Q1 2021 PowerFleet Inc Earnings Call
[music].
Good morning, and welcome to power fleets first quarter 2021 conference call joining us for today's presentation is the company's CEO, Chris Wolfe and CFO Ned Mavrommatis. Following the remarks, we'll be the opening for the call for questions before we begin the call I would like to provide powerful the safe Harbor statements that include cautious regarding forward looking statements made during this call.
During the call there before looking statements made regarding future events, including power fleets of future financial performance all statements other than present and historical facts, which include any statements regarding the company's plans for future operations anticipated future financial position anticipated results of operations business strategy competitive position company's expectations regarding opportune.
As for growth demand for company's product offering and the industry trends are considered forward looking statements such statements include but not limited to the company's financial expectations for 2021 and beyond all such forward looking statements imply the risk of 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.
Factors that could cause actual results or different materially could include amongst others SEC filings overall economic and business conditions demand for Companys product and services competitive factors emergence of new technologies and company's cash position. The company does not intend to undertake any duty to update or any forward looking statements to reflect future of.
Vince 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 power fleet Dot Com now I would like to turn the call over to powerfully CEO, Mr. Chris Wolfe Sir. Please proceed.
Yeah. Thank you Matthew good morning, everyone and thank you for joining our call I hope everyone is doing well and staying healthy during the first quarter. We continued to execute on our long term strategic roadmap, which is focused on expanding our high value solutions offerings growing our business in our targeted markets and continuously increasing our high margin recurring and service.
The revenues, while we delivered consistent financial results for the quarter. Our revenues would have been one $8 million more had we not experienced the third party of electrical components supply issue that impacted some of our product lines is impacting many industries globally.
Fortunately our supply chain organization acted swiftly to remediate the issues and we rolled the build the products, but we were unable to recognize the revenues as these units were not delivered by the quarters, then I will discuss the electrical component issue in our remediation efforts during the latter part of our call. Nevertheless, we did see our business pick up the near pre COVID-19 levels in Q1.
Albeit still lumpy in certain geographies due to the infection rates vaccine.
Exploration progress and individual government actions.
We are very encouraged by the business strength in Israel on our progress in the U S with major upgrades of both Ford and the United States Postal service and our signing new logistics logos as Q1 progressed, we saw the sustain and measurable pickup in our new sales activity across our geographic regions, including our U S dealer channel, which is seeing record pipeline strength in Q2.
On <unk>.
Internationally, our team in Israel is nearly 100% vaccinated and most of our employees are back in the office our operation in Israel is home to a significant part of our supply chain engineering of software development efforts. So it's great to have her of police healthy our operations functioning at 100% of capacity in the economy. There reigniting I will talk more of.
This after net walks us through the financial performance for the first quarter of 2021 net.
Thank you, Chris and good morning, everyone turning to our results for the first quarter of 2021 revenue for the first quarter of 'twenty, one was $29 million compared to $30 8 million in Q1 of last year the.
Year over year decrease in revenue was primarily due to the major shipments way this last year and the $1 $8 million of shipment deliver as Chris mentioned in his opening remarks. It is worth noting that in Q1 of last year, we recognized $2 $3 million in product revenue from Avis due to the final.
Major shipment, which was absent in Q1 of 2021.
High margin recurring and services revenue for the first quarter was $17 $6 million or <unk> 61 per cent of total revenue. This compares to $17 $3 million of 59% of total revenue in the prior quarter and $17 $6 million of 57 per cent of total revenue in Q1 of last year.
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Product revenue, which drives future services revenue was $11 $4 million or 39% of the total revenue. This compares to $13 2 million or 43% of total revenue in Q1 of last year.
Gross profit increased to 50% of the total revenue of $14 $5 million from 48 per cent of total revenue of $14 9 million in Q1 of last year now Kearney for our expenses total operating expenses for the first quarter of 'twenty, one were $16 $4 million down.
One $9 million or 10% from $18 3 million balance in Q1 of 2020.
