Q1 2026 PowerFleet Inc Earnings Call

Speaker #4: Greetings. Welcome to PowerFleet's Q1 2026 earnings call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation.

Speaker #4: 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, David Wilson, Powerfleet's chief financial officer.

Speaker #4: You may begin.

Speaker #2: Thank you, operator, and I'm excited to welcome everyone to PowerFleet's first quarter FY26 earnings call. Let me start by reading out the safe harbor statement.

Speaker #2: Our amounts today will contain forward-looking statements. Our actual results may differ from those contemplated by these forward-looking statements. Factors that may cause our results, performance, and achievements to be materially different from those expressed or implied by such forward-looking statements are described in today's earnings press release.

Speaker #2: Any forward-looking statements that we make on this call are made only as of today, and we assume no obligation nor do we intend to publicly update or revise any forward-looking statements to reflect subsequent events or circumstances.

Speaker #2: During this call, we will present both gap and certain non-GAAP financial measures. A reconciliation to GAAP and non-GAAP financial measures is included in today's press release.

Speaker #2: The press release is available on the investor section of our website at ir.powerfleet.com, and we invite you to follow along with the slides that accompany this call, also located on our IR website.

Speaker #2: Now, I'll turn the call over to our CEO, Steve Towe. Steve?

Speaker #5: Thanks, David. Good morning, everyone. It's a pleasure to be here with some of our leadership team as we reflect on a high-impact Q1, one marked by SaaS revenue momentum, profitable growth, and deeper customer attraction through our platform strategy.

Speaker #5: As we enter Q1, we do so with the need to navigate real external complexity. From customer caution tied to macro uncertainty to the intense need to manage swiftly tariff frameworks and exposures.

Speaker #5: We proactively shifted our go-to-market to emphasize bundled software-led solutions in our highest value verticals. We exercised product pricing and commercial discipline that's improved our attach rates and expanded service revenues.

Speaker #5: At the same time, we accelerated our supply chain evolution playbook, mitigating tariff headwinds by rebalancing supplier exposure, negotiating improved cost rates, and managing impacts on the business and our customers.

Speaker #5: We remain firmly on the front foot. Our unit solutions are gaining strong market recognition, and our performance this quarter shows we're building momentum in the right places.

Speaker #5: Whether it's new customer acquisition, SaaS revenue mix, or the operating leverage we're unlocking, we're delivering against the roadmap we laid out. Next slide, ase.

Speaker #5: The stand-up metric this quarter is our achievement of a 6% sequential increase in service revenue, underscoring our recurring SaaS growth momentum. This took our services to a record 83% of total revenue, our highest mix yet.

Speaker #5: The shift towards SaaS is central to our strategy: improving predictability, scaling margins, and comparing value over time. Accelerating this move allowed us to mitigate pressure on CAPEX-laden product deals, where sales cycles have been elongated due to macro uncertainty.

Speaker #5: Another key stand-up metric for the quarter was our service-adjusted EBITDA gross margins hitting 76%, validating the improved efficiency of our model. Furthermore, we actioned $11 million of annualized savings in Q1 FY26, of the annualized $18 million committed for the full year of FY26, which has helped us to deliver adjusted EBITDA above expectations for the quarter.

Speaker #5: Let's turn now to our commercial progress. Next slide, please. Encouragingly in Q1, we added high-value deals of over 100K ARR across 11 diverse sectors, evidence of the wide-ranging appeal for unity solutions.

Speaker #5: We also grew our new customer logo wins by 14% sequentially a healthy expansion driven by enterprise and mid-market traction. AI video bookings grew 52%, quarter quarter, as well as a sequential 28% improvement in overall pipeline with our major channel partners in North America.

Speaker #5: Highlights the robustness of our unified go-to-market strategy. The metrics on this slide are solid proof points that we're driving a strong growth flywheel across our most premium hierarchical solutions, and both our direct and indirect sales motions are contributing well to our growth.

Speaker #5: Let's take a look now at some of key deals in Q1 and why we won them. Next slide, ase. This slide illustrates some of our most strategic enterprise wins this quarter.

Speaker #5: From Fortune 500 food and beverage leaders to global rental and logistics tier one providers. Across the board, we're seeing increased penetration of our safety and compliance modules, major national and international enterprises are placing mission-critical reliance on our AI video and in-warehouse solutions.

Speaker #5: There's a fundamental shift with customers targeting to consolidate their technology portfolios with unity across the full operational spectrum. This translates into improved wallet share and stickiness with our major clients.

Speaker #5: Having looked at some key direct wins, now I have some exciting news for our indirect sales motion. Next slide, please. I'm pleased to announce a force multiplier partnership with MTM Business, building further momentum on our announcement last quarter of major new channel partnerships signed in North America and Europe.

Speaker #5: As one of the world's largest network providers, MTM serves nearly 300 million customers across 16 countries. They've now selected Powerfleet's unity platform as the foundation for their enterprise data intelligence solutions.

Speaker #5: Embedding unity into their highly scaled connectivity stack and launching with a full integrated go-to-market strategy. This partnership opens a vast TAM in high-growth under-penetrated regions built around a fully integrated white-label unity solution.

