Q4 2021 PowerFleet Inc Earnings Call
[music].
Okay.
Good morning, welcome to powerfully each fourth quarter and full year 2021 conference call.
Joining us for today's presentation is the company's CEO , Steve <unk> and CFO Ned Mavrommatis.
Following their remarks, we will open up 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 power fleets 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 operation business strategy competitive position company's expectations regarding opportunities for growth demand 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 2022 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 statement.
Factors that could cause actual results to differ materially could include amongst others S. E. 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.
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 and 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 power fleet CEO , Mr. Steve toe Sir Please proceed.
Welcome everyone and thanks for joining our call.
But those that I have not had the pleasure speaking to or are new to our company I joined as CEO in early January of this year.
Over the last 22 years I've helped scale highly valuable global technology and software organization.
Recently, I say a discussion about.
The global leader in unified Commerce solutions in the retail enterprise SaaS market.
Alright to apoptosis I had 16 years of experience in the Iot telematics space.
Notably for five years as Chief commercial officer at market, leading provide the mass channel.
Before that I have.
Senior executive roles at the highly acquisitive market consolidates decided and fleet start information systems. The high velocity fleet management subsidiary of the traffic Master group now known as Telecheck.
Been a busy and highly productive periods since I joined power fleet approximately nine weeks ago.
My early observations confirm what I thought to be true about the organization.
<unk> has an impressive set of technical capabilities and IP, our strong reputation in the industry, a world class customer base and a talented energetic team across the globe.
I joined pathway for the next evolution of the company at a time when our customers are going to great business change most notably due to the challenges created by the pandemic with rising cost bases and increased pressure to deliver results.
Is that headwinds in unprecedented times emission has become even more clear.
We hate to play a critical role as our customers accelerate their digital transformations and the utilization of fully integrated data solutions to create highly effective unified business operations and obtain full visibility across their supply chain.
Over the last two months the leadership team and I have begun implementing the initial phase of our new long term strategic roadmap.
I plan to provide more details on this roadmap in the coming months Theres a high level. The roadmap is designed to cement power fleet as it fully mission critical software and data solutions provider for the $58 billion Global Iot market.
Before I discuss our vision in broad strokes of our strategic plan I am going to turn it over to Ned to discuss our results for the fourth quarter and full year 2021.
Afterwards, I'll dive into some of our key initiatives centered around our transformational growth strategy.
Yes.
Thank you, Steve and good morning, everyone.
Turning to our results for the fourth quarter and full year ended December 31 2021.
At a high level the fourth quarter of 'twenty, one marked a strong finish to the year highlighted by 17% year over year top line growth and a 10% increase in high margin recurring and services revenue in the quarter, our robust growth in the quarter was driven by broad based sales in our domestic.
Market, along with continued demand from our international customer base.
Now, let's look at our results in more detail.
Revenue for the fourth quarter increased 17% to $34 4 million compared to $29 4 million in Q4 of last year.
For the full year total revenue increased 11% to a record $126 2 million.
From $113 6 million in 2020.
High margin recurring and services revenue for the fourth quarter of 'twenty, one increased 10% to $19 1 million.
Or 56% of total revenue from $17 3 million or 59% of total revenue in Q4 of last year.
For the full year of 'twenty, one high margin recurring and services revenue increased 7% to $73 2 million or 58% of total revenue from $67 $9 million or 60% of total revenue in the same year ago period.
Revenue, which drives future service revenue for the fourth quarter of 2001 was $15 3 million or 44% of total revenue an improvement compared to $12 1 million or 41% of total revenue in Q4 of last year.
For the full year product revenue was $53 million or 42% of total revenue an improvement compared to $45 7 million or 40% of total revenue in 2020.
Gross profit for the fourth quarter of 2001 was $15 4 million or 45% of total revenue compared to $15 2 million or 52% of total revenue in Q4 of last year service gross profit for the fourth quarter of 2021 was $12 4 million or 65% of total service.
Compared to $11 2 million or 65% of total service revenue in Q4 of last year.
Gross profit for the fourth quarter of 'twenty, one was $3 $1 million or 20% of total product revenue compared to $3 9 million or 32% of total product revenue in Q4 of last year product gross profit margin in 2021 was impacted by product mix higher cost associated with supply.
Chain issues and electronic component shortages and inflation, we expect product gross profit margin to start improving as we progress through 2022 and supply chain issues are improving and as we progress on our efforts of operating efficiencies.