As we stated previously certain opex savings that we realized in 2020 related to COVID-19 were to come back in 'twenty, one and this went into effect starting in January of this year. We do not currently expect our opex to increase from Q1 run rates, except for marketing expenses that will increase.
Slightly in Q1 from Q1 of your beliefs timing is critical due to the pending the reduced something in the U S, which Chris will talk about shortly.
Turning to our profitability measures GAAP net loss attributable to common shareholders for the first quarter of 21 total $3 million or nine cents per basic and diluted share. This compares to a net loss of $4 5 million or 16.
For basic and diluted share in Q1 of last year.
Non-GAAP net income for Q1, 2021 totaled $61000 or zero cents per basic and diluted share. This was an improvement compared to non-GAAP net loss of $1 $3 million of five cents per basic and diluted share in Q1 of last year adjusted EBITDA for Q1, 2021 total.
One $4 million compared to adjusted EBITDA of 152000 in Q1 of last year our liquidity.
Position remained strong at quarter end with $41 million in cash and cash equivalents and the working capital position of $53 $2 million that concludes my prepared remarks, Chris.
Hey, Thanks net as.
As I mentioned earlier delays in getting select electrical sub components during Q1 impacted our ability to recognize $1 $8 million of product revenue.
We're able to get impacted products built and make sure we of components for Q2, the current environment of sub component of uncertainty requires real time monitoring and rapid remediation.
We do see this as being of temporary issue as overall industry shortages were exacerbated by fires at the releases in 8-K M factories in Japan over the last two quarters as I mentioned on my opening remarks, we saw the measurable pickup of new sales activity across our geographic regions. During Q1 in the U S. We secured several new deals in the quarter.
<unk> Nucor tubular Panhandle transportation group and Maguire of transportation and.
In addition to these wins, we continue to successfully deploy more than 2000 units associated with the container fleet win that we announced on our call in February.
Another noteworthy win at the end of Q1 was our signing of Atlas Van lines. We're actively working with this new customer to deploy the solution this quarter.
Currently we also continue to deploy a backlog of 20 for Ryder locations that we signed last year. Additionally.
Additionally, in Q1 power fleet was invited to a major U S tender with one of the world's largest rental car companies. We look forward to sharing more details as this tender advances.
A key initiative for 2021 is the transition of our 30000, plus non subscription units from our legacy industrial solution to our next generation hardware platforms and onto our software as a service recurring revenue model based upon our initial analysis of all 30000 units migrate this will generate approximately 48 million of high margin hardware and services revenue.
Over a five year period.
One major migration, we commenced in Q1 was with Ford Motor Company, We began migrating there for 500 units and over 40 worldwide sites. This migration will continue throughout 2021 and into 2022.
We also continued negotiations on planning with the United States Postal service on their 80 site for 7000 unit migration and expect it to be on site migrations at the end of Q2 or early Q3.
The total potential revenue for both Ford and USPS migrations as $30 million on high margin product and recurring revenues with a follow up potential of an additional 100 the USPS sites.
It is also important to note that our industrial high margin products being taken by Ford and soon USPS are not impacted by the sub component shortage issues.
As it relates to our marketing efforts in the U S. Our targeted campaigns on the pending <unk> sunset are yielding very encouraging results. In fact, we of 13 active pilots and five of it are starting in Q2 that represent 75000 and subscriber unit opportunity. One of these opportunities closed in early Q2 for 3000 units and you should expect the press release.
On the shortly.
Our focused R&D initiatives around weight on axle has proven to be just as fruitful and Q1 American intermodal management or aim selected us over our competitor and took 1000 of Lv 300 mobility platforms on 1000 units of our new weight on the actual sensor.
We are working closely with the aim on monitoring of calibrating system performance during the early commercial deployment.
As a reminder, aimed represents a 137000 total subscriber opportunity given their merger with flexi van.
I also started we also started to market our newest asset security solutions, specifically designed for construction equipment companies. While it is still early customer and channel partner feedback has been encouraging.
Book to secure and ship and the initial 1000 unit order in Q1.
