31 July 2023

Quartix Technologies plc

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

Interim Results

Quartix Technologies plc (AIM:QTX), a leading supplier of subscription-based vehicle tracking systems, analytical software and services, is pleased to announce its unaudited results for the half year ended 30 June 2023.

Restatement of comparatives

All comparative monetary amounts for 2022 have been restated in line with a change in policy in the recognition of equipment, installation and carriage costs associated with contracts with customers under IFRS 15: 'Revenue from Contracts with Customers' (See note 1: Summary of significant accounting policies).

Financial highlights:

·    Group revenue increased by 10% to £14.6m (2022: £13.3m)

o  Fleet revenue increased by 13% to £14.5m (2022: 12.8m)

o  Fleet revenue represented 98.9% of total revenue (2022: 95.8%)

o  Insurance revenue decreased by 70% to £0.2m (2022: 0.6m)

·    Adjusted EBITDA¹ remained constant at £2.7m (2022: £2.7m)

·    Operating profit decreased by 7% to £2.4m (2022: £2.6m)

·    Profit before tax decreased by 7% to £2.4m (2022: £2.6m)

·    Diluted earnings per share of 4.16p (2022: 4.63p)

·    Free cash flow² decreased by 26% to £1.4m (2022: £1.9m)

·    Interim dividend of 1.50p per share proposed (2022: 1.50p)

¹  Earnings before interest, tax, depreciation, amortisation and share based payment expense (see note 4)

²  Cash flow from operations after tax and investing activities

Principal activities and performance measures

The Group's main strategic objective is to grow its subscription base and develop the associated annualised recurring revenue.

Annualised recurring revenue has increased by 8% year on year (see definition in KPI table below). Annualised recurring revenue is a forward-looking key performance measure, and it is pleasing that it grew by £2.1m on a constant exchange rate to £28.0m at 30 June 2023, compared to 30 June 2022.

The Key Performance Indicators used by the Board to assess the performance of the business are listed below and discussed in the Chairman's Statement.

Key Performance Indicators ("KPIs")

¹ New vehicle tracking units subscriptions added to the subscription base in 6 months to 30 June before any attrition

² The number of vehicle tracking units subscribed to the Group's fleet tracking services, including units waiting to be installed for which subscription payments have started or are committed

³ The number of customers associated with the fleet subscription base

⁴ The number of new vehicle tracking unit subscriptions, less the increase in the subscription base, expressed as a percentage of the mean subscription base

⁵ Annualised data services revenue for the subscription base at 30 June, before deferred revenue, including revenue for units waiting to be installed for which subscription payments have already started or are committed, with comparative June 2022 measured at a constant exchange rate.

⁶ Invoiced subscription charges before provision for deferred revenue

⁷ The decrease in average subscription price of the base expressed as a percentage of the average subscription price at 30 June, with comparative June 2022 measured at a constant exchange rate.

As discussed in the 2022 financial statements, the Group implemented a new policy in 2022 which recognised hardware and associated installation and carriage costs over their expected initial contract term (typically 2 years), on a systematic basis that more accurately reflects the revenue stream generated by them. The capitalisation and subsequent amortisation of these incremental costs are more aligned to the core principles in IFRS 15 and make the reported EBITDA more comparable with that reported by companies with a similar business model.

This approach simplifies the presentation of the Group's results. Previously, the Group included an

additional voluntary disclosure, separating customer acquisition cost, being the investment for new

customer contracts, and Fleet telematics services, for recurring revenue and repeat contracts with existing customers, in order to highlight the different cost structures within the business. Following the change in accounting policy this analysis is no longer considered necessary. However, overheads on the face of the Consolidated Statement of Comprehensive Income have been split between Sales & Marketing expenses and Administration expenses, with Sales & Marketing expenses including the costs of customer acquisition being the investment in marketing expenditure and payroll costs for the sales teams.

