Q3 2020 PowerFleet Inc Earnings Call
[music].
Good morning, welcome to par for its third quarter 2020 conference call joining us today for todays presentation here, the company's CEO, Chris Wolfe and CFO Ned Mavrommatis. Following their remarks, we will open the call for questions before.
Before we begin the call I would like to provide <unk> safe Harbor statement that includes cautions regarding forward looking statements made during this call.
During the call there will be forward looking statements made regarding Streetlinks <unk> Barclays future financial performance all statements other than present 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 companys expectations regarding opportunities for growth demand for the company's product offering.
She trends are considered forward looking statements.
Great wins include but are not limited to the company's financial expectations for 2020 and beyond all such forward looking statements in fine fragrances risks uncertainties and contingencies, many of which are beyond the company's control.
The company's actual results performance or achievements may differ materially from those projected or assumed in any forward looking statement.
Factors that could cause actual results to differ materially could include amongst others.
[music] filings overall, economic and business conditions demand for the company's products and services.
Got it and factors emerges from new technologies and the company's cash position. The company does not intend to undertake any duty to update any forward looking statements to reflect future events or circumstances.
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 powerfully dot com.
Now I would like to turn the call over to partially CEO Mr. Chris.
Her please proceed.
Thank you Molly.
Good morning, everyone and thank you for joining our call today I hope everyone is staying healthy and doing well during these challenging times, our global team of employees and partners are healthy and are continuing to drive the business forward, while we follow country state and local health measures well the pandemic continues to present challenging headwinds in our various geographies, we've seen business momentum.
Pick up from the lows we saw in Q2, despite the ongoing challenges we delivered solid sequential improvements in all of our key financial metrics. During Q3, we realize a 7% increase in total revenue a 6% increase in gross profit and a 71% increase in adjusted EBITDA. These.
These results again demonstrate not only the resiliency of our business and the NES necessity of our products and services, but also our focus on driving profitable growth.
We continue to make very good progress I guess <unk> strategic initiative of increasing our vertical integration across our product lines. While at the same time judiciously managing costs and realizing efficiencies throughout our organization taken together. These measures produced another strong gross margin quarter at 54% and a 4% sequential decrease.
Snapback, which drove significant improvements to our bottom line.
I will now turn the call over to <unk> to discuss our Q3 financial results in more detail afterwards, I will discuss our sales and operational progress and outlook. Then we'll open the call up for any questions nut.
Thank you, Chris and good morning, everyone.
Before I dive into the numbers, it's important to remind you that our financial results for Q3 2020 include consolidated results for both I'd systems, and pointer Telocation, which were acquired on October 32019, keeping.
Keep in mind that the comparable year ago period, only includes Standalone results for from Ivy system think now.
Now with those qualifications, let's look at the numbers revenue for the third quarter of 2020 increase to 27.6 million from 25.8 million in the prior quarter and and from 60.7 million in Q3 last year.
Hi, bargain recurring services revenue were 16.7 million or 60% of total right.
This was an improvement from 60.4 million or 64% of total revenue in the prior quarter and from 5.8 million or 34% of total revenue in Q3 of last year.
<unk>, which drives future services revenue was 10.9 million or 40% of total revenue. This compares to 9.4 million or 37% of total revenue and 11.1 million or 66% of total revenue in Q3 of last year.
Gross profit increased to 14.9 million or 54% of total revenue from $14 million or 55% of total revenue in the prior quarter and from 7.6 million or 45% for revenue in Q3 of last year.
Now turning to our expenses total operating expenses for the third quarter up 2020 were 14.2 million down from 14.7 million in the prior quarter. The 14.2 million through three was down 4% from the prior quarter and down 19% from Q1 of 2000.
Right.
We have additional levers to pull in our expenses to further reduce the cost should the situation with the pandemic worsening hurting.
Turning to our profitability measures GAAP net loss for the third quarter of 2020 totaled 1.7 million or six cents per basic and diluted share. This was an improvement from a GAAP net loss of 3.8 million or 13 cents per basic and diluted share in the prior quarter and adopt net loss of 2.1 million or 12 cents.