Speaker #5: This is a great example of the kind of flywheel effect we want from the success and referenceability of our indirect model. Now, 's look at another stand-up win.

Speaker #5: Next slide, please. We're thrilled to welcome Six Rental Mexico as a new enterprise customer. Six will be running with Unity at the center of their operations, using our platform to optimize fuel and energy efficiency, improve driver accountability, and unlock AI-driven visibility in real time.

Speaker #5: Unity's power to automate manual processes and provide mission-critical impact through predictable control is a use case of how we are key to the digital transformation agendas of the world's biggest companies.

Speaker #5: This was also an international referral-led deal, a powerful indicator that unity's global reputation is scaling fast through customer advocacy. Notably, the size and volume of larger digital transformation opportunities is increasing in the business.

Speaker #5: Let's take a look at another win onto the next slide. Our work with Foley, a leading US heavy equipment and machinery provider, is another powerful case study of unity's impact at the enterprise level.

Speaker #5: Before engaging with Powerfleet, Foley faced a common challenge: fragmented data across the mixed brand fleet with limited visibility and no centralized view of maintenance schedules, asset utilization, or performance optimization.

Speaker #5: We solved it with Unity's OEM-agnostic data ingestion and harmonized analytics. The impacts resulted in a 30% reduction in maintenance costs, major gains in uptime and efficiency, and real-time decision support for operations.

Speaker #5: This is a prime use case of how Unity's agnostic ingestion uniquely unlocks customer ROI and gives us a clear competitive advantage. The next couple of slides show how Unity's value proposition is resonating across geographies, verticals, and different mobile asset types.

Speaker #5: Without outcomes that are measurable, durable, and scalable. Next slide, please. The story on this slide brings to life one of the most impactful data points we've seen today.

Speaker #5: And it comes from Holcim, one of the world's largest building materials and sustainability companies. Holcim operates nearly 9,000 vehicles under our management across 18 countries.

Speaker #5: This extensive operation logs over 1.25 billion miles annually in an environment where safety, uptime, and operational resilience are ission-critical to business performance. Our platform is powering Holcim's risk alerts, coaching interventions, and performance analytics.

Speaker #5: Since rolling out unity across their operation, Holcim has achieved an 83% reduction in critical safety events. This highly meaningful metric speaks volumes about the transformative power of data when it's harnessed effectively, consistently, and at scale.

Speaker #5: The impact of this story is a proof point of why unity is becoming the global excellent standard for enterprise-grade safety, in the world of mobile assets.

Speaker #5: Onto the next slide. I want to highlight for our investors some customer value examples of a core capability that's fast becoming a key growth lever for us as well as a strong differentiator from our competitors.

Speaker #5: We call it unified operations. As you can see from these three examples of the large portfolio of third-party system integrations we deliver, we're enhancing the system of record for customers' operational activities to power the effectiveness of their overall digital stack, to meaningfully drive the performance of their assets, the individuals in charge of their assets, and the business processes.

Speaker #5: From CIOs to CFOs to safety executives, senior stakeholders want our data to power more effectiveness within their critical applications. They're highly focused on delivering true digital transformation that unified operations can achieve.

Speaker #5: Each integration you see here is expanding our pool of between 2 to 8 dollars and creating further intrinsic customer value. This helps us to become mission-critical at the heart of our customers' operations and is a cast iron lever for durable retention.

Speaker #5: I'll hand you over now to David to walk us through the financial results from the quarter. David?

Speaker #2: Thanks, Steve. Before diving into the detail, let me start with a brief reminder of key pro forma adjustments. One-time expenses this quarter included $4.6 million in one-time charges for restructuring, integrations, and transaction costs.

Speaker #2: Excluded from adjusted EBITDA and EPS for ongoing runs, amortization impact results include $5.8 million in non-cash amortization related to the Nixon fleet complete acquisitions, impacting services gross margins by 7%.

Speaker #2: Next slide, please. Let me start with the clearest indicator of the strength and momentum of our business model: services revenue, which grew an impressive 53% year over year and 6% sequentially to 86.5 million dollars, a particularly strong result given the scale of our operations.

Speaker #2: Importantly, the mix of revenue continues to sweeten. This quarter's high-margin services revenue rose to 83% of total revenue, up sequentially from 79% and the prior year's 75%.

Speaker #2: As our SaaS revenue grows, so does the predictability, the margin leverage, and the lifetime value of our customer relationships. It means a larger share of our revenue is now high-margin recurring and anchored in multi-year value delivery through the Unity platform.

Speaker #2: Next slide. Strength in SaaS is at the heart of ur investment thesis, rapid profitable growth. Looking at our year over year performance, we delivered 104 million dollars in revenue for the quarter, a 38% increase and approximately 1 million dollars higher in consensus estimates.

Speaker #2: Significantly, adjusted EBITDA hit $21.6 million, a 58% lift over the same period last year and exceeding consensus by over $1 million. This is strong performance at the intersection of innovation and financial discipline.

Speaker #2: We're seeing clear benefits from synergy realization, platform consolidation, and a SaaS-centric revenue mix. This growth is coming from aligned sales execution, expanding customer value, and a well-calibrated operating model.