Shifting to our international operations outside of Israel. During Q1, we made solid progress across our markets, especially in Mexico with our deployments with Axa insurance customers for background actually is one of the world's largest insurers. During Q1, we deployed over 1700 units to acts of customers, which exceeded the total amount of units deployed.
For accident and all of 2020.
Based on our pipeline and the discussions with the customer we think the potential with just with Axa in 2021 is approximately 7000 units.
Last year, we deployed 2000 units to come back and come back as the carve out of Mexico. We are in active discussions and planning phases of deploy orders that could eclipse 10, thousands of subscription units annually.
Our Mexico team is also managing for pilots with the worlds largest baked goods producer in there, Spain, Chile, Colombia, and Brazilian operations. This prospect has more than 30000 vehicles worldwide.
Turning to our Israeli operations as I mentioned in my opening we saw a big spike in demand in the first quarter reflected by a 44% increase in installations compared to Q1 of last year.
Israeli operations also signed the HMO maccabi for tracking cooling boxes of pathological samples, which we estimate will total over 2000 units once deployed.
We also won a prestigious police tender at the end of Q1 for more than 7000 units.
On the M&A front, we continue to build our opportunity pipeline. We are strategically targeting specific companies that can further strengthen our vertical market presence expand our footprint in the U S Europe or Israel as well as bolster our SaaS and application solution offerings in summary, our global end markets, let legacy product migration of efforts.
Opportunity pipeline continued to build momentum and to put all of these opportunity number as I stated earlier into a concise summary, we have over 44000 of subscription units in fairly solid backlog and over 300000 of subscription units in near to mid term pipeline opportunities.
There is still some choppiness due to COVID-19 and electrical sub component supply you should I mentioned before we remain confident on our growth prospects for 2021 and beyond as the global.
The economy recovers and countries reopen a robust balance sheet will enable us to accelerate our growth initiatives, we are making great strides to of the realization of our long term financial goals and the realization of our vision, which is for power fleet to be of major force in the multibillion dollar industrial Internet of things market, we are targeting 1 million subscribers and over $200 million.
News by 2020 for and with that we're ready to open the call for your questions. Operator, please provide the appropriate instructions.
Certainly ladies and gentlemen on the floor is now opened for questions. If you have any questions or comments. Please press star one on your phone at this time, we do the asset while posing your question. Please pick up your handset if you're listening on speaker phone to provide optimum sound quality. Once again, if you have any questions or comments. Please press star one on your phone. Please hold while we poll for questions.
Your first question is coming from Mike Walkley. Your line is live.
Great. Thanks, Chris that I Hope you and your families are well also in the everybody on the call Chris.
Chris I guess the the first logical question is just with the ongoing industry supply shortages in the the one 8 million impact that could have shipped in the quarter on how supply looking to meet demand in the upcoming quarters, given youre encouraging comments.
About the measure of uptick in sales activity.
As I mentioned by the way Hi, Mike as I mentioned.
Our supply chain group was able to actually rectify the situation and get enough supply through Q2, and the into Q3 and we are actively on again I think it's of daily.
Requires daily monitoring because it's not just our suppliers. It's their suppliers. So that's why I say, it's sub components.
And so we're actually going to increase our inventory levels and you'll see that.
We hit our numbers over the next quarter or two because again, we just wanted to make sure we have enough supply and not only supply to meet the man I mentioned, but we have to of search potential right because of lot of these larger deals they're going to require us to build on volume and supply on volume. So that's what we're trying to address right now is get get to a position where we can surge.
Got it that makes sense of maybe just a follow on to net given the.
Tight supply.
So we expect on the adverse impact maybe the gross margins as you have to the.
Expedite shipments of our pay up to get the red.
For the potential surge of demand or given the industry knows how tight supply of some of these costs to be passed onto customers.
Yeah right.
On a go ahead.
Chris.
Yes, I mean right now we're not passing the because again of the sub component price increases by the way so in the whole bill of materials, it's not as consequential.
