PWFL PowerFleet Inc

Powerfleet, Inc. (Nasdaq: PWFL), reported results for the second quarter and six months ended June 30, 2023.

SECOND QUARTER 2023 FINANCIAL AND OPERATIONAL HIGHLIGHTS

• Total service revenue increased by 13% on a constant currency basis, compared to Q2 2022.
• Total service revenue increased sequentially by 3.3% on a constant currency basis, demonstrating traction in the company’s transformation to a SaaS centric business model.
• Total service revenue increased to 66% of total revenue, up from 57% in the prior year, driving an expansion in gross margins to 50% from 47%.
• Services gross margin in the go forward core business (excluding Argentina, Brazil, and South Africa business units) increased to 71% with total gross margin for the core business of 53%.
• EBITDA increased sequentially by 31% to $1.8 million versus first quarter 2023, pro forma for EBITDA burn from the Movingdots acquisition.
• Subscriber count totaled 697,177, an increase of 3% from the prior quarter and 9% year- on-year. 

FIRST HALF 2023 FINANCIAL HIGHLIGHTS (COMPARED TO FIRST HALF 2022)

• Transformation into a high value sticky SaaS recurring business continues at pace in our core go forward markets with North American service revenue growing 16% annually, complemented by service revenue in Israel growing 10% on a constant currency basis.
• Growth in services revenue drove expansion in gross margin to 50% from 45% and improved gross profit by $2 million during the controlled product to SaaS sales funnel and revenue mix transition.
• Improved underlying cash generation with cash from operations increasing by $4 million.
• With improved cash generation and liquidity, reinitiated paying the dividend on the convertible preferred instrument in cash versus payment in kind (PIK).
• Taken the necessary steps to reduce annual run rate expense by $4 million per year exiting third quarter. Central to commitment to ensure Movingdots acquisition is adjusted EBITDA neutral.
• Released a highly advanced, sustainability module on Unity platform, at budget and on time; supports asset electrification, and bolsters ESG reporting requirements with net reduction of CO2 emissions.

MANAGEMENT COMMENTARY

“Our transformation into a superior valued business centered on high quality, sticky, recurring SaaS revenue is reflected in our key performance indicators,” said Powerfleet CEO Steve Towe. “While we are still relatively early in our journey, strong proof points are now evident in the shape of our P&L, our mix of revenue and associated SaaS growth rates of 12% for the quarter and 15% for the half of 2023 on a constant currency basis. In the first half 2023, service revenue in our strategically important North American business grew by an impressive 16%, complemented by Israel, which was up 10% on a constant currency basis. New logo SaaS wins, centered around our Unity platform and advanced Safety solutions, were strong in Q2, alongside service gross margins of 71% and total gross margin of 53% in our core business unit. These fundamental SaaS metrics are very strong indicators supporting our longer-term strategic business value creation objectives.

“We believe that all the heavy lifting transformation items we have executed over recent months have set the foundation for greater earnings potential, a more compelling business model, and a lower cost of capital for our shareholders.”

David Wilson, Powerfleet CFO, added: “Our Unity platform continues to track ahead of schedule, and I have no doubt that the pace of delivery and the level of capabilities within Unity are greatly enhanced by the Movingdots acquisition. That said, the importance of being good stewards of capital remains paramount and we have successfully executed the necessary steps to achieve our previously stated $3 million expense reduction challenge. Additionally, we have taken actions to secure an additional $1 million in annualized expense reductions. With $4 million of secured cost savings, we are positioned to exceed our commitment to ensure Movingdots is an adjusted EBITDA neutral transaction exiting the third quarter.”

SECOND QUARTER 2023 FINANCIAL RESULTS

Total revenue was $32.1 million, compared to $34.6 million in the same year-ago period, with growth in services revenue offsetting lower product sales.

Services revenues totaled $21.0 million, up $1.3 million year-over-year, accounting for 66% of total revenue. On a constant currency basis, services revenue grew by 13%, reflecting the company's successful execution of its SaaS growth strategy.

Products revenue was $11.0 million, or 34% of total revenue, compared to $14.8 million, or 43% of total revenue in the prior year period. Total revenue performance reflects actively shedding low margin and non-core hardware business.

