PowerFleet Inc. Q1 2023 Earnings Call
Good morning, and welcome to power fleets first quarter 2023 conference call.
Joining us for today's presentation is the company's CEO , Steve toe.
CFO David Wilson.
Following their remarks.
We will open the call for questions.
Before we begin the call I would like to provide power fleets 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.
The company's expectations regarding opportunities for growth.
Demand for the company's product offering.
Other industry trends are considered forward looking statements.
Such statements include but are not limited to the company's financial expectations for 2023 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.
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.
T SEC filings overall economic and business conditions.
Demand for the company's products and services competitive factors emergence of new technologies and the company's cash position.
The company does not intend to undertake any duty to update any forward looking statements to reflect future events or circumstances.
Finally, I would like to remind everyone that this call will be made available for replay in the Investor Relations section of the company's web site at W. W. W. Dot power fleet Dot com.
Now I would like to turn the call over to powerfully to CEO , Mr. Steve too.
Sir you May proceed.
Good morning, and thank you for joining today, it's a pleasure to share first quarter performance.
I apologize just off the new year affects our unwavering focus on driving growth profitability and SaaS recurring revenue expansion.
Facing challenging macroeconomic pressures and highly significant.
On a constant currency basis, our total revenue increased by 4% year over year and our high margin recurring service revenue was up 17% compared with Q1 last year.
We're also delighted to report, 15% gross profit <unk> expense in Q1.
Margins in the quarter exceeding 50% up to 43% in the prior year.
Our U S business is seen as a major contributor for our future growth story. The thesis continues to be validated with a 20% increase in looks very revenue, especially as the prior period last year.
We also improved our bottom line metrics, notably versus the prior year, which David will highlight shortly.
A key change efforts aim to optimize our fleet business and colors that capital on areas that deliver superior returns to shareholders.
This includes a revenue mix geographies competitive advantage and allocating capital and resources to drive faster growth and increased profitability.
As part of this transformation strategy, we're actively working to divest low margin low growth and subscale business units.
We've made good progress on finding potential new homes for our Argentinean, Brazil, and South African business units.
Continue hardware only ashish to settle the types of sales channel and terminating loss making contracts.
This exercise naturally moderate Arab world total revenue growth in the short term, but it allows us to focus on value enhancing our recurring revenue expansion, which in turn drives attractive gross margin expansion improved cash flow and EBITDA.
The most concrete indicator of the progress of our transformation efforts.
Excellent gross margin performance that go forward core businesses in Q1.
These business units, we expanded that total gross margin to 53%.
And then a high quality service margin increased to 71%.
It's impressive and exciting margin profile for our coal business.
Forward provides us with an excellent platform to drive accretive shareholder value.
In addition to the major transformation activities, we executed in Q1, we successfully closed the <unk> acquisition launching 19, new value added module on our unity platform and secured several major customer sales leads.
Before I dive deeper into our operational progress and outlook I'll turn the call over to David to walk you through our numbers in more detail.
Thanks, Steve and good morning, everyone to begin I would like to provide an overview of our company's financial priorities. After my first 90 days in the world.
Probably number one is to accelerate our strategic transformation, while staying within the limits of our current balance sheet Steve.
As Steve noted, we recently completed the moving towards acquisition, which boasts an additional $8 7 million in liquidity. This move also onboard a talented team of engineers data scientists to help accelerate the rollouts of units.
Ladies complementary technology that meets the high performance standards set by one of the world's largest insurance providers.
It expands our presence to accelerate growth in the EMEA region.
As we transition existing activities to the moving dots team in the second quarter, we expect to spend $1 5 million, resulting in a short term hit to EBITDA in <unk>.
Now with the transition we are also executing a series of cuts to cover actions, including a $3 million Opex challenge to bring EBITDA impact so hoping the movie business down to breakeven as we exit Q3.
Probably number two is to improve the underlying operating leverage of our business by implementing a common and scalable software platform across all key geographies.