Turning to our expenses total operating expenses for the fourth quarter of 2021 were $18 9 million compared to $16 $7 million in the prior quarter and $15 $3 million in Q4 of last year, It's worth noting that we recorded approximately $1 million of one time recruiting.
<unk> fees and severance severance related cost to the prior ceo's departure in the fourth quarter for the full year of 2021 total operating expenses were $68 2 million compared.
Compared to $62 $5 million in the same year ago period. It is important to note that the comparable quarter and full year periods of 2020 reflect the cost cutting measures. We implemented in response to COVID-19, as we move into 2022, we expect our quarterly opex to remain relatively consistent.
At the same level of reporting Q4 of 2021, However, a key initiative of our transformation strategy is to rationalize cost and non core areas the benefit of which we expect to start seeing in Q2 and beyond.
Looking at our profile better than metrics.
Net loss attributable to common stockholders totaled $7 9 million.
Or <unk> 23 per basic and diluted share compared to net loss attributable to common stockholders of $3 5 million or <unk> 12 per basic and diluted share in Q4 of last year.
non-GAAP net loss for the fourth quarter of 2021 totaled 245000 or $1 per basic and diluted share. This compares to a non-GAAP net income of $2 million or seven cents per basic and diluted at five cents per diluted share in Q4 of last year, adjusted EBITDA and non-GAAP metric for the fourth.
A 2021 totaled $1 million compared to adjusted EBITDA of $3 2 million.
In the same year ago period, our liquidity position remained strong at quarter end with $26 $5 million in cash and 43.
$6 million of working capital.
Lastly, Paul fleet will be at the 34th annual Roth Capital Conference in Laguna Beach next Monday and will also be attending the 16th annual Barrington Research Virtual Spring conference on May 19th.
That concludes my prepared remarks, Steve.
Thank you Nick.
As I mentioned in my opening remarks, we assess on delivering transformational growth is an exciting and sustainable pace for the benefit of both powerfully and our customers.
Some of my early focus has revolved around further strengthening our global leadership team to help bring power fleet deeper levels of experience and proven track records and growing rapidly highly profitable fast companies.
We recently bolstered our C suite with editions of Jim say tuned in as our Chief Technology Officer, and Patrick Miley as our new Chief revenue Officer.
Im going to paraphrase over 15 years of senior executive leadership experience across software development with an emphasis on building world class R&D organizations and market leading applications.
The Atkins Korea, he has helped develop and bring to market industry, leading and innovative products that have driven new and expensive sources of revenue.
It seems most recent role was as vice President of Engineering for Cooper software, a multibillion dollar SaaS solution provider.
Previous to that Jim led the data science and AI software platform transformation at Lamar.
I'm also delighted to announce our new CFO , Patrick Mali has joined US. This week Patrick will also hold the title of general manager for our U S business.
Patrick has a wealth of experience delivering best in class go to market teams and our supply chain industry. Most recently at Bluejay solutions, our market, leading global trade and supply chain Technology Company recently acquired by <unk>.
At Blue Jay Patrick served as Chief Marketing Officer, and led the rebounding of T well two bluejay solutions.
This involved a new brand vision go to market strategy messaging framework and reorganization of the sales and marketing teams in Europe Asia and North America.
Of these five years at Blue Jay the company doubled in size and expansion of our <unk> X increase in valuation.
Prior to Blue Jay Patrick served as President of <unk> software, a publicly traded company focused on the automotive aftermarket.
Where he led the company's SaaS transformation and drive organic growth.
Additionally, Patrick has held sales and marketing leadership roles at repairing can access of Manhattan Associates.
Both Jim and Patrick's experience and leadership will help to guide athletes transition from a hardware centric telematics provider.
A truly world class enterprise software and AI platform company.
Average incentives around deepening our relationship with critical business data to our customers view pathway, not just us a market, leading hardware and data capture vendor for their mobile assets.
But more strategically a true value add business change partner that Leverages data science and AI to provide critical business insights in a usable format to help solve the unparalleled level of need for high visibility and unified business operations.
Our vision involves a number of go forward data centric initiatives, which we will articulate in detail over the next few months.
As I started to capitalize on the rapid transformation is taking place in our industry verticals and Furthermore, within the customer enterprises. We serve we are driving forward our modular enterprise application approach.
This approach will allow customers to purchase elements of average software capabilities its pace it suits them.
