PowerFleet, Inc.

Good morning. Welcome to PowerFleet's third quarter 2022 conference call. Joining us for today's presentation is the company's CEO, Steve Towe, and principal financial officer, Joaquin Fang. Following the remarks, we will open 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 plan 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 products, offerings, and other industry trends are considered forward-clicking 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 and uncertainties, 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 statements. Factors that could cause actual results to differ materially could include, amongst others, SEC filings, overall economic and business conditions, 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 Power Fleet's CEO, Mr. Steve Towe. Sir, please proceed.

Thank you, operator, and good morning, everyone. Thank you for joining Power Fleet's third quarter conference call. As you can see from our earnings release, the transformation of our business is being successfully executed as we delivered another quarter of very encouraging and healthy financial performance across the board. We grew revenue 17% year over year, gross profit by 20%, and generated strong adjusted EBITDA profitability. In fact, Q3 marked the fourth consecutive quarter of year over year revenue growth for our company. In addition to our top-line growth, our rationalization initiatives are enhancing our organization's efficiency and profitability. Producing a 23% sequential improvement in loss from operations, totaling a 68% positive shift from Q1 to Q3 in 2022. Ahead of scheduled success, an unwavering determination for improvement in this area has positioned us well to cross over to profitability on an operating basis in the first half of next year, and is also supporting accelerated reinvestment in both go-to-market expertise and advanced software development. We have constantly communicated our goal of profitable growth. Our rebound and improvement in product growth margin by 78% since Q1, despite very challenging ongoing supply chain conditions, is a prime example of the skill and grit of the updated organisation to remove tough barriers in front of us and deliver outperformance against our competition and in turn exceeding market expectations. As you can hear, I'm extremely proud of the strides our team has made towards positioning PowerFleet for predictable and profitable revenue growth in 2023 and beyond. We promised in January and throughout the subsequent Investor Day presentation of Power Fleet Reimagined improved consistency, better quality from our operations, tactical and strategic execution of our plans, aiming to improve internal and external confidence and, frankly, credibility surrounding our future plans and expectations for the business. We are delivering our promises and building very solid foundations for high-velocity, profitable growth on a global stage. Before I go further, I will now turn the call over to our Principal Finance Officer, Joaquin Fong, to provide details on our financial results for Q3. Afterwards, I'll review our operational highlights and outlook. Joaquin?

Thanks, Steve, and good morning to everyone on the call. Turning to our financial results for the third quarter end of September 30, 2022. Total revenue was $34.3 million, which is up 17% compared to the same year-ago period. As Steve mentioned, we're encouraged by the progress we are making in shifting our revenue mix to our SaaS and high-quality recurring revenue. It is worth noting that in late September, we were unable to ship approximately $430,000 of product because we temporarily closed our Tampa facility during Hurricane Ian. Our facility was not damaged from the hurricane and was back online and fully operational in early October. My margin recurring in service revenue was $20.3 million, or 59% of total revenue. This was an improvement compared to $19.8 million, or 57% of total revenue in the second quarter of 2022. Product revenue, which drives future services revenue, was $14 million, or 41% of total revenue. This compares to $10.8 million, or 37% of total revenue in Q3 2021. Gross profit was $17.2 million, or 50% of total revenue compared to $14.3 million, or 49% of total revenue, in the same year ago period. Service gross profit was $13 million, or 64% of total service revenue, an improvement compared to $11.7 million, or 63% of total service revenue, in Q3 last year. Product gross profit was $4.2 million, or 30% of total product revenue, compared to $2.6 million, or 24% of total product revenue, in the same year goal period. The sequential improvement in product gross margin in Q3 2022 reflects our successful reengineering efforts and management of PPV challenges. We continue to work against the backdrop of macroeconomic headwind affecting our ability to procure electronic components In order to deliver on our customer commitments, we're actively managing these constraints in short order. Going forward into Q4 in 2023, we expect to realize sequential margin improvements through our product and re-engineering initiatives. Looking at our expenses, total operating expenses were $18.4 million compared to $17.8 million in the prior quarter and $17 million in Q3 last year. Despite marginal increases in our operating expenses in Q3 due to FX charges and other one-time non-recurring costs, we remain confident in our ability to reduce our annual operating expenses by approximately $5 million over the next 12-month period. Looking at our profitability metrics, loss from operation improved by $370,000, or 23%, to $1.2 million compared to a loss of $1.6 million in the second quarter of 2022. It is worth noting that a significant portion of our loss in the quarter was once again related to PPV and foreign currency impact. Looking at the progress we've made in truncating our cash usage and rationalizing costs, we still expect to cross over to profitability on an operating basis in the first half of 2023. Gap net loss attributable to common stockholders totaled $3.5 million, or $0.10 per basic and diluted share. This compares to gap net loss attributable to common stockholders of $4.5 million, or $0.13 per basic and diluted share, in Q3 of last year. Non-gap net income, a non-gap metric, totaled $1.5 million, or $0.04 per basic and $0.04 per diluted share, compared to a non-gap net loss of $364,000, or $0.01 per basic and $0.01 per diluted share, in the same year-ago period. Adjusted EBITDA gain and non-GAAP metric improved by $1.8 million to $2.8 million compared to adjusted EBITDA of $1 million in the same year ago period. At quarter end, we had $17 million in cash and cash equivalents and $36.7 million of working capital. That concludes my prepared remarks.