Q1 2025 Powerfleet Inc Earnings Call - Preliminary

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David Wilson: Good morning, everyone, and welcome to today's fireside chat. My name is David Wilson, CFO of PowerFleet, Inc., and I am joined on today's call by Steve Towe, PowerFleet CEO. I'll begin the call by sharing our safe harbor state. The information shared on today's call contains forward-looking statements within the meaning of federal securities law. All statements contained in this presentation that do not relate to matters of historical fact should be considered forward-looking statements.

David Wilson: For example, forward-looking statements include, without limitation, statements regarding our preliminary financial results for the three months ended June 32, 2024, and our preliminary pro forma results for the 12 months ended March 31, 2024, and the integration of our mixed telematics businesses and the ability to recognize the anticipated synergies and benefits of our business combination with mixed telematics. These forward-looking statements are based on management's current expectations. These statements are neither promises nor guarantees and are subject to risk.

David Wilson: Uncertainties and other factors described from time to time in our periodic filings with the Securities and Exchange Commission. Should one or more of these risks or uncertainties materialize, or should underlying assumptions prove to be incorrect, actual results may vary materially from those indicated or anticipated by these forward-looking statements. Forward-looking statements included in this presentation are made only as of the date of this presentation, and, unless otherwise required by applicable law, we assume no obligation to update any forward-looking statements and expressly disclaim any obligation to do so, whether as a result of new information, future events, or otherwise.

David Wilson: With the forward-looking statements shared, I'll start by briefly addressing the delay in our Q1 Fiscal 2025 earnings call and related filing. We received a comment letter from the SEC on July 30th regarding the designation of PowerFleet Inc. as the accounting acquirer under ASC805 business combinations in our recent combination with Mixed Telematics Ltd. This accounting matter does not directly impact our cash flow.

David Wilson: The matter raised by the SEC was carefully reviewed and deliberated on by both PowerFleet and Mixed Telematics in close collaboration with their external advisors during the preparation of the S-IV and other necessary regulatory filings in connection with the transaction. While relative shareholding is a factor in identifying the accounting acquirer, it's important to recognize that AFC 805 outlines several other considerations under US GAAP that must be evaluated. These include, but are not limited to, the composition of the board of directors, management control, any control premium paid, and the relative sizes of the two entities involved in the merger.

David Wilson: After a comprehensive analysis of all relevant aspects of the transaction, both companies concluded that PowerFleet had gained control over Mixed Telematics. Consequently, PowerFleet was identified as the accounting acquirer in this transaction. While we are working closely with our auditors and legal advisors to resolve this matter within the month of August, timing is ultimately dependent upon the FCC review process. As a result, this ongoing review will delay our ability to file our transition report on Form 10-KT for the transition period from January 1, 2024 to March 31, 2024, and our Form 10-Q for the fiscal first quarter ended June 30, 2024.

Chris joined the preparation of the S four and other necessary regulatory filings in connection with the transaction.

While rest of shareholding is a factor in identifying the accounting acquirer, it's important to recognize that ASC 805 outlines several other considerations under U S GAAP that must be evaluated.

These include but are not limited to the composition of the board of Directors management control any control premium paid and the relative sizes of the two entities involved in the merger.

After a comprehensive analysis of all relevant aspects of the transaction.

Speaker Change: It's companies concluded that perfect it gained control over mix telematics.

Speaker Change: Consequently power fleet was identified as the accounting acquirer in this transaction.

Speaker Change: While we are working closely with our auditors and legal advisers to resolve this matter within the month of August timing is ultimately dependent upon the SEC review process.

Speaker Change: As a result, this ongoing review will delay our ability to file our transition report on Form 10-Kt for the transition period from January one 2024 to March 31, 2024, and our Form 10-Q for the fiscal first quarter ended June 32024.

David Wilson: Our preliminary results for the June quarter have been prepared with PowerFleet, identified as the Accounting Aquarium. This includes additional amortization expenses related to intangible assets, primarily customer relationships identified during the purchase price allocation, offset in part by a reduction in the amortization of capitalized commissions.

Speaker Change: Our preliminary results for the June quarter of being prepared with power fleet identified as the accounting acquirer.

Steve Towe: While we are confident in the rigor of our evaluation process and believe this conclusion aligns with guidelines provided by USGAP, we understand the importance of the SEC review process and will work closely with them to conclude this matter. I'll now turn the call over to Steve to provide an overview of our first quarter operating and preliminary financial performance.

Steve Towe: Thank you, David, and thank you all for joining us today. I'd like to start by acknowledging that, due to the matters David discussed, there has been a longer-than-usual gap since our last formal earnings. However, during this time, we've been deeply focused on executing our strategy and driving meaningful results. Our first quarter financial performance is a strong indicator of the progress we've made and the very positive momentum we're seeing across the

Steve Towe: Success is clearly evident in the top-line performance, where we expect a 10% year-over-year revenue growth on a pro-forma basis to approximately $75 million. Our preliminary Adjusted EBITDA is anticipated to exceed $13.5 million, representing an increase of over 40% compared to the Proforma Adjusted EBITDA from the same period last year. It demonstrates operating leverage inherent in our business model and our cost synergy program running ahead of schedule, securing $8.7 million in annualized savings as we exit the quarter. Looking forward to the future, given our strong start to the fiscal year, we are raising full year 2025 revenue guidance. Thank you for your continued support and confidence in PowerFleet.

