Q4 2019 Earnings Call
Open the call for questions.
Before we begin lives I would like to provide powerfully safe Harbor statement that includes cautions regarding forward looking statements made during this call during the cold or any forward looking statements made regarding future events, including power fleets future financial performance all statements other than president and historical facts, which include any statements regarding the company's plans for future operations anticipated future financial.
Position anticipated results of operation business strategy competitive position companies expectations regarding.
<unk> news for growth demand for the company's product offering and other industry trends are considered forward looking statements threats. Such statements include but are not limited to the companys financial expectations for 2020 and beyond all such forward looking statements imply the presence of risks uncertainties and contingencies, many of which are beyond the company's control.
The company's actual results performance or achievements are shifting materially from those projected or assumed in any forward looking statement factors that could cause actual results to differ materially could include amongst others FCC filings overall economic and business conditions demand for companies products and services competitive factors emergence of new technology.
Using the company's cast position the company does not intend to undertake any duty to update any forward looking statements to reflect future events or circumstances. Finally, I would like to remind everyone that this call will be made available for replay in the Investor Relations section of the company's website at Www Dot Powerfleet dotcom.
Now I'd like to turn the call over to power fleet CEO Mr., Chris Wolf Sir. Please proceed.
Thank you Josh good morning, and thank you for joining us today, the fourth quarter Mark the strong finish to a transformational year for power fleet in which we closed the acquisition of pointer achieved several milestones on our integration plan secured multiple new customer wins across our verticals and geographies and generated robust organic revenue revenue growth, which was upset.
10% for the quarter on a year over year pro forma basis to 35.1 million on top of this we also ended the year with more than 550000 mobile subscription units as these results demonstrate we're being beginning to recognize the material benefits as well as the operational efficiencies and the deal flow of being a large organization.
As we reflect on 2019, particularly since we acquired point or we're extremely pleased with the progress we've achieved so far and while there are still more work to be done we're really encouraged by the efforts and the commitment by everyone involved in this pivotal transition powerfully. There's now a cohesive team aligned around one shared vision, creating a world class financially.
The successful global Aiotv software and solutions provider.
Before I turn the call over to now to discuss the financial results I'd like to touch on some of the current macro concerns specifically with the Corona buyers.
Obviously, there's a lot of valid concerns around the corner virus and the various applications in the global economy.
I'll first address the potential impacts powerfully supply chain, and then address the possible impacts and effects on the overall economy, specifically the logistics segment, which appears to be at higher risk due to global interdependence.
First as it relates to power fleet, we source very few parts from China directly we have also already transition some ancillary parts such as cables to the U.S. on top of this we currently have enough inventory for a few quarters next but very little or no impact at all to customer deliveries.
Regarding the overall economy independent potential impact to the global logistics. This important to bear in mind that the news, we're hearing and reading about daily through the mainstream media outlets is probably dot predominantly focused on how the buyers will impact consumer demand around travel I phones, and other consumer electronics it wasn't bells business travel keep in mind.
The power fleet as a beat it be provider in the building platforms to the market segments, we serve.
In the economic downturns over the last 30 years, specifically 1991 in 2008, the transportation and logistics markets use these cycles to invest in technologies.
Which enabled them to exit the downturn was much more efficient and capable organizations. So using metrics such as the number of global shipments or the number of trucks sold does not accurately reflect a power fleece business as it is easier to implement new technologies, when they're conns customers businesses are running more slowly.
On top of this with the federal reserve cutting interest rates by 50 basis points last week. It makes it even more likely for our customers to invest in technologies like ours are lower cost of capital. What we are more concerned about I'm. Currently is the health and safety if not only our workforce, but also those communities. These already impacted we're taking the necessary precautions.
And following CDC recommendations that being said a pandemic is not your typical economic downturn, but we're staying vigilant on any possible impacts to our business and our industry.
I'll now turn the call over to know to walk us through the financial details for the fourth quarter and 29 team Ned.
Thank you Chris good morning, everyone.
Our financial results for the fourth quarter of 2090 include consolidated results for both I'd systems and point, there tell occasion, which way, which we acquired in October Threerd 2019, keep keep in mind the comparable year ago period on the include Standalone financial results from I'd systems.