Richard Lilwall, Chief Executive Officer of Quartix, commented:

"The first half of 2023 saw an increase in Quartix's subscription base globally, leading to a £2.1m growth in annualised recurring revenues to £28.0m. This promising growth occurred despite increased liquidations and customers downsizing their fleets causing slightly higher attrition, highlighting the resilience of our business model.

Subscription growth was seen across all markets. In the UK, the growth was backed by robust customer acquisition, leading to a 6% subscription increase and a 3% rise in total revenue. European markets, especially France, exhibited stellar performance with a noteworthy subscription surge.

A redirection of investment to European countries with stronger return on investment meant a reduced and narrower US focus resulting in steady, if modest, growth for the region.

Quartix introduced two valuable analytical software features; in 2022 with EVolve and in 2023 with Quartix Check. Both products have been well-received, and Quartix is set to amplify its efforts to upsell these offerings in H2 2023. This promising momentum and product innovation positions Quartix optimistically for the rest of the year."

For further information, please contact:

Quartix (www.quartix.com/en-gb)                                                                           01686 806 663

Richard Lilwall, Chief Executive Officer

Emily Rees, Chief Financial Officer

finnCap (Nominated Adviser and Broker)                                                                                      020 7200 0500

Matt Goode / Seamus Fricker (Corporate Finance)

Alice Lane / Sunila de Silva (Corporate Broking)

The information communicated in this announcement is inside information for the purposes of Article 7 of Regulation 596/2014.

Interim Financial Results Report

The Group's Interim Financial Statements for the 6 months ended 30 June 2023 are available in the "Investors" section of our website at: www.quartix.com/en-gb/company/investors

About Quartix

Founded in 2001, Quartix is a leading supplier of subscription-based vehicle tracking systems, software and services. The Group provides an integrated tracking and telematics data analysis solution for fleets of commercial vehicles and motor insurance providers which improves productivity and safety and which lowers costs by capturing, analysing and reporting vehicle and driver data.

Quartix is based in the UK and is listed on the AIM market of the London Stock Exchange (AIM:QTX).

Chairman's Statement

Introduction

I am pleased to report that growth of the subscription base, both in the UK and overseas, continued to drive an increase in annualised recurring revenues, which increased by £2.1m, at a constant currency rate, to £28.0m at 30 June 2023. Group revenue grew by 10% during the first half of 2023.

This growth was achieved despite adverse economic headwinds impacting the confidence, and additional fleet investment of existing customers, with rolling UK van registrations at the beginning of 2023 matching record lows seen during the COVID-19 pandemic. In addition, attrition has been higher at 13.5% (2022: 11.6%), primarily due to an increase in business closures and customers downsizing their fleet sizes. Price erosion on a constant currency basis continued to improve and was 4.6% (2022: 4.8%).

Despite these market difficulties, each geographical market registered increases in the subscription base for the period (see table below). In the UK, where economic challenges are more significant due to the larger subscription base, growth was supported by a strong performance in new customer acquisition, with 6% year-on-year subscription base growth, and an increase in total revenue of 3% to £9.1m (2022: £8.9m).

We also recorded our highest results in Europe following accelerated investment into the region over the past two years. Year-on-year subscription base growth in France was excellent at 32%, and revenue increased by 25% to €3.7m (2022: €3.0m).

Year-on-year subscription base growth in the other European territories was also very strong at 53% respectively as our operations continue to grow in Spain, Italy and Germany.

As part of a review on ensuring Quartix focuses on profitable growth, the Group has redirected part of the investment and resource from our wider US business in Q1 of 2023 to European territories that present improved returns on investment in the shorter term. The US strategy going forward will therefore have a narrower, field sales approach, focused specifically on Texas. As a result the growth was more modest at 2% year on year.

** Comparatives are June 2022

Quartix continues to build strong functionality into its upsell capabilities. EVolve, launched in Q4 2022, uses fleet analytics to assess migration opportunities to all-electric vehicle fleets. Initial upsell to existing customers at Quartix has been good in 2023, with adopters from multiple sectors, but as anticipated local government has been an early mover. Full case studies on these results can be found on the Quartix website. The second, Quartix Check, launched to the market in full in 2023, is a walk-around vehicle condition monitoring tool. Whilst Quartix Check is in early stages, the Board continue to focus on how best to maximise the exposure to this new product across our customer base.

