Q2 2025 PowerFleet Inc Earnings Call
Greetings. Welcome to the Power Fleet's second quarter 2025 earnings call.
At this time, all participants are in a listen-only mode.
A question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad.
Please note this conference is being recorded. I will now turn the conference over to your host Carolyn Capaccio of Alliance Advisors IR. You may begin.
Carolyn Capaccio: Thank you, Operator, and good morning, everyone. Welcome to Power Fleet's second quarter 2025 conference call. With me on the call this morning are CEO Steve Towe and CFO David Wilson.
Carolyn Capaccio: Today's remarks will contain forward-looking statements. Actual results may differ from those contemplated by these forward-looking statements. Factors that may cause actual results, performance, or achievements to be materially different from those expressed or implied by such forward-looking statements are described in today's earnings press release.
Carolyn Capaccio: Any forward-looking statements made on this call are made only as of today and powerfully assumes no obligation, nor does it intend, to publicly update or revise any forward-looking statements to reflect subsequent events or circumstances.
Speaker Change: During this call, management will present both GAAP and certain non-GAAP financial measures. A reconciliation of GAAP to non-GAAP measures is included in today's press release. And the press release is available on the investor's section of the company's website at ir.powerupleaf.com. Steve.
Steve Towe: Good morning everyone and thank you for joining us today. We're pleased to share another strong set of numbers that reflects our strategic focus and continued robust execution.
Steve Towe: EBITDA of $28 million is up by $9 million, or a highly impressive 46%.
Steve Towe: We have secured $13.5 million in annual run rate cost synergies in the first half of the year, or said differently, a full 50% of the $27 million two-year target of efficiencies to be realized from the mixed deal.
Steve Towe: This number set is a testament to the intensity and execution ability of our team, our business combination playbook, our differentiated product strategy and our ability to weather macro headwinds.
Steve Towe: These numbers are highly satisfying at a time where significant management focus was on the deep integration of two similar sized businesses plus winning the race and consummating the fleet complete transaction.
Steve Towe: We are delighted with the progress we have made to bring game-changing scale and resources to the business.
Steve Towe: It brings a talented team which aligns well with our culture and goals, a strong North American revenue base with 70% of revenue from this region, and 88% of revenue through high margin services.
Steve Towe: It brings a low-touch, high-velocity in-cab AI camera solution to address the fastest-growing segment in the market.
Steve Towe: It's a state-of-the-art FC Hub platform that complements our Unity Data Highway ecosystem plus an established and cohesive team of 100 software engineers to accelerate the execution of the Unity product roadmap.
Steve Towe: It also brings an established back-office system that offers a proven blueprint to accelerate the modernization of PowerFleet's group's internal system stack, which is essential for achieving $11 million in annual cost synergies from the MIPS transaction targeted for fiscal year 2026.
Steve Towe: And finally, an incremental $10 million in annual cost synergies assigned to the fleet complete deal.
Steve Towe: The transaction represents a tremendous opportunity to accelerate our growth trajectory and expand our market reach.
Steve Towe: With cross-sell, up-sell pipeline already building very nicely between the PowerFleet and Mixed customer bases, adding FleetComplete's value propositions and subscriber base into the equation gives us high confidence we will reach our mid-term accelerated double-digit growth targets.
Steve Towe: We will only focus going forward on strategic high-quality revenue streams that maximize our resources to achieve our core group objectives.
Steve Towe: We're obsessive about laying the foundations for sustained performance and greater mid-term value creation for our shareholders through a measured path to accelerated profitable growth.
Steve Towe: As a further testament and proof point to the compelling solutions we deliver to customers, we're proud this quarter to be recognized by ABI Research as the number one global market leader in AI-powered smart cold chain solutions.
Steve Towe: Our platform provides a robust suite of capabilities, including real-time temperature and location monitoring, regulatory compliance and advanced analytics, critical for protecting perishable goods across global supply chains.
Steve Towe: Together with our Unity platform we deliver secure, actionable insights that meet the demands of today's cold chain logistics industry.
Steve Towe: Ahead of sharing further forward-looking thoughts and an overview of November the 20th Investor Day, I'll hand the call over to David to provide additional detail and insight into our financial results. David?
David Wilson: Thank you, Steve. And great to reconnect with so many of you on today's call.
