Q3 2021 PowerFleet Inc Earnings Call
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Hey, Tom.
Chris We can hear you.
Yes.
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Alright.
Good morning, and welcome to Power's Fleet third quarter 2021 conference call.
Joining us for today's presentation is the company's CEO, Chris Wolfe and CFO Ned Mavrommatis.
Following their remarks, we will open the call for questions.
Before we begin the call I would like to provide power fleet 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 future events, including powerfully future financial performance all.
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 operation business strategy competitive position company's expectations regarding opportunities for growth demand.
And for the company's product offering and other industry trends are considered forward looking statements. Such statements include but are not limited to the company's financial expectations for 2021 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 may differ materially from those projected or assumed in any forward looking statements factors that could cause actual results to differ materially could include amongst others at.
T SEC filings overall economic and business conditions demand for the company's products and services competitive factors emergence of 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.
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 powerfully dot com now I would like to turn the call over to powerfully E O. Mr. Chris Wolfe Sir Please proceed.
Thank you Tom welcome everyone and thanks for joining our call today.
As you can see from the press release, we issued this morning that while we successfully grew our recurring services revenues by 10% we had our product sales in Q3 impacted by the cargo ship backup in Los Angeles, which had the ripple effect of severely impacting new forklift builds starting in mid August all forklift manufacturers in the U S had their production.
Severely affected which in turn led to their delaying deliveries of forklifts as they waited for counterbalance weights and other critical parts to be Offloaded from ships, it's worth mentioning that about one third of power fleets industrial sales each quarter or for new forklifts. These higher priced higher higher margin industrial telemetry orders are typically placed the last.
Month of each quarter forklift coming off the lines following quarter.
This is where our Q3 shortfall occurred.
I'd like to emphasize that these forklift telemetry orders were not cancel merely delayed waiting up for deliveries as are our customers.
While we faced momentary.
Sales delays in our industrial business, we've seen our investments and our logistics products continue to pay off during the third quarter. We received several large logistics orders that could have made up for the shortfall in industrial However, we were not able to procure the necessary electronic parts to surge our logistics deliveries disc.
Despite the challenges we faced in the quarter, we delivered year over year revenue growth of 6% in Q3 and 9% for the first nine months of 2021 on top of this we saw solid growth in our most important kpis are high margin recurring services revenue, which was up 10% and 7% for the third quarter and for nine months respectively.
I'll turn it over to Ned to discuss our financial results in more detail afterwards, I'll cover more about our overall business climate Q3 successes, our pipeline and our backlog.
Ed.
Thank you, Chris and good morning, everyone.
Turning to our results for the third quarter and nine months ended September 32021.
Total revenue for the third quarter increased 6% to $29 2 million compared to $27 6 million in Q3 of last year.
For the nine month period total revenue increased 9% to 91.8 million from $84 2 million in the same year ago period.
High margin recurring and services revenue for the third quarter of 2021 increased 10% to $18 5 million or 63% of total revenue from 16.7 million or 60% of total revenue in Q3 of last year with.
For the nine month period high margin recurring and services revenue increased 7% to 54.1 billion or 63% of total revenue from $50 7 million or 60% of total revenue in the same year ago period.
<unk> revenue, which drives future services revenue for the third quarter of 2021 was $10.8 million was 37% of total revenue compared to $10 9 million or 39% of total revenue in Q3 of last year for.
For the nine month period product revenue was $37 7 million or 41% of total revenue an improvement compared to $33 5 million or 40% of total revenue in the same year ago period.
Gross profit for the third quarter of 2021 was $14 3 million or 49% of total revenue compared to 14.9 million or 54% of total revenue in Q3 of last year service gross profit for the third quarter of 2021 was $11 7 million or 60.
3% of total services revenue compared to 10.7 million or 64% of total service revenue in Q3 of last year.
Product gross profit for the third quarter of 2021 was 2.6 million or 24% of total product revenue compared to $4 2 million or 39% of total product revenue in Q3 of last year.
The decrease in product gross profit was primarily due to a $400000. One time expense related to an incentive program to expand business with an existing customer one of the largest chassis lessors in North America in exchange the customer placed orders for approximately 3000 unit.