Per basic and diluted share in Q3 of last year our.
Adjusted EBITDA and non-GAAP metric for Q3, 2020 totaled 3.6 million or 13% of total revenue. This was an improvement from adjusted EBITDA of 2.1 million in the prior quarter and adjusted EBITDA of 738002 three of last year, the 3.6 million in adjusted.
EBITDA in Q3 of this year marked the highest level of adjusted EBITDA since the acquisition of a point there, reflecting the leverage in our financial model.
Our liquidity position remains strong at quarter end with 21.1 billion in cash and cash equivalents and our working capital position of $31.2 million. Our focus continues to be on working capital management and cash collections I'm encouraged to report that for the nine months of 2020.
We generated 5.3 million.
Cash from operations, which was an improvement from 4.3 million used in operations in the same period of 29 feet.
In summary, we believe our diversified customer base predictable high margin recurring revenue and prudent approach to touch manager will help us ensure we successfully navigate these uncertain times that concludes my prepared remarks, Chris.
Thanks Ned.
Our improving financial performance reflects our global teams continued operational execution and building sales momentum during the third quarter. We secured several notable wins in our industrial business, including Kautex, a top 100 supplier of global automotive Oems Kautex is leveraging our next generation power fleet enterprise solution to improve.
Safety and efficacy across its global manufacturing centers. After initially installing our solution on all their assets at the Detroit facility. They expanded deployment at two additional north American sites, we have exceeded all their expectations and we are now in discussions regarding deploying our solution at seven other European locations.
Our ended Q2 with Ryder logistics, a leader and outsourced logistics isn't it's notable as they continue to implement at three sites. During Q3 wider selected powerfully for enterprise solution on their forklifts and other material handling equipment within its north American supply chain operations for those less familiar with our industry writer manager.
As critical fleet transportation and supply chain functions for more than 50000 customers many of which make the products that customers use every day over the next 12 to 18 months rider will be deploying our enterprise solution on more than 1000 pieces of material handling equipment.
More than 30 sites across North America. In addition to contact a rider we had several other successful implementations during Q3, including with the largest internet retailer implementing at five of its U.S. sites. In Q3, we also signed a master purchasing agreement.
With that I learnt trucks North America, the leading heavy duty truck manufacturer in North America. They are currently installing our system at two of their sites with plans to install at their Portland headquarters in Q4 and other locations throughout 2021.
In our logistics segment, we won additional business with two existing customers, who are expanding their container and chassis fleets. The first one was with milestone who purchase approximately 1000 Lv 100 units during Q3, representing a strategic decision to begin tracking chassis is in the rental business. The other one was with compass lease.
Who purchased 500, Lv, one hundreds to track assets and their rental side of the business that's.
It's important to note that both purchases represent a new strategic investment not previously typical of the rental business model and logistics as its usually low cost driven.
However, both companies see the value of Powerfleet platforms, and using our software and analytics for internal process improvements, including enhanced visibility of assets during high demand leasing.
Additionally, both companies now can offer their run clients extended value by providing the same visibility to their assets during the term of the rental contract.
We have also seen the effects of postpaid increased the demand for both dry van and refrigerated trailers in turn this has stimulated demand for tractors and drivers, which has driven an increase demand for intermodal container capacity as intermodal options helped to move a central goods without tractors and drivers.
We are a sense, especially excited about our recent recently learned that we want to 6000 unit container fleet that will leverage our Lv 500 solar unit and there will be 710 freight camera system that will begin shipping in Q4. This.
This is the largest when utilizing our Lv 500 to date once we receive the purchase orders we will issue a press release with more details on this great when I.
Additionally, our customers in the cold chain space have reported an increase in their business as they move a central food and pharma products. We're currently in 11 field trials with approximately 40% of those associated with refrigerated tracking command and control. While these field trials represent a 30000 unit near term opportunity. These customers represent an additional.
130000 units and 10 potential.