We currently have an assortment of ERP systems, resulting in a massive amounts of manual work and costs. During my first 90 days, we made the decision to pivot from the initial ERP rollout plan. It would have taken us deep into 2024 to complete to an accelerated more cost effective plan b, which we expect to complete by year end.
In addition to saving time and money with the ERP rollout project will address the root cause issues that currently results in G&A spend being well above our peers and our longer term operating targets, we expect to see substantial savings from this project in the P&L from Q1 2024 months.
Now I'll walk through our financial performance, where I'm pleased to report that our Q1 results demonstrate solid performance, despite the economic challenges and FX headwinds.
Total revenue for the quarter ended March 31, 2003, with $32 8 million compared.
Compared to $33 2 million last year.
With the planned decline in low value product revenue offset by growth in higher value service revenue.
On a constant currency basis total revenue would have been $34 6 million.
An annual increase of 4%.
Our services revenue totaled $20 4 million up $1 $7 million year over year and accounting for 62% of total revenue.
A constant currency basis.
<unk> revenue grew an impressive 17%, reflecting the successful execution of our SaaS growth strategy.
This strategy is focused on expanding our customer base and driving more value for existing customers through delivery of high quality cloud based services.
Product revenue declined by $2 million, $12 4 million or 38% of total revenue with deal discipline and terminating unprofitable contracts the key drivers.
While we continue to invest in new product development, we've implemented a more disciplined approach to dealmaking.
This approach has enabled us to focus on higher value higher margin opportunities, while reducing our exposure to lower margin business.
<unk> profit margin expanded to 51% in Q1 2003 from 43% in the prior year driven by an improved mix of high margin service revenue versus product revenue deal discipline and lower purchase price variances.
Our operating expenses increased by $400000 to $18 5 million compared to $18 1 million in the same year ago period.
Performance in the quarter was adversely impacted by $700000 in M&A and other nonrecurring an out of period costs.
Our ongoing focus on cost management is enabling us to shift the investment into areas of higher return, including sales and marketing with compelling results expected to be evidenced with accelerated revenue growth in the second half of 2023.
Net profit attributable to common stockholders inclusive of a $7 $2 million gain on bargain purchase moving dollars totaled $3 5 million or <unk> 10 per basic share and <unk> per diluted share up from a net loss attributable to common shareholders of $4 1 million or 12 cents per basic and diluted.
Share a year ago.
Adjusted EBITDA improved significantly to $1 4 million benefiting.
And if fitting from $2 $2 million expansion in gross margin.
This reflects our continued focus on profitability and our ability to deliver high margin services to our customers.
Our quarter end, we had $25 $1 million in cash and cash equivalents and our working capital position of $41 8 million.
And a fitting from $8 $7 million of net proceeds from the acquisition of <unk>.
We believe with our strengthened balance sheet combined with our focus on delivering high quality services, we are well positioned to drive growth and value for our shareholders.
That concludes my remarks, Steve.
Thanks, David.
The macroeconomic and FX challenges we are currently experiencing.
Teams highly focused and well sell price execution has enabled us to remain ahead of schedule on our plan to transform <unk> into a world class SaaS solutions provider that delivers high growth and profitability.
At 2023 operating plan focuses on four key strategic objectives, we are laser focused on delivering.
Objective number one is optimizing our opex base in our pricing structure.
In March we launched phase two of our optimization plan, which is expected to Acacia our operating expenses by an additional $3 million annually, providing room to onboard moving das stage engineering capability.
We have also started further mid term seismic shift projects in terms of hardware rationalization and integrated and centralized global supply chain and shared service centers that we believe will translate into an incremental $10 million of annualized EBITDA, which will begin to be realized during early 2002.
94.
Objective number two is driving organic growth in our key regions, where we can deliver high quality recurring revenue growth.
The proof points, we have established significant sales momentum in the U S and Mexico, where SaaS recurring revenues were up 20% and 33% respectively in Q1 versus the same period last year.
Our industrial vertical remains very strong with our U S team delivering the 25% increase in total revenue for the channel year on year, driven by our collision avoidance advanced pedestrian safety solutions.
