Q2 2022 PowerFleet Inc Earnings Call
Good morning. Welcome to Powerfully Second Quarter 2022 conference call. Joining us for today's presentation is the company's CEO Steve Tote in Global Controller Locking Phone.
Following their remarks, we will open the call for questions.
Before we begin the call, I would like to provide powerfully safe harbor statement that includes cautions regarding forward-looking statements made during this call.
During the call, there will be photo-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 finance 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 followers.
looking statement.
Factors that could cause actual results to differ materially could include, amongst other, 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.PowerFleet.com.
Now, I would like to turn the call over to Powerfully CEO , Mr. Steve Tell, sir, please proceed.
Thank you operator and good morning everyone. We appreciate you taking the times during Powerflip 2nd quarter 2022 earnings call.
I'd firstly like to say thank you to those of you that joined our virtual investor, Dave Mitjoon. Your positive energy and feedback were very encouraging to us.
The leadership team and I appreciated the opportunity to share with you Powerfluid's enhanced vision at growth drivers, go-to-market strategy, software and AI roadmap.
All of which we are executing on well as you'll hear a lot about this morning.
If you haven't had the chance to listen to our investor day, I encourage you to visit the Investor Relations section of our website to access the content.
As you can see from our results during the second quarter we built on the momentum we established in Q1 and delivered solid, sequential and year-over-year growth.
The latter of which is quite impressive given the year-ago comparison includes significant one-off product revenue.
Moreover the 34.6 million total revenue in this quarter marked a 10-quarter high for half-lead and third-secretary quarter where we've over it achieved external consensus estimates. of in its estimates.
The revenue mix is also encouraging as we embark on our journey for high quality recurring fast revenues at the heartbeat to our company.
Importantly, we were able to achieve these milestones despite the ongoing macro headwinds and supply chain issues affecting our industry, many of our competitors, and companies globally.
Our impressive top line performance in Q2 was driven by further commitment from notable customers like Ford, Volvo, Nestlé and NACPAC.
while the improvement in our bottom line reveals the early benefits of our rationalisation initiatives that are enhancing our organisation's efficiency and our profitability.
Taken together, we realised very positive improvements in both operating expenses and our key profitability measures in the second quarter.
all of which exceeded external consensus, estimates and expectations.
Overall, the leadership team and I are very encouraged by the progress we're making, the execution we're delivering, and the results we're seeing.
Before I dive into our operational highlights and outlook, I'll turn it over to our Principal Finance Officer, Joaquin Fong, to cover our financial results for the second quarter of 2020.
Keep walking.
Thanks, Steve, and good morning to everyone on the call.
Turning to a financial result for the second quarter and the June 30th 2022.
Total revenue was a 10-quarter high of $34.6 million, which is up 4% from the first quarter of 2022.
As Steve alluded to, we're really encouraged by the composition of revenue in the quarter, which is characterized by higher sass and high quality recurring revenue compared to the prior quarter and Q2 of last year. Compared to the prior quarter and Q2 of last year.
Along that line, high margin recurring and services revenue was 19.8 million or 57% of total revenue.
This was an improvement on the dollar basis compared to 18.1 million or 54% of total revenue in Q2 last year. Thank you.
Product revenue, which drives future services revenue, was 14.8 million or 42% of total revenue. Product revenue was 14.8 million or 42% of total revenue.
This compares to 15.5 million or 46% of total revenue in Q2 2021.
Girls' profit was 16.2 million or 47% of total revenue compared to 16 million or 48% of total revenue in the same year-goal period.
Service Girl's Profit was 12.7 million or 65% of total service revenue and improvement compared to a 11.4 million or 63% of total service revenue in Q2 of last year.
Product Girls Profit was 3.5 million or 23% of product revenue compared to 4.6 million or 30% of total product revenue in the same year go period.