Well, we've had great success with our existing logistics lineup of products, we continue to not only add new functionality and features but push innovative boundaries as well in Q3, we entered the final stages of field trials with what we call. Our Lv Sevenfifty weight sensors. This new product will provide customers with solutions that detect mounted and.
Dismounted states progressing to load it in unloaded and also estimated weight based on the customers required use cases and their price points.
On top of this we recently entered into beta test our dual mode versions of our dry van container and refrigerated platforms. The Lv 500, it will be 400, utilizing both satellite and cellular for wide area Communications. These.
Solutions open up additional market opportunities that require communications footprints beyond traditional cellular networks.
In addition to new innovations and logistics, we continuously improve the safety and the security you have the capability across our industrial fleet management product line ups as well.
Internationally, our pointer Israel operations had a phenomenal Q3 growing both their historical connected car business as well as their eye OTN logistics offerings.
Our revenues and profits from Warner Israel exceeded pre covert levels. One exciting recent development is that a pointer Israel business unit began business development activities in Dubai. Following the recent piece deals with the UAE and Israel.
We are currently working with several potential partners to assess deploying our solutions in the consumer rental vehicle spaces and aired countries that have signed peace deals with Israel, the vehicle security and fleet markets represent more than a 300000 unit potential.
Our silicate her business, which sells products and services outside of our core markets all demand near pre coated levels in Q3.
This tells US the recovery is global in nature.
So our Mexico operations continued support Cove, it impacts and grew at a rate of 13% year to date as we can continue to get strong uptake from our customers come back and accident insurance.
In Brazil, we won three sick nipigon deals in Q3 totaling over $4 million in contract value. These contracts are with Petrobras Razen and ICANN.
Now, let's turn to our rental car business, which has been folded into what we call our powerfully for vehicles here in the United States. In Q3, we saw Avis business recovering and we are currently at pre Cove. It monthly billing levels. We also continued discussions with the world's largest rental car company on doing a large scale field trial of our product in 2020.
In one.
Looking ahead, our now 570000 subscriber base provides us with not only high margin recurring services and subscription revenues, but also good visibility as we enter 2021. This visibility supported by our strong financial foundation with $21 million in cash on top of this are consistent cash flow and expanding adjusted EBIT.
At a generation.
Right as with diversified and stable plan to execute on our growth strategy well covered headwinds headwinds remain we see sporadic closures in various countries. We remain confident in our continued ability to execute our strategy and extend our position as one of the world's leading aiotv companies focused on supply chain visibility fleet management and you know.
Nick at Nite T solutions with that we're ready to open the call for your questions. Operator, please provide the appropriate instructions.
Thank you and at this time, we'll be conducting a question and answer session. If.
If you would like to ask a question. Please press star one on your telephone keypad, a confirmation tone will indicate your line is in the question keep you May Press Star two if you like to remove your question from the Q.
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One moment, please while we poll for questions.
And our first question is from Mike Walkley with Canaccord Genuity. Please proceed with your question.
Great. Thanks, I hope everybody on the call is families are safe and well.
Christian Ed Congratulations on the strong EBITDA margins, great to see and be turned to double digit levels. I'm. Just just on the 570000 subs. So I think that's up 20000 sequentially can you give us just some color where you're seeing maybe the strongest adds in this tough environment and also on the other side are you still seeing.
Many customers downsizing just given macro concerns and then finally just based on the sub number do you expect it to continue to grow absent any kind of economic shock from the pandemic worsening. Thanks, Hey.
Hey, Thanks, Mike as far as the sub growth. It was really across the board you know that's kind of why we wanted to focus on the win in Brazil to win in Mexico, I got I think a lot of new investors that don't really know our story yeah like the industrial side you have to keep in mind, we've shipped well over 100000, probably.
40000 total units in the life span of that well half of those are not on a recurring today. So again as we you know get customers to refresh those all go onto a recurring so I think it's just a broad base.
Recovery, which is great to see so yeah, there wasn't really want to shine out you know.
Massive deal that brought in a lot of subscribers.