In Q1, we secured several notable units SaaS deal and strategy validating proof points with customers in the U S and Mexico.
To expand a little further in the U S. Unity has begun to have accelerated sales success in multiple vertical markets.
With the likes of intermodal company selecting the unity platform, an advanced data integration services to offer full fleet visibility and improve utilization for their assets.
We will not a long term partner pathway as confidently expanded their relationship with us the multimillion dollar commitment to further units subscriptions with new shareholders in Q1 for over 7000 new assets.
<unk> also expanded their policy in the past week selecting the unity advance collision avoidance safety solutions for 52 warehouse sites.
Additionally, we continue to partner with net pack.
To give them a competitive advantage in the chassis rental and leasing markets with a commitment in Q1 2000 10000 units subscriptions.
These successes highlight and validate the value and effectiveness of powerful community platform and saving lives time and money for our customers.
We continue to build momentum in Mexico, where FEMSA Hood, Oregon selected pathway Attunity platform for the entire vehicle fleet about six now as vehicles has now expanded their relationship with US, adding 1200, new safety camera solutions as part of the new Unity safety and security module.
Pass a strategic partnership with Axa commercial insurance goes from strength to strength, adding a further 1500 unity subscriptions in Q1, and notably we secured a pilot for a move in the smartphone as a surface insurance solution for the Axa <unk> has installed vehicle Copa fleets of passenger cars.
The business, our aim is to implement safety and efficiency metrics to reduce risk level and improve access value proposition for the market.
The Mexican division of one of the world's largest FMC companies, who have more than 9000 employees in the region has chosen paths <unk> safety and security module per employee transportation with Airbus Fleet, We plan to significantly further expanding our relationship in the second half of 2023.
And half to two instruments III sales pipeline is very encouraging improving by 47% in the first quarter highlighted by several large strategic opportunities for our unity platform with notable global enterprises.
As examples one of the world's largest sport shoe and accessory manufacturers is actively piloting unity evaluating solutions ability to meet their visibility and analytics needs across its telco organization.
One of our large global vehicle rental fleet customers, we plan to replicate the success we've had in the U S by deploying in the APAC region, leveraging the unity connected car solutions across the state.
On top of this another top tier on demand International car rental company is also currently piloting identity solution.
We expect this prostate can decide on a preferred vendor by the end of Q2 and rollout the solution during the fourth quarter.
Our third strategic objective. This year is delivering highly advanced enterprise software modules to the market.
In March we introduced our safety and security data pad application to a new municipal.
The new application brings together multiple data sources to enhance driver management prevent loss and features best in class advanced collision reconstruction capabilities.
The safety and security applications. The first of a number of new and improved module applications to bridges throughout 2023.
Our next release the sustainability module that centers on next generation electric vehicle telematics capability and advanced ESG and <unk> 14 is on scheduled to be launched at the end of June .
Objective number four is expanding our channels and routes to market to drive new growth opportunities.
Example of this is a highly creative acquisition moving dose, providing us with a meaningful beachhead for the European expansion.
Alongside adding distinct competitive advantage in the insurance vertical we have already established blue chip go to market partners.
In partnership with them moving the ups team with Nash itself the expansion of our European sales and service teams to launch an aggressive go to market plan for the full breadth of our unique <unk> solutions.
We're also evaluating a number of channel partnership offers we received from large mobile assets enterprises in the Middle East, we're looking to create joined growth propositions for the local markets.
Okay.
In the second half of the year, we also expect to announce new strategic relationships with major transportation and mobile asset providers in the U S who are looking to maximize that total Clinton third party subcontractor visibility and performance by integrating data from Oems.
From that current telematics deployment with more vendors and from power phase one data gateways through the unity platform.
The customer planning to utilize our advanced data enrichment capabilities to provide enhanced customer service propositions and improve efficiency for their clients.
Combining their information channels and integrating that data sources also gives the customer the ability to optimize the performance of their full suite of business, our pricing systems and to simplify their business processes.
We call this unified operations, a unified operation strategies at the very heart of the future pathway.
Our plan to drive consolidation in the industry.
In the immediate future, we will focus on the integration moving notes and how we can truly maximize the game changing market potential of this business.
In summary, our transformation plan remains on track and we are fully confident in our ability to deliver on our strategic foundational pillars, which will ultimately generate sustainable top line growth combined with increased profitability and cash flow.
That concludes our prepared remarks, now I'll turn it back out to the operator for Q&A operator.
Yes.
Thank you.
At this time, we will be conducting a question and answer session.
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One moment, please while we poll for questions.
Thank you.
Our first question is coming from Mike Walkley with Canaccord you May proceed.
Hey, guys good morning norm.
Thanks for taking the questions. So.
I guess, so my apologies if I missed this during the prepared remarks, but could you just provide some additional details on additional moving parts of your cost savings initiatives.
Sure so.
In terms of last year, there was a $5 million target that's largely been realized.
That was a combination of gross savings at the gross margin line. So in terms of driving efficiencies from a cost of goods sold standpoint, particularly on the product side of things. In addition to that there were savings on the G&A side of things.
In terms of those dollars they have been reinvested back into the business. So we are now investing more in terms of sales.
Sales and marketing obviously the goal there is to see accelerated growth and we are on track to see strong acceleration in the second half of this year.
Other major area of focus is to invest in unity in terms of building out a next generation <unk> platform.
Sure.
And then okay.
1023 to 2023, so there is a $3 million opex target, we set for ourselves in Q1.
On track to realize that.
This in large part is creating room to absorb to moving those acquisition. So there is a huge talent pool that we're bringing onboard that was a major driver of that M&A decision.
Again, we're working our way through those savings there will be some overlap given we need to in effect transition R&D activities over from existing teams removing Doc team. So there'll be some overlap in terms of cost in Q2, but the expectation is as we exit Q3, those savings will be realized and that will enable us to absorb the moving the acquisition with ineffective.
Breakeven EBITDA profile and then finally as we talked about the seismic shifts so theres a number of longer term projects that are underway that take a longer time to realize the savings back, but thats $10 million of EBITDA expansion that we expect to start to roll through the P&L sometime during 2024.
It's everything from the ERP savings through to the globalization of our supply chain rationalization.
Hardware is we took there previously.
Going from 26 devices down to nine plus other operational efficiencies around shared service centers for the global business.
Great. Thanks for the detail.
Just for a follow up.
Could you just provide some additional color on how the integration of moving jobs.
<unk> platform is trending.
It's very early days, we're only I think four or five weeks into and.
Into the integration. So I think it's too early to kind of talk about that in any level of detail ultimately what moving dots brings is very highly sophisticated algorithms data science and AI capabilities.
Being born in the insurance industry, obviously validated by Swiss re and who is one of the world's largest reinsurers. They also as well have sustainability proposition to ran <unk> emissions. So we've launched our overall new safety module, we are launching a new sustainability module.
And over time, we will bring that full units, sorry that full and moving those capabilities into one platform and one set of molecules.
Thank you very much I'll hop back in the queue.
Okay.
Thank you.
Once again, if you do have any questions. Please press star one on your phone.
Our next question is coming from Maxim Achilles.
Lake Street capital markets you May proceed.
Hey, guys. Congrats on the quarter first question here is I, just would like to get an understanding on how order patterns are tracked so far in April and May.
And so I think we've seen a very strong start to the quarter in terms of in terms of orders.
So we built good momentum there was a slower start in January February as I think as people were contemplating investments, but we're seeing very good traction three months.
Which has continued into April .
And that's hence why you've seen the.
Pipeline that we're talking about that's increasing dramatically plus some of the sales results that we've talked about on the call today.
Yes that was going to be my next question I was just kind of given your commentary on the outlook for Q2, and then the rest of the year I was wondering if you can touch on a few key points of confidence.
Throughout 2023, and I know your pipeline's grown strong but is there anything else you can point to.
I think I think if you stand back and look at what we talked about a year ago coming into this company. So we said that we would focus on high quality SaaS recurring revenues and I think our performance there.