It's to be delivering in Q4 of 2021 and committed to watering tend to 10000 to 15000 additional units in 2022 trial.
He was also impacted by product mix higher cost associated with supply chain electronic component shortages and placement.
Turning to expenses.
Expenses total operating expenses for the third quarter, 2021, $16 7 million compared to 16.
In the quarter and $14 2 million in Q3 of last year.
Looking at our profitability.
GAAP net loss attributable.
Attributed to common stockholders totaled $12 $5 million.
Basic and diluted share compared to net loss attributable to common.
Stockholders of $1 7 million six cent per basic and diluted share in Q2 last year.
Non-GAAP net loss for the third quarter of 2021 totaled 364000, or one cents per basic and diluted share.
Compared to GAAP net income of $2 2 million or seven cents per basic and six cents per diluted share in Q3 of last year.
Adjusted EBITDA, a non-GAAP metric for the third quarter of 'twenty to 'twenty, one totaled $1 million compared to adjusted EBITDA of $3.6 million in the same year ago period, our liquidity position remained strong at quarter end with $33.8 million in cash and cash equivalents and 49.4.
Million of working capital that concludes my prepared remarks, Chris.
Thank you Ned as I mentioned in my opening remarks, the container backlog in Los Angeles is causing production delays and lengthening delivery lead times for new Forklifts. We have started to see this issue normalize in Q4, and we expect a normalization to continue over the next two to three months as we get through the holiday season.
Our large industrial deployment with Ford, which is underway as well as our deployment with a large federal agency, which rolls out in 2022 are both aftermarket installations are not impacted by these forklift production issues.
As I mentioned supply chain disruptions are also impacted our ability to surge deliveries than our other product lines. For instance, we had two electronic component suppliers decommit on deliveries at the last minute, which then impacted our ability to search Q3 deliveries for logistics and vehicle products as we had an additional $4 million in orders it could have been.
If we had the components to build them.
We entered Q4 with a solid backlog that was up 50% compared to our typical quarterly logistics and vehicle backlog going into any quarter.
Our supply chain organization like many is dealing with daily surprises, but it is good to note that we are hearing from our customers that they believe that many of these issues will start to lessen over the next two quarters and many of our automotive customers are starting to say the worst is over.
However, we are not waiting for the electronic supply issues to self correct and our engineering teams have been diligently working on providing us with critical component Optionality. These.
These initiatives will cut into production early next year, giving us additional flexibility on components further reducing our reliance on any one supplier and giving us more control over component pricing.
The current economic recovery has shown us that we may need to deal with some air bubbles or a fuel line so to speak and while some orders may be delayed we have not experienced any loss of business to competitors and just to be clear our industrial business was impacted by new forklift availability and not our ability to supply our to our products.
While we did experience temporary challenges in Q3, we had a couple of very notable successes, which included our team in Israel shipping and installing over 7800 units in August which marked a new monthly record also in Israel, our largest cold chain Iot project with Mcafee, HMO surpassed having 2000 cooling boxes being mom.
Later.
In Mexico, Quebec, which is considered the Carvana Mexico installed over 10000 units by the end of Q3, which was three months ahead of forecast.
In the U S. As I mentioned, our logistics team won a follow on order for 10000, Lv 500 container telemetry devices that also included our patented free camera sensor.
This customer has the option to increases whereby it is an additional 2000 units.
These units started shipping in October with a plan for shipping over 1000 units per month.
Our U S team also signed and shipped over 2500, Lv 300 chassis telemetry units in Q3. This solution includes our patent pending weighed on actual sensor, which allows our fleet operated north of chassis has a container on it if the container is loaded and empty.
As Ned mentioned in his remarks, we took a 400000 dollar expense related to a onetime incentive in the form of the credit for old three G units and this position powerfully to become this major chassis lesser lessors preferred provider and they immediately gave US an order for 3000 chassis optimization systems to be delivered in Q4 more importantly, we.
We received a letter of intent from this customer for an additional 10015 thousand units to be delivered next year and we are currently finalizing their 2020 to product mix and delivery schedule in.