Financial Performance

Group revenue for the period increased by 10% to £14.6m (2022: £13.3m); total fleet revenue now represents 98.9% of total revenue (2022: 95.8%).

Adjusted EBITDA remained constant at £2.7m. Both operating profit and profit before tax for the period fell to £2.4m (restated 2022: £2.6m).  Variances on profit were driven by an exchange rate variance of £0.2m, a £0.2m increase in the payroll costs associated with the Services cost centre after the Jan 2023 inflationary pay rises that were awarded, rather than additional headcount, and an increase in share based payment costs of £0.2m, which does not affect adjusted EBITDA. Sales and marketing costs have remained flat year-on-year on a cash basis, but have improved as a percentage of sales.

Cash flow from operations after tax and investing activities, or free cash flow, reduced to £1.4m (2022: £1.9m), primarily due to a higher tax payment in April 2023 following the change in accounting policy. For tax purposes the transition to the new accounting policy in 2022 caused an exceptional decrease in deductible costs; adding back costs already available for deduction in prior years, which led to an increased tax charge for the year. This caused the final instalment in April 2023 to be £0.5m higher than last year. Net cash decreased to £3.2m at 30 June 2023 (2022: £3.9m), following the larger tax payment of £0.6m in April. To further bolster free cash flow, one of the key priorities for the business is improving stock days of the business in the second half, now that pressures from the component shortages from the past couple of years have eased.

Basic earnings per share were 4.21p (restated 2022: 4.66p). On a diluted basis earnings per share were 4.16p (restated 2022: 4.63p).

Dividend Policy and Recommended Interim Dividend

Subject to satisfactory performance and market conditions, the Board will consider a final dividend for the year with the aggregate of the interim and final dividend set at approximately 50% of cash flow from operating activities, which is calculated after taxation paid but before capital expenditure. The Board will also consider distributing the excess of cash balances over £2m by way of supplementary dividends. The surplus cash would be calculated by taking the year end cash balance and deducting the proposed regular dividend. The policy will be subject to review.

The Board has recommended an interim dividend of 1.50p (2022: 1.50p) per share, £0.7m in aggregate. The amount is in line with the Group's stated policy on ordinary dividend payment. This was approved by the Board on 28 July 2023. The interim dividend will be paid on 6 October 2023 to shareholders on the register on 11 August 2023. The ex-dividend date is therefore 10 August 2023.

Governance and the Board

The Board is comprised of three Non-Executive Directors: myself, Jim Warwick, Russell Jones and two Executive Directors: Richard Lilwall and Emily Rees following Laura Seffino stepping down from the Board on 10 July 2023.

For further details regarding Corporate Governance and the Board, please see the "Investors" section of our website (www.quartix.com/en-gb/company/investors).

Outlook

Quartix's outlook for 2023 continues to be positive. Sales execution excellence continues to be a key focus point for senior management, using tools invested in in 2022 to drive further resource into channels and territories that will provide a profitable return. Quartix has a strong sales pipeline for the second half for both our core platform and EVolve.

The high levels of recurring revenue and opportunities to grow our operations in the UK and Europe underpins our confidence for the rest of the year and beyond, although the Board is mindful of a more uncertain economic climate in the medium term.

Management are closely monitoring the timings for the sunsetting of the 2G networks in the UK and European markets. Since 2023 all new units installed are 4G compatible products, which was an operational decision to minimise the cost of upgrading our customer's hardware in the future. 

Considering the above outlook, the Group expects an accelerated financial performance for the remainder of 2023, and its strong financial position means the Board are confident in achieving market expectations in 2023.

Paul Boughton

Chairman

Consolidated Statement of Comprehensive Income

Consolidated Statement of Financial Position

Company registration number: 06395159