Gross profit margin expanded to 50.0% from 46.9% in the prior year period, driven by an improved mix of high-margin services revenue versus products revenue, deal discipline for product sales, terminating unprofitable contracts and eliminating low margin product lines.

In line with expectations, operating expenses increased to $19.2 million from $17.8 million in the same year-ago period, with the increase solely attributable to the Movingdots acquisition.

Net loss attributable to common stockholders totaled $4.3 million, or $(0.12) per basic and diluted share (based on 35.6 million weighted average shares outstanding), compared to net loss attributable to common stockholders of $1.3 million, or $(0.04) per basic and diluted share (based on 35.4 million weighted average shares outstanding), in the same year-ago period.

Adjusted EBITDA, a non-GAAP metric, totaled $647,000, compared to $3.3 million in the same year-ago period reflecting Adjusted EBITDA losses from the Movingdots acquisition. See the section below titled “Non-GAAP Financial Measures” for more information about adjusted EBITDA and its reconciliation to GAAP net income (loss).

Powerfleet had $22.0 million in cash and cash equivalents and a working capital position of $38.3 million at quarter-end.

SIX MONTH 2023 FINANCIAL RESULTS

Total revenue was $64.9 million, compared to $67.8 million in the same year-ago period, with growth in services revenue offsetting lower product sales.

Services revenues totaled $41.5 million, up approximately $3.0 million year-over-year, accounting for 64% of total revenue. On a constant currency basis, services revenue grew by 15%, reflecting the company's successful execution of its SaaS growth strategy.

Products revenue was $23.4 million, or 36% of total revenue, compared to $29.2 million, or 43% of total revenue in the prior year period. Total revenue performance reflects actively shedding low margin and non-core business.

Gross profit margin expanded to 50.3% from 45.2% in the prior year period, driven by an improved mix of high-margin services revenue versus products revenue.

Net loss attributable to common stockholders, inclusive of a $7.5 million gain on bargain purchase for Movingdots, totaled $780,000, or $0.01 per basic and diluted share (based on 35.6 million and 35.7 million weighted average shares outstanding for basic and diluted respectively), compared to net loss attributable to common stockholders of $(5.5) million, or $(0.15) per basic and diluted share (based on 35.4 million weighted average shares outstanding), in the same year-ago period.

Adjusted EBITDA, a non-GAAP metric, totaled $2.0 million, compared to $2.7 million in the prior year period reflecting Adjusted EBITDA losses from the Movingdots acquisition. See the section below titled “Non-GAAP Financial Measures” for more information about adjusted EBITDA and its reconciliation to GAAP net income (loss).

INVESTOR CONFERENCE CALLPowerfleet management will discuss these results and business outlook on a conference call today (Tuesday, August 8, 2023) at 8:30 a.m. Eastern time (5:30 a.m. Pacific time).

Powerfleet management will host the presentation, followed by a question-and-answer session.

Join the live WebcastToll Free Dial In: 888-506-0062International Dial In: 973-528-0011Participant Access Code: 360336

The conference call will be available for replay here and via the investor section of the company’s website at ir.powerfleet.com.

If you have any difficulty connecting with the conference call, please contact Powerfleet’s investor relations team at 949-574-3860.

NON-GAAP FINANCIAL MEASURES To supplement its financial statements presented in accordance with Generally Accepted Accounting Principles (GAAP), Powerfleet provides certain non-GAAP measures of financial performance. These non-GAAP measures include adjusted EBITDA and total revenue and services revenue excluding foreign exchange effect. Reference to these non-GAAP measures should be considered in addition to results prepared under current accounting standards, but are not a substitute for, or superior to, GAAP results. These non-GAAP measures are provided to enhance investors’ overall understanding of Powerfleet’s current financial performance. Specifically, Powerfleet believes the non-GAAP measures provide useful information to both management and investors by excluding certain expenses, gains and losses that may not be indicative of its core operating results and business outlook. These non-GAAP measures are not measures of financial performance or liquidity under GAAP and, accordingly, should not be considered as an alternative to net income or cash flow from operating activities as an indicator of operating performance or liquidity. Because Powerfleet’s method for calculating the non-GAAP measures may differ from other companies’ methods, the non-GAAP measures may not be comparable to similarly titled measures reported by other companies. Reconciliation of all non-GAAP measures included in this press release to the nearest GAAP measures can be found in the financial tables included in this press release.