David Wilson: Before diving into detailed numbers, I'd like to echo Steve's perspectives on the rich set of opportunities now under our direct control following the close of the FleetComplete transaction.
David Wilson: while maintaining our primary focus on accelerating EBITDA growth through our Cost Synergy Program and bringing our key growth factors to bear to achieve double-digit revenue growth in fiscal 2026.
David Wilson: Ahead of reviewing our detailed results, a quick reminder of key pro forma adjustments.
for our formal comparisons.
David Wilson: All prior period comparisons are based on pro-forma financials for the combined mix and power fleet businesses.
whereas our 10-Q will reflect only legacy PowerSuite numbers.
David Wilson: One-time expenses. This quarter's expense include $3.9 million in one-time costs for transactions and restructuring excluded from adjusted EBITDA and EPS for ongoing run rates.
David Wilson: Our differentiated safety-centric product solutions continue to drive growth, with product revenue up 13% to $20.3 million.
David Wilson: Wrong product demand also contributed to robust margins, which reached 35% this quarter after adjusting for $700,000 in inventory write-offs related to integration efforts to streamline our product offerings.
David Wilson: Service revenue grew in line with our annual guidance of 5% reaching $56.7 million compared to $54.1 million in the prior year, with growth impacted by previously announced churn in the legacy mixed customer base.
Speaker Change: Steve will discuss in more detail. We're actively reorientating our customer facing function to secure a substantial improvement in retention and consequently revenue growth.
Speaker Change: This initiative includes a rigorous analysis of customer segments to differentiate those we will prioritize for long-term growth from those where we will focus on optimizing care.
Speaker Change: Moving on to service margins, which were 61.7% compared to 62.7% in the prior period, mainly due to non-cash charges of $1.2 million for amortization intangible assets related to the mixed transaction.
Speaker Change: On an adjusted basis, service gross margin expanded by 100 basis points year-over-year to 63.7%.
down from 56.1% in the prior year.
Speaker Change: with a decrease entirely attributable to $700,000 in integration-related inventory write-offs and $1.2 million in amortization of acquisition-related intangibles.
Speaker Change: Excluding these expenses, total gross margin of 56.1% matched the prior year.
Speaker Change: Turning to operating expenses, which totaled $40.8 million for the quarter. This included $3.9 million in one-time transaction and restructuring costs versus $2 million in the prior year.
Speaker Change: After adjusting for these costs, total OPEX of $36.9 million was down over 5% versus $39 million in the prior year, with the realization of cost synergies the key driver.
on an adjusted basis.
Speaker Change: SG&A expenses were $33.4 million, or 43.4% of revenue, down from 48.5% in the prior year.
Speaker Change: Within SG&A, general administrative expenses improved sequentially to 31% of revenue from 33.6%.
Speaker Change: Reducing G&A spend while growing revenue remains a key priority and is anticipated to be a major contributor to EBITDA margin expansion in the near to medium term.
Speaker Change: R&D investments, including $2.4 million in capitalized software, total $5.8 million, or 7.5% of revenue, down from 9.3% in the prior year, where we were still optimizing spend post the MovieDots acquisition.
Speaker Change: As highlighted on our Q1 call, this level of investment is efficient and reflects the cost-effectiveness of high-quality engineering talent in South Africa.
Speaker Change: The earnings were just at EBITDA, which increased by 41% to $14.5 million, up from $10.3 million.
plus the flow-through benefit of cost synergies on OPEX.
Speaker Change: Net loss attributed to common stockholders was $1.9 million, or $0.02 per basic and diluted share, compared to a loss of $0.06 in the prior year.
Speaker Change: After adjusting for one-time expenses and the amortization of acquisition-related intangibles, net profit attributed to common stockholders was $2.7 million, or two cents per basic share, compared to a loss of one cent in the prior year.
Speaker Change: Closing with cash and the balance sheet, excluding 61.9 million dollars in equity proceeds from the fleet complete transaction, we closed the quarter with net debt of 119.1 million dollars, consisting of 27.2 million in cash and 146.3 million in total debt.
Speaker Change: adjusting for 1.9 million dollars in unsettled transaction costs, where former net debt stands at $121 million, up from $110 million at the close of the next transaction.