Speaker #2: We're investing smartly where it counts, and the results speak for selves. Next slide. Let's take a close look at margins. Where we're delivering meaningful year over year gains.

Speaker #2: A stronger revenue mix and service gross margins of 76% were the key drivers of a 300 basis point expansion in adjusted EBITDA gross margins, which reached 67%.

Speaker #2: Strength in services more than offset pressure on product margins of 25%, which were adversely impacted by tariffs that tempered CAPEX deals for our high-margin in-warehouse solutions.

Speaker #2: Moving to the right-hand side of the chart and expense EDORs, where we're making thoughtful trade-offs across the P&L. General administrative costs were down year over year at 26% of revenue, thanks to synergy realization and smart systems consolidation.

Speaker #2: That's significant headroom unlocked without compromising execution. As planned, sales and marketing ticked up to 17%, as we lead into go-to-market acceleration across key verticals and partners, a deliberate investment in top line momentum.

Speaker #2: Gross research and development spend increased by 1%-ish points to 8%. Ensuring continued focus on platform innovation particularly in AI, safety, and compliance. R&D net of capitalized software was 5% of revenue for the quarter.

Speaker #2: Changes in the overall mix of spend are exactly what you want to see: expanding margins, discipline reinvestment, and operational rigor across the board. As we look to the upcoming quarter, we do expect product margins to remain in the mid-20% range, and to support the rapid expansion of channel capabilities, sales and marketing expenses are expected to run at approximately 18% of revenue.

Speaker #2: Next slide, please. Closing on leverage, we're pleased with the trajectory. We exit Q1 with a net debt to EBITDA ratio of 2.97 times, down from 3.2 times at the end of FY25.

Speaker #2: That's solid progress in just one quarter. Our guidance remains firm, under two and a quarter net leverage by year end. Net debt a quarter end was 235 million dollars, compared to adjusted net debt of 229 million dollars at the end of fiscal 2025.

Speaker #2: This increase is in line with prior expectations of front-loaded investments to accelerate platform integration, synergy capture, and system upgrades. This was intentional. It clears the path for a much stronger second half of the year, where we're projecting an additional $30 million in net debt improvement in the back half, driven by top-line growth, reduced CAPEX intensity, and improved working capital performance.

Speaker #2: With that, I'll hand the call over to Melissa to walk through our Q1 transformation progress. Melissa?

Speaker #6: Good morning, everyone. Q1 was another quarter of disciplined execution of strategic transformation initiatives, and we continue to deliver meaningful progress against our objectives. From an BITDA perspective, we realized $11 million in annualized savings this quarter putting us firmly on the path to achieving the $18 million FY26 target we've committed.

Speaker #6: I'll provide more detail on our EBITDA expansion progress on the next slide. On our business transformation initiatives, we're well underway in executing a phased program to harmonize our company-wide systems, focusing on driving operational efficiency and strengthening our ability to scale our global operations seamlessly.

Speaker #6: We successfully achieved the initial milestones in the first quarter, completing a broad sales CRM harmonization across key regions. Further alignment across multiple operating platforms in our strategic operating geographies is now well underway, with a global rollout to further regions already in detailed planning. The whole company is leading into this transformation.

Speaker #6: Which remains a key strategic focus for the team. We're also amplifying our business development efforts to capitalize on strong market demand for our differentiated solutions.

Speaker #6: A key initiative is the launch of a strategic program with a Fortune 500 demand generation partner to double down on the acceleration of our pipeline growth.

Speaker #6: The program is already delivering tangible results with strong engagement and a growing flow of qualified opportunities. On the supply chain front, we're successfully mitigating major tariff-related cost pressures and direct outcome of our strategic supply chain evolution, which is delivering a more balanced and resilient operating model for manufacturing operations to support our global customer base.

Speaker #6: Finally, we're scaling our strategic indirect growth partner management capabilities to meet accelerating demand across our third-party partner ecosystem. This includes major global IoT partners such as MTM, which we discussed earlier, as well as other strategic carrier relationships we covered on the last earnings call.

Speaker #6: We're also seeing strong momentum with key vehicle leasing partners like Sixt. As we expand our global footprint and enable growth through these high-impact channels, we are mobilizing for high-scale sales motions in these channels.

Speaker #6: I'm very encouraged by the way the team has embraced transformation and executed with pace, setting a strong foundation for continued growth and value creation. Next slide, please.

Speaker #6: This slide explains in more detail how we achieved $11 million in annualized savings in Q1. Firstly, as of April 1, we implemented a leaner global operating structure to strengthen our high-performance culture and improve how we operate as a business.

Speaker #6: These enhancements are already driving measurable impact, streamlining decision-making and sharpening accountability enabling us to move faster, execute with greater focus, and serve customers more effectively.

Speaker #6: Whilst this change was first and foremost about building a better business, it also drove meaningful EBITDA improvement, delivering $7 million in annualized savings within Q1.

Speaker #6: The second area of focus was disciplined execution in vendor spend reduction. Our systems transformation enabled us to eliminate redundant and duplicative applications while continuing to overhaul the tools we use to manage customers and operations globally.