Now that qualification, let's look at the numbers revenue for the fourth quarter of 2019 increased to a record $35.1 million from $11.5 million in the same a year ago period, as Chris mentioned on a pro forma basis revenue for the quarter increased 17% compared to that.
Our year fourth quarter.
Services revenue was $18.7 million or 53% of total revenue compared to $4.3 million or 38% of total revenue in the same year ago period.
Product revenue, which drives future service revenue was $16.5 million or 47% of total revenue compared to $7.2 million was 62% of total revenue in Q4 of last year.
Gross profit increased to $16.6 million or 47% of total revenue from $6.1 million or 53% of total revenue in Q4 last year. We expect gross profit margin to increasing 2020 I was during the fourth quarter, we have not seen the full benefit of being.
Vertically integrated as the majority of the product we shipped in the fourth quarter. It was already in our inventory.
Now turning to our expenses for the fourth quarter of 2019 total operating expenses were 19 point <unk> $19.9 million compared to $8.9 million in Q4 of last year.
Looking at the virus components of operating expenses, selling general and administrative expenses were $12.7 million compared to $6.2 million in Q4 of last year research and development expenses were $3 million compared to $1.9 million in Q4 of last year.
During this quarter, there will a lot of onetime items due to the acquisition and significant amortization due to the intangibles associated with their acquisition depreciation and amortization expenses were $2 million compared to 387000 in the same year ago period severance expenses related to the point there acquisition.
Were $1.7 million compared to no severance expenses in the same you're going period, and finally acquisition related expenses were $462000 compared to $428000 in Q4 last year.
Turning to turning to our profitability measures GAAP net loss for the fourth quarter of 2019 totaled $5.2 million or 18 cents per basic and diluted share. This compares to a GAAP net loss of $2.8 million or 16 cents per basic and diluted share in Q4 of last year.
Adjusted EBITDA, and non-GAAP metric, which we define as earnings before interest taxes, depreciation amortization stock based compensation and all the one time items for the fourth quarter of 29 team totaled $2.1 million or six cents six cents per diluted share. This compares to an adjusted EBITDA.
Loss of 595000 or three cents per basic and diluted share in Q4 last year I.
At December 31, 2019, we had 29.7 million common shares outstanding the 50 million convertible preferred equity converts at 7031 cents, which equates to 6.8 million shares. Therefore, I was converted their 36.5 million shares outstanding.
Balance sheet also remained strong in liquid.
Yearend, we had 16.4 million in cash and cash equivalents and working capital position of $29.3 million. This concludes my prepared remarks, Chris.
[noise], thanks for the financial overview dead, but before providing a sales and operational update let me say that we are well under way to becoming a fully integrated organization I'm incredibly proud of our combined teams pulling together to achieve solid year over year growth during that time in which our team could easily have been distracted by the integration.
During the fourth quarter, we saw healthy mix of new sales activity and customer expansions across both our business and geographic reason regions from a direct sales standpoint, our team signed several notable deals in Q4 in Q4, including Michelin North America and Abbey in Mississippi, a leader in digital transformation as wells with Caterpillar.
He's Peoria, we also secured major with new wins with our leading transportation companies all truck and tropical shipping, which we did press releases on all trucks selected us to upgrade its entire fleet of more than 1500 trailers from existing threeg devices to our five you compatible L. T E. L. B 100 devices tropical shipping selected power fleet.
To equip its entire U.S. chassis fleet with more than 2005 de compatible LT Lv 300 next generation asset visibility systems on existing and new chassis bills.
In addition to all truck and tropical we also had several the top 100 U.S. logistics sleep expand their take up of our L. E series platforms. This includes hub group in the dry van Division selecting our Lv 300, and apply taking or Lv U 500, and serve a upgraded its three g. units to our Lv 100 platform.
We had similar success and expanding our dealer channel was significant wins, including Daimler truck manufacturing plants, and Owens Corning plant as well as a general mills plant on top of this our partnership with young Heinrich the third largest forklift manufacturer globally continues to build momentum as we're seeing increased volume of order secured in Europe.