But again, we're not passing that along today, because it's not as significant as one might think on the pricing cost perspective, net do you want to add.
Yeah, I just wanted to say that.
It does have the very as Chris said, a very slight impact on the on the gross margins.
But when.
When you look at the gross margins on product.
Around 29% to 30%, we feel comfortable going forward take that into consideration.
Okay, Great and last question for me I'll pass line.
On a taken a little more on your initiative for the 30000 non subscription units from you all of the industrial solution.
Congratulations on the colored in the Fortune 500 units.
Just on that 30000 backlog.
How many of you engage with now and how quickly do you think you can transition of 30000 units over in and for for and with that larger number on other sites, how long does the transition with the take.
Yeah, that's very good question and the good thing is we have a lot of experience doing this we did.
Of Walgreens, just last year and it went from actually flawlessly.
A good reference account for us.
We've already done two sites for.
In Q1, so again that tells you the pace that we can move we can actually do more than that like like what the gating factor of even with the writer is really there their logistics and timing not ours.
So we do have the opportunity we have installers, we can scale.
But like because of the United States Postal service just between Ford and the United States Postal service, we have we're right on them.
Getting to the point of.
Getting ink on paper with United States Postal service planning to start deploying sites at the end of Q2 very early Q3, and one of those sites by the way is the site were not even in so it's not even on migration. It's part of those 100 that were not even in today, So which is that's actually even better news.
But we've actually done the United States Postal service before I mean, literally 15 years ago. So.
This is like a two year initiative for the United States Postal service the 80 sites.
Could be the same on forward, depending on how fast they want of rollout.
Great. Thanks for taking my questions.
Okay. Thanks, Mike.
Thank you. Your next question is coming from Jason Schmidt Your line is live.
Hey, guys. Thanks for taking my questions. Chris just curious if you could comment I have the re.
Recent momentum you're seeing in order activity is coming from new customers or expanding at existing customers.
It's primarily new customers mentioned a lot of the tenders that we won on the.
The police tender in the Israel that was the brand new customer.
Actually the insurance that was the new customer last year, so like Ryder logistics to me, that's still a new customer in the initial deployment of the first orders.
Like with Axa for like with the writer and also I mentioned because of that so those are brand new customers Panhandle brand new customers. So I would say the preponderance of of all of our growth on activities all brand new logos now that being said.
For it in United States Postal service, which we've been working on for years trying to get them to move and migrate and really it's now is the time they have to do it I think everyone had that pause through 2020.
And youre seeing a lot of things starting to break loose. So I think it's going to be a blend in the 2021 between new and old primarily just because of the scale of the United States Postal service and for it.
But a lot of the new logo activity matter of fact, our dealer network I mentioned in the U S. We of 500 dealers that represent us on our products again, it's probably the best pipeline I've ever seen and I've been here for years.
Okay. That's helpful and just curious if youre seeing any timetables from customers on their launches get pushed to the right at all.
Not really actually.
Okay.
It was kind of surprising that I mentioned the tender for the rental car company that they actually got the contacted US which is like that's the best way to get involved in the tender.
So we're actually seeing people being more aggressive than like last year. There was a lot of pushing going on last year, just because you couldn't get into the facilities you couldnt get into the headquarters you Couldnt get.
Was done by the purchasing group.
And you're seeing that all starting to break free this year, so which is good I mean, I think right now we're seeing it across the board.
Okay and just the last one for me and I'll jump back into queue. Net you mentioned some of the.
Opex coming back this year after being relatively muted from COVID-19 last year, how should we think about opex trending throughout this year kind of just steady growth as revenue grows.
That's exactly right primarily ex.
<unk> to spend.
Slightly a little bit more.
And marketing as Chris mentioned.
Right now the three do something in the U S and we believe we can capture a lot of the markets that we're going to aggressively pursue some marketing so some slight growth quarter over quarter.
Okay sounds good thanks, a lot guys.
Hey, thanks.
Thank you. Your next question is coming from Scott Searle of your line is live.