It will allow them to prioritize and focus on the individual business problems theyre looking to solve across the C suite.
This creates significant upsell opportunity for our business as we create strategic business change roadmaps with our clients.
Our second initiative is to increase the role we play across our customer supply chain to solve that parallel first.
Increased visibility of the performance of their operations.
Our go forward investments in deep integration capabilities into other operating systems across the business and its supply chain will provide valuable and untapped data harmonization deep insights into our customers business and to win.
Information that makes our customers' operation safer for its employees more effectively with end customers and to increase efficiency creates more opportunity to improve the bottom line.
This year, our goal is to unify our platforms to a single set of interfaces and enable customers to access information across the whole asset sustained through a highly intuitive single pane of glass transforming the way operators can manage their business.
Taken together these steps will be an important foundation as we establish pathways as a fully mission critical software provider expanded Iot market.
The foundational initiatives have been designed in harmony with a much increased focus and commitment to accelerate our platform strategy.
Evolving to a highly scalable world class SaaS, NII capability provider, which prime store fleet to maximize the transformational impact we make for our customers and ultimately increase the wallet share we can derive in the future.
For the U S market in 2022, alongside that traditional set of solutions servicing the logistics and industrial verticals. We will also be bringing to market extended propositions around safety and driver behavior.
And how does the <unk> video cabinet telemetry offerings for all vehicle types, delivering a new set of data capabilities in the electric vehicle space and providing an evolution of our proposition for the connected car and vehicle rental and vehicle subscription space.
These solutions have been developed and implemented through a pointer division in multiple geographies and we are confident we now have the market ready to make good traction in the U S market.
We believe these harmonized capabilities will position pathways as having one of the most comprehensive set of capabilities.
Ross all asset and vehicle types in the global market for enterprise customers to manage their mobile assets in operations or visible through a single set of user interfaces.
Longer term the successful execution of our strategy will translate to very solid international revenue growth.
Underpinned by a highly scalable repeatable unprofitable global organization.
We're working hard to expand our gross margins of our recurring revenues and to reduce our operating expenses.
The closer integration of our business units.
Despite the continued significant challenges and global supply chains, we look to continue to build on the revenue growth momentum we saw in Q4 of last year.
While it's still early days for me at the helm and we have a lot more hard work ahead of us I can say that I'm increasingly confident in our ability to capitalize on the extensive opportunity the strategic data providers in the global Iot market.
Now I'll turn it back to the operator Q&A.
Ladies and gentlemen, the floor is now open for questions.
Have any questions or comments. Please press star one on your phone at this time.
We ask that while posing your question you. Please pickup your handset it's listening on speaker phone to provide optimum sound quality.
Please hold while we poll for questions.
Your first question is coming from Mike Walkley, Please announce your affiliation and pose your question.
I think so Mike Walkley with Canaccord Genuity.
Steve.
I guess the first question for you just with the long term strategic roadmap to establish power fleet.
As a mission critical software provider for the Iot market can you discuss what this means in terms of changes for your go to market strategy.
Do you have the right people in place for this are you going to have to hire new salespeople and also maybe how this impacts your R&D Road map also.
Yeah. Great question. Thank you so I think as you've seen already with the appointments of Patrick and Jim we're adding some expertise to broaden out that go to market scope and our ability to deliver world class software platforms.
I think it's an evolution not a revolution.
Some of our industrial market and logistics fleets and we've got some very effective salespeople within those particular sectors, but we will be adding some resources to support some of the growth in some of the other verticals, where it might be we need some particular vertical specialization.
And on the software side.
I think we've been very impressed with the software capabilities of the team have but we want to accelerate our roadmap and so we will be adding some resources to be able to do that.
On a global basis.
Alright, Thanks, and just building on that question.
You continue to design your own hardware org or does this become less important maybe you outsource hardware and focus more on the software roadmap.
So we believe at pool.
Unit types should always be part of our fleet and we will always look to develop those ourselves we have some great IP in that space I think people trust us as a provider I think we're able to obtain.
Obtained premiums because of the quality that we deliver as part of that and that will always be pushed back or heritage. So its kind of were adding them and basically go past software side to match our hardware.
Element.
What I would say is we want to focus on.
A smaller number of devices ourselves and really put our efforts into those devices, which will be our volume in a sort of best of breed devices that we can bring along some of the ancillary elements of the business. Then we will work with our strategic partners to do.
Okay. Thanks, and then last question for me and I'll pass the line.
