REG - Quartix Technologies - Trading Update

Quartix TechnologiesAnnouncement

06/10/2023 07:00

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RNS Number : 8900O  Quartix Technologies PLC  06 October 2023

Quartix Technologies plc

("Quartix", "the Group" or "the Company")

Trading update

As announced on 26 September 2023, Andy Walters, founder and former CEO of
Quartix, returned to the Company last week as Chairman. Since then he las led,
on behalf of the Board, a preliminary review of the business which is
summarised in the following update.  It provides further information on:
progress in Quartix's telematics subscription base; the acquisition of Konetik
Deutschland GmbH ("Konetik") and EVolve; the impact of 4G network migration in
Europe; and the financial outlook for this year and next.

Subscription base growth

The annualised recurring revenue of the fleet subscription base was £28.7m on
1 October, representing an increase, in constant currency terms, of £2.1m
year on year, based on exchange rates as at 1 October 2023.

The Company's subscription base has grown by 13.0% year on year, to just under
259,000 vehicles. New units installed in the first 9 months of the year have
increased by 4.3% compared with the same period in 2022. Growth in new
subscriptions for the first 9 months of 2023 is shown in the table below.

 Region                 % of total subscription base  New subscriptions     New subscriptions     % Difference

                                                      (units)               (units)

                                                      first 9 months 2023   first 9 months 2022
 UK                     56%                           20,029                20,714                -3.3%
 France                 25%                           16,621                12,523                32.7%
 USA                    11%                           4,913                 7,269                 -32.4%
 Spain, Italy, Germany  8%                            6,998                 6,060                 15.5%
 Total                  100%                          48,561                46,566                4.3%

 

Growth in France over the past year has been very pleasing, but progress in
the UK and USA has been disappointing. Growth in the customer base will be the
subject of renewed focus in the coming months and into 2024 with the results
from this renewed focus expected in 2024 and beyond.

Acquisition of Konetik and EVolve

The Company also provides the following further information concerning the
acquisition of Konetik, which provides the core technology used within the
Company's EVolve product. The EVolve product is a tool that assists fleet
managers with planning their migration to electric vehicles, which includes an
evaluation of their costs, potential savings and environmental benefits.

Incorporated in 2014, Konetik has 4 permanent employees and is based in
Berlin, Germany. In its accounting period for the 12 months to 31 December
2022 it recorded revenues of €0.12m (2021: €0.14m).  The Company's
current estimate of incremental revenue for Quartix from the date of
acquisition of 14 September 2023 to year end is £0.04m, with an anticipated
loss of £0.5m. Just over half of this amount relates to one-off sign-on
payments to key employees and hence is non-recurring.

Fixed consideration for the acquisition is €2.5m, of which €2.25m was
payable on completion; the remaining €0.25m is to be paid in 12 months'
time.  An additional deferred consideration of up to €1.4m is payable over
two years, depending on the sale of EVolve licences.

A total of 1,269 upgrade vehicle licences for EVolve have been sold to
existing UK customers since product launch in 2022, of which 105 were sold in
Q3 2023.

The Company will conduct a review of the EVolve product line in order to
assess its potential to support growth in the Company's core subscription
base.

4G network migration in Europe

During the course of the past few months the Company has become aware that two
major network providers in France have brought forwards their plans to switch
off 2G networks, supporting only 4G for the future. We believe that 2G
networks in France will therefore be obsoleted at the end of 2026, and that
approximately 50,000 Quartix tracking systems will need to be replaced within
the Company's customer base over the course of the next three years.

It is our intention to assist our customers in this transition, as we did for
the USA. The cost of doing this could amount to approximately £4.1m over the
three-year period but we will continue to review the best way to achieve the
transition whilst reducing these potential costs, which we were successful in
doing in the USA.

We continue to review the situation for network migration in the UK. Currently
all new systems installed are either 4G compatible or make use of a roaming
sim card which can use a range of 2G networks, as we believe that some of
these will continue to be operational beyond 2028.

In the Company's Interim Report it noted that there had been an increase in
manufacturing cost associated with the first production version of its 4G
tracking system for Europe. Under the Company's revised accounting policy this
resulted in a significant increase in the value of contract cost assets
capitalised on the balance sheet. Although the Company can now report that
these costs have been substantially reduced in the latest product version,
amortisation of this asset in H2 2023 and throughout 2024 will lead to
slightly lower gross margins than previously anticipated.

Financial outlook for the remainder of 2023 and 2024.

Although the Company has made good progress in annualised recurring revenues,
the Board does not now believe that the rate of growth has been sufficient to
achieve current market expectations for revenue in 2023 or 2024, and it has
now reduced its own expectations by approximately £0.9m and £2.6m,
respectively.

The combination of reduced expectations for revenue, together with the
additional operational costs of the Konetik acquisition, a reduction in gross
margins as a consequence of the introduction of new 4G variants and some
inflationary pressures on marketing costs have led the Board to anticipate
that Adjusted EBITDA for 2023 and 2024 may differ from current market
expectations by approximately £1.1m and £2.4m, respectively. Free cashflow
before the acquisition costs for Konetik are expected to reduce by £1.0m in
2023 and £1.2m in 2024.

The Company will consider the payment of a reduced ordinary dividend at year
end, but there will not be a supplementary dividend payable for the year
ending December 2023.

Underlying cash generation within the Company's core business remains strong,
and the Board will strive to mitigate the effects of the factors mentioned
above.

This announcement contains inside information for the purposes of Article 7 of
EU Regulation 596/2014 as retained as part of UK law by virtue of
the European Union (Withdrawal) Act 2018 as amended.

 

 

For further information, please contact:

 Quartix (www.quartix.net)                                         01686 806 663

 Richard Lilwall, Chief Executive Officer

 Emily Rees, Chief Financial Officer
 Cavendish Capital Markets Limited (Nominated Adviser and Broker)     020 7220 0500

 Matt Goode / Seamus Fricker (Corporate Finance)

 Tim Redfern / Sunila de Silva (Corporate Broking)

 

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