Speaker Change: This $11 million increase in pro-forma net debt is largely due to an $8.2 million working capital burn for the first half of the year, driven by a rise in net receivables attributable in part to strong top-line performance.
Speaker Change: Just with prior guidance, we anticipated a net cash burn in the first half of fiscal 2025, with recovery expected in the second half.
Speaker Change: This guidance is not impacted by the Fleet Complete transaction, with deal proceeds projected to substantially cover the purchase price and associated fees, and Fleet Complete's free cash flow expected to fully service the cash interest on the additional $125 million in debt raised to consummate the transaction.
Speaker Change: Finally, we are reaffirming our financial guidance for fiscal 2025 to capture the impact of the FleetComplete transaction.
Speaker Change: This guidance also reflects the pre-acquisition accounting treatment which remains subject to review as we work to conform to US GAAP standards.
Speaker Change: Annual revenue is expected to exceed $352.5 million and we expect revenue for the third quarter to exceed $100 million.
Speaker Change: Annual EBITDA, including $5 million in annualized run rate synergies, is expected to exceed $72.5 million, with EBITDA for the third quarter expected to exceed $20 million.
Speaker Change: Net debt at March 31, 2026 is expected to be approximately $235 million.
That concludes my remarks, Steve.
Steve Towe: Thank you David. We're highly energized by the expanded opportunities gained through the Fleet Complete acquisition and our great start out of the blocks following our combination with MIX.
Steve Towe: Over the next six months leading into fiscal year 26, we've entered another period of intense blocking and tackling to shape the organization and harmonize our overall value proposition to the market with an acute focus on channel and customer upsells.
Steve Towe: This groundwork will allow us to focus extensively on becoming a high-velocity growth business.
Steve Towe: Two, underpinning accelerated revenue growth And three, driving customer stickiness and wallet share from our phenomenal customer and subscriber base
Steve Towe: Starting with maximizing efficiencies, our immediate focus is on expanding EBITDA through the realization of cost and reduce.
Steve Towe: We are well on track to achieve $16 million in annual savings this year. Additionally, the FleetComplete transaction mitigates $11 million in synergies slated for Fiscal 26 and opens up the potential for an extra $10 million in savings.
Steve Towe: This positions us to drive meaningful EBITDA gains over the next six quarters.
Steve Towe: Modernizing and aligning our back office systems and infrastructure is a top priority and we're focusing closely on working with the FleetComplete team to confirm that their established systems can meet over 80% of our future operational needs.
Steve Towe: We anticipate completing this assessment by early December, after which we'll launch a well-resourced accelerated plan to transition our major operating hubs to the new infrastructure by Q3 2026.
Steve Towe: This initiative not only enables us to realize cost synergies, but also enhances our capability to effectively manage and scale our global operations.
Steve Towe: Turning to underpinning revenue growth, we believe our product portfolio is now the most comprehensive in the industry.
Steve Towe: We are investing heavily in our Unity platform, as well as focusing more go-to-market resources on our in-warehouse and AI camera solutions.
Steve Towe: Each of these propositions is designed to meet the evolving needs of our customers, positioning us competitively within high-demand market segments.
Steve Towe: Unity's device agnostic data ingestion and analytics capabilities resonate strongly across multiple industries and we firmly believe this differentiation will drive robust adoption and expanded usage across regions and our client banks.
Moving to FleetComplete, which offers multiple avenues for accelerated growth.
Steve Towe: with top priorities including the following 1. The massive market reach from its established channel relationships particularly in the strategically vital North American market
Steve Towe: We are actively qualifying our solutions suite with some of the world's largest telecommunication carriers, positioning this activity as a springboard for accelerated growth starting early in fiscal year 2026.
Steve Towe: to the FC hub solution which accesses the high-velocity mid-market segment.
Steve Towe: This best-in-class solution in North America is now being evaluated for product market fit across our extensive global markets. Initial results are encouraging, especially for South Africa, where significant untapped demand aligns well with FC Hub's capabilities.
Speaker Change: Blaming on productivity from our sales team investments currently in motion.
Speaker Change: driving pipeline conversion from our cross-cell and up-cell activities from our expanded solution set and launching the combined value proposition into our highly robust and scaled indirect channels all give us a clear and credible path to double-digit growth starting in fiscal year 26.