Speaker #6: This included aligning to a global support ticketing system and reducing service costs, particularly in communications and third-party providers embedded in our solutions through process standardization and deeper partnerships with fewer, more strategic vendors.

Speaker #6: We've advanced facilities consolidation and continue to standardize operating policies across the business, reinforcing spend discipline and creating a foundation to unlock further efficiencies at scale.

Speaker #6: The combination of these actions gives us tangible confidence we'll deliver the remaining $7 million of our annualized EBITDA savings target for the year, while continuing to invest in customer-facing growth initiatives.

Speaker #6: With that, I'd like to turn the call over to Mike Powell, our Chief Innovation Officer, who is leading both our external and internal technology transformation.

Speaker #6: We are delighted that Mike has chosen to join us for the next phase of PowerFleet's journey. In just seven months, he's brought tremendous energy, vision, and momentum to our innovation agenda, and we're thrilled with the progress we're already making under his leadership.

Speaker #6: Mike, over to ou.

Speaker #7: Thanks, Melissa. And good morning, yone. I'm thrilled to be here, and even more excited about what we're building at Powerfleet. Since joining as chief innovation officer, I've seen firsthand the speed, ambition, and precision with which our team operates.

Speaker #7: We're not just talking digital transformation; we're engineering it with unity as the core enabler. We've taken a bold product vision and translated it into real-world execution.

Speaker #7: Unlocking value across safety, visibility, compliance, and operational efficiency. Whether it's driver risk mitigation, intelligent warehouse optimization, or cross-platform data harmonization, Unity is delivering results where it matters most.

Speaker #7: My focus today is to share how our innovation agenda is scaling, how we're building an enterprise-grade data intelligence delivery engine, that's defining the next generation of AI-powered operations.

Speaker #7: Let's dive into the lights. Next slide, please. In Q1, we received a powerful external validation of our innovation engine. PowerFleet was named one of ABI Research's seven most innovative global technology companies.

Speaker #7: Alongside household names like Schneider Electric, Vertiv, and Ericsson, this recognition was grounded in technical analysis and commercial execution. ABI specifically highlighted the iQue platform for its enterprise-grade modularity, AI-led innovation in the field of agentic and generative AI, as well as machine vision.

Speaker #7: Hardware-agnostic architecture, rapid deployment capability, and a clear ROI delivery at scale. They went as far as to describe unity as enabling true digital transformation.

Speaker #7: A coveted endorsement and real differentiator in a market saturated with point solutions. This recognition tells us two things. First, our platform vision is resonating with both customers and analysts.

Speaker #7: Second, we're no longer just participating in the enterprise IoT conversation; we're aping it. Next slide, ASE. Let's talk about product innovation and specifically AI.

Speaker #7: One of the most pressing pain points we're hearing from enterprise organizations is that they are drowning in video data but starving for insight. Video tools are generating terabytes of footage, but it's too difficult to find the value amidst the forest of data, and consequently, decision latency is high.

Speaker #7: So we built something to solve that. We've launched our new AI risk intervention module inside unity. Purpose-built, to automatically analyze critical safety events and drive real-time action.

Speaker #7: Here's what it ivers. Real-time detection of fatigue, distraction, and unsafe behavior. Automated risk alerting and live driver coaching. 80 plus percent reduction in manual video review hours.

Speaker #7: Structured, export-ready data for insurers and regulators. And, most importantly, measurable ROI through reduced incidents and claims. This is a breakthrough. It's AI with purpose.

Speaker #7: AI that protects lives, cuts costs, and enables safer operations at scale. And it's already live in field. We've signed multiple deals where this module was the differentiator.

Speaker #7: This is what excites me the most. This isn't innovation for innovation's sake. It's driving top line and bottom line impact today. Next slide, ase.

Speaker #7: To wrap up, I'm delighted to announce that this November, we'll be hosting an investor innovation session—a dedicated Unity AIoT product and technology showcase tailored for the investor and analyst community.

Speaker #7: We're bringing you inside the platform, walking you through Unity's agnostic ingestion, harmonization, and single pane of glass in action. Use cases across safety, in-warehouse, on-road, and compliance.

Speaker #7: Customer examples of unified operations and AI-powered applications, and most importantly, how all of this translates into scale monetization and defensibility. You'll see why Unity is a highly differentiated, multi-award-winning platform.

Speaker #7: More than that, it's the platform delivering digital transformation for the world's most operationally intensive industries. We're building something powerful here, and we're excited to show you what's next.

Speaker #7: It's a privilege to lead the innovation agenda for PowerFleet, and I couldn't be more excited for what's ahead. With that, I'll pass the call back to Steve to close us out.

Speaker #8: Thanks, Mike. Before we finish, I want to pause and reflect on just how far we've come. Over the past 10 months, PowerFleet has undergone a profound transformation, from strategy through to execution.

Speaker #8: We've reshaped our operating model, unified our sales channels around a scaled AI-driven platform, and unlocked a powerful flywheel of innovation, commercial impact, and profitable growth.

Speaker #8: Maybe even more importantly, this change is being felt where it matters most. By our ustomers, and our team around the world. Let's open up for Q&A.