POWERFLEET, INC. AND SUBSIDIARIESRECONCILIATION OF GAAP TO ADJUSTED EBITDA FINANCIAL MEASURES

	Three Months Ended								Six Months Ended
	June 30,								June 30,
	2022				2023				2022				2023
Net loss attributable to common stockholders	$	(1,334,000	)		$	(4,274,000	)		$	(5,458,000	)		$	(780,000	)
Non-controlling interest		1,000				6,000				2,000				3,000
Preferred stock dividend and accretion		1,216,000				1,297,000				2,412,000				2,572,000
Interest (income) expense, net		560,000				457,000				991,000				974,000
Other (income) expense, net		(3,000	)			0				(2,000	)			(1,000	)
Income tax (benefit) expense		40,000				39,000				(663,000	)			436,000
Depreciation and amortization		2,044,000				2,267,000				4,133,000				4,500,000
Stock-based compensation		1,629,000				852,000				2,086,000				1,684,000
Foreign currency translation		(1,349,000	)			(362,000	)			(1,690,000	)			(942,000	)
Severance related expenses		468,000				425,000				847,000				559,000
Gain on Bargain purchase - Movingdots		-				(283,000	)							(7,517,000	)
Movingdots Related Expenses		-				223,000								540,000
Adjusted EBITDA	$	3,272,000			$	647,000			$	2,658,000			$	2,028,000

ABOUT POWERFLEETPowerfleet (Nasdaq: PWFL; TASE: PWFL) is a global leader of internet of things (IoT) software-as-a-service (SaaS) solutions that optimize the performance of mobile assets and resources to unify business operations. Our data science insights and advanced modular software solutions help drive digital transformation through our customers’ and partners’ ecosystems to help save lives, time, and money. We help connect companies, enabling customers and their customers to realize more effective strategies and results. Powerfleet’s tenured and talented team is at the heart of our approach to partnership and tangible success. The company is headquartered in Woodcliff Lake, New Jersey, with our Pointer Innovation Center (PIC) in Israel and field offices around the globe. For more information, please visit www.powerfleet.com.

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTSThis press release contains forward-looking statements within the meaning of federal securities laws. Forward-looking statements include statements with respect to Powerfleet’s beliefs, plans, goals, objectives, expectations, anticipations, assumptions, estimates, intentions, and future performance, and involve known and unknown risks, uncertainties and other factors, which may be beyond Powerfleet’s control, and which may cause its actual results, performance or achievements to be materially different from future results, performance or achievements expressed or implied by such forward-looking statements. All statements other than statements of historical fact are statements that could be forward-looking statements. For example, forward-looking statements include statements regarding prospects for additional customers; potential contract values; market forecasts; projections of earnings, revenues, synergies, accretion, or other financial information; emerging new products; and plans, strategies, and objectives of management for future operations, including growing revenue, controlling operating costs, increasing production volumes, and expanding business with core customers. The risks and uncertainties referred to above include, but are not limited to, future economic and business conditions, the ability to recognize the anticipated benefits of the acquisition of Movingdots, the loss of key customers or reduction in the purchase of products by any such customers, the failure of the market for Powerfleet’s products to continue to develop, the inability to protect Powerfleet’s intellectual property, the inability to manage growth, the effects of competition from a variety of local, regional, national and other providers of wireless solutions, and other risks detailed from time to time in Powerfleet’s filings with the Securities and Exchange Commission, including Powerfleet’s most recent annual report on Form 10-K. These risks could cause actual results to differ materially from those expressed in any forward-looking statements made by, or on behalf of, Powerfleet. Unless otherwise required by applicable law, Powerfleet assumes no obligation to update the information contained in this press release, and expressly disclaims any obligation to do so, whether a result of new information, future events, or otherwise.

Powerfleet Investor Contact Matt GloverGateway Group, Inc. PWFL@gatewayir.com (949) 574-3860

Powerfleet Media ContactAndrea HaytonPowerfleet, Inc. ahayton@powerfleet.com(610) 401-1999

POWERFLEET, INC. AND SUBSIDIARIESCONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS DATA

	Three Months Ended								Six Months Ended
	June 30,								June 30,
	2022				2023				2022				2023
	(Unaudited)				(Unaudited)				(Unaudited)				(Unaudited)
Revenue:
Products	$	14,818,000			$	11,012,000			$	29,210,000			$	23,416,000
Services		19,776,000				21,038,000				38,545,000				41,473,000
Total Revenues		34,594,000				32,050,000				67,755,000				64,889,000
Cost of revenue:
Cost of products		11,336,000				8,550,000				23,314,000				17,552,000
Cost of services		7,028,000				7,467,000				13,812,000				14,686,000
Total cost of revenues:		18,364,000				16,017,000				37,126,000				32,238,000
Gross Profit		16,230,000				16,033,000				30,629,000				32,651,000
Operating expenses:
Selling, general and administrative expenses		15,817,000				16,987,000				30,729,000				33,774,000
Research and development expenses		2,001,000				2,179,000				5,230,000				3,902,000
Total Operating Expenses		17,818,000				19,166,000				35,959,000				37,676,000
Loss from operations		(1,588,000	)			(3,133,000	)			(5,330,000	)			(5,025,000	)
Interest income		15,000				22,000				28,000				46,000
Interest expense		(575,000	)			(173,000	)			(1,019,000	)			(310,000	)
Gain on Bargain purchase - Movingdots		-				283,000				-				7,517,000
Foreign currency translation of debt		2,068,000				-				2,612,000				-
Other (expense) income, net		3,000				69,000				2,000				3,000
Net (loss) / income before income taxes		(77,000	)			(2,932,000	)			(3,707,000	)			2,231,000
Income tax benefit (expense)		(40,000	)			(39,000	)			663,000				(436,000	)
Net (loss) / income before non-controlling interest		(117,000	)			(2,971,000	)			(3,044,000	)			1,795,000
Non-controlling interest		(1,000	)			(6,000	)			(2,000	)			(3,000	)
Net (loss) / income		(118,000	)			(2,977,000	)			(3,046,000	)			1,792,000
Accretion of preferred stock		(168,000	)			(168,000	)			(336,000	)			(336,000	)
Preferred stock dividend		(1,048,000	)			(1,129,000	)			(2,076,000	)			(2,236,000	)
Net (loss) / income attributable to common stockholders	$	(1,334,000	)		$	(4,274,000	)		$	(5,458,000	)		$	(780,000	)
Net (loss) / income per share - basic	$	(0.01	)		$	(0.12	)		$	(0.15	)		$	0.01
Net (loss) / income per share - diluted		(0.01	)		$	(0.12	)			(0.15	)			0.01
Weighted average common shares outstanding - basic		35,386,000				35,605,000				35,359,000				35,577,000
Weighted average common shares outstanding - diluted		35,386,000				35,605,000				35,359,000				35,670,000

POWERFLEET, INC. AND SUBSIDIARIESCONDENSED CONSOLIDATED BALANCE SHEET DATA

	As of
	December 31, 2022			June 30, 2023
				(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents	$	17,680,000		$	21,729,000
Restricted cash		309,000			309,000
Accounts receivable, net		32,493,000			31,318,000
Inventory, net		22,272,000			22,125,000
Deferred costs - current		762,000			338,000
Prepaid expenses and other current assets		7,709,000			7,298,000
Total current assets		81,225,000			83,117,000
Deferred costs - less current portion		-			-
Fixed assets, net		9,249,000			10,226,000
Goodwill		83,487,000			83,487,000
Intangible assets, net		22,908,000			21,871,000
Right of use asset		7,820,000			6,936,000
Severance payable fund		3,760,000			3,566,000
Deferred tax asset		3,225,000			1,942,000
Other assets		5,761,000			6,131,000
Total assets	$	217,435,000		$	217,276,000
LIABILITIES
Current liabilities:
Short-term bank debt and current maturities of long-term debt	$	10,312,000		$	11,197,000
Accounts payable and accrued expenses		26,598,000			24,960,000
Deferred revenue - current		6,363,000			6,193,000
Lease liability - current		2,441,000			2,448,000
Total current liabilities		45,714,000			44,798,000
Long-term debt, less current maturities		11,403,000			9,940,000
Deferred revenue - less current portion		4,390,000			4,582,000
Lease liability - less current portion		5,628,000			4,715,000
Accrued severance payable		4,365,000			4,284,000
Deferred tax liability		4,919,000			4,030,000
Other long-term liabilities		636,000			668,000
Total liabilities		77,055,000			73,017,000
MEZZANINE EQUITY
Convertible redeemable Preferred stock: Series A		57,565,000			59,008,000
STOCKHOLDERS' EQUITY		-			-
Total Powerfleet, Inc. stockholders' equity		82,737,000			85,188,000
Non-controlling interest		78,000			63,000
Total equity		82,815,000			85,251,000
Total liabilities and stockholders' equity	$	217,435,000		$	217,276,000

POWERFLEET, INC. AND SUBSIDIARIESCONDENSED CONSOLIDATED STATEMENTS OF CASH FLOW DATA

	Six Months Ended June 30,
	2022				2023
					(Unaudited)
Cash flows from operating activities (net of net assets acquired):
Net (loss) / income	$	(3,046,000	)		$	1,792,000
Adjustments to reconcile net loss to cash (used in) provided by operating activities:
Non-controlling interest		2,000				3,000
Gain on bargain purchase		-				(7,517,000	)
Inventory reserve		119,000				375,000
Stock based compensation expense		2,086,000				1,684,000
Depreciation and amortization		4,133,000				4,498,000
Right-of-use assets, non-cash lease expense		1,382,000				1,318,000
Bad debt expense		(364,000	)			826,000
Deferred taxes		(663,000	)			398,000
Other non-cash items		604,000				73,000
Changes in:
Operating assets and liabilities		(6,953,000	)			(2,110,000	)
Net cash (used in) provided by operating activities		(2,700,000	)			1,340,000
Cash flows from investing activities:
Acquisitions, net of cash assumed		-				8,722,000
Purchase of investment		-				(100,000	)
Capitalized software development costs		-				(1,677,000	)
Capital expenditures		(2,013,000	)			(2,108,000	)
Net cash (used in) investing activities		(2,013,000	)			4,837,000
Cash flows from financing activities:
Payment of preferred stock dividend		-				(1,128,000	)
Repayment of long-term debt		(2,897,000	)			(2,658,000	)
Short-term bank debt, net		2,330,000				2,736,000
Purchase of treasury stock upon vesting of restricted stock		(186,000	)			(48,000	)
Proceeds from exercise of stock options		-				36,000
Net cash (used in) provided by financing activities		(753,000	)			(1,062,000	)
Effect of foreign exchange rate changes on cash and cash equivalents		(3,282,000	)			(1,066,000	)
Net increase in cash, cash equivalents and restricted cash		(8,748,000	)			4,049,000
Cash, cash equivalents and restricted cash - beginning of period		26,760,000				17,989,000
Cash, cash equivalents and restricted cash - end of period	$	18,012,000			$	22,038,000

POWERFLEET, INC. CORE BUSINESSCONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS DATA

	Three Months Ended
	June 30, 2023
	Total Powerfleet			BASA / 3rd party Cellocator			Core Business
	(Unaudited)			(Unaudited)			(Unaudited)
Revenue:
Products	$	11,012,000		$	322,838		$	10,689,162
Services		21,038,000			3,105,099			17,932,901
Total Revenues		32,050,000			3,427,937			28,622,063
Cost of revenue:
Cost of products		8,550,000			241,769			8,308,231
Cost of services		7,467,000			2,205,391			5,261,609
Total cost of revenues:		16,017,000			2,447,160			13,569,840
Gross Profit		16,033,000			980,777			15,052,223

POWERFLEET, INC. PRE-MOVINGDOTS ACQUISITIONCONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS DATA

	Three Months Ended
	June 30, 2023
	Total Powerfleet				Movingdots				Powerfleet Pre-Acquisition Business
	(Unaudited)				(Unaudited)				(Unaudited)
Revenue:
Products	$	11,012,000			$	6,700			$	11,005,300
Services		21,038,000				181,842				20,856,158
Total Revenues		32,050,000				188,542				31,861,458
Cost of revenue:
Cost of products		8,550,000				(3,134	)			8,553,134
Cost of services		7,467,000				153,249				7,313,751
Total cost of revenues:		16,017,000				150,115				15,866,885
Gross Profit		16,033,000				38,427				15,994,573
Operating expenses:
Selling, general and administrative expenses		16,987,000				683,801				16,303,199
Research and development expenses		2,179,000				654,773				1,524,227
Total Operating Expenses		19,166,000				1,338,574				17,827,426
Loss from operations		(3,133,000	)			(1,300,147	)			(1,832,853	)
Adjusted EBITDA		647,000				(1,167,000	)			1,814,000

CONSTANT CURRENCYConstant currency information has been presented to illustrate the impact of changes in currency rates on the company’s results. The constant currency information has been determined by adjusting the current financial reporting period results to the prior period average exchange rates, determined as the average of the monthly exchange rates applicable to the period. The measurement has been performed for each of the company’s currencies. The constant currency growth percentage has been calculated by utilizing the constant currency results compared to the prior period results.

The constant currency information represents non-GAAP information. The company believes this provides a useful basis to measure the performance of its business as it removes distortion from the effects of foreign currency movements during the period; however, this information should be considered as supplemental in nature and should not be considered in isolation or as a substitute for the related financial information prepared in accordance with GAAP. See the section above titled “Non-GAAP Financial Measures” for more information.

Due to a portion of the company’s customers who are invoiced in non-U.S. Dollar denominated currencies, the company also calculates subscription revenue growth rate on a constant currency basis, thereby removing the effect of currency fluctuation on results of operations.

	Six Months Ended Jun 30,						Year Over Year Change
($ in Thousands)	2022			2023			$	%
Service Revenue:
Service Revenue as reported	$38,545			$41,478			$2,933	7.6%
Conversion impact of U.S. Dollar				$2,887			$2,887
Service revenue on a constant currency basis	$38,545			$44,365			$5,820	15.1%
	Six Months Ended Jun 30,						Year Over Year Change
($ in Thousands)	2022			2023			$	%
Product Revenue:
Product Revenue as reported	$29,210			$23,411			($5,799)	(19.9%)
Conversion impact of U.S. Dollar				$300			$300
Product revenue on a constant currency basis	$29,210			$23,711			($5,499)	(18.8%)
	Six Months Ended Jun 30,						Year Over Year Change
($ in Thousands)	2022			2023			$	%
Total Revenue:
Total Revenue as reported	$67,755			$64,889			($2,866)	(4.2%)
Conversion impact of U.S. Dollar				$3,187			$3,187
Total revenue on a constant currency basis	$67,755			$68,076			$321	0.5%

	Three Months Ended Jun 30,				Year Over Year Change
($ in Thousands)	2022		2023		$	%
Service Revenue:
Service Revenue as reported	$19,777		$21,044		$1,267	6.4%
Conversion impact of U.S. Dollar			$1,299		$1,299
Service revenue on a constant currency basis	$19,777		$22,343		$2,566	13.0%
	Three Months Ended Jun 30,				Year Over Year Change
($ in Thousands)	2022		2023		$	%
Product Revenue:
Product Revenue as reported	$14,818		$11,006		($3,812)	(25.7%)
Conversion impact of U.S. Dollar			$125		$125
Product revenue on a constant currency basis	$14,818		$11,131		($3,687)	(24.9%)
	Three Months Ended Jun 30,			Year Over Year Change
($ in Thousands)	2022		2023		$	%
Total Revenue:
Total Revenue as reported	$34,595		$32,050		($2,545)	(7.4%)
Conversion impact of U.S. Dollar			$1,424		$1,424
Total revenue on a constant currency basis	$34,595		$33,474		($1,121)	(3.2%)