Great. Thanks, [laughter], Chris just powerfully for logistics you mentioned those two customer wins can you provide maybe more color on who you beat out to win the deal why they why they chose you and what that potential opportunity can be so powerfully.
Yeah. The two two customers Oh, you we mentioned the <unk> those are actually existing customers, but this is new business with them and just so everyone knows typically those are put out for bid you know it just anybody running a logistics company or a leasing company.
You know you always put your new business out for bid I cant go into who we're competing against but we definitely had to compete for that business and I think obviously being an entrenched provider helped us but again they put us through our <unk> through the paces I think the opportunity with them is and what you're seeing as I mentioned before.
Sure you know this uptake demand for trailers, the uptake demand for containers as well if you have a container you have to have a chassis and so the leasing companies that are actually leasing this equipment to take care of that excess demand.
You know the more demand there is obviously the more opportunity for us to grow and will just grow with our customers matter of fact that container fleet that I mentioned, the 6000 Lv five hundreds I mean, that's that's a monster win for US that's a brand new fleet to put it in context that is that is not an existing fleet. This is a brand new container fleet, that's going to be hitting the road.
That sounds great and one last question for Ned and then I'll pass. The line here you had very strong service as a hardware gross margins in the quarter was there anything special in the mix are these trends we should expect.
We expect to continue and while I know, you're not giving guidance just kind of based on the pipeline would you expect a both those businesses to potentially grow sequentially. Thank you.
Yes. So if you look at the service gross margins, Mike We are Oh, those are going to remain strong at this levels going forward and they are going to continue to improve as we grow the service revenue.
The product margins tend to fluctuate a couple percentage points based on product mix. We did have very good product mix. During this quarter and also you know the reason we did the acquisition of <unk> point, there and nobody sell okay. There is to be vertically integrated and really control, our gross margin and you're starting.
You'll see that benefit hit the product margins. That's why we're proud of our gross margin performance in the quarter.
Okay.
And then the growth next quarter any comment or just kind of.
No guidance for now.
Not at this point, we're not giving any guidance, but obviously Chris mentioned in the in the in the prepared remarks, we feel very good what we're seeing about a oh the business. Obviously, we're concerned we call that some of the economies globally or begin to shut down again, but so far the pipe.
Pipeline in our sales activity is very positive.
Hey, Congrats again on the execution and I'll pass the line.
Thanks, Mike Thanks, Mike.
And our next question is from Jason Smith with Lake Street. Please proceed with your question.
Hey, guys. Thanks for taking my questions. Just curious if you could comment on sort of the linear path.
Patterns you saw in Q3 and any additional color you can provide.
Slide on what you're seeing from order momentum here.
In October in here in November.
It's kind of interesting that you know as I mentioned before you know even with our subscriber growth, it's kind of across the board and to be honest. We that's great to see you know because that's all these are the run rate business is recovering.
You know if you look at our what we call our dealer network channel here in the United States. Many of you know that we have we do business with 500 dealers that actually sell our products here in the states that's like our young Heinrich channel in Europe, we've solved that actually that business actually recover it pre covert levels during Q3, which that.
That's awesome on the strategic side, which we won some huge strategic deals we still we're starting to see that recover that's where it was most impacted in Q2 and what do we say strategics that large companies that we deal directly with so a lot of them put off their capital expenditures in Q2 because of Cove. It we're starting to see that recover.
And to put it in context that was well over $11 million in business that yes, basically kind of put on hold now that being said, we're starting to see that come back I think with that said is true yeah like Israel shut down for three weeks at the end of Q3. Thank goodness. It was during they could you know I think it was half.
I understand but it was like right during their holiday time, so its really minimal impact, but you're also seeing Germany are being impacted that has not impacted us as of yet with young Heinrich <unk> and the UK is shutting down again, so I I think the uncertainty is the only thing that I would say is we're seeing that momentum pick up across the board.
You know, but it's just that you know what could happen and Ah you know as long as we see the a strategic deal starting to come in we feel a lot better about like Q4 and going into next year.
