PowerFleet, Inc.

Good morning and welcome to Power Fleet's first quarter 2023 conference call. Joining us for today's presentation is the company's CEO, Steve Towe, and CFO, David Wilson. Following their remarks, we will open the call for questions. Before we begin the call, I would like to provide Power Fleet'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 2023 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, you may proceed.

Good morning and thank you for joining today. It's a pleasure to share our first quarter performance with you. Our positive start to the new year reflects our unwavering focus on driving growth, profitability and SaaS recurring revenue expansion, all while facing challenging macroeconomic pressures and highly significant FX headwinds. On a constant currency basis, our total revenue increased by 4% year over year and our high margin recurring service revenue was up 17% compared with Q1 last year. We're also delighted to report a 15% growth profit expansion in Q1, with margins in the quarter exceeding 50%, up from 43% in the prior year. The U.S. business is seen as a major contributor for our future growth story, a thesis that continues to be validated with a 20% increase in recurring revenue versus the prior period last year. We also improved our bottom line metrics, notably versus the prior year. which David will highlight shortly. Our key change efforts aim to optimize PowerFleet's business and concentrate our capital on areas that deliver superior returns to shareholders. This includes our revenue mix, geographies, competitive advantage, and allocating capital and resources to drive faster growth and increased profitability. As part of this transformation strategy, we're actively working to divest low margin, low growth, and subscale business units. We've made good progress on finding potential new homes for our Argentinian, Brazil, and South African business units, continuing hardware-only purchases through our seller-trader sales channel, and terminating loss-making contracts. This exercise naturally moderates our overall total revenue growth in the short term, but allows us to focus on value-enhancing recurring revenue expansion, which in turn drives attractive gross margin expansion, improved cash flow, and EBITDA. The most concrete indicator of the progress of our transformation efforts is the excellent gross margin performance of our go-forward core businesses in Q1. For these business units, we expanded our total gross margin to 53% and our high-quality service margin increased to 71%. This impressive and exciting margin profile for our core business going forward provides us with an excellent platform to drive accretive shareholder value. In addition to the major transformation activities we executed in Q1, we successfully closed the moving dots acquisition, launched a major new value-added module on our Unity platform, and secured several major customer sales routes. Before I dive deeper into our operational progress and outlook, I'll turn the call over to David to walk you through our numbers in more detail. David.

Thanks, Steve, and good morning, everyone. To begin with, I would like to provide an overview of our company's financial priorities after my first 90 days in the role. Priority number one is to accelerate our strategic transformation while staying within the limits of our current balance sheet. As Steve noted, we recently completed the Moving Docks acquisition, which brought an additional $8.7 million in liquidity. This move also onboards a talented team of engineers and data scientists to help accelerate the rollout of Unity. It brings complementary technology, that meets the high performance standards set by one of the world's largest insurance providers and expands our presence to accelerate growth in the EMEA region. As we transition existing activities to the Moving Dots team in the second quarter, we expect to spend $1.5 million resulting in a short-term hit to EBITDA. In parallel with the transition, we are also executing a series of cut-to-cover actions including our $3 million OPEX challenge to bring EBITDA impact of absorbing the moving dots business down to break even as we exit Q3. Priority number two is to improve the underlying operating leverage of our business by implementing a common and scalable software platform across all key geographies. We currently have an assortment of ERP systems resulting in a massive amount of manual work and costs. During my first 90 days, we made the decision to pivot from the initial ERP rollout plan that would have taken us deep into 2024 to complete to an accelerated and more cost-effective Plan B, which we expect to complete by year-end. In addition to saving time and money with ERP rollouts, the project will address the root cause issues that currently result in G&A spend being well above our peers and our longer-term operating target. We expect to see substantial savings from this project in the P&L from Q1 2024 onwards. Now onto our financial performance, where I'm pleased to report that our Q1 results demonstrate solid performance despite economic challenges and FX headwinds. Total revenue for the quarter ended March 31, 23 was $32.8 million compared to $33.2 million last year. with the planned decline in low value product revenue offset by growth in higher value service revenue. On a constant currency basis, total revenue would have been $34.6 million, an annual increase of 4%. Our services revenue totaled $20.4 million, up $1.7 million year over year, and accounting for 62% of total revenue. On a constant currency basis, our service revenue grew an impressive 17%, reflecting the successful execution of our SaaS growth strategy. This strategy is focused on expanding our customer base and driving more value for existing customers through delivery of high-quality cloud-based services. Product revenue declined by $2 million, 12.4 million, or 38% of total revenue, with deal discipline and terminating unprofitable contracts the key drivers. While we continue to invest in new product developments, we've implemented a more disciplined approach to dealmaking. This approach has enabled us to focus on higher value, higher margin opportunities, while reducing our exposure to lower margin business. Gross profit margin expanded to 51% in Q1 from 43% in the prior year, driven by an improved mix of high margin service revenue versus product revenue, field discipline, and lower purchase price variances. Our operating expenses increased by $400,000 to $18.5 million, compared to $18.1 million in the Same year ago period. Performance in the quarter was adversely impacted by $700,000 in M&A and other non-recurring and out-of-period costs. Our ongoing focus on cost management is enabling us to shift investment into areas of higher return, including sales and marketing, with compelling results expected to be evident with accelerated revenue growth in the second half of 2023. Net profit attributable to common stockholders inclusive of a $7.2 million gain on bargain purchase for moving dots totaled $3.5 million or 10 cents per basic share and 8 cents for diluted share. Up from a net loss attributable to common stockholders of $4.1 million or 12 cents for basic and diluted share a year ago. Adjusted EBITDA improved significantly to $1.4 million benefiting from $2.2 million expansion in gross margin. This reflects our continued focus on profitability and our ability to deliver high-margin services to our customers. At quarter end, we had $25.1 million in cash and cash equivalents and a working capital position of $41.8 million, benefiting from $8.7 million in net proceeds from the acquisition of Moving Notes. We believe with our strength and balance sheet, combined with our focus on delivering high-quality services, we are well-positioned to drive growth and value for our shareholders. That concludes my remarks. Steve?