Q4 2022 PowerFleet Inc Earnings Call
Speaker 1: Good morning and welcome to Power Fleet's fourth quarter and full year 2022 conference call. Joining us for today's presentation is the company's CEO , Steve To, and CFO , David Wilson. On their remarks, we will open the call for questions.
Speaker 1: Before we begin the call, I would like to provide Power Fleet's Safe Harbor statement that includes caution regarding forward-looking statements made during this call.
Speaker 1: During the call, there will be forward-looking statements made regarding future events, including powerfully future financial performance.
Speaker 1: All statements other than present and historical facts, which include any statements regarding the company's plan for future operations, anticipated future financial position, anticipated results of operation, business strategy, competitive position, company's expectations regarding opportunities for growth.
Speaker 1: Demand for the company's product offering and other industry trends are considered forward-looking statements.
Speaker 1: Such statements include but are not limited to the company's financial expectations for 2023 and beyond.
Speaker 1: 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.
Speaker 1: Factors that could cause actual results to differ materially could include, amongst others, SEC filings, overall economic and business conditions, demands for the company's products and services, competitive factors, emergence of new technologies, and the company's cash positions. The company did not intend to undertake any duty to update any forward-looking statements to reflect future events or circumstances.
Speaker 2: Good morning and thank you for joining us today. It's a pleasure to be speaking with you once again.
Speaker 2: It's been a rigorous and exciting first year since I joined the company. I'm incredibly proud of the progress the team has made on the journey of transforming Power Fleet towards our mid to long term goal of being recognised as a world class, high growth and profitable SaaS solutions provider.
Speaker 2: The board and I are highly encouraged by the progress we've made to date executing our strategy to turn around the business in the first two years of my tenure as CEO . We're ahead of schedule and executing well on the mission.
Speaker 2: As a reminder, my initial priorities were as follows. First, we needed to make dramatic improvements to the caliber and experience of the leadership team in order to become a true IoT SaaS company.
Speaker 2: Second, we needed to develop a unified SaaS platform strategy that delivers great value for clients, improves our margins and expands the total available market for our solutions. Third, we need to show evidence that we could drive sales, execution and top-line traction in high value markets and vertical segments.
Speaker 2: As we move towards the next phases of our transformation plan, we have been focusing heavily on expense containment and rationalizing certain geographies and product lines that we believe are incapable of driving sufficient rates of return and cash flow.
Speaker 2: In turn, we've been creating strategies for redeploying cost savings to accelerate our product and sales plans in the highest ROI business areas.
Speaker 2: We've accomplished a tremendous amount over the last year through ruthless and rapid execution, powered by hiring a super talented executive team with deep experience working with high-growth SaaS companies, including David Wilson, our CFO , who you'll hear from shortly.
Speaker 2: Our profitable growth strategy that we call Power Fleet Reimagined and which was first introduced at our inaugural investor day last June has been very well received by employees, customers, partners and investors alike.
Speaker 2: From a technology perspective, in November we launched Power Fleet Unity, a new game-changing fleet intelligence platform that unites people, assets and data together to transform the way its customers do business.
Speaker 2: Unity will be the cornerstone of our future shareholder value creation and is ahead of schedule in gaining traction with new customers.
Speaker 2: highlighted by our recent announcements with Kearney and Femser.
Speaker 2: Even with the dramatic business transformation efforts and fundamental operational business change in 2022, we were still able to drive top-line growth, improve gross profit and enhance profitability, an ambitious objective I articulated to all of you at the beginning of 2022.
Speaker 2: our encouraging financial results, we're also achieving the face of ongoing macroeconomic pressures and significant supply chain headwinds.
Speaker 2: David will discuss our Q4 and 2022 results in detail, but at a high level in 2022 we delivered 7% top-line revenue growth, 8% growth in high margin services revenue, and grew our subscriber base by 8% to 664,000.
Speaker 2: From a profitability perspective, we improved both profit by 4 million, reduced loss from operations from Q4 2021 to Q4 2022 by 65%, and grew adjusted EBITDA 19% in 2022.