In summary, this chassis product order combined with the 10000 plus unit order for containers that he mentioned previously along with other orders in hand gives us a backlog of over 25000 logistics ordered units.
We will close.
As we close out 2021. This is the highest logistics unit backlog going into a new year in the company's history.
Our U S. Industrial group successfully launched the first site at a major government agency that we've talked about previously and this site is now fully up and operational.
Site was a critical milestone in moving forward with the additional 80 sites that represent 20 million dollar opportunity that we will start implementing in 2022.
In closing, while Q2 reflected the strength of our business and our ability to deliver Q3 showed our businesses susceptibility to global supply chain hiccups, there impacting the delivery of new forklifts as well as the extremely tight electronics component market.
We know that global supply chain issues can affect our customers' ability to procure vehicles, but this will depend upon each OEM situation.
One example that was contrary to the U S. Forklift production issue as our business with young Heinrich the number three global forklift manufacturer, where our orders have not been affected as our forklift production is based out of Europe.
We ended Q3 with a recurring and services revenues at record levels and growing with a record backlog in logistics and vehicle opportunities as well as the 'twenty two 2022 aftermarket industrial implementations at Ford and the government agency, we look to build on the sales momentum in Q4, as we continue to close out new deals and launched shoveled.
New products, which will add to our 2022 opportunity pipeline. We've already received an order for 3000 units of one of these new products and these will be delivered by the end of Q4 now.
Now I'll turn the back the call back over to the operator for Q&A operator.
Thank you ladies and gentlemen, the floor is now open for questions. If you would like to ask a question you May press star one on your telephone keypad at this time to enter the queue to ask a question once again, ladies and gentlemen, if you would like to ask a question at this time you may crash star.
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Please standby a moment, while we poll for questions.
And we do have some questions in the queue at this time and the first question is coming from Scott Searle from Roth capital.
Scott Your line is live. Please go ahead, hey, good morning, Thanks for taking the questions Hey, Hey, Chris you gave a number in terms of the logistics opportunity that you were unable to ship due to components I'm wondering if you could quantify what the forklift impact was in the quarter also as you would expect right given the incremental freight costs and otherwise gross margins were impacted.
On the product front I'm wondering if you could quantify what that impact was in the quarter and maybe give us an idea about the product industrial mix versus logistics makes them then I had a couple of follow ups.
Yeah. So in Q3, if you the industrial products that we ship are typically in that $1500 range per you know that's the retail price and I'd say, 90% of via the dollar amount that we are missing analysts' expectations was due to industrial and that those are all talk.
Good too you know, what I would say new forklift builds.
The gross margins are actually impacted by that mix because the more of the higher priced higher margin industrial products. We ship, obviously, our gross margins go up on products.
We have seen probably a few percentage points and that you can add in here.
The impact to gross margin due to.
Shipping costs and component price increases.
Scott.
Answer your Ocean, Yes does that answered my question, sorry, I didn't hear net.
But then Christa just to follow up it sounds like.
The port and the shipping issues are starting to resolve it sounds like you have some pretty good visibility and then I guess going into the start of next year. I was wondering if you can kind of talk us through that comfort level of why you're feeling better about things improving and as we think about that recovery than going into the first quarter I would assume.
That traditional seasonality maybe doesn't happen and.
How youre thinking about what product revenue looks like as we go into the first quarter of next year. Thanks.
Okay.
Whats interesting about Q4 is that it also depends on aftermarket installations on the industrial side. So I mentioned, we have a large implementation going on at Ford, It's a refresh and we're now talking because I mean, they could take anywhere up 800 units in Q4, it could slip into Q1 that just as an example that right there.
Well over $1 billion opportunity.
You know the United.
Federal government Federal agency that we're working with.
If they pull in their orders from Q1, you know that would have a pretty impressive impact on Q4 as well, but we are seeing our channel and by the way you know, we actually pulled our channel which is our dealer channel we have 500 dealers throughout the United States.