Speaker #8: Operator?

Speaker #6: Certainly. At this time, we will be conducting a question-and-answer session. If you would like to ask a question, please press star one on your telephone keypad.

Speaker #6: A confirmation tone will indicate your line is in the question queue. You may press star two if you would like remove your question from the queue.

Speaker #6: For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys, one moment while we poll for questions.

Speaker #6: Your first question for today is from Scott Surley with Wuroth Capital.

Speaker #9: Hey, good evening. Thanks for taking the questions. Great job on the quarter. Nice to see the services growth starting to accelerate. Steve, maybe to jump right into the MTM relationship—very exciting.

Speaker #9: I wonder if there are some other metrics that you can put around it in terms of the opportunity set of fleet vehicles within the MTM base and footprint, and the timing of when we could expect to see some implementation there.

Speaker #9: And maybe some past historic perspective in the quarter as well. How big was telco in the quarter? And I think you had some other operators that were percolating around in other geographies, places like Europe.

Speaker #9: I'm wondering if there are any dates on that front.

Speaker #10: Yeah. Thanks, Scott. So a few things. So in terms of MTM business, it is a significant, if not the most, major part of their infrastructure.

Speaker #10: So a very large opportunity for us, as we said, across multiple countries within the territory. We've been working on this one for a little while.

Speaker #10: So those guys are ready to hit the road in the second half of the year. Again, a little bit of caution just in terms of how long it takes to get pipeline building, but we're already there in terms of doing a lot of the cement work that's needed.

Speaker #10: This is going to be a white label of all of the Unity platform and its solutions. So, you know this will be significant for us.

Speaker #10: In terms of the telcos in the quarter, I think there are a couple of stats that we provided. So, you know, pipeline has gone sequentially 28% up in the North American channel partners.

Speaker #10: And then secondly, the large increase in bookings that we've had for AI video has come predominantly from that channel as well. So, all good in terms of the AT&T and TELUS relationships.

Speaker #10: In terms of the other two that we're still to announce, the work is ongoing. As we've said, they will take a little bit longer just with their processes to come to fruition in terms of bringing business to us.

Speaker #10: That's kind of a late Q4 heading into FY27 that those guys will really come on board for us. But all good. And more than delighted, obviously, with this win.

Speaker #10: As now, we're being recognized not just in the territories where we've played before, but in new territories in terms of getting these opportunities that can provide fantastic scale for the business.

Speaker #9: Great. Thank you very much. And if I could, one more just in terms of the guidance to raise the low end of the guidance, you had a very good quarter in terms of services growth offsetting some of the weakness on the products front.

Speaker #9: I'm wondering, as you look into the September quarter and fiscal 2026 in general, how you're thinking about the product contribution going forward given some of the economic headwinds in the warehouse category. Maybe you could give us some updated thoughts on that and the tariff impact.

Speaker #9: And then, with that stated, are you feeling much more comfortable about getting to that double-digit services growth as we exit the year?

Speaker #9: It seems like what we posted in the June quarter, and kind of extrapolating that going forward, is that the visibility on that front is improving.

Speaker #9: So any updated thoughts on that would be welcome. Thanks.

Speaker #10: I'll play that, David, and then you can jump in with anything, David.

Speaker #9: Yeah.

Speaker #10: I mean, just in general terms, I think we were a little bit pensive coming out of the last quarter with obviously the macroeconomic situation and seeing where it was going to go.

Speaker #10: We've pivoted very strongly. You know this has helped us to move to that SaaS mix that we were looking for. That will continue. You know in terms of caution around CAPEX decisions that it's still remained, it's up and down, you know depending when there's any new news that comes out in terms of the tariffs.

Speaker #10: But I think we're feeling super confident in terms our abilities to grow that to that 10% SaaS rate that you alluded . And just in general, I think you ow we've been through a huge period of transformation.

Speaker #10: A lot going internally, a lot going on externally. Now you know we're seeing those green shoots and I ink the evidence that we're providing whether that's customer wins, whether that is ROI for customers, whether that's our pool expansion, whether it's channel opportunity, you know this is real kind of confidence building for us internally in terms of seeing the proof points to back up the thesis that we have a winning play here.

Speaker #10: And you know we couldn't be more delighted with the quarter. And we couldn't be more delighted with the trajectory, albeit that we still remain, you know, a little bit cautious in terms of some of the macroeconomics that are around us.

Speaker #9: Great. Thanks so much. Great job on the quarter, and I'll be back in the queue.

Speaker #6: Your next question is from Anthony Stoss with Craig Hallam.

Speaker #11: Hi, guys. My congrats on the strong execution as well. Steve, maybe you can share a little bit more color on AT&T, where they're at on the enterprise side of your product rollout.

Speaker #11: I know it's early days. I'm just curious where that stands. And also anything qualitatively you can give us in terms of the number of products Powerfleet products that you're seeing each customer purchase.

Speaker #11: Is that going up, and how rapidly? Then I had a follow-up after that.

Speaker #10: Yeah. So AT&T is tracking well. You know, as you said, it's early days. If you remember their executive that said "video, video, video" in our Investor Day in terms of what their strategy was, I think that's bearing out in some of the metrics that we have put forward.