Speaker 2: We faced significant FX headwinds in 2022 but on a constant currency basis our annual total revenue growth was 10% with services revenue growing 11% for the full year.
Speaker 2: One of the key thesis questions was could we improve the ag growth in the US market in the year 2023.
Speaker 2: We proved our thesis by delivering total annual revenue growth in the region of 12% and a service revenue growth of 13%. The key driver of our success was our US industrial business segment, which grew 33% in the second half of 2022 versus the corresponding period in 2021.
Speaker 2: We're also excited by the performance of our Mexico business unit, which has achieved 34% growth year over year in total and 33% in services revenue.
Speaker 2: Perhaps our progress is most telling and best measured when we compared our financial results for the second half of 2022.
Speaker 2: For the second half of 2022 versus the first half of 2022, high margin services revenues increased 5% to 40.3 million.
Speaker 2: On a constant currency basis the sequential increase was 8% or an impressive 16% on an annualised basis. Overall gross margins expanded from 45% to 50% with our gross profit increasing by $3 million or 10%.
Speaker 2: Additionally, the success from our product and re-engineering initiatives expanded our product gross margins from 20% to 29% in the second half of the year.
Speaker 2: From a profitability standpoint, we realized a 54% or 2.9 million improvement in loss from operations as well as a 2 million or 76% improvement in adjusted EBITDA.
Speaker 2: Compared to the same period last year, we increased growth profit by 4 million or 13%, improved our operating losses by 3.5 million or 59%, as well as saw a 2.7 million or 132% improvement in adjusted EBITDA.
Speaker 2: During the fourth quarter, we saw double digit growth in our key regions, including a 20% increase in the US industrial segment and a 37% increase in revenue in Mexico, driven by both the unity sales and initial sales of our industrial solutions in the region. The overall top line results in Q4 reflect the total revenue of the
Speaker 2: of products was approximately 2.5 million dollars in the quarter.
Speaker 2: Nevertheless, our tight cash management produced the highest cash collections quarter in the company's history.
Speaker 2: While we were encouraged by our operational and financial progress, especially in the second half of 2022, there is still much more work for us to do to achieve the level of performance we believe is possible for our company.
Speaker 2: Although the speed of cleanup has exceeded our internal expectations,
Speaker 2: The operating state of the business when I assumed the CEO position was far more challenged than expected and there are still crucial areas that need to be improved.
Speaker 2: Along that line, earlier this quarter, the leadership team enacted on a focus plan to optimize further our business.
Speaker 2: When completed, the plan will reduce our OPEX by an additional $3 million annually, which we expect to drive bottom line improvements.
Speaker 2: This is in addition to the five million dollars we took out of the business in 2022, some of which allowed us to pivot and grow our software sales and development teams.
Speaker 2: Before I discuss our 2023 initiatives and a business outlook, I'm going to invite David to walk through our financial performance for Q4 and 2022 in more detail. David?
Speaker 3: Thanks Steve, and I'm pleased to connect with many of you for the first time on this course. This week marks my second month with Powerfleet, and my time on board has reaffirmed two key reasons I chose to join the team.
Speaker 3: Firstly, there is a rich set of complementary assets of Power Fleet that have a massive amount of latent value.
Speaker 3: Secondly, the team that Steve has put in place are aggressive change agents who have the driving experience required to realize Power Fleet's full potential.
Speaker 3: The third key reason I joined Powerfleet is pattern recognition.
Speaker 3: Prior to joining Powerfleet, I was the CFO of ACS, a regional telco, which was an amalgamation of acquired companies that had a newly installed management team tasked with turning the business around and creating a huge amount of value to stakeholders.
Speaker 3: While the road at ACS was more rocky and smooth than the early quarters, during my tenure we outperformed the sector by 16 times, turning ACS from evaluation laggard to evaluation leader.
Speaker 3: I look forward to playing my part in achieving similar success with PowerFleets.
Speaker 3: Now onto our fourth quarter results for the year ended December 31, 2022.
Speaker 3: Total revenue was $33.1 million compared to $34.4 million in Q4-21.