Speaker Change: Turning to our third priority driving customer stickiness and wallet share, we are undertaking a comprehensive initiative to redefine our retention model across the combined business.
Speaker Change: This effort includes adding additional Enterprise Relationship Managers and Customer Success Managers to allow our Renewals and Retentions teams to focus on actively managing accounts with an emphasis on long-term customer value.
Speaker Change: These efforts are part of a broader strategy to segment our revenue streams, investing in high growth areas with strong potential, while retaining flexibility to manage select segments for cash optimization.
Speaker Change: The data ingestion and systems integration capabilities of our Unity platform push our solution to be mission-critical status for our clients and drive added stickiness and commitment.
Speaker Change: Ahead of opening up the call for Q&A, I'll share quickly an overview of the upcoming November the 20th Investor Day, where we will share strategic insights driving PowerFleet's growth trajectory.
Speaker Change: A deep dive into EBITDA expansion and cost energy realisation program for both the MIX and FleetComplete transactions. The next level of understanding on FleetComplete as a business.
Speaker Change: A deep dive into Unity including product demo and two panel discussions
Speaker Change: The in-person event will be held at the Sofitel New York with presentations starting at 1 p.m. Eastern Time and concluding around 4 to 4.30 Eastern Time.
Speaker Change: While attendance in person is by invitation only and focused on analysts and institutional investors, the event will also be streamed live.
I'll now turn back to the operator for Q&A. Operator?
Speaker Change: Thank you. At this time, we will be conducting a question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue.
Speaker Change: You may press star 2 if you would 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 keys. One moment, please, while we poll for questions.
Speaker Change: Your first question for today is from Scott Searley with Ross Capital.
Speaker Change: Hey, good morning. Thanks for taking the questions. Congrats on the quarter and looking forward to the analyst day next week.
Speaker Change: Maybe, Dave, just to quickly dive in on the gross margin front for clarification, product gross margin is now at 35%. Is that the level we should be thinking about going forward? And on the services side, a little bit below, I think, the target range. Can you talk about how we should expect that to be trending over the next several quarters?
Speaker Change: Yeah, so Scott, thank you. In terms of product margin, it was a strong quarter. Obviously, it was up 300 basis points sequentially. I would say a blend of both quarters is probably a better way to think about it.
Speaker Change: In terms of sort of the base guidance, the base guidance is to be north of 30%, so that'll give you a feel there.
Speaker Change: In terms of service margins, it has been impacted in the first half of the year. There's been some acceleration in terms of in-vehicle device depreciation in the South African business especially.
Speaker Change: That is something that is actively being addressed by new leadership and that is expected to dissipate in the second half of the year.
Speaker Change: So, if you think about our guidance, our guidance for blended margins is sort of 57.5 percentage points. I think with the headwind of the in-vehicle device depreciation dropping in the second half of the year, blended margins of 57.5% for second half I think makes a lot of sense.
Great. And, and Steve.
Speaker Change: I try not to preempt you too much for your Analyst Day next week, but the commentary around getting to double-digit growth, it sounds like you're starting to see the breadcrumbs of decent visibility, increasing comfort on that front. A couple of items, I just want to clarify in terms of talking about the 20% growth when you did at the time of the fleet complete acquisition when it closed.
Speaker Change: Is that opportunity to get to 20% plus just purely from the existing logos? And then if you could maybe just extrapolate and expand a little bit on what you're seeing right now that's starting to give you that comfort. Is it the broader portfolio? Is it the existing accounts? I know you've talked about warehouse, AI camera, Unity. Can you kind of take us through where you're seeing the interest level from the customers? Thanks.
Speaker Change: Yeah, so I think you're absolutely right Scott, I mean confidence grows.
Speaker Change: with us every quarter. You know, we've taken on a seismic task in terms of bringing these three companies together. And, you know, you always have a thesis, but, you know, does that thesis play out? And I think the credibility and the substance we're seeing in terms of pipeline growth.
Speaker Change: across multiple areas that you've discussed there. A lot from the existing base but we are also winning some significant new business.
Speaker Change: as well and that is really because of the unity device agnostic play. I think the more and more traction where people are looking for visibility in their warehouses and over the road and therefore the overall visibility of their operation that is that that is a key win.