So far is pretty impressive in terms of the growth levels.
Those.
Element to the business.
Secondly, we talked about.
Unity being a game changing and industry defining new platform and I think the proof points in terms of the customer wins and the pipeline opportunity and the size of the pipeline growth.
Our fleet is super.
Validating in terms of that being the winning strategy.
But the business moving forward I think from a gross margin expansion perspective for our go forward businesses to have already reached 70% in servings and recurring revenue gross margin.
That's starting to get towards the ambitions that the company had to be at a.
A couple of years out from now so that gives us strong confidence that that will continue to expand we're only just getting started and the more repeatable solutions. We can get on the industry platform. The more cross sell up sell opportunities that we get there and obviously we create more.
More margin by doing that.
You see and understand from the customers, we're talking about the expansion that we're getting within our customer base with that cross sell upsell opportunity and that should bring the high degree of confidence for all of us for the future.
Great color guys and then just last one for me and then I'll jump back into queue nice uptick in gross margin this quarter.
Could we see future expansion going out Q2, Q3, Q4 on a sequential basis.
Yes, I can take that one so max in terms of gross margin, we've been pretty clear that we expect gross margin for product to be very excited about with.
We were 27% this ship inline with what it was last quarter or two but obviously up significantly year over year, a key driver of the year over year improvement is just the deal discipline that we talked about earlier.
But in terms of go forward Theres, a few things that will work for us Firstly, we're still working our way through some of the expensive inventory you had to acquire last year, given some of the supply chain issue that we and others throughout the piece part of it. The other thing is the mix. So the mix tends to vary quarter over quarter in terms of just the customers that are buying.
Have certain customers that have higher margin than others I would say Q1 was not as sweet mix as we typically see in terms of just the underlying customers who acquiring product in the first quarter. So again, so thats normalized Q2, Q3, Q4, so the expectation would be would be above 30%.
On a pretty standard basis, with some sort of fluctuations quarter to quarter, but long term trend would be 30% and above.
And then on the on the subsea side in terms of getting into that mid <unk> range I think thats inside <unk>.
Earlier than expected, we can't put a date on that yet, but the more new modules, we can lower that cross sell up sell opportunity that we are able to realize then we'll start to expand margins from that perspective. There's also a lot of consolidation work going on in the background in terms of our platforms, our communication costs on the cost side.
Services line, so we feel very confident and I think it's a good stake in the ground.
As I've said for those core markets moving forward to be now 71% is pretty impressive at this stage.
Thanks for the color guys and good luck the rest of the year.
Thank you. Thank you.
Thank you. Our next question is coming from Scott Searle with Roth and can you May proceed.
Hey, good morning, Thanks for taking the questions and congratulations on the gross margin expansion in the core SaaS business.
Okay.
Thank you Scott.
Just thinking Dave I apologize I got on a little bit late.
But in terms of the sales acceleration into the second half of this year I was wondering if you could provide a little bit of color of exactly what that means and then specifically with the <unk> pipeline I think you've talked about it being up 47% I'm wondering if you could calibrate us in terms of what that looks like in absolute numbers and as we start to introduce the new modules with safety.
Followed by sustainability, what that's doing to the <unk> impact or dollar content per transaction.
Okay.
So sales acceleration again as Steve noted earlier patents, absolutely pleased with a 47% in terms of the dollar value. It's tens of millions in terms of just what that means in terms of the size of the pipe is coming through so.
So that will help you just gives you a sense there Scott in terms of sort of.
Quantum that we're talking about there.
It was $125 million.
Our contract value added to the pipeline during the first three months of that.
<unk>.
Okay.
You went a bit quickly for us.
Oh I apologize.
Steve just in terms of the new modules, what theyre doing in terms of the <unk> per connected device or the overall deal size.
Yes, so we're very much focused focusing as you heard from the customers that we were talking a mid to large size enterprises.
Good sizes anything ranging from the $2 50 subscribers up to the multiple thousands and in terms of ARPA were seeing a nice uptake around about 15% to 20% I would say at the moment in terms of improvement on offers versus our historical kind of new sales of the old versions of the modules pre.