Speaker #10: And you know they're leaning into you know the different opportunities that unity brings so you know a lot of interest in the new modularity from an AI perspective.

Speaker #10: So I think that that is super, super key in terms win rates of more than one product. You know I ink again the increase in SaaS rates, the increase in ARPU, all gives you good calendar in terms of our abilities to do that.

Speaker #10: And those rates are definitely increasing. So, even though we secured a lot of new logos and increased our new logos, we experienced significant quarterly business through the upsell and cross-sell program.

Speaker #10: So that is playing out as per the thesis as well. And I think just in general, Tony, I am, you know, there were multiple reasons why we did the Fleet Complete acquisition, and multiple reasons why we did the Mix transaction.

Speaker #10: But you know you've on two there. One was the ability for us to expand channel relationships something that is done being done really well by fleet complete.

Speaker #10: And then secondly, you know the very high opportunity for cross-sell and upsell. That's now starting to bear fruit across our customer base.

Speaker #11: Got it. If I could throw one question to David. The percent of revenues that's now SaaS are occurring up huge sequentially at 83%. I'm curious where you ink that goes, say, a year from now and where the overall gross margins for the company as a result go a year from now.

Speaker #2: Yeah. So fairly, it was a blowout quarter from a services standpoint. So you know sometimes everything goes right for you and that was definitely the case this quarter.

Speaker #2: As we said in the earlier remarks, we are expecting sort of 10% organic growth in Q4 of this year. As we exit the year, so double-digit.

Speaker #2: Again, that is going to be driven by primarily services. undoubtedly, we've been hit pretty hard in terms of the CAPEX side of things, the product side of things.

Speaker #2: So I would say that was unusually low. And the expectation is the focus is that there'll be some uplift on that in terms of as we work forward, as people have a better understanding exactly where the tariff situation is, there'll be more certainty.

Speaker #2: So, while it was a great quarter for services, it was not a good one for products. As things level down and as people get more confident, we do expect some product revenue to come back, which can only help sort of the growth rate from a top-line standpoint.

Speaker #10: Yeah. I just want to chime in there. Kind of longer term, you know, 85% plus is our ambition for SaaS revenue as part of the overall revenue mix.

Speaker #10: And if you look at, you know, gross margins on the services line, and remember, services would have a little bit of one-off services in there that bring the margin down.

Speaker #10: But we'll get to 8% plus. You know in that overall service and true SaaS margins, 9% plus. So 95.

Speaker #11: Sure. Very good. Thank you guys.

Speaker #6: Your next question for today is from Gary Prestopino with Barrington Research.

Speaker #9: Good morning, all. A couple of questions here. First of all, David, do you have a number for subscribers and ARPU for the quarter?

Speaker #2: Yeah, Gary. In terms of the growth in services, that was primarily ARPU-driven, so all the reasons that Steve spoke to earlier. I would say there was a modest change upwards in terms of subscribers.

Speaker #2: But it was really sort of ARPU-driven. From a services standpoint, we’ve previously talked about services ARPU being about 15%. So, obviously, a nice kick-up on top of that 15%.

Speaker #9: You mean $15, David, right?

Speaker #2: So $15. Excuse me.

Speaker #10: Yeah. So Gary, just to add in a little bit, if you look at if you look at the mix of revenue, so I think 51% or something was the amount of revenue that came from in warehouse and from AI video.

Speaker #10: I think the best statistic is if you look at the range of ARPUs ere, you're anything from 30 up to 125. So the more of that we sell, the sweeter the mix.

Speaker #10: And that's very much what we're focused on in terms of our ARPU expansion.

Speaker #9: Okay. And then just a question for Melissa. Given how much expense synergies you captured in this quarter, is there a chance that you could exceed the goals of what you stated?

Speaker #9: I think it was 18 million for the year.

Speaker #4: Hey, Gary. So as you heard, we've undertaken you know a ant amount of transformation. And that's been both internally in the and externally as well.

Speaker #4: You know, we do need a little bit of time to, you know, settle through the organization and, you know, continue to drive the performance that we're driving.

Speaker #4: So we're focused on the 18 million for the year, very much as our target. And we intend to hit that.

Speaker #9: Okay. I think just to add into that, Gary, so you know there's a little bit left of our overall plan for FY27. We'll continue to find oxygen in our P&L.

Speaker #9: What we're ivoting right now is to obviously invest some of that return back into go-to-market as well because of the strong proof points we're eing.

Speaker #9: So once we get to the 18, we'll kind of, you know, take a breath and take a look. But I think 18 is a good number to have for the annualized number right now.

Speaker #9: Okay. And then just in general, Steve, you know service product revenue was down. We talked about the tariff impact and the uncertainty.

Speaker #9: And it used to always be that product revenue was going to lead service revenue. But are you seeing, because you're selling more SaaS, more unity, and all that, the mix of your new business coming in? Is it more related to not selling equipment with the SaaS?

Speaker #9: Or I guess what I'm trying to get at is that is that mix improving where you're just selling SaaS versus having to connect equipment to a SaaS sale?