Just on the hardware.
Obviously supply chain expedited shipping et cetera.
How should we think about the slope of the recovery for hardware gross margins and now that we're kind of two thirds through the March quarter.
Our seasonal trends for.
For the March quarter, and can you meet supply.
Any update on supply to meet the demand for the March quarter.
Yeah. So thanks, Mike we did a lot of work to make sure we're able to meet.
The demand as we saw that in the fourth quarter and we expect that to continue in the first quarter and beyond.
You specifically look at the product gross margin.
Think in the early part of the year, especially the first quarter theyre going to be similar to the fourth quarter, but we expect those to gradually start improving as we go through 2022.
Just because we're not on the bookings.
Getting better.
Supply chain is just getting better but we're also focused on implementing some operating efficiencies on how we deliver the product which would yield a better product gross margins as we go throughout 2022.
Great. Thanks for taking my questions.
Thanks, Mike.
Your next question for today is coming from Scott Seeley. Please announce your affiliation then pose your question Scott Searle with Roth Capital Hey, Good morning, guys. Thanks for taking the questions.
To build on some of Mike's questions on the gross margin front net I'm wondering if you could address a little bit where some of the pressure points are.
Are these specific to a couple of components is it all freight related and then as Youre thinking about this year and that gradual improvement how should we be thinking about your exiting 2022 from a gross margin standpoint.
Yes, I think the pressure points, obviously are all related to the supply chain issue. So you have the situation.
Where you have to buy components at a much higher price.
Also ppb associated with certain components.
And freight costs are a lot higher.
As well as we look.
This gradual improvements starting in Q2.
We want to exit the year with the product gross margin.
Two high twenties.
Okay very helpful and also to just follow up and clarify I think you said opex expected to be flattish over the course of this year and we're talking about re appropriating resources, particularly on the R&D front more from hardware centric to software centric initiatives is that correct.
Yes, so those correct. So the goal is to keep opex.
Flat, especially in the first quarter.
We are going to start to see some improvement in opex, starting in the second quarter and beyond because we are going through.
Significant cost saving initiatives, so we're going to start to see some of those benefits.
And we are going to start to re appropriate resources to make sure we have resources, where we need them.
Very good and Steve.
I know Youre, a whole 60 days in at this point in time.
It sounds like you are relatively happy with the existing portfolio and assets that you have I was wondering if you could expand a little bit in terms of the internal data sciences capability. It sounds like you've laid out a couple of things in terms of our modular approach as well as investing in other AI and opening up those opportunities, but when do we start to see.
An actual benefit in and impacting the P&L from a topline perspective.
Yeah, I think obviously was 60 days in and we're just laying down our plans in terms of win rate, we will execute future capability.
In terms of our overall product strategy. We expect this will take in 19 months in totality to be exactly where we want it to be but we've counting the team internally to bring some advantage into the marketplace. We didn't probably Q3 to Q4. This year, so whether we see any impact in revenue. This year, we will have to wait and see.
And on the how well, we execute and we're confident we're going to execute well.
But ultimately we do we do very much not wanted to kind of put ourselves in the freeze for 18 months, we want to develop new capabilities new opportunities for asset team to upsell within 2022.
Okay, Great and lastly, if I could and then I'll hop back in line, but.
There have been a lot of initiatives and opportunities in percolating. The pipeline you made some reference to the auto rental market and other initiatives on that front, but I'm wondering if you could give us kind of a quick update in terms of.
How demand is looking overall when you start to think about some of the warehouse some forklift opportunities that the company has historically had and some of those additional opportunities within fleet and otherwise kind of what the demand characteristics are looking like as we head into 2022. Thanks.
Yes.
Cautiously encouraged on all fronts I think if you look at the topline growth that we got in Q4 I think that was that was a good performance and I would say that we are encouraged by what we're seeing so far in Q1 and thats across all the verticals whether that be the warehouse industrial logistics assets.
Some new lines that we're seeing in the in the vehicle space.
I think what we are seeing is a further demand from our customers.
In order to create more data solutions, particularly around safety, particularly ramp you'll use it with all the challenges going on in the world. So I think we have.
We encouraged by how much we actually pulled narrowcast outflows, particularly in the U S to take advantage of some of those opportunities, but I think I think demand for us is increasing.
I think it will be how we can capitalize on that in the coming weeks.
Great. Thanks, so much.