Speaker 3: As Steve noted earlier, the step down in revenue was by design, with increasingly sharp focus on the quality versus the quantity of revenue.
Speaker 3: In the quarter, we sidestep approximately $2.5 million in available sales in non-core underperforming product lines and territories.
Speaker 3: Venturing the business around high-margin SAS revenue is a central tenet of PowerFleets reimagined.
Speaker 3: with the four quarter mix of service revenue increasing to 60% or 20 million in 2022 from 56% or 19.1 million in 2021.
Speaker 3: Product revenue, where the quarter's sales were focused on deals with a high attachment SAS service revenue was $13.1 million versus $15.3 million in Q4 last year.
Speaker 3: Gross profit was $16.4 million compared to $15.4 million. Importantly, gross margin expanded by 5% to 49% of total revenue, up from 45% last year.
Speaker 3: Fourth quarter service gross profit was $12.8 million with margins of 64% of total service revenue in line with expectations.
Speaker 3: This compared to $12.4 million or 65% of service revenue in Q4 last year.
Speaker 3: Product gross profit was $3.6 million compared to $3.1 million in the same year ago period.
Speaker 3: While deal discipline was a primary driver of quarterly product gross margins, expanding to 28% of product revenue, up from 20% last year, 2022 performance was adversely impacted by $600,000 or 5% gross margin for inventory and warranty reserve adjustments and out-of-period charges.ome of the Booz liked the sinkperson more frankly.
Speaker 3: Looking at expenses, OPEX was $17.6 million compared to $18.9 million in the same year ago period. 2022 operating expenses benefited from foreign exchange translation gains of $1 million, which is reversed for calculated adjusted EBITDA, and $0.7 million in incremental SOX and audit professional fees, which flows through to adjusted EBITDA.
Speaker 4: year.
Speaker 3: And finally, adjusted EBITDA in non-GAAP metric in the fourth quarter of 22 total $1.4 million compared to adjusted EBITDA of $1 million in the same year-ago period. Our balance sheet remains strong in the quarter with $18 million of cash and cash equivalents.
Speaker 3: The company's working capital position at quarter-end was $35.5 million.
Speaker 3: Shifting gears to our financial results for the full year ended December 31, 2022. Total revenue was $135.2 million, an improvement compared to $126.2 million in 2021.
Speaker 3: High margin services revenue was $78.8 million compared to $73.2 million in 2021. Product revenue which drives future services revenue was $56.3 million compared to $53 million in 2021.
Speaker 3: Gross profit was $64.2 million or 48% of revenue compared to $60.2 million or 48% of revenue in 2021.
Speaker 3: Services gross profit was $50.5 million or 64% of total service revenue compared to $46.6 million or 64% of total service revenue in 2021.
Speaker 3: Product gross profit was 13.7 million or 24% of total product revenue compared to 13.5 million or 26% of product revenue in 2021.
Speaker 3: Operating expenses were $72 million compared to $68.2 million in 2021, while net loss to the common stockholders totaled $11.9 million or negative $0.34 per basic and dilated share in 2022, which compares to a net loss trivial to common stockholders.
Speaker 3: of 18.8 million or negative 52 cents per basic and diluted share in 2021. Adjusted EBITDA in non-GAAP metric totaled 7.3 million compared to adjusted EBITDA of 6.2 million in 2021.
Speaker 3: That concludes my remarks. Steve.
Speaker 3: That concludes my remarks. Steve. Thanks, David.
Speaker 2: One of my stated goals on joining the company has been to substantially increase the revenue share of our fast and recurring revenues.
Speaker 2: which has the benefits of increasing our visibility, margins and relative competitive advantage.
Speaker 2: We've built a great team at Power Fleet and the concentration of this talent around the best and highest quality revenue and profit opportunities as a result of a dynamic capital allocation strategy to deal the highest potential returns to our shareholders, employees and customers.
Speaker 2: In this spirit, we have decided to entertain strategic alternatives for our Argentina, Brazil and South Africa business units.
Speaker 2: As background, there have been third parties who have expressed interest in these business units and we have decided to evaluate these potential opportunities with these partners. In parallel to our organic growth strategy, we are continually evaluating balance sheet accretive M&A opportunities.