Hey, good morning, Thanks for taking my questions Christy I'd Hope you guys and your families are doing well.
Scott.
Hey, just to dig in a little bit on the product front certainly constrained this quarter from a component availability standpoint, but you can build on the big pipeline, there and I think going back.
<unk>.
Just just before COVID-19 the close of the point or total location acquisition you guys peaked at.
The $16 million or so on product revenue, Chris is that something that's attainable. This year when you're looking at the pipeline and then I guess as part of that we've moved from a demand constrained environment and COVID-19 to COVID-19 really driving the demand for the overall supply chain and logistics visibility.
We've had some component issues on top of it but now are we moving to an area where their deployment issues, possibly in terms of your capacity or your partners and integrators availability and capacity to deploy solutions.
No I kind of mentioned that on a prior answer, but we actually have really good capabilities of.
The surge surging our implementation capability, so whether it's installers, we use third party installers, we train the trainer.
So again when it comes to actually implementing our solution. It's typically just working around our customers' schedules right and but again now we're seeing them being a lot more flexible because they can be with the <unk>.
Getting vaccinated places opening up.
It's our only constraint is gonna be if there is the surprise in the supply chain of being able to get product we've address it so far.
But again, it's the.
The whole industry is facing it and I mentioned those two fires at those two factories obviously.
Fires are horrible thank goodness nobody was injured, but put them out of commission for awhile now of those those kind of problems can be rectified pretty quickly you know they can actually stand up plants and move production and that's what they've been doing and so that I see that again like I said very temporary.
But again, the overall parts shortages and just the restrictive nature of of it right now just causes us to.
We're spending a lot of time right now just making sure our supply chain is intact.
The strength so Chris can you can you get back to those peak kind of product level Oh, yes, that's true.
By the way.
Again, if you think about like the United States Postal service and for that that's our high end products I mean those products. The very good margins. They are over $200 of units, it's not like a trailer tracking product for 300 of $400.
So they are very good high margin products.
So every one of those that ship the USPS, that's almost like a forex of the trailer of chassis or container and value to us.
So we can get there is as Ford ramps up as United States Postal service signs of starts moving Youll see us get back to those numbers got you and then Chris maybe to follow up on Mikes earlier question related to product gross margins.
I think net you said, 29% to 30%, which is where you were this quarter.
It's below where you've been historically, but when you think about then the favorable mix that could be coming on the horizon I mean, how should we be thinking about gross margins late this year and into 'twenty two.
Yeah, that's a great point, Scott so a mix of all have to deal with that.
Especially on its first quarter.
Our logistics business was very strong the tends to have.
Lower product gross margin by its nature.
But as Chris mentioned, a lot of the pipeline.
The industrial truck business that product has a much higher gross margin, where we can see the product gross margins go in the.
For the mid Thirty's.
Pending on mix.
Great. Thank you and maybe just to follow up geographically as well Chris.
Certainly COVID-19 issues had been accelerating certain parts of the world in and certain parts of Europe remained a little bit locked down on that front.
<unk> been doing well in Israel, it sounds like Youre doing well in Mexico. Despite some of the it seemed like the that the health of headwinds there. So I'm wondering if you could just broadly talk about what youre seeing in Latin America in demand, there and kind of the European Theater in General and then I had two follow ups.
Yeah.
I like that question, because I really didn't bring it out in the script that our sell locator division.
You know what that does is it actually takes our products and sells it to geographies were not in.
So.
Are in Brazil.
We are seeing strength in Brazil as far it but again its probably other than India. One of the most heavily COVID-19 impacted so.
We're seeing activity there, but it's definitely impacted by COVID-19. So.
We don't expect a lot of growth in Brazil until they get their COVID-19 situation handled Argentina for us is growing but their currency always.
Of masked the growth the currency translation.
South Africa by the way for US went from not being profitable the profitable because we signed a major customer and deployed them actually true throughout COVID-19, turning to Europe, and our sell Locator Division.
And are you on the Heinrich by the young by the way you're on kind of keeping with Germany shut down they've been taking the orders and.