Our continued success with Avis budget group has spurred active discussions with other major rental fleet operators about potential deployments of our technology and we expect to be in field trials with these operator shortly.
Additionally, we are currently bringing pointers fleet management products to the U.S. This is one of the investments that Ned mentioned to pursue the massive class one through class five vehicle market, we expect to see traction here starting in Q3.
From an international perspective, our presence and footprint continue to expand during Q4 point or was selected as a major provider for Israel's alternative project recently renamed direct correct.
To potentially install mobility systems on up to 4 million cars to reduce traffic didn't congestion. The initial assessment project of 3000 cars is currently underway with the Ministry of transport and is already being expanded to 10000 cars.
Mobilize subsidy of Intel selected pointer to work on reporting of traffic light status to help us mobilize autonomous vehicle initiative.
The project will be deployed one hundreds of traffic lights with the potential mobile I, taking this globally.
Another win was with M.D.A., an ambulance company, who selected pointed to supply monitoring to thousands of real time monitored defibrillators and it was outfitted our mobility solutions on their entire fleet of ambulance and medical motorcycle fleet for optimal response to enhance it.
Clearly, we're very pleased with our division head Ilan Goldstein and his team success with the new sales and product initiatives underway in Israel that have global applicability.
That covers the major sales update for the quarter I'd like to shift gears on her and talk about our integration to point or which is proceeding very rapidly as I mentioned in my opening remarks. We've already received several milestones are achieved several milestones in the first six months since we closed the acquisition.
It includes consolidating our strategic and tactical plans as well as our product Roadmaps on top of this the alignment of our sales and go to market teams is already yielding early success to those being engagement with Avis in Mexico, and also a major industrial truck opportunity in Mexico as well.
We already eliminated duplicated corporate reporting costs, and if identified more than 3 million in supply chain savings that will be cut in over the next several quarters. We also expect to realize another $2 million to $3 million in cost savings in 2021 really related to the platform consolidations. We currently have underway again, we invest in.
Those platform consolidations this year to obtain those savings in 2021 to be sure we will be balancing investing our continued growth initiatives.
While we realize these savings from a personal standpoint, we've integrated the respective I'd systems and pointer teams and the now collaborating as one cohesive unit in fact power fleets leadership team today is one of the strongest if not the strongest team I've personally worked with in my entire career.
Wrapping it all together, partially as a much stronger business today with greater scale and resources and industry, leading end to end Aiotv platform significant large scale opportunities and robust annual growth rates in our targeted markets. These advantageous dynamics gives us confidence our ability to realize our financial outlook for the first year as a combined business. This includes generate.
More than 150 million, a total revenue of which over 55% is true derive from high margin subscription and services revenue.
We believe our adjusted EBITDA will also expand the 2020 as we implement our identified cost savings and hair sales targets, assuming the corona viruses brought under control and the next one or two quarters. We're also on pace to meet or exceed our target of having more than 600000 mobile subscriber units on our platform by the end of 2020.
Longer term, our vision of creating power fleet as a global royalties software and solutions provider as quickly progressing.
Which we believe will generate significant shareholder value through global operational and financial scale sustainable profitability and cash flow generation.
And with that we're ready to open the call for your questions. Operator, please provide the appropriate instructions.
Thank you as a reminder to ask a question you need to press star one on your telephone to withdraw your question press the pound Keith Please stand by we've compiled the Kuni roster.
Our first question comes from my philosophy with Canaccord Genuity. Please proceed with your question.
Great. Thanks, Thanks for taking my question then yeah, congratulations on the [laughter] actually and then the consolidation today [laughter].
Maybe just a question for you on our product gross margins. It sounds like you guys still have some inventory levels to work through can you just help us think about a gross margins for products going forward and where they could trend to once you get to realize some of the synergies.
Sure It Mike if you look at the quarter a product gross margins were approximately 30%.
During the fourth quarter most of the product that we ship was already in our inventory.
Beginning in the first quarter, we are going to start to see some.
Some of the benefits of being vertically integrated so we expect.