That's actually where we've gotten all the feedback on the Oems and the impact on them. So they're not getting the forklifts to sell to their end customers, but they are seeing that starting to break free so and by that I mean normalized. So just so everyone that is over 65 of our ships you know backlog out of San Pedro.
In September there were 100 backlogged in October and now Theres 100, so it's like you're Gonna. It's always 100 sooner or later just the number of containers getting off the ship is going to normalize and that's what we're kind of seeing right now and what's really interesting. It wasn't electronic component parts that were holding up forklift.
Factoring the.
The preponderance of the delays were counterbalanced weights, which is needed in the forklift you know at the end of the fourth of production you have to have a weight in the forklift to counterbalance.
The Forex and the tie ins at the front.
Going into next year.
Actually we see our logistics products out of that backlog.
25000 are will start as has started shipping by the way we've started shipping some of that in Q4, but the preponderance of that will start shipping in Q1.
And we're working right now with the customers on just delivery schedules.
Great and lastly, if I could Chris just.
I was wondering if you provide some color around <unk>.
Kind of frame, how big that could be in in 'twenty, two and car rental opportunities yes.
Yes, certainly went away during the kind of the nature of the pandemic, but now those opportunities seem like they're starting to come back I was wondering if you had any color in terms of what's going on in that front. Thanks.
Okay.
Yeah. So.
It's just interesting.
Part of the car rental opportunities are you have you know avis, which is a great customer of ours, we've been the technology.
Selected provider for their flex car program, which is a huge growth opportunity for avis.
So we continue to provide services and product for Avis.
Which includes our our patented fuel processing for accuracy.
The rental car companies are still having issues getting new cars. I mean, you saw Hertz, obviously put an order for 100000 Evs from Tesla.
<unk>.
The good and bad about that is that those cars already come with telemetry.
But the good thing is that we are.
Our product actually works on either.
Troll combustion or electric so even though you might not need the fuel accuracy, you still need all the other telemetry data, which is like automatic check in checkout odometer et cetera.
And Scott if you could repeat the first part of your question. So I can make sure I answer it.
I'm, sorry, just Hyundai translate any color on that front. Thanks, yeah. So there are Honda translate their typical trailer build annually in the U S is about 70000.
And they actually build about Mexico, but you know so the it's about 70000 total and our goal there is to get at least 10% of their build and that's kind of what we're working for right now.
Great. Thank you.
Thanks Scott.
Thank you.
Your next question is coming from Jason Smith of Lake Street, Jason. Your line is live. Please go ahead.
Hey, guys. Thanks for taking my questions. Just following up on Scott's question. Just curious if you could quantify the expected impact from the supply chain you expect here in Q4.
Yes.
I want to make sure it's clear too that the supply chain.
Forklift side is primarily impacting new forklift delivery not our products, we have product to ship, we're just waiting for those new forklifts to actually finish there.
Manufacturing.
On our logistics and vehicle side.
We have the parts and we had the parts to build to our normal forecast. What we have is an opportunity to expand and accelerate that and that's what we werent able to capitalize on in Q3.
Right now Q4 to hit our normal forecast in logistics and vehicles looks doable I'm, not saying, they're not susceptible to some last minute hiccup like when you look at our inventory numbers, you'll see that our inventory has increased.
Increased almost to the tune of $3 million and that's getting all the components. So that we can actually address all that backlog of logistics.
Units that you see in that 25000 plus backlog.
But we still are working to get one component here or there. So you can't build.
If you don't have 100% of the components, but right now Q4 looks like it won't be impacted due to.
Any kind of electronics part shortage.
Okay and then just following up on that I know you mentioned no cancellations in the industrial segment.
Are you at all concerned about some day commits just trying to get a sense of how firm. These orders actually are.
Yeah, we haven't actually we've never seen any kind of any level of Decommit you know in the company's history, because there is a normal flow like in our channel business.
One issue that is also impacting the number of forklifts and it actually kind of exacerbates. The forklift availability issue is Toyota which is the number one forklift manufacturer in the world. They are IC truck, which is an internal combustion truck, which is 20% of the north American market.
<unk> was pulled off the market in April because of an EPA issue now.
