy of achieving double-digit subscription revenue growth in parallel with strong margin accretion. With that, we will turn the call over to the operator to begin the Q&A session.

Questions and Answers:

Operator

Thank you. We will now be conducting a question and answer session. If you'd like to be placed in the question queue, please press *1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press *2 if you'd like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing *. Once again, that's *1 to ask a question. One moment, please, while we poll for questions. Our first question today is coming from Mike Walkley from Canaccord Genuity. Your line is now live.

Michael Walkley -- Canaccord Genuity -- Managing Director

Great, thank you. Congratulations on the strong fiscal 2019 results.

Stefan Joselowitz -- President and Chief Executive Officer

Thanks, Mike.

Michael Walkley -- Canaccord Genuity -- Managing Director

So, just on the fiscal 2020 subscription growth forecast, can you help us think about the components between -- ARPU has been a nice, upward trajectory. Do we expect ARPU to flatten out and it's more sub-growth for that 13-14% growth, or is that a combination of still some premium mix improving to drive ARPU a little higher and a little slower sub-growth? Can you help us think about your planning forecast on the subscription growth?

Stefan Joselowitz -- President and Chief Executive Officer

Certainly. We see it as a combination, so we're certainly still expecting some ARPU growth, and that's a key strategic focus for us, of course. And, of course, combined with that, we have a forward pipeline that gives us at least a reasonable indication of some of the forward growth that we can expect, both from existing customers and from new customers, and we use a combination of that to come up with our initial guidance.

Michael Walkley -- Canaccord Genuity -- Managing Director

Great, thanks. And then, just on the adjusted EBITDA margin, it's slowing a little bit in terms of the great expanse in the last two years. Is this mainly due to MiX Now investment that you'll start to harvest in fiscal '21, and we should start to see margin expand again? Can you just talk about MiX Now and the investment in 2020 versus what it could drive in terms of margins in '21 and beyond? Thanks.

Stefan Joselowitz -- President and Chief Executive Officer

Certainly. So, in terms of the EBITDA margin, there's certainly a number of factors at play. We certainly have had a great couple of years in terms of the EBITDA margin expansion, and of course, that same rate is not sustainable indefinitely. Nonetheless, as you remember, we did update our long-term guidance from 30% to 35%-plus, so we see a way to go, and once we get there, it's not the end of the journey. We'll update it again. So, it is a big focus area for us.

Certainly, investment in -- not just MiX Now, though it's certainly part of it, but other strategic initiatives that involve enhanced investment in sales and marketing are certainly part of the story, and we don't believe that our fiscal 2019 saw a fully baked-in, full investment from a strategic investment point of view, so we're thinking about 2020, certainly, as a component of that. Also, bear in mind that we have some strategic -- we have a very clear strategic vision for this business that does require us to make additional investments, for instance, at the head office, where we're increasing capacity to do various things that we believe are important for meeting our future strategies. I guess that makes up the other part of it.

Michael Walkley -- Canaccord Genuity -- Managing Director

Thanks. Last question for me, and I'll jump back in the queue -- just on the strong growth in Brazil, is this concentrated on that large dairy customer you highlighted in previous calls, or is it broad-based, and how do you see that region continuing for you guys after the strong fiscal '19? Thank you.

Stefan Joselowitz -- President and Chief Executive Officer

I appreciate it, Mike. Certainly, from a Brazil perspective, it's concentrated on one strong customer, which we view as absolutely great news, and not just one vertical. So, Luiz and his team are really performing well there in terms of building out a number of verticals and looking at their plan for the year head, expecting to see a continued decent performance out of that business as they continue to diversify and build scale.

Michael Walkley -- Canaccord Genuity -- Managing Director

Thank you.

Operator

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

Brian Peterson -- Raymond James -- Vice President

Good morning, gentlemen, and thanks for taking the question. So, I just wanted to start off on the fiscal year '20 outlook. So, it looks like that revenue outlook is above your stretch targets that you provided last year, and obviously, we've had a lot of upside this year to support that target, but we are seeing guidance imply an acceleration from the first quarter, so I want to understand your thoughts on what went into setting the guidance outlook.