Product gross margins throughout the year to get closer to 35% are we still see those benefits.
Great. Thanks, and just a question for Chris lots of new products, it's showing to customers and some nice wins in the quarter can you just update us on feedback from clients on your provide your combined portfolio and I know you talked about in these times of downturns, but customers are investing for the future can you maybe just give any car.
Later on sales pipeline and you've seen anything pushed out a recently.
I'm not saying that first of all we're not saying deals get pushed out today I mean that being said is you know the longer. This drags on do you know you can possibly see that but I. The feedback we get from customers is you know these capital investments they have to make anyway, and if you think about the three to five you conversion, which is looming did you say you kinda talk.
The four months you are now it's it's obviously would that was three months ago. So.
The customers like tropical the customers like all truck the other ones that were in conversation with today no. They have to move so we're not really seeing.
Yeah, the current slowdown or anybody pushing out orders or just because of the pandemic.
Matter of fact, I mean on the industrial truck side, it's kind of interesting. It's you think that's a very good barometer of industrial production.
You know industrial trucks that is actually a you know going on plan or above right. Now. So again, we're we're not saying it but I'm not saying it might not hit us like in Q2 of this continues.
As it is but again our pipeline right now is probably the strongest I've ever seen it.
Again, we just have to get the deals closed like typical.
No.
Understood last question for me I'll pass it on just the update on young Heinrich you said in the script and things are going well can you maybe give an update where they are to their initial 2000 units and how you see that opportunity progressing over time.
Yes, actually it's going ahead of plan I mean, there they're uptake and units as a ahead of a they're committed to 2000 units per year, that's what they're contractually committed to a that being said is we are doing some work also with a young Heinrich affiliates here in the states, which is brand new so they're kind of bring us into some opportunities on that side its.
A little too early to go into the details there, but again that that actually it could you know to me I see that as they even almost a bigger opportunity because it can bring us into some accounts that were currently not in today.
Great. Thanks, taking my question.
Okay. Thanks, Mike.
Thank you. Our next question comes from Jason Smith.
Lake Street you May proceed with your question.
Hey, guys. Thanks for taking my question, Hi, just curious where he kind of one year 2020 targets you laid out for the combined company. If you still feel confident in being able to achieve those.
[noise], Yeah, as we mentioned in the script, but I can also let Ned chime in this is Chris I, just again I think on the revenue side, it's definitely but achievable again with the Corona virus, if it's less than the Q3 or four.
Yeah. The then we may see some effects there, but I don't see it today and again as I mentioned I think our pipeline is it both here in the states as well as internationally is fairly strong.
You know that on the profitability side, we do see us getting to a run rate of 15%, which is what we've been stating a right now we're investing in two things actually three things that we think there's a really going to propel us in 2021, one of that as a platform consolidation I think anytime you do an acquisition if you don't do the bill.
Walking and tackling and the hard work of <unk>.
Assimilating the businesses, but also the platforms we've identified.
Proximately $2 million with the savings doesn't platform consolidation. We're also doing some product development work for a customer that has the potential of 16000 units. So we you know again, it's a total deal value of about $20 million. So again, we're investing in that because if that deal comes to fruition.
It's a 20 million dollar opportunity.
So again and then on the I.T. side, there's some consolidation work going on there, but all those can yield 2021 benefits, but we have like the supply chain benefits will be cut in this year and obviously it depends on a sitting or sales numbers, you know to but again I think you know right now, it's probably the strongest pipeline I've seen in a way.
While we just need to make sure we deliver on the sales.
Okay.
Following up on your comments.
We're in field trials with other than the rental car market, how should we think about the potential timeline to revenue and even the potential size compared to someone like gave us.
I would say the potential size is larger can't go into too many more details and that I can also say that it's going to be a.
In the field trials actually already committed to we basically have to deliver units is almost like what we did with Davis in Mexico, which was actually a great success. So by the wave as Mexico's not deployed our products that was that's a licensee, but if you look at a you know this other opportunities out there going to trial or product then we'll go down and show them. They.
So do a lot of fleet management work, which actually is a very complimentary to what we're bringing to the states from the point or side.