Speaker Change: And I think where we're consolidating data into a single pane of glass, you know, that is a real, real pain point for customers. So, you know, that's where we're really seeing people who have multiple providers saying, you know, how the heck can I make sense of this stuff? And we have a real ability to do so.
Speaker Change: The market drivers remain the same safety compliance sustainability and optimization and I think if you look at the comprehensive
Speaker Change: product portfolios that we have across the group now, you know, as I said, in the prepared market, second to none in terms of those capabilities and a customer can grow.
Speaker Change: into the solutions as well. So they can hit specific pain points. The ROIs are fast in terms of getting that payback.
Speaker Change: and ultimately when we're kind of ticking more and more boxes across their estate that's giving us confidence that we are going to be that vendor of choice so
Speaker Change: You know, early days, we're six months into Mix, we are six weeks into Fleet Complete.
Speaker Change: But all the smells in the kitchen are exactly what we want them to be.
Speaker Change: And I think, you know, we can really break down, and you'll see this in the investor day.
Speaker Change: If you look at those different market drivers and you look at where we're at today and the ability for us to, first of all, get to double digit growth and then, you know, to accelerate that growth, I think there's a high level of credibility and confidence that we have.
in our ability to do so.
Speaker Change: But you know to your point, we'll save a lot of it for next week where you know, we're being very open house We're being transparent. We want our investors and shareholders to really kind of see You know What's behind our confidence and we're confident that you will get to see that not only from us But from also our customers and partners as well
Steve Towe: Great, Steve. And if I could just slip another one in, just, you know, Telco and that channel seems like it's going to be pretty powerful for you. It certainly has been for Fleet Complete. What's the initial reaction?
Steve Towe: that you're seeing there and what's the real key interest level from them. And then one of the big questions from investors is always around getting to the table with Samsara and Geotab. So maybe just some quick thoughts in terms of how you're doing on that front. Are you getting to the table and are you starting to turn some heads? Thanks.
Steve Towe: So look, I mean, you're going to hear from the Telco senior leadership themselves. So, you know, I think the fact that they are wanting to become and part of our Investor Days is testament to itself.
Steve Towe: But they just want to go fast, right? So, you know, there are certain parameters that you have to go through in order to launch products and solutions. So, you know, I think if they said to anything, can you get there quicker? Because I think they see the broader portfolio as a real opportunity.
Steve Towe: Fleet Complete has been very much focused in the mid-market segment so they have a lot of enterprise business that
Steve Towe: They feel that our solutions can bring, they feel there's, you know, very high quality to the solutions that we have and, you know, the likes of the in-warehouse opportunity and some of the cold chain stuff that we talked about in prepared remarks has never been touched by those guys.
Steve Towe: you know, but they have demand for it. So it's a real strong opportunity for us. It's down to us to execute well and resource properly.
Steve Towe: but you know you'll hear from those guys themselves in terms of that opportunity and what I think you know the move that we've made
Steve Towe: in the last six months have really kind of built our credibility and status in the marketplace. So, you know, you see various industry reports that now mention the three of us, Samsara, Geotab and PowerFleet. We're the new kid on the block.
Steve Towe: but more customers now more RFPs are coming our way because we have that portfolio and we you know from a from a high performance business perspective we're starting to demonstrate that level of credibility and track record that you know proper organizations want to have proper partners and and we're now definitely you know really seeing those.
Steve Towe: those opportunities come to us that maybe as individual businesses we didn't see so many.
Speaker Change: Great, congrats and look forward to seeing you guys next week.
Thank you. Let's go.
Your next question is from Gary Presplatino with Barrington.
Hey, good morning Steve and David. A couple of questions.
Thank you very much.
Speaker Change: So the answer to that is we're delighted to say yes.
Speaker Change: So we said that we would produce the single pane of glass within six months. We achieved that.
Speaker Change: So MIX customers can now enjoy both the Heritage PowerFleet portfolio alongside the MIX portfolio plus all of the Unity data services as well. So Teams did a phenomenal job of executing on time to do that.
Speaker Change: Okay, and then on terms of fleet complete, that's a six-month endeavor, right? So we should be looking towards...
You know, maybe July. It is, but then...
Speaker Change: a significant opportunity for that in that set of solutions into their base and we've already completed the first step of doing that to give base visibility so more work to be done to your point you know we we put a six-month timeline around these things but you know the fleet complete team are very fast out the blocks on that one.
Speaker Change: Okay, maybe you could help us here. In terms of the legacy business, which is just the legacy power fleet, can you maybe give us some idea of that legacy customer base?
Speaker Change: So in terms of the unity services into that base, we're probably at 20 to 30% of the full base having the value-added services.
Speaker Change: from a data perspective. Where we're seeing huge traction is around our safety and compliance solutions, whether that's in the warehouse or over the road.
Speaker Change: As we've previously said, the kind of logistics, low-end trader tracking solutions, which was a big part of that base, dried up.
Speaker Change: But, you know, we've been able to pivot and weather those headwinds to continue to grow the business. But the drive is really around those value-added modules, particularly around safety, the pedestrian warning.
Speaker Change: solutions that we have, you know, are getting particularly strong traction and really around, you know, managing resources in, you know, both over in the over the road and in the warehouse in that customer base in particular.
Speaker Change: skilled resources are becoming less and less so the the ability to make sure that the right people are doing the right things With the equipment that they're either using or driving has been where we've got significant traction
Speaker Change: And could you just remind us, what is the payback, what's the return on investment for someone?
Speaker Change: It's on average break even within 12 months, you should see a minimum of a 3 to 4x return on investment over a three-year period.
Thank you.
Speaker Change: Your next question for today is from Anthony Stoss with Craig Hallam.
Speaker Change: Hi guys, I'm looking forward to seeing you next week as well. Steve Owen and focusing on the safety products growth rate, pretty impressive at 13%.
Speaker Change: I'm curious, when you now take in FleetComplete and their strong safety product, what's the plan? Is it to integrate into one unified safety platform, or are you going to keep the FleetComplete safety product separate? And also, if you wouldn't mind sharing kind of what your view is on growth rates for the safety products.
Speaker Change: Yeah, so, you know, we're not going to freeze our customer base and freeze our market. So our midterm view is to get to one full safety solution that is great for enterprise and great for mid-market folks as well. And to be able to, you know, both sides of the house have very strong, compelling, and I think in some cases, unique propositions to do so.
Speaker Change: but we'll do that over time and You know where we're obviously focusing is where is our biggest bang for the book to get you know incremental growth in the short to medium term
Speaker Change: and that's kind of the product evolution strategy that we're working on. So where I alluded to before, you know, those pedestrian safety solutions in the warehouse being available to FC hub customers without us having a, you know, a full end-to-end safety solution, one platform across the company yet, getting that tactically done is.
Speaker Change: for us within that segment of the market. It's, you know, you have to be really good at it, the quality of products.
Speaker Change: And the quality of data needs to be super, super strong, which I think is, you know, something that is definitely part of our DNA.
Speaker Change: and there is work to do to harmonise all of that to give it, you know, a very slick...
end-to-end experience.
Speaker Change: But even right now, you know, we're seeing this very strong move forward. So we will build more and more of the company around that. We're launching it in more and more territories.
Speaker Change: you know the the regulations in different territories are really playing into our hands so
Speaker Change: You know, once we're out of this first kind of year of putting these three companies together and we've harmonized the organization, the majority of our focus is on that growth curve, then we're very, very confident that both the safety and the compliance solutions will lead us to very nice, accelerated growth.
Very good. See you guys next week.
Thanks, Ben.
Your next question is from Dylan Becker with William Blair.
Speaker Change: Hey, gentlemen, good morning. Really nice job here. Maybe Steve, starting for you, you guys are doing an exceptional job on realizing those synergies kind of earlier and sounds like kind of incremental confidence.
Speaker Change: and hitting those targets and building a pipeline to support that as well on the revenue side, I guess.
Speaker Change: How should we think about the opportunity to accelerate maybe some of the reinvestment flow that back into areas like go to market and engineering to help kind of capture more of that of the revenue synergy side of the equation?
Speaker Change: Yeah, so great question and we are truly delighted with the progress we've made and you know we we've got the path to achieve the 21 million that we need to in terms of what we've promised in terms of our guidance.