Stefan Joselowitz -- President and Chief Executive Officer

Thanks for the time. As always, guidance is based on best judgment at a point in time, so we've put out our view of how we -- certainly, at this stage -- see the year progressing, and as always as we get more datapoints, particularly when we reach the hardware, we'll have a better feel for where we are in terms of updating that guidance. But, the team is focused on delivering our strategic objectives. It's probably worth mentioning that we have a -- or, reiterating that we have a balanced approach and a balanced focus on our business, and top-line growth is certainly a very important component of that.

We've also adjusted -- you mentioned that we're within range of the incentive plan there. It's also worth nothing that when it comes to our EBITDA guidance, we are not within range, so the team recognizes that we have to do better than guidance for us to achieve the combination of those two objectives, and remember, it has to be both, not one or the other. So, there's a significant focus on that. We're pleased with our initial guidance for the year, as always, we're going to strive to beat it and improve our performance, but I think it's a good starting point.

Brian Peterson -- Raymond James -- Vice President

Thanks, Joss. Maybe just to follow up, I know we've hit on the ARPU trends already, but up 5% this year. What is the right way to think about that longer-term? And, if we could isolate the bundled deal impact, I think we're -- some investors are trying to understand what does that trajectory look like on a five-year outlook. Thanks, guys.

Stefan Joselowitz -- President and Chief Executive Officer

I appreciate it. Paul can correct me if I'm wrong, but I don't think we've published any isolated data in terms of splitting up the effect that bundled deal has on driving ARPU and the other effect that ARPU-enhancing add-ons -- additional service add-ons for extra dollars -- has on that, so we haven't really isolated that. What is worth noting is that as a percentage of our total base, bundled deals are small, only in the 30% kind of exposure, so we have a long way to go in terms of our current base, potentially -- as they come up for renewal, non-bundled deals to potentially move into a bundled arena.

Not all of our customers are moving in that direction, but many of them are, so I think there's a lot of upside there. We're getting increasingly excited about some of our add-ons, which are particularly for things like MiX Vision, which you're seeing a lot of traction with both existing and new customers. That's going to continue to drive ARPU. So, the way we think about the business is that ARPU should expanding, certainly for the foreseeable future.

Brian Peterson -- Raymond James -- Vice President

Thanks, Joss.

Stefan Joselowitz -- President and Chief Executive Officer

Thank you.

Operator

Thank you. Our next question is coming from Matt Pfau from William Blair. Your line is now live.

Matthew Pfau -- William Blair -- Analyst

Hey, guys. Thanks for taking my question. Joss, I wanted to hit on the strong performance in the Americas region. Can you give us any more details on what drove that? You mentioned it was a combination of energy and some of the other verticals that you've been investing in, but is it primarily energy driving that growth, and are some of these other investments potentially growth drivers down the road, and within energy, is it still some customers bringing more vehicles online after they had brought some offline previously, or are there other expansions or customer wins going on?

Stefan Joselowitz -- President and Chief Executive Officer

Certainly. So, there are a number of questions there. It's certainly -- a large part of it is coming from energy. Remember, a few years ago, it was all energy, so we're certainly seeing new customers coming in there, or outside of the energy sector, so we view it as early stages, but nonetheless, it's a trend that we view as encouraging, so that's important for us as far as the growth drive from the energy sector. Again, it's a combination of fleet expansion from existing customers, and equally exciting, we've been adding new customers. We've also -- if I look at our pipeline going forward, we've got a number of new, exciting deals that are looking positive in that pipeline as well. So, it is a combination.

Matthew Pfau -- William Blair -- Analyst

Got it. And, as I look at the segment margins for both Africa and the Americas, they're both at about the same level. Is there more room for those EBITDA margins to expand for those segments, or does your future margin expansion come from the Americas segment going faster, and perhaps some of these other regions improving their EBITDA margins to the level of that of the Americas and Africa?

Stefan Joselowitz -- President and Chief Executive Officer

We believe there is absolutely room for future improvement because the two examples you've given have that margin for different reasons. The Africa business, which is running at its mid-40s margin, is primarily driven as a result of impressive scale in the business. When we look at the U.S. business, we don't see our U.S. business at anywhere near scale yet. However, it's delivering impressive margins because of the very high component of bundle deals, so when we compare one to the other, the DAR component in our U.S. business is much higher than in our African business, and that component will come down with the passing time as these bundle deals come through renewal, and we've amortized these devices.