The sequential improvement in product growth margin in Q2 2022 reflects the initial success we're having managing PPV challenges as well as the re-engineering of certain products to enhance our margins. As we navigate ahead at a relatively committee with the margin growth margin above 10 is growing. margins.
We continue to navigate through the global supply chain and electronic components issues and deliver on our customer commitments supplying product and solutions that they rely on for their business operations.
As we progress through the balance of 2022, we anticipate product growth profits to incrementally improve as we realize future benefits from our operational and product reengineering initiatives.
looking at our expenses.
Total operating expenses were $17.8 million, down from $18.1 million in the prior quarter.
but up from 16.2 million in Q2 of last year.
The sequential decrease reflects the initial impact of our ongoing rationalization efforts, which will be reducing our annual operating expenses by approximately 5 million over the next 12 months period.
Looking at our profitability metrics,
from operations improved by 2.2 million, or 58%.
to $1.6 million compared to a loss of $3.7 million in the first quarter of 2022.
It's worth noting that a significant portion of our loss in the quarter was related to the PPV and Ford currency impact.
Based on our current visibility and success with our rationalization efforts, we expect to cross over to profitability on an operating basis in the first half of 2023. The
Gapness laws attributable to common stockholders total 1.3 million or 4 cents per basic and diluted share.
This compares to gap net loss of charitable to common stockholders of 2.6 million or 8 cents per basic and diluted share in Q2 of last year.
non-GAAP net income, a non-GAAP metric, totaled $2 million or $0.06 per basic and $0.05 per diluted share compared to non-GAAP net income of $1.4 million or $0.04 per basic and $0.03 per diluted share in the same year-ago period.
Adjust the EBITDA gain on non-GAP metric stay consistent at $2.8 million compared to adjusted EBITDA of $2.8 million in the same year ago period.
At quarter end, we had $18 million in cash and cash equivalents and $38.5 million of working capital.
That concludes my prepared remarks. Thank you.
Thank you Joaquin.
Today, Powerfleet has more than 600,000 recurring subscribers.
long-standing customer relationships with some of the largest companies in the world, tremendous industry experience, and proven technology that we're actively deploying globally.
We have a significant opportunity to gain further wallet share with our 8000 enterprise customers.
and to increase the role we play within these organisations.
And not only do we have a tremendous upsell opportunity in front of us, we have the capabilities to operate in an expanded market that is growing north of 20% annually.
With our customer base, along with the breadth of portfolio that we have across our geographies and the end markets we operate in, we are confident we can capture significant new logos, establish new recurring revenue streams and grow our supply of griver base substantially in the years ahead.
Now that I've highlighted the broad opportunity, let me dive into the increasing opportunity we're seeing currently today in our key regions and the traction that we're realising.
In the US, a market power fleet is operating for more than 20 years. We delivered a much improved 12% growth in the first half of the year, driven by building demand from our industrial customers.
In addition to the robust double digit growth, our industrial fleet segment recently surpassed 3,000 customers, which is not only a testament to our commitment to innovation, but also a validation that the industry's seeking enterprise technology solutions to drive improved safety and productivity across business operations.
This milestone also represents tens of thousands of workers that we're working with to keep safe and help mitigate risk in the workplace.
warehouses and manufacturing facilities are crucial links in the supply chain and becoming increasingly complex workplaces where machines and people are working alongside each other in a fast-paced environment.
As you heard during our investor day, our team has been focused on how data can help customers improve safety operations.
and lower risk in material handling facilities while balancing increased demand and work for 40 years.
We are excited by the momentum and market acceptance of our latest products in the pedestrian safety arena, further driving our success as a best-in-class solution provider, utilising artificial intelligence and data science.
As the industry changes in response to continued challenges, our technology plays a crucial role in modernizing our customer software in support of their digital transformations.
We look forward to further accelerating the innovation of our software and data solutions.
and we remain fully on track to deliver our single Payne of Glass software interface and our new enterprise modular SaaS approach in Q4 2022.ock
The growth we generated in the US in the first half of 2022 is indicative of the untapped potential in the region. The growth we generated in the first half of 2022
We're driving consistency in enhancing the profitability of our US business and have it well positioned to be the leading growth factor for power fleet in the years ahead.