Speaker #10: Yeah. So you're absolutely right. We're selling more applications, more modular applications. The device-agnostic single pane of glass means that we don't always have to sell the hardware as well.

Speaker #10: So, as you know, we want to transform to be as much a true software player and be as device-agnostic as we can.

Speaker #10: So you're seeing that shift happen. In terms of the you know, the product revenue, there was also you know the financial accounting, the gap accounting that was a key part of that declining sequentially as well.

Speaker #10: David can give you the details there. But this is absolutely the mix in motion that we've been trying to achieve. And the more I think that the platform is beginning to have that true modularity, we're starting to sell it as more of an application than a kind of piece of TeamPlus software.

Speaker #10: Then I think that's all playing out as we would want it to. We'll still take the hardware revenue when we get it. But, you know, one thing I'm particularly pleased with is when we were kind of challenged with that CAPEX-laden issue, we've pivoted, and we've pivoted well. We've executed extremely strongly on that SaaS line, which I think from investors' perspective, you know that that's a very good signal for the future.

Speaker #9: Okay, and just to add on, Gary, yeah, it's a $2 million sequential decline for change in accounting. So, okay, great. Thank you. A major impact in terms of run rate revenue.

Speaker #9: Yep.

Speaker #6: Your next question is from Dylan Becker with William Blair.

Speaker #11: Hey, gentlemen. Really nice job here. Maybe Steve had to or for David to double-clicking on your comments there around kind of the doubling down on capacity investment, right?

Speaker #11: Great to see the services acceleration and momentum there. And to your point, that's going to be the driver of gross margin expansion and accelerating revenue growth.

Speaker #11: I guess as you're seeing conviction in enterprise services adoption, kind of the leeway of the upside on cost synergies, how you're thinking about redeploying and maybe seeing kind of validation of this motion or maybe capacity is the constraining factor at this point given kind of some of your pipeline build commentary.

Speaker #10: Yeah. So you'll remember from last quarter, we held off a further $4 million investment into go-to-market until we were kind of through this quarter and maybe next quarter.

Speaker #10: That remains albeit we have taken the decision to put some more resources into those channels into the large indirect opportunities because viously to do those really well which we know how to do really well, you have to put the right effort in upfront.

Speaker #10: So we're releasing a little bit of investment into those. You know, as we continue to see this strength, then, you know, at the half year, we may pivot more investment and faster investment into the front line.

Speaker #10: And I would say coming out of this quarter, our intention to do that is stronger than it was 90 days ago. By the, you know, the quality of results that we've achieved in this quarter.

Speaker #11: Okay. Great. No, that's very helpful. Thanks, Steve. And then maybe Mike, since we've got you as well, on the AI intervention offering. Obviously, as we're scaling out kind of the Unity platform, that gives you a lot of optionality. Maybe this is the first in a series of things to come here.

Speaker #11: But I wonder how you're thinking about the opportunity to deploy AI at scale here and really drive differentiation across the board at Unity.

Speaker #11: As ou see more broad-based adoption and momentum. Thank ou.

Speaker #10: Yeah, absolutely. Yeah, we're excited about what we announced today and the momentum that we have behind us. We're continuing to look for innovative ways to drive value for our customers.

Speaker #10: And like I said earlier in the comments, you know I think it has to be innovation, not just for innovation's sake, but really drive value in the real world.

Speaker #10: So, we're continuing to explore a number of avenues that bring value to our customers. We're excited about what we're going to reveal coming up later this year in November.

Speaker #11: Great. Thank you. Looking forward to it.

Speaker #10: Yep.

Speaker #6: Your next question for today is from Alex Sklar with Raymond James.

Speaker #11: Great. Thank you. Steve, maybe the first one for you. A couple of questions on the indirect channel following up from some of them earlier. But the increase in AI video bookings mix— is that success across all of your major partners there?

Speaker #11: And then, second, you talked about, besides the MTM, you had a new North American partner you were looking to stand up, a new European partner.

Speaker #11: Any update on the timeline of those other partners to get enabled and up to productivity? Thanks.

Speaker #10: Yeah. So, in terms of, I think I went on record last time saying that, you know, the market is pivoting to a video-first strategy if you're doing this really well.

Speaker #10: And that strategy is not just about putting cameras into vehicles. It's, to Mike's point, about how you manage the data and make it meaningful.

Speaker #10: And that positivity is being felt throughout our channel partners. If you think about you know the connectivity strategies of these partners, then you know having video data at the center that, which is you ow lots of data, that's all very much in the sweet spot of those channel partners.

Speaker #10: So across the board, we're feeling that strength from them. In terms of the North American and the European one, as I said, it's going to be a late Q4 launch and then you know more kind of influence over the business in the next financial year.

Speaker #10: But all tracking well. It just takes a while, you know, and people go at different paces to go through their processes and get ready for launch.

Speaker #10: But all good. So if you think about it now, you know across Africa, with MTN, you know the opportunity for growth across that continent and the thirst for technology is very, very high.

Speaker #10: So that's great. You know, strengthening in Europe, having a real powerhouse status across North America is, you know, real great credibility and excitement from our perspective on how we scale.