Speaker Change: Standpoint, determining who the acquiring entity is and then therefore that impacts.

Speaker Change: Purchase accounting intangible allocations et cetera, right that is a simple noncash aspect of what's happened here.

Speaker Change: Yeah, that's absolutely right Scott so it's really about them.

Speaker Change: We decided that led to them in terms of the pathway to mixed you assigned the intangibles given.

Speaker Change: <unk> paid will be higher than the book value of either company.

Steve: Gotcha and Steve it's nice to see the sales up 10% year over year. It's certainly ahead of I think the early expectations. When you guys first talked about the combination I wonder if you could provide a little bit of color on that 10% growth in the June quarter, how much was product versus recurring aspects and then as we start to.

Speaker Change: Look into the customer base and raising the guidance for the year, where are you seeing that strength you did reference warehouse.

Speaker Change: But I'm wondering where else in terms of end markets geographies.

Speaker Change: And what Youre seeing in terms of existing customers, increasing the number of modules that they're deploying how unity platform is doing into the mix base. Thanks.

Unnamed: Thanks, Scott. And I'll try and unpack those as we go.

Speaker Change: Thanks Scott.

Speaker Change: I'll try and unpack those as we go so.

Unnamed: So I think ultimately, we wanted to come out of the gate strong, and I think the results really represent customer sentiment and market sentiment about the transaction and the disruptive and differentiated solutions that we're now bringing to play to a broader customer base. So we were very, very strong in our unity safety solutions, which

Speaker Change: I think ultimately we wanted to come out of it.

Speaker Change: Pierre.

Speaker Change: Any comments on changes that you've seen either insurance or also it seems with the much better results that your average sale prices, probably going up more products being taken by our customers would love to hear any updates you can share on that thanks.

Pierre: So you can anticipate you could add to the start of the first.

Speaker Change: First part of the question.

Speaker Change: If you've seen any changes to churn.

Speaker Change: And then again just kind of average sales size.

Speaker Change: Okay.

Speaker Change: Yes, so I think as David articulated we were aware of some churn in some customers within the space.

Speaker Change: We've been able to absorb that and I think there is renewed energy across our base both on the powerfully in the mix side to reduce churn over time and I think we've got some strong mechanisms that we're putting into place to be able to do that.

Speaker Change: We are seeing a level increasing in <unk> as we said come through but this is really bad account expansion, where we've got the growth plus obviously, some some good new logo wins for us as well that there is no while business in this growth. So this is nice because it's kind of run rate business.

Speaker Change: But it's really that expanding use of our portfolio and the value added services that we can offer alongside and I think.

Speaker Change: Ability to invest more.

Speaker Change: Feet on the Street and this is all part of a articulated previously both businesses for different reasons. It has to be playing defense for a long long time. This is us getting on that front foot starting to play offense and getting getting more visibility in the market and getting deeper into those markets. So that is going to.

Speaker Change: That's going to continue to grow it's going to be an evolving strategy, which will ultimately open more doors for us both in terms of pipeline, what I would say in terms of the conversion rates from sales from our <unk>.

Speaker Change: Reps, we have seen an increase in the last 90 days and I think that is just across the board and intensity I think confidence within our sales teams and the reinvigoration of our sales teams being a bigger company with a broad portfolio and be able to create better value for customers and those sales teams really being able to see the wallet share.

Speaker Change: Opportunity that's ahead of us with the.

Speaker Change: Redefined proposition.

Speaker Change: That's great color appreciate all that.

Speaker Change: And then maybe just one follow up for you David just in terms of.

Speaker Change: What you saw on the sequential trends from the separate entities kind of in March versus the combined company in June.

Speaker Change: You gave us a preliminary full year number can you just talk about the linearity of growth and then any FX impact.

Unnamed: So can you just repeat what you cut out at the start of the first part of the question?

Unnamed: Great, good morning, Steve and David, congratulations on the quarter. Thanks for taking the questions. You know, I think most everything has been addressed, but wanted to get a sense, you know, with kind of the cost synergy, seemingly tracking ahead of expectations, do you still, on a longer term basis, have the same visibility to recognize 27 million in EBITDA uplift that you previously discussed?

Unnamed: So to Steve's earlier point, in terms of new people coming in, they tend to be primarily drawn by the promise of unity, and that is a higher margin, higher RPU, differentiated service, so that's working well. In terms of the margin, to Steve's earlier point, this is differentiated solutions, safety solutions. It is a healthy margin business. So certainly, from a product gross margin standpoint, we saw a nice sort of pickup sequentially in terms of gross margin on the product side of things. And on the service side of things, it continues to perform well. So again, we feel good about where we are from a gross margin point of view.