From a market synergy perspective, there's lots of capability today that live and exist with our customers and verticals in our verbal markets, which we haven't yet bought to the North American market, with advanced solutions in car-leading, insurance, electric vehicles and connected cars.
The team is actively working to bring these products and relationships to the US and are highly energized by the productive conversations we're having with customers and partners alike.
We allocated some of our cost savings from the rationalisation efforts and have now put in place a dedicated sales team to attack the US market with the pointer-based solutions.
We are seeing great early traction and expect to meaningfully penetrate the US market with the pointer solutions in 2023.
To that end, this initiative is part of a broader, reinvigorated Renewal and Upsale program that we launched last month across our global customer base.
Our Israeli operation is an incredibly important piece of our Go Forward strategy.
With a 20-year history, tens of thousands of subscribers and a 40% market share in the region, we're bringing to market new technology solutions that are not yet released anywhere else in the world.
Our Israeli Innovation Centre is the creative and innovative heart of the operational body we drive in other key geographies.
Despite the foreign currency hit we recorded in Q2 due to the strengthening US dollar, our point to Israel operation is performing exceptionally well.
We've seen IoT solutions continue to gain momentum, particularly with IoT enabled and call chain solutions for farmer products. crane safety and
Last week winners that we expanded our IOT technological services to MDA, Israel's only national blood and medical emergency service, for more than 800 IOT enabled defibrillators countrywide throughout Israel.
After a successful initial deployment in 2021, the solution will be applied at additional municipalities throughout Israel.
MDA plans to install its IoT-enabled defibrillators with pointer-by-power fleet technology in more public and commercial spaces, such as parks and high-rise buildings, to save more lives.
This additional order signifies the value and results MDI has received since implementing our technology.
Now tell me to ensure life-saving equipment is available to more locations.
but also to help organizations manage time critical emergencies most effectively.
We see significant opportunity to bring these solutions at pace to all of our key geographies very soon.
In addition to the leading-edge solutions we have already brought to market in the expanded IoT arena, we expect to announce some very exciting strategic innovation partnerships in Q3 for the next generation IoT ecosystem.
In other international markets, we're actively working to introduce the IOT solutions to Dubai and the United Arab Emirates.
relatively untapped markets that have expressed a deep interest for our solutions.
In parallel, we're seeing strong growth in Mexico and Argentina, and the team is focused on driving even more growth out of these regions.
More broadly, we're finalising strategic plans to establish a larger footprint in Europe in 2023. Serious wars by the petals. Summed down past the consecutive spinows revolution finally related to a high length of a short???? opponent in the 50th century. With the modifiers led to establish a larger footprint going.
As you've heard, we're gaining momentum in our key regions and go-to-market strategy execution.
In summary, PowerFix transformation is well underway. Our initiatives over the last six months are already yielding visible returns.
The 5 million annualised cost reduction in efficiency program we articulated in detail at the investor day has been executed to time with high levels of precision.
Our business is starting to optimize and now we're starting to hit our straight.
Our plan is supported by a solid cash position and available resources that provide sufficient runway to execute our growth strategy.
We entered the third quarter with a record pipeline of opportunities that we are converting at an escalating pace.
We also enter Q3 in the second half of the year in a strong position supported by building customer engagement and that growing pipeline as well as several strategic opportunities which are moving forward nicely.
We anticipate that the second half of 2022 will bring more momentum, building on the very solid first half of the year, and position us for higher growth inflection in 2023.
As we look ahead, the team remains very focused and is executing well on driving our own transformation and accelerating our vision.