At the same time, we're seeing a parallel effect that -- the margin should come up in that region on renewal, and we're seeing a parallel effect that we're continuing to scale the business, so its inherent scale margins should improve. So, the combination of those two factors in all of our businesses should help us achieve one of our strategic objectives, which is to see our business -- our margin drive continue. As you know, we just updated our longer-term view on that, and we're now focused on achieving that 35%-plus journey, at which point we will update it again.

Matthew Pfau -- William Blair -- Analyst

Great. That's all I had. Thanks for taking my questions, guys.

Stefan Joselowitz -- President and Chief Executive Officer

I appreciate it, Matt. Thanks.

Operator

Thank you. Our next question is coming from David Earhart from Fritz Analysis. Your line is now live.

David Gearhart -- First Analysis -- Analyst

Hi, good morning. Thank you for taking my questions. My first question -- I wanted to ask a little bit about the subscriber additions -- 14,000 in quarter, lowest number for the year. Is it in regards to the weakness in the South African economy in terms of lower net additions for the quarter relative to the prior three quarters of the year? Also, can you talk a little bit about the mix of premium fleet in fiscal Q4 versus asset tracking? Is it up or flat relative to prior quarters, as well as the mix of bundled deals versus up-front in the quarter?

Stefan Joselowitz -- President and Chief Executive Officer

Thanks, David. We certainly viewed our performance in Q4 as a little bit softer than we were anticipating, and the reasons are very specific around a slowdown that we observed in the last month of the quarter and bleeding into the first month of our new Q1 related to the South African general election. Of course, that is now behind us; it was last week. The outcome is broadly viewed as positive, and we're certainly expecting business momentum to return to normal. So, definitely, the fact that we never grew as fast in a stretch -- even our African business did grow through both of those months, added net subscribers, so we certainly saw growth. It wasn't at the pace we were planning for. So, that's certainly one of the reasons.

Having said that, we certainly grew subscribers. We added more subscribers in this Q4 than we did in the prior comparative period, if that's any consolation. And, we're certainly expecting our momentum to improve, as we've guided to for the balance of the year, so that's our current expectation.

David Gearhart -- First Analysis -- Analyst

And, in regard to the mix between premium fleet versus asset tracking and bundle versus up-front in the quarter versus the prior quarter, where does that stand, at least directionally?

Stefan Joselowitz -- President and Chief Executive Officer

Directionally in the quarter that we just reported, our combined fleet products were an important contributor for us. In fact, more than 50% of the net additions were fleet customers rather than asset tracking customers.

David Gearhart -- First Analysis -- Analyst

And, is that up or down versus the prior quarters, or in line?

Stefan Joselowitz -- President and Chief Executive Officer

It's certainly in line with where we'd like it to be, ultimately, for the year. I don't think we've disclosed the breakdown quarter by quarter, and off the top of my head, this year, we have had [audio cuts out] where asset tracking has been more than 50%, so it's not something that necessarily reminds -- it's not a steady percentage. It depends how the deal flowed during the quarter. But certainly, that ratio is a ratio that I'm very happy with.

David Gearhart -- First Analysis -- Analyst

Lastly for me, ELD and the United States -- second deadline coming up in December. Just wondering what you're expecting on the ELD front. Is it baked into guidance in terms of some momentum building due to ELD as the year progresses, or is it something that's being treated as a wildcard? That's it for me. Thank you.

Stefan Joselowitz -- President and Chief Executive Officer

Thank you. I appreciate that. Certainly, what we've baked into it is what we know in terms of our current PARP line, and as much of that PARP line that currently relates to ELD will have -- based from the fact that we might have a reasonable level of certainty on some of those deals, we will have baked it in. We certainly haven't baked in a significant last-minute rush, and if that happens, it'll be a tailwind from our perspective, but we're certainly not banking on it. So, to use your terminology, we're treating it as a wildcard.

David Gearhart -- First Analysis -- Analyst

Thank you for the color.

Stefan Joselowitz -- President and Chief Executive Officer

I appreciate it.