Speaker 2: to enhance our capabilities and augment our ability to scale more rapidly.
Speaker 2: Along that line, this morning we announced the acquisition of Moving Dots, a German-based telematics provider, a fully-owned and operated subsidiary of Swiss Re.
Speaker 2: Since 2015, Moving Dots has served as Swiss Re's technology hub in the automotive and mobility space. For those not familiar with Swiss Re, they are one of the world's leading providers of reinsurance and insurance.
Speaker 2: Moving Dot spent the last decade designing and perfecting data science algorithms with end insurers to provide risk-based drive style analytics for fleets and personal auto risk.
Speaker 2: Backed with actuarial insights, Moving Dots enables data-driven insurance propositions for insurers, car manufacturers and mobility platform players worldwide.
Speaker 2: by focusing on customer safety and security needs, and by providing transparent and comprehensive monitoring.
Speaker 2: MovingDots combines insurance analytics with AI and ML technology to derive an individual risk assessment.
Speaker 2: Moving Dots has also developed leading-edge technologies for the sustainability and ESG testing space.
Speaker 2: Twist3 and Moving Dots have been searching for the right strategic growth partner to deliver these precisely architected insurance solutions to the global market in a sustainable, profitable and scalable way.
Speaker 2: From a customer perspective, Movin.DOS boasts several blue-chip insurers as customers and works with major automotive OEMs as partners and also serves more than 160 enterprises in the European market.
Speaker 2: Moving Dots checks all the boxes of a highly complimentary and synergistic acquisition. First, it accelerates PowerFlix entrance into Europe by providing a meaningful beachhead with major reference customers and a network of tier 1 partners.
Speaker 2: Second, Power Fleet presents a significant opportunity to cross-sell Moving Dot solutions into our base of customers and partners and vice versa.
Speaker 2: Third, the acquisition brings strong technically advanced data science IoT solutions for the insurance and sustainability markets, which present distinct competitive advantage and credibility in a highly strategic end market for Powerfleet.
Speaker 2: Fourthly, the acquisition enhances our Unity platform, with Moving Dots' focus on delivering innovative automotive and mobility safety solutions and ESG reporting.
Speaker 2: that will enrich Power Fleet SaaS enterprise applications. Finally, MovingDots has built a hub of software and platform excellence in Germany and beyond.
Speaker 2: MovingDots employees will strengthen Power Fleet's current tenured and talented team, all striving to deliver on the promise of people-powered IoT.
Speaker 2: From a consideration perspective, we have agreed to acquire moving dots for €1 and issue 800,000 warrants to Swiss Re that have an exercise price of $7 per Power Fleet common share. Swiss Re has agreed to fund €8 million in cash at close to ensure continuity of moving dots telematics offering.
Speaker 2: and a seamless transition for the company's talented 50 employees as well as its value customers and partners.
Speaker 2: Equally important to Swiss Re was a continued strategic commercial alliance with Power Fleet.
Speaker 2: Looking to the future, we anticipate generating sequential revenue growth in Q1, despite the expected revenue reduction as a result of our strategic rationalisation efforts, driven by robust, double-digit growth from our US industrial segment, a trend we expect to continue through 2023. In summary, we are focused on realigning and restructuring our cost base.
Speaker 2: to realize the potential of an increasingly robust and competitively differentiated high-growth SaaS offering.
Speaker 2: Moving Dots has an important role to play, enriching our unity offering while simultaneously providing a leading position in the strategic's insurance vertical and enhancing balance sheet liquidity.
Speaker 1: That concludes our prepared remarks. Now I'll turn back over to the operator for Q&A.
Speaker 1: You may press star two if you'd like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star two. One moment please while we poll for questions.
Speaker 1: Thank you. Our first question is from Scott Storl with RAW. Please proceed with your question.
Speaker 5: Scott, is your line on mute?
Speaker 6: Oh, my apologies. Hey, good morning. Thanks for taking the questions. Steve, a lot going on this morning. I want to quickly clarify a couple of things and then dive into moving dots. But 2.5 million in sales in the quarter, fourth quarter were lost related to basically walking away or terminating bad contracts. I want to confirm that.