The successful evolution of the strategic value creating roadmap we introduced at our investor day will create a highly scalable, repeatable and profitable global organization. So, the miner will? about 150Children vehicle lend to an Egg where's most luxurious available for any other upgrade or their job input Japanese platform are available with an affordable mentor material lets make your company available within an equity sector and you want to pay? geç ties of L m 4 m r g g g et g g g g sh g g g g g g g g u u g s g g g g j g g g g g g g g g g u you
That concludes our prepared remarks. Now I'll turn it back to the operator for Q&A.
Thank you. We will now be conducting a question and answer session.
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I'm moment please while we pull for your questions.
Our first questions come from the line of Mike Walkley with Canaccord Unuity. Please proceed with your questions.
Guy, thanks, Steve. The Congrats on the solid Q2 results in the recovery and the hardware growth margins. You just delve into the hardware growth margin a little more with this favorable mix, maybe improving supply input costs or other factors. I know you're working on the reengineering, but I assume that would be more later in the year.
Yeah thanks Mike, good question. We've started to get some of the re-engineering quicker than we expected which was great.
And then also, I think we've done a better job of choosing the business that we've taken from a profitability perspective. And also, you know, we've been quite robust internally around, you know, making sure that we get a fair price for the cost that we are entertaining today. So the team is, you know, always looking out for the components of the best possible price.
Even last week we we would quoted a 50X price on a component so the madness continues but I think you know overall we set it as a key KPI to get that bands back going. And we're very pleased that we've moved from 16-17% up to 24 so not one factor quite a few that add into it together.
And just speaking of that supply, how is that? Does it impact any sales this quarter? And how is it looking maybe easing in the second half of the year?
So I get asked this question, is it getting better anytime soon? And I think the answer, we can't give a solid answer that it's going to get better. And I think the answer, we can't give a solid answer that it's going to get better.
I think from our perspective, we haven't lost any revenue, or have not taken any revenue that we wanted to take in the quarter. We have looked at some deals that we didn't feel were the right deals to do from a high quality revenue perspective.
And to all of that effort we talked about, you know, that will continue. And I think from our perspective, we look to improve again next quarter off the back of more of that reengineering coming to play. But I don't think we've particularly seen market conditions calm down. And I think if you look at the industry and some of the notes that are competitors of Centave, you know, we seem to have fed very well in comparison to some of those challenges. So we'll keep on doing what we're doing and hopefully we can continue that trajectory back to.
It's a bit of both and you know some of them are quicker wins in terms of what we can do with freight and some of the efficiency savings and then some of it's a bit longer term in terms of systems being introduced into the business which is why you know we're saying by you know it was a 12-month plan to get to that you know full operational run rate of the five five-year reduction so there's some in product gross margin there's some in service gross margin in terms of you know the way that we're kind of managing our relationship with our suppliers and you know some of the
some of those new products coming out in Q4.
It's exciting.
Thank you. Our next question has come from the line of Scott Searle with Ross Capital. Please proceed with your questions.
Hey good morning, thanks for taking my questions. Steve, nice job. First full quarter out of the gate here. I was starting to see some of those improvements, particularly on the gross margin front.
Maybe looking into the back half of this year, it sounds like we're far from perfect visibility, but I'm wondering if you could give us some idea in terms of how you're seeing sequential visibility to product ramping into the second half of this year from a sales perspective. And also what you would think the exit rate for the product growth margins would be this year and kind of what your target in for next year.
So I think if you look at the last three sequential quarters, you know, we've delivered solid growth. As we said, this is a 10-Q high, which, you know, is important to us as a business that, you know, we're doing better than we've done before. We expect momentum to continue.
So I think Q3 was quite challenging for the business in terms of revenue last year, but we're hopeful that the rhythm that we're now in will continue in the back half. And we've brought in a new go-to-market team, we've brought in Patrick SRO, and a lot of work's going on in terms of lead generation. So the pipeline's getting stronger. We're not kind of so reliant on one individual large deal or one customer that makes or breaks the quarter. That's the other kind of, I think, interesting.
dynamic within this quarter, plus on top of that, the services move. So the subscription revenue is coming through really strong. So we expect it to continue. As I've said, I think 2023 is gonna look a super year, but we expect this momentum to continue through the second half. In terms of product growth margin, then I'd want to get north of 25%.
in this year and then I would expect we get back to the 30% plus margins in 2023 that we've experienced in the past.
Great, very helpful. If I could follow up, Steve, just on the pipeline, I don't know if you want to give a quantitative metric, but could you qualify, at least in terms of what you're seeing and how strong it is relative to recent history? And a quick question on the op-x front R&D was down quite a bit sequentially. I'm wondering, I know that there are some bodies getting moved around in terms of how you're allocating resources.
But I'm wondering what what and more normalized numbers should be with their software capitalization or anything unusual that was in the second quarter results.
So in terms of that, what I'll let walk in you with some detail, but we were able to capitalize some software onto the new products that came to market.
So, you know, we pretty much where we want to get to is relatively keeping OpEx flat, but revenue obviously growing at pace, which gives us the expanded EBITDA. So Joaquin, do you want to add anything on the development side?
I think you know as we invest in product development, you know, you continue to see, you know, the capitalization of the software, but as we, as we, as we kind of develop the products, and you'll see that start starting to tail off in the future.
Okay, working within the envelope but as you can see we're moving things around to get the right people and the right cost into the future areas that we want to invest in.
Hey, Steven, then just on the pipeline front, and if I could throw in there as well, right, in terms of the evolution to analytics and AI and the monetization on that front, any color you could provide on the front. It sounds like, look, we've got the new single pane of glass in the fourth quarter, but in terms of some of those opportunities, I don't know if you're willing to start to quantify that opportunity as we get out into late 23. Thanks.
I think it's too early to quantify that. I think once we talk through our 2023 plans we'll be able to quantify a little bit more. In terms of pipeline, we're north of 15% higher in what I call qualified pipeline from this time last year.
and in terms of the kind of monetisation, so we'll be launching in Q1 the modular, first new module and by that time we'll have already carved out the solutions into the modular categorisation. So what that means is people will be able to buy the solutions based on that business need that we talked about right in the investor day with the first updated kind of true, I think AI led module being available in Q1 next year.
And as we start to kind of, you know, ramp that up and we were able to, you know, sit down and work through that upsell program that we talked about. There were no program that we already, you know, started to put in place. Then I think another quarter out and we can give you some more concrete views on, you know, what went in hand from a volume perspective.
Great, thanks so much, nice job.
Thank you.
Thank you. As a reminder, if you would like to ask the question, please press star one on your telephone key pair. Please press star one on your telephone key pair.
Our next questions come from the line of Gary Prestapino with Barrington Research. Please proceed with your questions.
Hey, good morning everyone. Steve, when you talk about trying to re-engineer these products, could you maybe...
to weld into that a little bit in terms of getting the grow smart enough exactly to the extent you can talk about it. What are you doing on the reengineering side?
So in very simple terms, there's a number of components that obviously have been engineered into our hardware solutions over the years. And some of those are older than others, and where some of those are started to become end of life and that end of life has been accelerated, the cost of those components in the build has gone up astronomically.
So what we've looked to do is to take our volume solutions and understand where there's optimization efforts in terms of the functionality, in terms of those components where there are new more advanced components that are more in-stream and it's obviously a cheaper price. And the team of just an actually bands up job in terms of driving that change and it was...
We're kind of six months into that change, we've got another probably six months to go, but ultimately what it will lead is to a more cost effective, from our perspective, units to put out in the market which obviously helps the gross margin and bring it back and maybe exceed where it was previously.
Okay, and then in terms of your subscriber base.
Could you, um...
give us some idea of the growth sequentially.
What game do you have that available?
Yeah, it's about 10% from where we were sequentially.
Yeah. Okay. And you're over 600,000 now, right?
thousand now right? There it is.