Speaker #10: It's not we're one-trick ponies in terms of that's all we're focusing . So you know there are other channels, other partnerships that will come to bear part of that.

Speaker #10: But you know we’re in a good spot, and I think we’re ahead of schedule, which is why we’re investing a little bit more.

Speaker #10: But I think the confidence in those partners to take Powerfleet and ou know you take an MTM wanting to white-label the whole portfolio and put it right at the center of their digital IoT operations is a good proof point of you know quality of our technology, but also you know our abilities to help them sell this and service and support it as well.

Speaker #11: Okay. Great color on that. And then David, maybe a follow-up for ou. Just in terms of thinking through the linearity of those run rate savings, synergy savings, hitting the P&L over the next couple of quarters, we obviously have the full year outlook.

Speaker #11: But anything you'd flag on timing there? And then with the bundling mix change that you've seen this quarter, any change in how we should think about working capital and free cash flow for this year?

Speaker #11: Thanks.

Speaker #2: Yep. Yep. So sorry, Sydney. In terms of the synergy benefits, a lot of it's on the G&A side. You saw a nice sort of sequential improvement from a G&A standpoint.

Speaker #2: So we did get a partial quarter benefit there, so that will flow through. We'll get an even bigger flow-through in this coming quarter, given it happened relatively late in the quarter.

Speaker #2: So expect to see the G&A EBITDA, EOR continue to decline over time. As we noted, we are going to be investing some of that back into go-to-market.

Speaker #2: So given that we were able to execute at a faster pace, it does give us a little bit of oxygen to invest back into the business.

Speaker #2: But again, performing exceptionally well, a little ahead of schedule in terms of some of the timing, that does allow us to invest back into go-to-market.

Speaker #2: And then in terms of the change from a liquidity standpoint, no real change in s of what we've shared previously. So we do expect to see you know a $20 million increase in terms of net debt in the first half of the year.

Speaker #2: And then a $30 million flowback. So, no real change on that front.

Speaker #11: All right. Great. Thank you both.

Speaker #6: Once again, if you would like to ask a question, please press star one. Your next question for today is from Greg Gibbis with Northland Securities.

Speaker #12: Hey, good morning, Steve and David. Congrats on the strong execution and the MTM deal as well. Thanks for taking the questions. I just wanted to follow up on a few things.

Speaker #12: I guess you know, as it relates to your previous comments, David, you know, I think you kind of obviously the net debt improvement drivers, $30 million, I think expected in the back half. You know, obviously we have the EBITDA growth component.

Speaker #12: You just kind of spoke to the working capital and wondering kind of on the sharp decline and upfront investments and how much you expect that to ribute.

Speaker #12: And then I guess following up on kind of, you know, the gist piece of the EBITDA savings coming from, you know, organization rationalization, centralizing key functions, strategic outsourcing.

and then Mel, if you take the question on where we're at with kind of organizational redesign and efficiencies across the York. Yeah, sure. So, um, as of April 1st, we essentially aligned into a revised organizational structure and operating model for the business, um, and the drivers there really have been streamlining how we make decisions in the business. Um, driving towards, you know, Peak Performance, in terms of output across the overall company and, and and the business 1 outcomes of that has also been the creation of this, um, this i-bidder expansion within the quarter. So we're we're well, you know, well, now into that, um, the organization is fully aligned into that structure. Very

Very focused on how we drive high performance to the business. Yes, so so to in summary the heavy lifting has been done. So, you know, in terms of integrating the business to operators 1, business centralizing, the functions will continue to harmonize that over the coming period. Uh, the remaining stuff is really coming from vendor vendor spends plus uh, Business Systems and efficiency. But you know, I think the the, the major uplift or uh, you know, difficult times, where you making those real, um, sizable changes in the organizational structure are now complete.

So I think, you know, and just from our performance, I think you see very much a front-foot performance. Now, we're through that period of time, and we're able to focus fully on the outside market just as much as we are internally.

Great, that's helpful. And if I could, uh, kind of change gears here um,

You know, in terms of the $6 rental deal, um, very nice to see that it's several weeks ago. Um, could you maybe kind of speak to the key differentiators that were maybe contributing factors to that? That win. Um, and maybe ARPU, how we should think about that relatively speaking?

Yeah, so a couple of things. So in terms of, um,

Of deals, um, whereas I won't give the actual numbers, but this was, um, you know, this was certainly more than our average ARPU.

As in across the whole base today. So this is a very sweet deal; it's a very feature-rich deal. Um, but we're getting paid accordingly.

Great, good to hear. Thanks very much.

We have reached the end of the question and answer session, and I will now turn the call over to Steve Towe for closing remarks.

Thank you. I just want to say I sincerely thank you for your ongoing support. We'll continue to provide proof points that align with the heart of our strategy: strong operational execution, SAS momentum, customer impact, innovation leadership, and the team delivering tangible results in business improvement.

Importantly, we're doing this with financial rigor, strong fundamentals, and a clear focus on substantial value creation. For our shareholders, we're grateful for your time and attention today. Have a wonderful day. Thanks. Bye bye.

This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation.