PowerFleet, Inc.

Good morning. Welcome to PowerFleet's second quarter 2020 conference call. Joining us for today's presentation is the company's CEO, Chris Wolf, and CFO, Ned Mavromadis. Following their remarks, we will open the call for questions. Before we begin, I would like to provide PowerFleet's safe harbor statement that includes cautions regarding forward-looking statements made during this call. During the call, there will be forward-looking statements made regarding future events, including Power Fleet's future financial performance. All statements other than present and historical facts, which include any statements regarding the company's plans for future operations, anticipated future financial position, anticipated results of operation, business strategy, competitive position, company's expectations regarding opportunities for growth, Demand for the company's product, offering, and other industry trends are considered forward-looking statements. Such statements include but are not limited to the company's financial expectations for 2020 and beyond. All such forward-looking statements imply the presence of risks, uncertainties, and contingencies, many of which are beyond the company's control. The company's actual results, performance, or achievements may differ materially from those projected or assumed in any forward-looking statement. Factors that could cause actual results to differ materially could include, among others, SEC filings, overall economic and business conditions, demand for the company's products and services, competitive factors, emergence of new technologies, and the company's cash position. The company does not intend to undertake any duty to update any forward-looking statements to reflect future events or circumstances. Finally, I would like to remind everyone that this call will be made available for replay in the investor relations section of the company's website at www.powerfleet.com. Now, I would like to turn the call over to PowerFleet's CEO, Mr. Chris Wolf. Sir, please proceed.

Thank you, Priscilla. Good morning, and thank you for joining us today. I hope everyone is staying safe and doing well over these past five crazy and challenging months. PowerFleet's global employees are managing to stay safe and operating the business effectively. Our performance for the second quarter was solid, especially considering the headwinds and challenges presented by COVID-19. Nonetheless, we delivered steady top and bottom line results with revenue of $25.8 million and adjusted EBITDA of $2.1 million. On top of this, our 550,000 subscriber base remained intact with recurring services and subscription revenues holding up extremely well. Our financial results also showed our team's ability to quickly right-size our cost structure to improve our profitability. They also reflect our team's unwavering commitment to our customers and partners globally to meet the unprecedented challenges of today's remote work environment. I continue to be incredibly proud of our team and the remarkable job they're doing executing against our revised business plan and objectives given this environment. Power Fleet's technology plays a critical role in helping our more than 8,000 customers operate safely and be more effective during this challenging time. Our customer base is comprised of some of the largest companies in the world, such as Walmart, Nestle's, General Mills, and Procter & Gamble, to name a few, who rely on our technology to ensure that the global supply chain remains uninterrupted and goods are flowing to their destinations in a timely manner. Power Fleet, like all businesses, has not been immune to COVID. April and May really challenged our business Our customers and our end markets. However, we were able to secure several million-dollar opportunities in the quarter. Additionally, the numerous cost-saving initiatives we implemented in late March and early April significantly improved our cost structure, providing more leverage to our bottom line as we drive revenue growth. This was certainly the case in Q2, where we saw adjusted EBITDA improve by $1.9 million compared to the prior quarter, despite our revenue in Q2 being $5 million lower. As you will see, our results and our capital position allows us to terminate our at-market equity offering at this time. Now I'll turn the call over to Ned, who will cover this and our financial results. Afterwards, I'll provide an overview of our recent sales and operational highlights and outlook. Then we'll open the meeting up for questions. Ned?

Thank you, Chris, and good morning, everyone. Our financial results for the second quarter of 2020 include consolidated results for both ID systems and Poynter Tellocation Ltd., which we acquired on October 3, 2019. Keep in mind that the comparable year-ago period only includes standalone financial results from ID systems. Now, with those qualifications, let's look at the numbers. Revenue for the second quarter of 2020 increased to $25.8 million from $16.3 million in the same year-ago period. High margin recurring and services revenue was $16.4 million, or 64% of total revenue, compared to $5.6 million, or 35% of total revenue in the same year-ago period. Product revenue, which drives future service revenue, was $9.4 million, or 37% of total revenue, compared to $10.6 million, or 65% of total revenue in Q2 of last year. Gross profit increased to $14 million or 55% of total revenue from $7.1 million or 44% of total revenue in Q2 of last year. Now, turning to our expenses for the second quarter of 2020, total operating expenses were $14.7 million compared to $9.6 million in Q2 of last year. Looking at the various components of APEX, Selling, general, and administrative expenses were $10.3 million compared to $5.6 million in Q2 of last year. Research and development expenses were $2.6 million compared to $2 million in Q2 of last year. Depreciation and amortization expenses were $1.8 million compared to $443,000 in the same year-ago period. APEX in the second quarter of 2019 included $1.6 million of acquisition-related expenses versus none in Q2 of 2020. As we talked about on our last call, in response to COVID-19 at the end of March, we proactively implemented several cost-saving measures, which began to see the benefit in Q2. The $14.7 million of APEX in the second quarter was down $3.5 million, or 19% from the prior quarter. We have additional levers to pull to further reduce costs should the situation with COVID worsen. Turning to our profitability measures, gap net loss for the second quarter of 2020 totaled $3.8 million, or 13 cents per basic and diluted share. This compares to gap net loss of $2.6 million, or $0.15 per basic and diluted share in Q2 of last year. Adjusted EBITDA, a non-GAAP metric, which we define as earnings before interest, taxes, depreciation, amortization, stock-based compensation, and non-recurring items for the second quarter of 2020 total $2.1 million, or $0.08 of total revenue. This is an improvement from adjusted EBITDA of $129,000 in Q2 of last year. Our liquidity position remains strong. At the end of Q2, we had $21.5 million in cash and cash equivalents and working capital of $28.9 million. As Chris mentioned, we initiated the 10-day termination process of our ATM facility on August 4, 2020, with the official termination to take effect on August 14, 2020. We will make no further sales of shares under the ATM facility. To date, we sold 846,000 shares, raising approximately $4.2 million in gross proceeds. We expect to use the proceeds for the ATM facility to pay down high interest rate debt. Our focus continues to be on working capital management and cash collections. I'm encouraged to report that for the six months ended June 30, 2020, we generated $4.4 million from operations. which is an improvement from the $2.3 million used in operations in the comparable period of 2019. In summary, we believe our diversified customer base, predictable high margin recurring revenue, and prudent approach to cash management will help us ensure we successfully navigate this uncertain times. That concludes my prepared remarks. Chris? Hey, thanks, Ned.