Unity. So I think people are seeing the value we're doing a much better job in terms of value by selling our return on investment contribution building long term roadmaps with our customers.
We're also when we are putting hardwearing.
We are focusing on a smartphone concept, where we're getting a.
Our higher value device fitted that ultimately then all the modules can be terminal remotely with software upgrades, rather than the customer having to keep adding in more hardware.
The vectors are good obviously still early days and but.
But in terms of proving out the proof points I think the strength of pipeline.
The reaction to unity the major brands that have already signed up for it the major brands, who are expanding to different parts of their fleet or even different geographies and the companies who are now putting an exclusive pilots to really kind of test out the solution. We couldnt be more pleased and let's not forget we didnt really bring in <unk>.
Unity until Q4 to the market. So there is another way for us to go with a new sales team on the page that the building pipeline said theres a lot of oxygen for us.
Moving forward, but we couldn't be more delighted by that shift and I think competencies really growing in power fleet as a partner and a provider.
Particularly in kind of how we treat customers and how we look to create.
Create that long term relationship that in comparison to the service levels that they get from multiple providers in the market today.
Can you speak maybe just to quickly follow up what are you seeing from a sales cycle perspective, given the new product portfolio, but also the current economic landscape.
Yes, so it's a bit more elongated and so I think decisions decision to still be made investments are being made but the gates to get their taking longer and it's really a matter of providing that confidence as I've said.
That said the solutions that we're providing really.
Mission critical they can provide huge efficiency optimization and ultimately as well compliance.
So an organization so we feel good about it but there is no doubt.
The kind of Q4 Q1 period that decision, making is taking longer and its a lot harder to kind of get through but that's where I think the talent that we 14 can really have those top to top business conversations and get tied last into kind of the cost of the asset and more into the value that we bring to the business.
Great.
Maybe quickly on the divestiture front in terms of so locator and the other non core businesses.
<unk> broken out from a P&L standpoint, it sounds like Theres. Some active dialogue did you provide.
Timeline or dollar amount that you would expect to generate from those.
I guess it looks like it's about $16 million in annualized sales.
Pat we Havent Danita. So obviously I think we have.
I spoke in March and we said that we were exploring opportunities. We've had offers for those parts of the business, which we're evaluating currently.
This isn't something that we are going to rush, we're going to make sure that this is right for the business right for our teams and our customers.
So that process will continue and again, we haven't we haven't provided anything in terms of evaluation to the market and of those entities today.
Okay, and lastly, if I could just on the Opex front Dave.
Yes.
Zinc.
In the past pro forma you were taken out deal amortization I think that is not removed in the current pro forma numbers just want to clarify that was there any moving dots opex.
In the first quarter and then I just wanted to clarify you still got $3 million of Opex saving programs expected over the course of this year, partially offset by the bump up in moving dots, but then as we get into 'twenty four it sounds like there is another $10 million of various optimization plans relate.
Related to ERP systems, and otherwise that we should see start to kick in is that correct.
That's correct Scot so in terms of moving the deal closed March 31, So we got the balance sheet pickup there was no expense in the year.
That's true in terms of.
The managing of the expenses in terms of bringing that out of the business, yes on track for the $3 million and as I said the expectation is by the time, we're through the integration of moving not.
It will in effect be absorbed on an EBITDA neutral basis.
So we expect that to have happened by the end of September so as we exit Q3.
And then looking to next year as Steve mentioned in his prepared remarks, there's a $10 million opportunity a significant portion of that I would say about half of that I can really be driven by G&A efficiencies because we get a common platform in place. The other portion will largely come out of improvements in terms of supply in terms of rationalization. We're doing in terms of the number of product skus.
So we have there so so good progress there as well.
And I guess, Scott just to take a step back obviously theres been a huge amount of activity going on even before I arrived in terms of taking cost out and reinvesting it back into the business, but you can see evidence in terms of just the underlying cash generation of the business. So if you look at the last couple of quarters. For example, we have been generating unlevered free cash flow, which I think is unusual for the.