Speaker Change: We are going much deeper than that just in terms of pivoting our
Speaker Change: cost-based to be able to supplement as we've said both on the sales front and on the customer success front.
Speaker Change: and we have a balance and trade-off that we want to use on EBITDA, then we will have the ability to do so.
Speaker Change: But the first step for us is really that kind of credibility.
Speaker Change: and sustainable profitability, which allows us to have that optionality. And we'll continue to do the blocking and tackling that we set out to do. We've got another period to come in the next six months, which you can obviously understand from the...
the transformation that we're putting into building this business.
Speaker Change: But, you know, we do see the opportunity to have the dry powder ready should the growth come at the speed that we want to. And if we have to want to put our foot on the accelerator, we will certainly do so. But we'll do that in a very controlled manner, in a very sensible manner. And, you know, we'll take feedback as we go in terms of.
Speaker Change: you know, when to do that and how to do that. So, you know, there's a lot of good positive customer sentiment.
Speaker Change: We are restructuring this business to be one overall combined business over time.
Speaker Change: that will have real strong horsepower at the front end and that that's that's the next stage of our plan and You know so far so good, so we'll continue to do what we do And then you know we'll see what opportunities open up for us in the future
Speaker Change: Okay, perfect. Yeah, I think that that's fair. And I'm sure we'll hear more obviously next week as well to maybe David switching to you on the product revenue side. I know you guys kind of called that in the release for the prepared remarks.
but it's been exceptionally strong in the first half.
David Wilson: Obviously, there's a lot of value in pairing kind of core telematics with safety.
Speaker Change: in kind of compounding that value proposition for customers, I guess, one, how are you thinking about that as kind of an unlock on the safety side and maybe a way to think about product revenues as the leading indicator for what's to come on the services side as we think about accelerated revenue growth as well. Thank you.
Yeah, I know. Obviously.
Speaker Change: Two points. Firstly, both the margin and the size of the revenue. That speaks to a product that's highly valued by the market, which basically means it's a differentiated product.
Speaker Change: I'm so badly focused in terms of getting those devices out and really spreading them and huge opportunity to cross sell and upsell within our existing customer base, especially as we bring both the mixed legacy customer base with ours.
Speaker Change: So massive sort of increase in just in terms of the size of the market where we have direct live engagement. So absolutely focused on that.
Speaker Change: And you're right in terms of the growth and product has been performing exceptionally well. It's been leading the growth over time. We do expect service revenue to be growing at a faster rate than product revenue when we're kind of going through that evolution.
the next few quarters.
Speaker Change: So, the great news is we're clearly providing something to the market that they value. And secondly, not only is the product revenue a good sort of one-time pickup, but it's really the annuity revenue attached to it.
Speaker Change: We have a differentiated solution. We have complementary solutions for market values. That gives us a great opportunity to expand share of wallet within existing customers. Those are the few quarters, the few years.
as the business progresses.
Great. Thanks, guys. See you guys next week.
Thanks, Lou.
Speaker Change: As a reminder, if you would like to ask a question, please press star 1.
Speaker Change: Your next question for today is from Alex Sklar with Raymond James.
Speaker Change: Great, thank you. Steve, first one for you. You called out some of the strength across Europe and the Middle East in particular this quarter. Is there any more color you can provide in terms of what you saw from a mixed perspective? Did it skew enterprise or mid-market? Anything in terms of new logo versus expansion? I'm kind of curious what drove the strength there.
Steve Towe: Yes, so I think a couple of things. So first of all we have new leadership.
Steve Towe: in the European territory, so I think driving a real sales...
Steve Towe: and Science for Sales methodology and getting on the front foot.
Steve Towe: And to your point, that has allowed us to capitalise on some new logo business, which is great. And then I think the second thing we've seen is the expanded portfolio play.
Steve Towe: whether that is, you know, in warehousing the region into the mixed space, whether that is...
Steve Towe: some of the safety solutions that MEX have brought into the Power Fleet Base. We've seen a nice kick-up on both sides.
Steve Towe: and it's been a bonus for us. So, you know, these territories have underperformed in general. We now feel we're putting the right structure in, the value proposition, you know, is right and harmonised for the markets and we expect to be able to grow those markets. And the response from either side of the customer base to the broader proposition, whether that's mixed or it's been powerfully, has been super strong in the alignment of the team.
