1) Yes, there is currently only one major customer (General...

1) Yes, there is currently only one major customer (General Motors). Yep - they are locked in for 5 years which should be considered now as the base cash flows (based on previous reporting). This will still weigh on CXZ being the only customer. The natural question that follows is - what are they doing/can do to resolve this concentration?

• The first way to resolve this is achieving another OEM contract deal (the probability of that occurring is for you to decide - given that their current customer is the biggest in the US and (as you alluded to) CXZ does not charge much, it is not outside the realm of possibility).
• The second way is to grow through the GM network through non-CTP use with their CXZTRAC tool.
• The third way is to use the recently launched CXZTRAC to sell within the 4000+ dealerships that are currently using ONTRAC. This will allow the dealerships to use CXZTRAC for any car (as long as the OEM manufacturer doesn't prohibit it). This effectively skips the need to sign another OEM deal. Similarly, they can also provide non-CTP use outside of these GM vehicles.

While a risk, there appears to be a clear strategy/path to overcome this.

2) The majority of CXZ revenue is tied to the number of vehicles on the platform. So yes, something like the semiconducter shortage will naturally result in less cars on the platform and thus less revenue. How are they addressing this?

• The CXZTRAC tool is currently being used by 180 dealerships for U-CTP vehicles - that is, used vehicles that would not normally be part of the CTP program. This will at least provide some support in the short term to ensure that vehicle numbers on the platform do not fall too low.
• This again, will be an issue of concentration. Once the CXZTRAC tool is (hopefully) successful in cross selling, this will diversify the risk of the semiconducter shortage across the OEMs. So if, for example, GM for some reason is adversely affected by the shortage in the future, they are not solely reliant on GM vehicles. All the 3 reasons above in (1) that reduces concentration will help with this - as this results in diversification of revenues from different sources. Customisation work etc will also help out.
• Semiconducter shortage is not a long term problem and will be resolved - GM will make sure of this.

3) Yes, they do not charge that much, yet they are still profitable. Why do other companies provide their software as a loss leader/give it out for free? It's because they do not necessarily view the tool as the most valuable thing of their company, but rather the network they have access to through their tool. Providing GM a cheap tool is worth it as in exchange we get access to 4000+ dealerships and the credibility of being able to provide/meet the requirements of a major car manufacturer. Further, it does not mean that CXZ cannot charge slightly more (if) they get another OEM contract.

So CXZ needs to figure out how to make $$ through the network they have access to, and that probs lies outside non-CTP use. Have a look at some of the competitors and what they provide outside of CTP, and you will get an idea of the possibilities on the table.

I really do think this is quite a good opportunity and a much better play when compared to others in this end of the ASX - mainly because there seems to be a logical strategy forward that makes sense (which is very underrated). DYOR etc.