Speaker 3: then the 3 million reduction in OpEx I want to understand if that is going forward off of the fourth quarter levels And then I had a bunch of follow-ups on moving dots Yes, so in terms of the OpEx I'll start that first right David Wilson I know Scott first time you would have been on a call. That's primarily a reduction in terms of go-forward spend
Speaker 3: There was also some planned investments we're going to do this year, which is a piece part of it, but the vast majority of it would be a reduction in terms of ongoing expense. And in terms of $2.5 million in contracts, Steve, again, I think, predates me, but on the Q3 call, he was talking about just being a lot more disciplined in terms of the deals that we do. So there was some low margin business, which would require investment in inventory that we chose not to do.
Speaker 6: the basic metrics understood. The purchase price is one euro. You've got 800,000 warrants at $7. They're going to give you $8 million in cash. But I'm not sure if I heard the employee number correct. Was it 50 employees or was it 150 employees? What's the revenue run rate that you've got?
Speaker 6: with moving dots coming in, it sounds like you're bringing a very powerful data science team that's got some specific domain expertise in the insurance market, but how quickly do you start to monetize that? How quickly can you get that integrated into the Unity platform?
Speaker 2: Great question Scott. So first of all it's 50 employees that we're bringing in and if you look at moving dots, I mean, you know previously stated we wanted to get a European beachhead. We want to take a leading position in safety and sustainability and insurance. We believe that is a key market driver. We wanted to bring in some great talent.
Speaker 2: towards the future growth together. We've taken some good time to look at the go-to-market approach that will take some time to get revenues moving. They've spent an inordinate amount of time, almost a decade, perfecting the solutions, which if you think about it for the insurance market to be rubber-stamped by an insurer, the risk profile that's being put forward.
Speaker 2: It has to be bulletproof. So it's an amazing product. It's got modest revenues today, and we look to expand in the future We'll give more detail there on the financials We're still under confidentiality through to close on any kind of more detail in the financials, but we'll update that at our next call.
Speaker 6: Gotcha but Steve you're the expected closing is in the current quarter is that correct or is this going to go into the second quarter?
Speaker 6: So 31st of March, 1st of April , not sure which date yet, but very soon, three to four weeks from there. Gotcha, and lastly if I could just, looking at the core business today, the outlook as we go into the first half of 23, you know, what do you see, I think you, I'm not sure if I heard some specific guidance as it relates to services, but I was wondering if you could just.
Speaker 6: that's causing any problems and push out of some revenues. Thanks.
Speaker 2: Thanks Scott, I'll try and break those down. So firstly, in terms of pipeline, we feel very good, very bullish about the future. We've invested a lot in new sales and marketing to drive that pipeline. And I think we're ahead of schedule in terms of getting some of the customers onto the Unity platform. Unity is...
Speaker 2: today feature rich by combining all of our previous platforms together. The launch of the first new module we're very excited about safety and security which is coming out at the end of this month and obviously from an ARPU perspective the modularity of it allows us to drive you know significant increases over time. The first deals that we've got are you know probably
Speaker 7: the future.
Speaker 6: Great, thank you. I'll get back in the queue.
Speaker 1: Thank you. Our next question will come from Mike Walkaly with Canaccord Genuity. Please proceed with your question.
Speaker 8: Good morning, this is Daniel Wong from Mike. Thanks for taking my questions. So first off, congrats on the solid Q4 results and recovering gross margins. I just wanted to double click on this. Was this primarily driven by mix, maybe improving supply input costs or other factors such as passing on increased costs?
Speaker 8: Obviously, we know the supply chain remains pretty challenging, but can you just discuss how you're managing this and what it means for hardware gross margins over the next year?
Speaker 2: So an apology Scott I didn't finish some of answering your question around the supply chain piece. So I mean supply chain remains challenging we receive price increases you know out of the blue from our partners that obviously we try and move as fast as we can to.