Steve Towe: to really get on that front foot, to be able to demonstrate the solutions through a single pane of glass, you know, is bringing us again that just level of credibility and expertise that maybe was missing as individual businesses.
Speaker Change: Okay, perfect. Great color. And then I don't know if Steve or David want to take this one, but in terms of the reorienting and the customer facing teams, can you just elaborate a little bit more on, is that just the customer success team? Is that part of your kind of whole go-to-market organization?
Speaker Change: and realizing that Fleet Complete just closed and STABS had their own customer success team in place. What's the right timing to think about when the bigger lifts will kind of be done there?
Speaker Change: Yes, so the lift will be over the next six to nine month period obviously.
Speaker Change: you know this quarter is a quarter of discovery right in terms of what we've actually got on both sides but
Speaker Change: you know, less than optimal growth in the individual businesses previously, I think there's a much stronger job that we can do.
Speaker Change: in terms of in-life management of customers, whether that is round retention, whether retention turns into migration, whether it turns into cross-sell upsell improvement in wallet share, whether it's
Speaker Change: to improve stickiness through the integration. There's so much opportunity that we have. And I think, you know, going from good to great in that particular discipline will really help our growth rate.
Speaker Change: and so it's something that we've identified, you know, as things that are areas of improvement for the businesses.
Speaker Change: so we're looking to do that not just around the retention piece but we see the retention piece is a cornerstone to drive that in life management for extra services, extra wallet share, so it's multi-dimensional.
Speaker Change: How do we look at the feedback we're getting from customers?
Speaker Change: in terms of, you know, how can they spend more money with us? How do they stay for longer? And how do they expand?
So,
Speaker Change: Very exciting opportunity, it does take time, it takes an evolution in terms of process, it takes an evolution in terms of talent, but it is a major upside opportunity for this business.
All right, great. Thank you very much.
Speaker Change: Good morning Steve and David. Congrats on the results. I think most of my questions have been answered. Looking forward to the investor day, but I wanted to follow up or I guess just ask for your updated outlook and I guess performance within the Israel business and maybe how it's trended of late.
Speaker Change: Yeah, I can take that. So, in terms of the outlook, the outlook is consistent with what we shared from a guidance standpoint early October. So, no change there. We have a focus in terms of maximizing
Speaker Change: at the rate of growth going to financial year 2026. So as we sort of covered in detail in the scripts, it really is about how to get everything lined up, how do we get the organization well positioned so we have a springboard going into next year. When you think about things, for example, like the channel sales.
Speaker Change: it's clearly very well positioned there in terms of what it can drive. So, no real change there in terms of the guidance. I'm sorry, the other part of your question?
Speaker Change: So it was kind of actually related to the Israel business, you know, I know it's a decent chunk of the Israeli business or yeah
It has performed well in unbelievably trying circumstances.
so
Speaker Change: It's done well. It's been able to grow despite some of the challenges. So, delighted with how it's reacted. Obviously, if you think about what we sell from a solution standpoint,
Speaker Change: that safety security is a key value prop and with the change in the macro there and the focus there you know that has been a driver of demand as well that Israel is holding up very well than we probably expected in pretty trying circumstances.
David Wilson: Got it. That's helpful, David. And, you know, wanted to follow up on CHRN. You know, I know obviously more than offset by kind of demand, you know, across service with being still at 5%, but, you know, maybe as it related to fiscal Q1, CHRN relatively in Q2, and just, I guess, wanted to get a sense of how it's trended relative to your expectations.
Speaker Change: Yeah, we've been very clear that there was a churn headwind entering into the year in terms of year-over-year churn with the impact on the mixed business especially.
Speaker Change: There was a very large customer and there was also some business attached to an acquisition that they did where that recurring revenue stream is not held up.
Speaker Change: So that's been the sort of the year-over-year headwind. In terms of the overall performance, it's sort of tracking pretty much as we would have expected, so no major changes there.
Good to hear, thank you.
Speaker Change: We have reached the end of the question and answer session and I will now turn the call over to Mr. Towe for closing remarks.
Steve Towe: Thanks everybody for spending more time with us. We are going to ask that you spend even more time with us, so look forward to meeting many of you in person next week