Okay. That's really helpful. And then looking at your large online retailer customer here.
The U.S. I know that it's really driven by your partnership, but how should we think about the potential trajectory of.
Further roll out or would we expect a further expansion here in Q4 and throughout.
21.
Oh, yes, we have visibility into some of that eight I'm not at Liberty to go into the details that being said is we've seen the momentum pick up there over the last year, even in the midst of Covidien you know with our partner and I. Yeah. I think we're going to continue to see that in 2021, I mean together, what we're hearing is that a large retail.
Other online retailers looking to.
Winning down or narrow down their choices and telemetry right right now they actually pick a telemetry unit, depending on the forklift say pick a different sites, we see that continuing but I think there are.
Starting to be very selective so we think that actually bodes very well for us next year.
Okay, and the last one for me and I'll jump.
Back into queue, Ned how should we think about opex here in Q4, I know you mentioned additional levers to be pulled if needed depending on the macro situation, but its opex.
Definitely flat.
Yes. Our goal is to really maintained expenses are flat at this level and obviously you see as the revenue grows a lot of that goes right to the bottom line.
Okay perfect. Thanks, a lot guys.
Thanks, Jason.
And our next question is from Gary Prestopino with Barrington Research. Please proceed with your question.
Hey, good morning, Chris.
Sure.
Chris I thought I heard you say you have 100000 units that have been shipped but are not reflecting any kind of revenue on the services side is that correct.
Yeah, Let me make sure that's very clear so historically I'd systems used to sell only industrial vehicles right. I mean this is we're talking back in the Dark ages Oh.
Well you know prior to four years ago every unit that we ship. There was not was it did not have recurring and were talking customers like Ford well Walmart on the dock I mean on their distribution centers, the United States Postal service I mean, there's a lot of customers all those student <unk> you know some do pay as a maintenance fee. So I don't want to but.
But the preponderance of those units, it's roughly about half of what we shipped it's about 50000 units do not pay us a recurring now those are in refresh cycle and that we've talked about that before but now it's obviously because of the life on product technology and upgrade cycles, it's getting to where you know they have to upgrade and so it's about.
50000 units and that usually the ARPU and that's about $10 a month.
Okay, but that's the <unk> as I'm trying to understand that that's not a lot that they're going to move over into the services side and start paying your recurring revenue.
No it's not a lot, but you know again I you know, it's I think our if he 70 in the 70% range or whatever we'll move I mean that you know it's just they they liked about it they get value out of it though.
Right all right and then [noise].
I apologize that you went through this so quickly in terms of some of the new business awards in the quarter and logistics and industrial it is would it be too much to ask just to go through that again, just you know a little bit slower here.
Well again it was some of the some of the key ones credit some of the key welcome Okay. So with.
Again, all those deals were signed not necessarily ship to I hope that's clear so right contacts contacts we have started implementing sites right do we should we have limited Detroit and we implemented two north American and now they're selling more sites across Europe [noise].
Right or logistics I think we have about six sites six or seven because again, it's very fluid we actually started installations almost every day.
Their total rollout next year will be.
30 sites in total so we have a lot of 24 sites to go no. We've barely touched a thousand units total and everyone needs to keep in mind that the retail price of that products like in the 1600 range 16, $1600 you, it's not a 200 dollar tracking it.
Right.
And then on the logistics side [noise].
There were three major deals one just recently ER right prior to quarter close, but the two were a those extensions of fleets that we currently are in a you know as were yeah, which is about 1500 units and then the 6000 unit order, we just got notified of.
Literally as the quarter closed.
So you had a 6000 units I'm sorry, what did you say a 6000 unit order Yeah 6000 in order of our Lv 500, and freight can which is our highest product right. Great. So it seems to me that you're you're really starting to see a lot of momentum there or just overall and you know I guess a lot.
[noise] change with the perception of the company since the point or acquisition and the market is that a fair statement.
Yeah, I think that's a fair statement I think more than that is you know these field trials if it wasn't for Cove. It again I think that it's about a six month impact right you know feel like right call. It.