So I got I think we have two opportunities with this major account one is on the rental side, which is large I mean, it phenomenally large and then on the fleet side you know they do a lot of work.
With commercial fleets and so I <unk> it could be a.
A double win for us if we're successful there, but they'll they'll start those field trials literally in the next couple of weeks.
Okay. Thanks, a lot guidance.
Thank you.
Thank you and as a reminder to ask a question you'll need to press star one on your telephone. Our next question comes from Josh Nichols with B. Riley you May proceed with your question.
Yeah. Thanks for taking my question just to clarify could you.
Talk a little bit more about where you are with David deployments that fully done or is there some additional units or.
Shipping in one cousteau.
Oh, Yeah we're.
Shipping in.
Q1, as we speak so.
More or less they've taken the preponderance of units last year and then this is basically the tale of units we expect.
The ship all of them, if not all of them by the into Q1 the remainder.
Yeah address we as of yearend, we ship so 57000 out of the 75 and the remaining well be worse were about to be shipped in Q1 and and very little in Q2.
And then.
Is just to clarify like any re up or additional large fleet contracts, you would get with avis or this new.
Rental company that is outside of got instead of the upside.
Accurate, yes, yes by the way the two what I'd call business development initiatives, bringing the class one to five in the United States, which you know the again that could help us with this other large opportunity that's not in the $150 million that that's all upside if we sign of another large rental company. That's also upside.
For us.
And then could you talk a little bit I know the move to five G right or Fourg LTE has been a potential.
Tailwind for the company, but about the company's prospects for securing and one of these larger like six figure type.
Unit deals with one of these larger fleets this year.
I think right now with the field trials that we have underway Oh, we have opportunity.
I can't go into the details, but there's a couple that or is quite significant a one one prospect is.
Basically because of an acquisition. They just went over about 120000 units and they're already a customer so.
They had 10000 of our units and now they have 120000 so.
Yeah, we still out there in that business when it but you know they know our product they use it every day. So a you know again I think they're very happy customer with us and so we hope to expand you know into that space with them and then we have some other field trials one's a 39000 a unit potential. So again those are probably that one would probably be low.
Later in the year.
But like like hub group, which is on the dry van side, you know they just continue to take units and ultimately they're gonna have to replace older units and the same with edify right now, they're just doing a trailer replacements, but ultimately they have to replace the old.
Three g. units. So again, I think you're going to start seeing that uptick you know as the clock winds down to the Threeg sunset.
Okay. Thanks, I'll hop back in the Q.
Okay.
Thank you. Our next question comes from Gary Prestopino with Barrington, You May proceed with your question.
Hi, good morning.
When you're talking about these field trials with a large rental car agency.
How long does it does the field trial go in and have you signed the contract or is the contract pending on how the field trials turnout.
Oh, that's always going to depend on the how the field trials turnout so.
Right now we're basically in the you know there kicking the tires. So you know they basically put our units on.
Did the direct quote from them was hey, if it does what you say, it's going to do you know.
Yeah, we're going to bring you down here and you can or will have some more in depth conversation. So yeah that all the all the major rental companies, they're familiar with telemetry and then a machine to machine if our price if our product our product does do it at this isn't it is a three committed install no one else can do that so again I think.
They like what they see they just have to get it running on a few cars because again, it's that make models in years that are important and by the way we always have to certify on a on a given make model here. So working with these larger rental companies you have to know what their fleet mixes and then they have to tell you what car make models and years. They want you to run on so.
Once you've done that you also have to integrate into their platform now. The good thing is we already have an API sweet right. So it's you know we already know how to do it. It's just a you know it's going to be a couple of weeks of integration work and then you're watching that data flow into their systems.
Oh It is if everything goes as planned as possible and you had some kind of sign contracts this year.
Oh, that's definitely possible yep, Okay. Alright, then a couple other questions here.
Yeah. It looks like when you when you if you back out acquisition related ease it looks like your your operating expenses are running at about 50% sales quarter.
Is that a level that we should expect well 2020 as well a little that eventually down and you.
Integrate the acquisition.
Yeah, Hey, Gary this isn't that the numbers should stay.