Okay. And then just a couple more questions here. And now realizing it's early in the game here, but with the new sales team and the new philosophy and all that, but of the 3% total revenue growth that you had in the quarter or really from products, I suppose, that would be where you would do some upsells and cross-sells. Could you give us some idea of how that's going? Or is it too early to say right now? Or is it too early to say right now?
No, I think in terms of the new solutions, the good news about the growth in the first half, it hasn't come from introducing new solutions to new geographies and that's where we're very excited about that growth opportunity, particularly in the US.
So the 12% half one growth, a lot of that was in the industrial segment of the market, the traditional segments where we've launched the pedestrian warning system. And I think we're getting a better level of sales execution across in the US, across the board basically in industrial and logistics. We're also seeing some strong growth in subscription revenues in our other territories. So...
The US is the only territory that we have where we sell on a hardware plus services model. Everything else is on services base. So the fleet management solutions that were on the pointer side of the house, you know, I think, you know, most of the geographies are growing very, very nicely. And that is all subscription based. So it doesn't give you the volume, but it gives you the quality in terms of that high margin recurring revenue. So.
And as we kind of look at the US market and the demands of that subscription versus the hardware model will continue to evolve that over time. Where we're now really putting our foot on the accelerator behalf too is those conversations where we have logistics customers or industrial customers in the US, all of which have, they have connected car opportunities, they have like commercial vehicle opportunities.
A lot of fleets are looking at the move to electric in the buses and all that kind of stuff. So there's just a huge opportunity for us. And I think what's really energized us is we've brought in some sales folks that have industry experience. And you know, without...
any kind of incentive from us. They've all come and said, your solutions are as good as it gets out in the market and they're very pumped up about what we can do against the competition in those spaces. So, it's a bit early in terms of the quantification of that. These guys need to get productive, that will take three to six months. But you look at 2023 and we should be able to take a very dominant position in the US market.
across the board.
And then just a couple of questions on the balance sheet.
Looks like from year end your cash is down, almost 10 million, maybe it looks 49 million. It is
Looks like you paid down some debt.
about 5 million. Are there any more debt maturities coming up? And then the other question I would have is, it looks like the inventories are up about 27% from December . And I would assume that's just because of that strong pipeline that you've talked about. And that there is three big 43 million. and uh
And the back half of the issue be pretty strong on a product basis.
I'll answer the second part and I'll ask what keen to answer the first part for you. So, yes, you're right. It's in terms of the strong pipeline, but also we're making sure that we invest in some inventory with inflation being more crazy. Those prices are still continuing to rise. So we believe it's prudent in order to maintain and grow, grow margins to get enough stock through the door. And that was a conscious decision. But as we look into 2022, half as we look into the first half of 2023, we're getting...
more visibility on longer-term pipeline, which is great, then we felt that was the right thing to do.
Joaquin, do you want to take the first part?
We do have the quarterly opportunities on the-
on the long term that.
Yeah, well, what are those quarterly maturities then? I mean, I'm trying to get it right here, to get it straightened, straightened out.
Yeah, approximately around 1.5 million.
Okay, so quarterly maturity is 1.5 million. Okay.
All right, thank you very much.
Thank you. There are no further questions at this time. Over to the items I can turn the call back over to Steven's help or any closing comments. Over to the items I can turn the call back over to Steven's help or any closing comments. Over to the items I can turn the call back over to Steven's help or any closing comments. Over to the items I can turn the call back
So look everybody, thank you for the insightful questions and thanks again for joining us today. We are very excited about the future. We are working progress but I think we're making very good progress in the first six months of this year, especially with the change that's taken place in the organisation and we see strong momentum on all of our metrics and vectors. So we're very encouraged and we'll continue to work hard.
We look forward to speaking to you again soon. Take care. Thank you. Bye-bye.
Thank you. This does conclude today's teleconference. We appreciate your participation. You may disconnect your lines at this time. Enjoy the rest of your day.