History of moving not so good progress there I think sort of 1.12 or so.
Levered free cash flow the last six months.
Again, Q2 will be a little bit bumpy, just given we have to settle.
The transaction fee for moving dots will have the double expense so moving not so those types of things. So Q2 will be a little bit tougher. We will also be paying out some of the incentive comp from 2022 in the second quarter, but in terms of just the progress that's been made and much of that predates me thats definitely evident in terms of the Unlevered free cash flow.
We've generated over the last six months.
And just to add to make sure. We're all aligned on moving so moving to us as an acquisition, where Swiss re had not really brought to market.
And the sales element of the solutions that are out there to be provided so basically they built a world class product.
Amazing Tech team with even more delighted with the team that they become part of the business and we were planning to invest in R&D for unity and these guys fit perfectly into that scenario and.
And we feel that with both our sales channels and the Swiss re channel as well, we have the ability to significantly drive revenues in the insurance space.
So it's a cost burden right now, but it will very quickly translates into value of that on the top line and ultimately on the bottom line of the business as we expand out and particularly as we expand our European operation as well. So we've gotten much better capability now to go and sell the full range of solutions in the European market.
Great. Thanks, so much.
Thank you.
Our next question is coming from Gary <unk> with Barrington Research you May proceed.
Hi, good morning.
Steven David.
First of all a lot of.
Questions have been answered here asked here Im just trying to follow along but you said there were 700000 of M&A expense related to moving dots in the quarter did you back that back into the adjusted EBITDA calculation David.
Yes, so it was $700000 of M&A costs, together with certain out of period and onetime costs.
There's about $300000 of transaction costs in the quarter that was backed out in terms of arriving at EBITDA, but theres also $400000 of sort of one time and other nonrecurring costs, but still in the opex that would not back down.
Okay. So alright.
And then.
Steve if I understand this once you're finished with.
These markets that you.
Our loan growth and you don't want to be in.
Where is the base the bulk of your business would it be the U S and Mexico.
U S Mexico, Europe , obviously, we have a strong foothold in Israel as well and what we're saying from emerging markets is we'll do those once we've got the business really cooking in terms of the top line growth gross margin and the profitability of our core markets, but we'll do them through those indirect channels that we've talked about so.
We've got some significant office multi territory.
In terms of organizations want to partner with us and go to market on their own we think thats more of a scalable way for emerging markets and having our own entities, but thats really a phase two because we've got significant opportunity in our core markets, where we know we can make money were established today, we have great customer base with a lot of wide space opportunity.
And we want to focus.
One of the things I think the organization has done is.
It's gone very broad in terms of where it tried to play and we want we would run a laser focus on that high quality revenue take a true market leader position in those core markets and as you see by the results we've already had with that strategy on the gross margin side.
Accounts to create a spectacular set of businesses in those core markets.
Alright, and then another another question.
You mentioned something about $16 million annualized with total revenue from these markets that you are trying to sell.
Yes, so in terms of it with one six annualized in terms of the recurring piece of it which is the service piece of it that's about 12 $12 $5 million on an annualized basis.
The again, Brazil, South Africa, Argentina.
Alright, so on a pro forma basis, you would have about $4 million.
Less of revenue in this quarter, but your margins would have been up really significantly I mean, youre you reported a 56 gross margin what youre, saying it would've been 53%.
Correct.
Okay. So just a couple of other things here us Steve one of the other.
Platforms.
For unity.
The sequence of what Youre going to issue this year.
Or put out in the market you have safety and securities out right.
Yes, thanks insecurity that sustainability comes next.
And then looking at advanced fuel.
Management and then we're looking at compliance.
So those are the ones that we delivered in the next acreage.
Okay and that will all be out by 'twenty, three and 'twenty three.
Correct Yeah.
And obviously what already exists at the kind of optimization productivity module as well that's kind of the base module that was already out there as well. So we'll have five modules fully ads.
Obviously generating pipeline through 2023 for 2024, but if you see the reaction to the safety and.