Operator

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

Brian Schwartz -- Oppenheimer & Company -- Managing Director

Yeah, hi. Thanks for taking my question here this morning. Joss, I had a couple questions on the U.S. business. I was wondering at all if you can either size or shape the contribution that the U.S. business is having today, maybe to either your subscription bookings or subscription revenue, just getting a sense on where that stands today. Thanks.

Stefan Joselowitz -- President and Chief Executive Officer

Thanks, Brian. It's certainly a vital component of our business, and I think I've indicated that we view the U.S. as -- albeit, the fact that we've done well over the last couple of years in terms of early stage building out the geography, we view it as a significant untapped opportunity for us. So, the U.S. currently is our second largest region. It's still a long way from our African business, and part of our strategic vision is that ultimately, we want to get the U.S. to the same kind of scale or pretty close to the same size as our African business in terms of how we want to build this group going forward.

So, currently, at 17%, it's the second largest geography for us, but 17% is a long way from -- we're targeting to get to the kind of level it's going to be over the next couple of years. In two to three years, we'd like to see that business as a third of our group, and we believe we're continuing to enjoy strong organic growth in that region. We also recognize we won't achieve that vision on organic growth alone, so we're going to have to -- at some point, the day will come where we find a suitable add-on for that business, but I hope that gives you the color that you're looking for. So, currently, about 17% of our group revenues.

Brian Schwartz -- Oppenheimer & Company -- Managing Director

It does. Thank you, Joss. Maybe if I just ask you about the follow-up here, just thinking about the investment profile here, if you're in that region, especially with your sales capacity, again, just from a quantitative perspective, is there any way that you can share with us maybe how much the sales rep capacity increased last fiscal year, in either the U.S., and then, how we should expect the investment profile or the sales rep to pass either growth this fiscal year for that region.

Stefan Joselowitz -- President and Chief Executive Officer

Certainly, the U.S. is receiving an overweight investment from us from a sales capacity perspective. So, over the last 12 months, we've tripled our sales force there in terms -- clearly, some of that sales force is a new kind of sales force for us, so it's a dialing-for-dollars kind of team, more of an internally focused dialing-out kind of team, but we've also increased our investment in feet on the street in having high-level systems salespeople out on the road. Remember, our premium fleet business remains. While we're excited about MiX Now and the potential that derives, we'll never lose focus on our premium fleet portfolio, which remains what we believe is the most critical component of our business.

Paul and I have been discussing this over the last couple of days. We're certainly expecting sales overhead as a percentage of revenue to be higher than it was in this year that we just reported, so we would expect -- Paul, what's your view on what level you think it'll get to?

Paul Dell -- Interim Chief Financial Officer

It came in at 10% this year, and I definitely think it will get to 11% next year as a percentage of sales.

Stefan Joselowitz -- President and Chief Executive Officer

Does that answer your question, Brian?

Brian Schwartz -- Oppenheimer & Company -- Managing Director

It does. And then, last question for me, just a reminder again, I think the business -- the business doesn't have any direct exposure to China. That is correct -- I just wanted to double-check on that. Thanks again.

Stefan Joselowitz -- President and Chief Executive Officer

Thank you. I appreciate the question. We have no direct exposure to China. On the other side of our business, we don't directly put any components from China. As you do know, we're not a manufacturer. We subcontract the production of our core platform, and over the years, we have been looking at other geographies, but as things currently stand, we took a view to carry on producing primarily in South Africa, and in hindsight, I think [audio cuts out], so we don't have any direct exposure there.

Operator

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

Stefan Joselowitz -- President and Chief Executive Officer

I'd like to take this opportunity to thank you all for joining the call today. I'll just remind you that we'll be presenting at the William Blair conference in Chicago in mid-June, so, any of you that happen to be in town, we'd love to get together, have a cup of coffee, and spend more time discussing our great business, and we really appreciate your attention and your questions, and look forward to chatting soon. Thanks again.

Operator

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

Duration: 40 minutes

Call participants:

Paul Dell -- Interim Chief Financial Officer

Stefan Joselowitz -- President and Chief Executive Officer

Michael Walkley -- Canaccord Genuity -- Managing Director

Brian Peterson -- Raymond James -- Vice President

Matthew Pfau -- William Blair -- Analyst

David Gearhart -- First Analysis -- Analyst

Brian Schwartz -- Oppenheimer & Company -- Managing Director

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