Speaker 2: pass some of that onto our customer base where we can and where it's appropriate. And there are still component challenges out there. I think, you know, we've done a super job in the last 12 months of, you know, of making sure that we can fulfill for our customers. We took a lot of headwinds in the first half, I think over $4 million worth of
Speaker 2: one-off spend for high price components. But we've really tried to re-engineer and manage a lot of those components out, which is why we're seeing the improvement. I think we're doing better quality deals. I think we're managing price and value a lot better as a company. And we expect that to continue if you added in the FX wins that we had.
Speaker 2: the second half then you know we're probably a couple of three percentage points higher than you know reported today. So you know we look to maintain that and it is there is volatility out there but we're confident we can drive it forward but I would say it's just it's just better sales execution, better management fair costs and better alignment in our organization.
Speaker 8: I guess in regards to the pace of the additional $2 million savings, is this both in gross margin in optics or just more in optics?
Speaker 2: It's both but I would say heavily weighted towards OpEx. I mean I think one thing that you know I talked about in January last year was we were going to execute ruthlessly the changes that we need to make and
Speaker 2: Again, very encouraged by the way that the team has taken on the challenges, really creating a very strong basis for success moving forward and tackling a lot of tough challenges in the business. I think if we look at the efficiency programs that we've run, the way that we've been able to rebrand, repurpose the company.
Speaker 2: bring in some super talented individuals and reduce costs at the same time.
Speaker 2: plus do an acquisition is testament to a team that is very focused on the opportunity ahead of us.
Speaker 5: Thank you very much for additional color. Thank you. Our next question comes from
Speaker 5: Thank you. Our next question comes from Gary Prestopino with Barrington. Please proceed with your question.
Speaker 6: Hey, good morning everyone. Several questions here and really a lot to get through in a short period of time from when you issued the press release. But first of all, on the 2.5 million of the business that you...
Speaker 8: did not or you walked away from in Q4. How does that break down between product and services? Yeah, I would say 95% of it is product. So the vast majority is product.
Speaker 5: Okay, so 95% is product. Okay.
Speaker 6: So now that business doesn't include, or doesn't include your value, your evaluation that you're going through with Argentina, Brazil and South Africa, or was that included in that 2.5 million?
Speaker 2: No, that was some contracts in various territories around the world, some in Latin America, some in Europe , some in the US. So it was spread. Plus, we have a historic heritage business, of course, allocated, which was hardware only business and that's in the likes of India, Colombia, Croatia. And you know, it's just not high quality business for us. So we walked away from a number of opportunities.
Speaker 9: as you finish this evaluation I think you said you've got parties that may be willing to
Speaker 9: take over the business in these various regions, we would expect that there'll be further, you know, adjustments to the sales in 2023 going forward as you move out of these countries, is that correct?
Speaker 3: Yeah that's correct so for those regions in 2022 was about 13 million dollars worth of revenue.
Speaker 2: Okay, all right, that's good to hear. And I guess that's fairly low margin or problematic. I mean, these regions are quality businesses. The way the business was previously run was independent territories. So there's a lot of complexity and some differentiation in those local territories. And look, we've got
Speaker 2: phenomenal growth opportunities in some good core territories where we have great established customer bases and large momentum. If you look as we said in terms of US one of the big questions was could we really drive the US? I think you know in a year of transformation we've proven that out. If we look at our Mexican business unit growing at 30 odd percent a year you know that is very strong. We're now going to have a good strong European business alongside it.
Speaker 2: So we just want to not spread ourselves too thin. You know, we have dilution in our activities and distraction by some of these smaller territories that.
Speaker 2: you know, we believe may be better served, you know, in different organizations or smaller organizations. So it's a very focused strategy on high quality growth and we think it's smart and shrewd and sensible to do what we're doing there. No, that's fine. So look, then just looking at the quarter a little bit here and I realize these are my numbers, but you know, it looked like you had been on a run rate.
Speaker 9: of close to high twos, 2.8, 2.9, or I'm sorry, 2.8 of adjusted E with dot Q2, Q3. Step down 1.4 million this quarter.
Speaker 9: Obviously, some of that is related to the business that you jettisoned. But I'm also looking at this and seeing the service revenue was only up about, I think, 5% year over year. You know, after being up in the high single digits.