Now they are addressing that but thats, 20% of.
Every industrial <unk>.
Internal combustion forklift that's in the market is basically vanished. So all of the other Oems are scrambling to kind of fill that void and that just kind of exacerbated the situation again, we see all that normalizing because as those parts come off the shifts as the production lines.
Back up the steam.
But that doesn't mean, there won't be like hiccups, but we're not we're not seeing it get worse, we're actually starting to see it improve through our channel.
Okay. Thanks, Jason.
Thank you once again, ladies and gentlemen, if you would like to enter the queue. At this time to ask a question you May press star one on your telephone keypad tend to the queue. Once again it'll be star one to enter the cute ask you a question at this time.
And your next question is coming from Gary Press, the piano from Barrington Research.
Sorry, you're wrong every wise, he's though I. Thank you. Thank you [noise] Hey, Chris This new ordered that you've gotten logistics for 10-K, a b L. D 500 can you quantify.
What kind of revenue derived what that on both the product and a recurring revenue basis and when will that be fully implemented.
Yeah, we've actually started shipping those units.
Will probably be up to full.
Steam on that.
In November and we typically trying to ship those units out by the 15th of every month.
In that unit does consist of the L E 500, and the freight camera.
Typical <unk>.
Retail prices around 450 475.
Hardware price and then the.
Recurring revenues around $5.
For you and it right per month or per unit per month correct. Okay. Great. Thank you.
And then just to be clear.
You said that the industrial was obviously impacted by the OEM Forklifts and logistics segment, you had 4 million in orders that you could not.
Or you could have accelerated but you couldn't get a component part is that correct.
It's two two areas logistics and vehicles, if you keep in mind, we do <unk>.
Well a lot of units I mean.
Tens of thousands be and it's like to come back.
In Mexico, we.
We actually have a backlog there as well so between logistics and our vehicle segment.
It's $4 million combined that we could have shipped if we could have built the products.
Alright, and again, none of these things have been cancelled they've just been pushed out right.
Oh, absolutely nothing has been cancelled matter of fact as anything and on demand is even stronger.
And you also said you backlog was up 50% overall or was that just backlog in.
Logistics.
That's backlog and logistics and vehicles, we don't count when I say backlog that's firm orders.
Waiting to be built so.
The industrial side has appealed IPO, so and others, we kind of what do we get the <unk>, we fulfill the orders so.
Until we get the purchase order from the OEM or from the dealer or from the end customer we don't really classified as backlog.
And then let us let logistics vehicles okay.
Okay, I'm, sorry, and lastly, I don't know if ned's on we may have lost in but I mean.
Okay. It looks like your gross margin on product was down which is understandable, but it looks like your gross margin on service. If I have my numbers correct was down almost 840 over 840 basis points.
Could you explain what is going on there or M. R.
Yeah the product.
Margin on service was consistent it was 64% last year, 63%. This quarter. So it was a very consistent the product mark the margin on product.
Definitely lower.
If you recall during the prepared remarks, there was one time 400000 dollar expense.
But we did an incentive program to get a customer to replace their old units, which is going to lead.
Two.
Significant orders in queue for next year.
With this customer if you exclude that one time 400000 dollar expense.
Product gross margins was in approximately 28, 728% and he was impacted by a few percentage points related to all the issues that we talk about related to supply chain issues of electronic components higher freight costs.
And product mix as well.
Okay. Thank you.
You're welcome.
And there are no further questions in queue at this time I would now like to turn the floor back to Mister Criswell for closing remarks.
Thank you for joining us this morning, net and I will be virtually attending several upcoming financial conferences during Q4, including the 10th annual Roth Capital Technology Conference on November 17th and the Ladenburg Thalmann Virtual Technology Expo 2021 on November 18th in closing I'd like to thank our global.
Ploys for their diligent efforts and operational execution extend a thank you to our valued customers for they're putting their trust and powerfully products and services and thank our investors for your continued support and confidence our ability to realize our vision.
Stay healthy and we look forward to speaking with you again soon.
Operator.
Thank you for joining us today for our presentation you may now disconnect.
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