Well I think people are seeing the value I mean, once Dan Ross signed this summer you know that that's a huge name people, who don't know who they are and so we started getting a lot more inbound inquiries you know once you get looks kinda wins.
Mhm.
Well that's good I mean, it is especially in this environment to be winning new businesses is great. All right. Thank you so much okay.
Okay. Thanks, Gary.
[laughter].
And again as a reminder, if you have any questions you May press star one on your telephone keypad.
Our next question from Glenn Mattson with Annenberg. Please proceed with your question.
Hi, Thanks for taking the question great quarter, Ned quick just on the cash flow remind me the priorities going forward is it.
Are you going to look to pay down debt quickly or what's the.
What's the use of cash cash.
Well, that's correct Glenn our goal is really to continue to pay down the that that.
If you look at our all working.
Working capital, we have about 21 million in cash.
A strong working capital would improve football versus the prior quarter and we generated.
5.2 million in cash flow from operations, and we'll continue paying down the debt.
Yes.
Went down on that Oh, sorry about that one thing I want to point out that that we closed that that about a year ago. Since then the interest rate environment has gotten a lot better. So we're looking at opportunities, where we were able to reduce the interest on that that which would oh it will be a bit.
The positive thing good should hopefully get it done in the next couple of quarters and we should announce so when we we want to get it done.
Great and then on the deferred revenue how do you how should we think about that it was down a little bit sequentially, but obviously business is strong but just maybe there is there some dynamic there that that drives the lower seasonally or is there a difference in the.
How does the booking works or something like that.
Another depart rather you shouldn't have been any real impact if you look at our business model, we usually get paid for the hardware upfront.
And the services, we invoice and collect the monthly so in certain cases, we have certain customers. The pru pet prepaid. So you got Mike see the deferred revenue go up and down.
It should not have them and should not be an indicator of future businesses.
Great. Thank you.
And then Chris just stepping back for a minute and looking at.
You know I've taken a spend it seems the business is doing really well the.
You know that.
Pointer acquisition has been integrated at this point, that's a that cost, but like a lot of the taking out you know, but there has been this pandemic in between when you sign the deal now maybe could you just kind of point out like where do you think you are that hit the mark or exceeded on your initial expectations or where there's still room for improvement over the next.
Never period of time, six months or a year or so.
Well, that's a yeah. That's a great question so on our IP integration in various aspects of our what we've done on I T. A consolidating tenets et cetera, that's been phenomenal by the way that's actually helped us work more efficiently across the globe.
So hats off to that team and they also have been working on what we call financial consolidation, which has enabled us to you. Obviously, we have operations around the globe. So it's like helping US just me be more efficient in closing the books.
That all being said a supply chain and operations, we've seen significant savings. There. We you know a lot of its volume driven so as volumes go up though he may be more savings that which has been great. So I think our team there's just been doing phenomenally well.
We have already integrated in we're in beta of our analytics platform. So you know that part of it as platform consolidation, which takes more time and so the analyst's platforms. Currently in beta so once we get that done we'll see some additional cost savings. There then it'll be a or other platforms as we consolidate through next year you know there's about another million dollars in <unk>.
Savings you know as we get our software platforms consolidated now when I say that I just want people to realize from an end customer perspective, they might not even know were consolidating platforms right. You know because you can actually the front end and the back end, how you integrate and what they see yeah, the customer might not even.
Care as long as it's secure the data is delivered as it needs to get there and stable. So you know.
Our goal is to make it transparent to the customers and at the same time get the cost savings out over the next year other consolidation.
Oh, great. Thanks for that color that's it for me congrats on the quarter.
Thanks Lynn.
And we have reached the end of the question and answer session I will now turn the call over to CEO.
Chris will close remarks.
Thank you for joining us today I'd like to thank our employees for their diligent efforts in great results, our customers for putting their trust in our products and services and our investors for their support of our vision. Please stay healthy and we look forward to speaking to you again soon.
Operator.
Thank you for joining us today for our presentation you may now disconnect.