Speaker 9: Q2, Q3. So what would explain that step down in the growth and service revenue? I mean, if you've got the subscribers there, how does that go down? Yeah, so I can pick that one up. So there was $300,000 of effect impact between Q3 and Q4.
Speaker 3: So that was a step down. There was also, and I'm sorry, I'm not answering your question directly, but in terms of non-recurring revenue, it's a small part of our business, it's probably sort of sub 3% of our total services revenue, but that was actually down $150,000 sequentially. So that one time revenue was just lowering Q4 than it was in Q3. So again, that probably had some impact in terms of the jump off point.
Speaker 9: Then in terms of this acquisition that you've made,
Speaker 9: First of all, is moving dots, is Swiss Re the sole account right now of this moving dots or are they out selling it to other insurance companies or fleets or whatever? How does that work? How does that work?
Speaker 2: Yeah, so obviously, you know, a good percentage of their go to market and business was in within Swiss Re. So you know, they are one of the world's largest reinsurers. So you know, they have a number of products and are selling it into their base as part of their proposition.
Speaker 2: but they also have some independent relationships with other insurers on a global basis. Plus their previous heritage to...
Speaker 2: to insurance was kind of core fleet telematics, which they have some customers as well. So, you know, this is a business where, you know, the product and the capability of the team is fantastic. The rationale for the relationship is around now proving that out in the market and really going and maximising the sales opportunity.
Speaker 9: have been and that's why this makes this such a good synergistic acquisition for. Well that's the question I wanted to pose to you. I didn't realize you still haven't closed this but obviously Swiss Re trying to sell this to other insurance companies that's simply not going to work in a lot of cases because it's insurance to insurance but
Speaker 9: is the plan here to try and expand this product on the European continent to other insurance companies as well as you know any any business that you're doing in the legacy business of power clean.
Speaker 9: How do you see growing this I guess?
Speaker 2: So first of all I think it's you know independently recognized and it's been interesting over the last probably four or five months with analyst investors alike. People now really seeing the synergy between insurance, safety, risk and telematics so you know that vertical is growing and we want to be the market leader in that.
Speaker 2: And even if you include things like the move to electric vehicles, then the insurance risk premiums again change as part of that. We have great technology around electric vehicles. If you look at our industrial space and safety and risk in the warehouse, and you can see from the stellar growth we're getting around pedestrian safety, there's a...
Speaker 2: available already, we have relationships with the likes of AXA, moving dots boast both smartphone and a sensor plus hardwired telematics. So we think this is not only good for Europe but for a lot of our other territories and channels that we have open today.
Speaker 2: And when we actually kind of put this into unity, we're leading with safety and security. So this will expedite our capabilities and give us real competitive advantage. And where it's going to be super strong in terms of credibility is, this has been proven out by an insurer.
Speaker 2: So, you know, for the risk for the take-up of in of insurance companies selling this into their bases We believe there's a you know, a very open door for us to now go and take advantage commercially Okay That all sounds good. And what's the revenue model here Steve?
Speaker 6: In terms of subscription versus hardware and service you mean? Yeah, yeah, is it basically a SAS subscription based revenue model? Yes, yes it is.
Speaker 5: Okay, all right, thank you. Thank you. Now our next question is from Max Michaelis with Lake Street Capital Markets. Please proceed with your question. Hey guys, nice quarter. Just want to touch on the Q1 guide.
Speaker 5: I know you guys noted in your press release that double digit growth from US industrial solutions. I was wondering if you could lay out some other strengths you're seeing and then maybe potential weaknesses going into Q1.
Speaker 3: Yeah, so I'll pick that one up, Max. So obviously, US industrial, increasingly we look at that set of assets that we have, the differentiation that we have, and also that ability to really sell it outside the US where that revenue is currently concentrated today. Obviously, we feel really good about that and seeing a good source of future growth and a key sort of growth engine for us. We obviously, and Steve said in the previous remarks, Mexico continues to perform incredibly well.