Flat for the next quarter, and then slightly starts going down and as we integrate and its Chris mentioned, we are gonna see a big reduction in 21.
Cause this investments that we're making this year related platform consolidation and the other things Oh, Chris I spoke about.
Not only do they improve the product by the also lead to a significant cost savings.
Okay.
And then in terms of the gross margin on the services like the first quarter for the combined company was about 62%.
Is that a a good level I mean is there any leverage there in terms of getting that margin offer is not just wasn't at March a b.
Margins is gonna be at that level for the next a couple of quarters. The the leverage comps are the service revenue number grows because you're just adding additional numbers to the to that to the platform without additional increase in expense. So that I was there a service revenue number grows we should we should see.
The improvement in the gross margin in services as well, Okay. And then just just lastly, just though so I guess this right.
Yes, you said that you feel pretty good about hitting the 15% adjusted EBITDA margin on the 150 this year.
I would say at a run rate basis, I mean, I would say our Q1 and two is if you think about it.
In Q4, even we had some duplicative costs that have come out right. So, but yet you didn't sit in Q4 and then the same with Q1 as we consolidate the groups yeah. There's like yeah. I can go into specific you know headcounts and processes and cost, but the bottom line as some of those are dropping out of Q1.
As well right. So it's like you, we probably going to see it improved throughout the year and hopefully hopefully by Q3, we look to get to like a run rate of that so I think.
You know, we're pretty pleased with where we're at and we don't want to curtail our investment.
To bring the like the class one to five opportunity that's in the United States or the platform consolidation you.
You know we've had a lot of serious conversations internally about you know, we we could push that off but I think everyone here knows what happens when you do that it's probably best invest today.
Because I know other companies have not done that and they pay the price in the long term.
But right now that by the way that's ahead of schedule or consolidation work.
Okay. So the old the old range of adjusted EBITDA that you guys said you would possibly do is 15% to 20% it's going to be step down from there just because of some of these investments in the platform consolidation at least for 22020.
Yeah, I'd say for the beginning of 2020.
I got I would say that by the end of it we're going to be you know hitting our stride at that level. So I.
I would just say these first two quarters as we again because of this duplicated costs as we pull costs out of the organization and deal. These investments. So it's more like a beginning of the your type of event.
Okay. Thank you.
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Thank you and as a reminder to ask a question you need to press star one on your telephone or next question for from Glenn Mattson with Ladenburg Thalmann. You May proceed with your question.
Hi, Good morning, guys. Thanks for taking my question.
That most of my questions have already been answered, but I just have one more about the macro situation the.
As far as I know, that's the travel ban to Europe was less than 12 hours old, but as far as how you see logistically that working do you have people in the right place. You can you can you service customers now you know a bit more global company now and specifically if they buy the on Heinrich deal, but but in general do you do you imagine that impacting your business.
Ill.
Yes, good question and answer is it.
You know, it's almost like thank goodness, we did this acquisition by because this acquisition actually sets us up just because some people might not be aware of this we actually have boots on the ground and operating units that are yep by the way there if anomaly talent talented people, whether it's in customer service or sales like in Europe. So we don't have to send people to Europe.
To help young Heinrich out a the same with like South America in Israel, they're fully functioning business units that can kind of run autonomously. So that's actually what's great about my organization and by the way the leadership team, which I mentioned earlier.
I guess as probably the best so it's like right now they're concerned about their employees. They they have contingency plans, we do have inventory.
And we feel very good the you know we can withstand the storm and what I tell my leadership team and my employees is.
Yeah, we human beings are very resilient you know, it's like we'll get through this yeah. We have to be smart you have to do the basics you have to follow CDC instructions, we don't travel as much as we did but we don't need to getting back to the question.
You know, we don't need to travel to get deals done.
Okay, great. Good luck, a recipe or thanks.
Thank you.
Thank you I would now like turn the call back over to Chris will for any further remarks.
Thank you for joining us today I'd like to thank our global employees customers partners and obviously are shareholders for their continued support I look forward to updating you on our next call operator.
Thank you for joining us today for our presentation you may now disconnect.
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