Security module, where you see the wins that we've got in the pipeline people are really getting behind this because ultimately it is different to what is out there in terms of its ability to drive change and drive improvement in a more simplified way. So that's that's exciting and then secondly, it's not just about the model module. So we talked about unified App.
<unk> and.
This is where we have a data agnostic capability to bring in data from our own device from third party devices from Oems and other data sources.
<unk> that do some really cool stuff on it and then.
<unk> integrated normalized data into other folks operating system. So ultimately they can drive the performance of their ERP, they're planning the driver training their payroll lots of other different systems.
And what we're seeing is and this is why we referenced a couple of very major organizations in the U S. You've got this total spaghetti of different telematics providers that got all these different data sources around for powered.
The amount of data they've got and what they want is a partner who ultimately can provide the insights that they need to drive their business and take away all of the noise that exists in all of the complexity that exists from all these different providers and give them true visibility there on a state which allows them to improve their efficiency their productivity.
But also as well.
They've been customer advantage with our end customers that play is something that we're super excited about and the early traction on that.
Terms of people coming to the table and wanting that is is really super and thats.
Units outside of just kind of creating telematics modules in enterprise software modules, that's really the next generation pair of unity.
Thank you can hear from my voice, it's pretty Xbox, citing space for us right now.
No that sounds great I just wanted to clarify something you said you had a pipeline of $125 million of new business is that signed business or is that just out there that you are negotiating right now.
We have added to our pipeline of $125 million total contract value in the first quarter.
For our future pipeline.
Okay.
Alright, and then lastly could.
Could you just talk about what you or David you mentioned something about that you've got to put in a <unk>.
Or you're.
What youre doing with the common platform I think you said something to the effect of that what you had been doing was going to take too much time, so youre going to replace it with something else could you just may be very simply explain what's going on there.
Yeah, absolutely. So obviously power fleet is the amalgamation of a number of.
Identity through M&A.
One thing that never happened was just getting a comment.
Apprise resource planning system in place.
Even the ones that were inherited we're probably a little bit archaic too.
So in essence that results in a huge amount of manual effort a huge amount of manual activity.
Delays in terms of getting high quality information that's actionable all these things basically drive costs, both direct costs and indirect costs in terms of just not being on top of the business is.
Well as we would wish to be so we were going to change out the.
The assortment of existing platforms anyway. So there was a plan in place as I walk through the door, but that was going to take until deep into 2024 to get done.
To be Frank we don't have the time, nor do you want to spend the money there so by spending less and getting it done more quickly.
<unk> means we can spend more calories on driving the business forward, which is key but as importantly, if we get it done more quickly. It basically means we can start shedding that incremental cost sooner too. So the expectation is across all of our key markets. We have everybody on the same ERP system exiting this year.
And as we do that for example, we can start creating shared service centers in Mexico City and other things. We can also start shedding a lot of work that is done manually today, we can start getting better information to be better stewards of the assets that we have all those fruits will start harvesting in 2024.
We expect that to help drive down.
EUR for G&A to something Thats more inline with what you would expect for a business our size because to be honest.
We sit here today, it's way above both the peer group and our long term target. So the expectation is there is a few percentage points, we can shed and ERP will be a key catalyst to make that happen.
Okay. Thank you.
Yeah.
Thank you we have reached the end of our question and answer session. So I will now turn the call back over to Mr. <unk> for his closing remarks.
Okay. So thank you everybody for attending the call. We appreciate your support.
<unk> is very much to come in a very transparent way and walk through the transformation activities that we're undertaking as a business that transformation has been and remains substantial.
I think if you look at all the key vectors all of our strategy in terms of wanting to become a high growth profitable SaaS business, we're making very solid progress against all of those vectors. We appreciate that some of the changes in the volume of changes, we're making it's sometimes hard to follow the ins and outs.
But ultimately the execution plan. We believe is ahead of plan and we're very confident for the future. So thank you for today enjoy your day and we'll speak Tc.
Thank you for joining us today for our presentation you may now disconnect.