They are on plan, which is great and our syndicated division, which sells to all of those other telemetry service providers.
As of the biggest biggest backlog they've ever had and this is the for pre pre acquisition. So which is great that tells you if theres strength of beyond even our business you know other.
The other providers are having strength in their business great very helpful. Thank you for the color and just lastly could you could you reiterate the opportunity in terms of what Youre seeing in the pipeline for the <unk> sunsetting opportunity.
And Chris if you could as well M&A now becoming more realistic opportunity I'm just kind of wondering if you could provide a little bit more detail in terms of the activity and opportunities within the pipeline in the framework of parameters.
You could put around whats youre looking for thanks, guys.
Okay.
I'm going to have to remember the first part of your question.
Repeated that'd be great, but I can cover it that didn't go ahead. Yeah go ahead of <unk> Sunsetting, Chris Oh, yes. Thank you so yeah on our pipeline as I mentioned it.
<unk>.
What's bringing customers to US right now is the <unk> sunset. So we've spent on Ned.
Ned mentioned that we have.
Basically campaigns going on reach out campaigns advertising campaigns, our marketing spend is up our inside sales groups work on the phones. It's <unk>.
Basically we're also having a lot of inbound inquiries because the sunset is literally in 2022.
So you if you have units and by the way some of our competitors.
By the one of the companies I used to work for they don't even have a replacement product.
So they had 250000 units deployed so that means the 250000 units have to find a home.
And so we're actually glad to be that home.
So we have 75000 units that were currently in field trials on now we just closed 3000 of those and like I mentioned.
The other 300000 as of <unk>.
Mix, but I'll give you a case in point we have to.
Two of that are not in that 300000 number two customers that actually total of 100000.
So we're in field trials with them right now.
Those two right there could just double our logistics size.
They move forward and when they move for it but again, they're not going to take 100000 units on day, one they're going to take them over a period of probably throughout 2022. So again very strong I think everybody in the industry. They were delayed because of the LD HOS mandate that was in 2019, then they got delayed because of COVID-19, but the network sunset didn't get.
Delayed that much and so it's like now now it's.
It's definitely like the wall, that's coming up on everyone.
Turning to M&A very quickly.
Our team when we met actually a year ago into the strategic planning, we actually spent a lot of time, saying, hey, what part of our portfolio do we need to strengthen what geography would we like to expand in.
And then you know obviously, we want it to be immediately accretive we wanted to actually help us with our software as a service capabilities.
Capabilities and our applications. So we're actually looking at technology companies that are in specific geographic regions, we like Europe right now even though it's.
Still kind of of Lockdown mode, We think theres some opportunities in Europe.
It's actually very convenient to Israel sort of like a <unk>.
Our plane flight, maybe three hours, depending on where you're at.
Actually eastern Europe, we think the cost structure, there and just the entrepreneurial spirit is great. The education levels are phenomenal.
So again, we're doing a lot of research and building on our M&A pipeline of opportunities. We do have a couple of opportunities in Israel that were looking at on the software side and also in the U S. So.
Some are more transformational, but the sweet spot for us would be around 20% to $30 million on revenue and <unk>.
And profitable on the software company.
Hopefully that gives you enough color.
Perfect. Thanks, guys.
Thanks.
Thank you once again, ladies and gentlemen, if you have any questions or comments. Please press star one on your phone at this time, please hold while we poll for questions.
There are no further questions in the queue at this time I will now turn the floor back to our hosts.
Okay. Thanks, Matthew Thank you for joining us today I'd like to thank our employees for their diligent efforts and our customers for putting their trust in our products on services and also on our investors for their support of our vision.
Then I will be attending several upcoming financial conferences, including the 16th annual of Needham Virtual technology and media conference on May 19th and the Roth Capital Virtual London Conference on June 23rd Please stay healthy and we look forward to speaking with you again soon.
Operator, thank you for joining us. Thank you for joining us today for our presentation you may now disconnect.
Thank you.