Speaker 3: So good movement there. So they would be a couple of the sort of the main areas in terms of continued sort of high, high digit growth. In terms of some of the headwinds, we're definitely gonna see some FX impact in Q1. So obviously there's the political turmoil happening in Israel today.
Speaker 3: We obviously have a significant portion of our business there. So there'll be some FX headwinds there there's also been a sort of a Stretching out of decisions there as well just given some of the uncertainty. So in terms of Things that all be less roasty mood wish I would tell you sure would be that would be the key comment there Okay, thanks and then just final one for me
Speaker 3: and setting aside all the comments we said earlier in terms of some of our non-core territories. So you need to put that to one side.
Speaker 5: Okay, that's it for me, guys. Thanks. Thank you. Our next question is from Scott Searle with RAW. Please proceed with your question.
Speaker 6: Thanks for taking my follow-up. I apologize I've been having some phone issues.
Speaker 6: I just wanted to clarify, did you quantify the Brazil and South African operations just in terms of size? And then I had a couple of other follow-ups.
Speaker 3: Yeah, it's about $13 million of revenue in 2022. What, 1-3? 1-3, yes.
Speaker 6: Going three, perfect. And going back to moving dots, I'm wondering if you could provide a little bit more color in terms of the number of data scientists that you get. And looking at your past presentations when you talk about the Unity platform, it's basically an evolution to analytics and AI. So this really seems to accelerate the platform and investment on that front by multiple years.
Speaker 6: So I'm wondering if you could translate that into maybe revenue expectations if we start to look out two years of the total TAM now that it starts to creep into in terms of what you can address now with moving dots incorporated into a unity type platform. Yeah I think that's a tough question to ask until we get the other side of closing the deal but what I would say in terms of data science there's a high level of capability.
Speaker 2: you know if you look at the insurance space it's that AI very very complex algorithms that are built in order to build risk and insurance propositions that is incorporated into technology that has advanced us dramatically versus what we're able to provide and as I said this is
Speaker 2: no exaggeration, these guys have spent almost a decade putting this together. So, you know, the speed to market, the ability for us to drive further growth and credibility in that space, you know, I think there's a tenfold increase in where we were without doing this acquisition.
Speaker 2: So, you know, I think over the next two years, we look to very much dominate the space. We feel that, you know, both from a talent perspective, a credibility with insurance market perspective, the channels that we have available to us, and the strength that Unity has today and is going to bring, lead us to a place where, you know, we feel very confident about the opportunity in front of us.
Speaker 6: Great, and lastly if I could, just to bring the OPEX into perspective, you've taken $5 million out in terms of annualized costs. You're talking about another $3 million coming out, so $8 million in total. Basically bringing in this team kind of gets you back to where you were before, but basically what you've been able to do is really jumpstart.
Speaker 6: your data science capabilities without really changing your cost structure if I look back to the middle of 22. Is that the right way to be, I guess, quantifying that impact? Yes. I think as well, we've increased marketing spend dramatically because from a brand perspective, we've rebranded the company.
Speaker 2: We're trying to grow pipeline through our lead generation activities. We've brought in a new enterprise sales team in the US to drive the fleet market and all of that has been done within that cost envelope and as you said, dramatically increase not only data science but our overall software and architecture teams.
Speaker 2: which is why Unity became real very quickly. We've got paying customers who are referenced on the platform, and we've got a super strong development roadmap that's gonna be released. The features are gonna get released throughout this year, that by the end of the 2023, we'll have a very feature rich.
Speaker 2: leading edge set of solutions on the Unity platform. So, again, we feel humbly proud in terms of the way that we've been able to re-architect the business within the cost envelope that we have. We've driven performance through the year. You know, if I look at my scorecard, then most, if not all, of the metrics.
Speaker 6: and very exciting on the moving dots front. Thanks guys.
Speaker 2: Thank you. If there are no further questions at this time, I'd like to hand the floor back over to Steve Toe for any closing comments. Thank you, operator. So thank you all for the insightful questions and thanks again to everyone for joining us this morning. We look forward to speaking to you again very soon.
Speaker 1: Take care, have a great day. This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation.