PowerFleet, Inc.

Good morning. Welcome to PowerFleet's fourth quarter and full year 2021 conference call. Joining us for today's presentation is the company's CEO, Steve Towe, and CFO, Ned Mavramanis. Following their remarks, we will open up the call for questions. Before we begin the call, I would like to provide PowerFleet's safe harbor statement that includes questions 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 2022 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, amongst 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 CEO, Mr. Steve Towe. Sir, please proceed.

Welcome, everyone, and thanks for joining our call. For those that I've not had the pleasure of speaking to or are new to our company, I joined as CEO in early January this year. Over the last 22 years, I've helped scale highly valuable global technology and software organizations. Most recently, I served as president of Aptos, the global leader in unified commerce solutions in the retail enterprise SaaS market. Prior to Aptos, I had 16 years experience in the IoT telematics space, most notably for five years as chief commercial officer at market leading provider Masternode. Before that, I held senior executive roles at the highly acquisitive market consolidator, Sybet, and Fleet Star Information Systems, the high velocity fleet management subsidiary of the Traffic Master Group, now known as Teletrac. It's been a busy and highly productive period since I joined PowerFleet approximately nine weeks ago. My early observations confirm what I thought to be true about the organization. PowerFleet has an impressive set of technical capabilities and IP. A strong reputation in the industry, a world-class customer base, and a talented, energetic team across the globe. I joined PowerFleet for the next evolution of the company at a time when our customers are going through great business change, most notably due to the challenges created by the pandemic, with rising cost bases and increased pressure to deliver results. Through those headwinds and unprecedented times, our mission has become even more clear. We're here to play a critical role as our customers accelerate their digital transformations and their utilization of fully integrated data solutions to create highly effective unified business operations and obtain full visibility across their supply chain. Over the last two months, the leadership team and I have begun implementing the initial phase of our new long-term strategic roadmap. I plan to provide more details on this roadmap in the coming months. There's a high level the roadmap is designed to cement PowerFleet as a fully mission critical software and data solutions provider for the $58 billion global IoT market. Before I discuss our vision and broad strokes of our strategic plan, I'm going to turn it over to Ned to discuss our results for the fourth quarter and the fall year 2021. Afterwards, I'll dive into some of our key early initiatives centered around our transformational growth strategy.

Thank you, Steve, and good morning, everyone. Turning to our results for the fourth quarter and full year ended December 31, 2021. At a high level, the fourth quarter of 21 marked a strong finish to the year, highlighted by 17% year-over-year top-line growth and a 10% increase in high-margin recurring and services revenue in the quarter. Our robust growth in the quarter was driven by broad-based sales in our domestic market along with continued demand from our international customer base. Now, let's look at our results in more detail. Total revenue for the fourth quarter increased 17% to $34.4 million compared to $29.4 million in Q4 of last year. For the full year, total revenue increased 11% to a record $126.2 million from $113.6 million in 2020. High margin recurring and services revenue for the fourth quarter of 21 increased 10% to $19.1 million or 56% of total revenue from $17.3 million or 59% of total revenue in Q4 of last year. For the full year of 21, high margin recurring and services revenue increased 7% to $73.2 million or 58% of total revenue from $67.9 million or 60% of total revenue in the same year ago period. Product revenue, which drives future service revenue for the fourth quarter of 21 was $15.3 million or 44% of total revenue and improvement compared to 12.1 million or 41% of total revenue in Q4 of last year. For the fourth year, product revenue was $53 million or 42% of total revenue and improvement compared to 45.7 million or 40% of total revenue in 2020. Gross profit for the fourth quarter of 21 was 15.4 million or 45% of total revenue compared to 15.2 million or 52% of total revenue in Q4 of last year. Service close profit for the fourth quarter of 2021 was $12.4 million, or 65% of total service revenue, compared to $11.2 million, or 65% of total service revenue in Q4 of last year. Product close profit for the fourth quarter of 2021 was $3.1 million, or 20% of total product revenue, compared to $3.9 million, or 32% of total product revenue in Q4 of last year. Product gross profit margin in 2021 was impacted by product mix, higher costs associated with supply chain issues and electronic component shortages, and inflation. We expect product gross profit margin to start improving as we progress through 2022 and supply chain issues are improving and as we progress on our efforts of operating efficiencies. Turning to our expenses, total operating expenses for the fourth quarter of 2021 were $18.9 million compared to $16.7 million in the prior quarter and $15.3 million in Q4 of last year. It's worth noting that we recorded approximately $1 million of one-time recruiting fees and severance-related costs to the prior CEO's departure in the fourth quarter. For the full year of 2021, total operating expenses were $68.2 million, compared to $62.5 million in the same year ago period. It's important to note that the comparable quarter and full year periods of 2020 reflect the cost-cutting measures we implemented in response to COVID-19. As we move into 2022, we expect our quarterly OPEX to remain relatively consistent at the same level we reported in 2-4 of 2021. However, a key initiative of our transformation strategy is to rationalize costs in non-core areas, the benefit of which we expect to start seeing in Q2 and beyond. Looking at our profitability metrics, top net loss attributable to common stockholders totaled $7.9 million, or 23 cents per basic and diluted share, compared to net loss attributable to common stockholders of 3.5 million, or 12 cents per basic and diluted share in Q4 of last year. Non-GAAP net loss for the fourth quarter of 2021 totaled $245,000 or $0.01 per basic and diluted share. This compares to a non-GAAP net income of $2 million or $0.07 per basic and diluted and $0.05 per diluted share in Q4 of last year. Adjusted EBITDA and non-GAAP metric for the fourth quarter of 2021 totaled $1 million compared to adjusted EBITDA of $3.2 million in the same year ago period. Our liquidity position remains strong at quarter end with $26.5 million in cash and $43.6 million of working capital. Lastly, PowerFleet will be at the 34th Annual Roth Capital Conference in Laguna Beach next Monday, and we'll also be attending the 16th Annual Barrington Research Virtual Spring Conference on May 19th. That concludes my prepared remarks. Steve?