Your next question is coming from Jason Smith. Please announce your affiliation then pose your question.
Thanks for taking my questions, Jason with Lake Street, just following up on some of the previous questions on sorry, This new software and SaaS initiative are refocused on that so given your comments on the modular approach is it fair to assume that this really wasn't a product issue and that you think may be more about <unk>.
<unk> issue go to market pricing model with the products and software combined.
I would categorize it as probably an evolution in terms of the way that we sell to our customers. So I think we've done well at being positioned within kind of the transport and the verticals, but I think we have a lot of data and a lot of business insight that we can sell to across the C suite. So the way that we're moving through it.
The modular fleet will allow us to tap the individual business issues.
Pending on the safely hold up.
And it will allow the company that we worked with over time to really kind of capitalize on different business change and transformation that are looking to do and that should increase our wallet share. So I think with any module approach, we would hope that we're able to improve.
Topline revenue and gross margin. So I don't think in any way, we had product challenges that we weren't capitalizing on but it's just a refreshed approach that I think gives us a broader perspective and actually the value that we're able to create for our clients return on investment we will be able to demonstrate that.
Okay. That's helpful. And then just looking at the opportunity with the post office just curious if that timeline has shifted at all just given all the background noise in the macro.
Okay.
Hey, Jason it's not we are we continue to work with the postal service we implemented.
Our site and we.
We will continue to work with them.
Obviously, it's an agency that.
It takes a little bit longer but no.
We're still working with them and we don't see we see them contribute to revenue in 2022.
Alright, Thanks, a lot guys.
Once again, if there are any questions or comments. Please press star one.
Your next question is coming from Gary Presto Pinot. Please announce your affiliation then pose your question.
Barrington research good morning, everyone.
Couple of questions just on the Opex net.
You say, it's going to be flat with Q4 would that mean.
Backing out the $1 million of one time fees. So you get about 17 $918 million is that kind of way to look at it.
That's correct yes.
Okay.
And then.
Just a bigger picture question here.
Last couple of months here things have changed somewhat dramatically strategically with the company.
Steve as you look at the company.
And you want to get more into the software realm as im understanding what youre, saying.
First of all most of these new software initiatives. If they are new be developed a tweener or do you have to really fully staffed up.
More so in the U S.
To develop some of these products and then I have some follow ups.
Thanks, so much.
Last year, we actually globalized our software team. So we have colleagues in multiple geographies.
For our U S and of its 40 territories. So we expect that global model to continue we will be developing enhanced for sure, but we will be adding as we said in repurposing some resources to beef up that in order to accelerate some time scales around some of the solutions that we wanted to bring to the market.
Okay.
So.
In terms of what Youre talking about software and you mentioned data and all of that.
Data capture the majority of the thrust is going to be software with AI with data analytics that you can monetize.
And sell to the end user through a SaaS platform is that kind of the key I mean are we looking at.
Possibly adding a another revenue line to.
To the company over time of software along with services.
Yes, so the three core elements to the different go to market opportunities. We have one is modular enterprise applications that are solving business issues and selling that directly to the enterprise and mid market, we sell to today.
Secondly, we are working with a number of strategic partners on integrations with the supply chain systems, where either we our data will power their systems, but we will offer joint propositions and we'll bring those to market over the coming weeks and months and that's why we're calling things unified operations. So how can we power of the systems alongside us.
In effect each other's system's performance to ultimately offer incremental solutions to our customers a more seamless operations and supply chain that's number two.
And obviously, what we also do it at scale, we collect an awful lot of data, which is becoming more and more important for third parties.
As a third step and it will be further down the line, we'll look to see how we can monetize that data and use that data.
<unk> third parties, but thats very much further down the line the first two strategies at the most.
Okay. Thank you.
Yes.
There are no further questions in queue I would like to turn the floor back over to Steve for any closing comments.
Thank you everyone for joining us. This morning, we plan to host an investor and analyst day in mid May to early June that will provide greater detail on powerfully enhanced vision and growth strategy. The details of the event will be announced by the by late night.
In closing I'd like to thank our talented employees for their diligent efforts in operational execution and extend a thank you to our valued customers for putting their trust in power fleet and thank our investors for your continued support and confidence in our ability to realize that vision.
We look forward to speaking to you all again soon.
Thank you ladies and gentlemen, this does conclude today's conference call. You may disconnect. Your phone lines at this time and have a wonderful day. Thank you for your participation.
Good.