PowerFleet, Inc.

Good morning and welcome to the fireside chat. At this time, all participants are in a listen-only mode and we will open for questions following the presentation. If anyone should require operator assistance during the conference, please press star zero on your phone keypad. Please note this conference is being recorded. I will now turn the conference over to your host, David Wilson, CFO of Powerfleet Incorporated. David, the floor is yours.

Good morning, everyone, and welcome to today's fireside chat. My name is David Wilson, CFO of Powerfleet Inc., and I am joined on today's call by Steve Toh, Powerfleet CEO. I'll begin the call by sharing our safe harbor statement. The information shared on today's call contains forward-looking statements within the meaning of federal securities laws. All statements contained in this presentation that do not relate to matters of historical fact should be considered forward-looking statements. For example, forward-looking statements include, without limitation, statements regarding our preliminary financial results for the three months ended June 30, 2024, and our preliminary pro forma results for the 12 months ended March 31, 2024, and the integration of our mixed telematics businesses and the ability to recognize the anticipated synergies and benefits of our business combination with mixed telematics. These forward-looking statements are based on management's current expectations. These statements are neither promises nor guarantees and are subject to risks. Uncertainties and other factors described from time to time in our periodic filings with the Securities and Exchange Commission. Should one or more of these risks or uncertainties materialize, or should underlying assumptions prove to be incorrect, actual results may vary materially from those indicated or anticipated by these forward-looking statements. The forward-looking statements included in this presentation are made only as of the date of this presentation, and unless otherwise required by applicable law, we assume no obligation to update any forward-looking statements and expressly disclaim any obligations to do so, whether as a result of new information, future events, or otherwise. With the forward-looking statements shared, I'll start by briefly addressing the delay in our Q1 fiscal 2025 earnings call and related filings. We received a comment letter from the SEC on July 30th regarding the designation of Powerfleet Inc. as the accounting acquirer under ASC 805 business combinations in our recent combination with Mixed Telematics Limited. This accounting matter does not directly impact our cash flow. The matter raised by the SEC was carefully reviewed and deliberated on by both Powerfleet and Mixed Telematics in close collaboration with their external advisors during the preparation of the S4 and other necessary regulatory filings in connection with the transaction. While relative shareholding is a factor in identifying the accounting acquirer, it's important to recognize that ASC 805 outlines several other considerations under US GAAP that must be evaluated. These include, but are not limited to, the composition of the board of directors, management control, any control premium paid, and the relative sizes of the two entities involved in the merger. After a comprehensive analysis of all relevant aspects of the transaction, both companies concluded that Powerfleet had gained control over Mixed Telematics. Consequently, Powerfleet was identified as the accounting acquirer in this transaction. While we are working closely with our auditors and legal advisors to resolve this matter within the month of August, timing is ultimately dependent upon the SEC review process. As a result, this ongoing review will delay our ability to file our transition report on Form 10KT for the transition period from January 1, 2024 to March 31, 2024, and our Form 10Q for the fiscal first quarter ended June 30, 2024. Our preliminary results for the June quarter have been prepared with Powerfleet identified as the accounting acquirer. This includes additional amortization expenses related to intangible assets, primarily customer relationships identified during the purchase price allocation, offset in part by reduction in the amortization of capitalized commission. While we are confident in the rigor of our evaluation process, and believe this conclusion aligns with guidelines provided by US GAAP, we understand the importance of the SEC review process, and we'll work closely with them to conclude this matter. I now turn the call over to Steve to provide an overview of our first quarter operating and preliminary financial performance. Steve.

Thank you, David, and thank you all for joining us today. I'd like to start by acknowledging that due to the matters David has discussed, there has been no longer than usual gaps into our last formal earnings call. However, during this time, we've been deeply focused on executing our strategy and driving meaningful results. Our first quarter financial performance is a strong indicator of the progress we've made and very positive momentum we're seeing across the business. Success is clearly evident in the top line performance where we expect a 10% year over year revenue growth on a pro-formal basis to approximately $75 million. This growth underscores robust demand for our solutions, particularly driven by the strength of our differentiated in warehouse safety solutions and the ongoing traction of unity in North America and growth in our subscriber base, which increased by 11% year over year to 1.95 million. Our preliminary adjusted EBITDA is anticipated to exceed $13.5 million, representing an increase of over 40% compared to the pro-forma adjusted EBITDA from the same period last year. The strength reflects excellence in execution as we deliver strong top line growth while effectively implementing our integration and EBITDA expansion initiatives. It demonstrates operating leverage inherent with our business model and our cost synergy program running ahead of schedule, securing $8.7 million in annualized savings as we exit the quarter. Looking forward to the future, given our strong start to the fiscal year, we are raising full year 2025 revenue guidance to exceed $300 million from our prior guidance of approximately $300 million. We are also increasing our adjusted EBITDA guidance to exceed $60 million, which includes an incremental $5 million in secured exit run rate cost synergies compared to our previous guidance of approximately $60 million. We believe these results reflect the effectiveness of our integration strategy and our ability to drive up top line growth and operational efficiencies. Before we open the floor to questions, I want to reiterate that the accounting item with the SEC is not reflective of our operational performance. We're working diligently to resolve this matter and we remain confident in the growth and resilience of our business performance. Thank you for your continued support and confidence in PowerFleet. We look forward to discussing these results in more detail on the next earnings call and addressing your questions during the remainder of the session. Now let's move on to the Q&A session. Operator.

Thank you very much. At this time, we will be conducting our question and answer session. If you would like to ask a question, you can press star one on your phone keypad now. A confirmation tone will indicate that your line is in the queue. You may press star two if you would like to remove your question from the queue. For any participants using speaker equipment, it may be necessary to pick up your handset before you press the keys. Please wait a moment whilst we poll for questions. Thank you. Your first question is coming from Scott Searle of Roth Capital. Scott, your line is live.

Hey, good morning. Thanks for taking the questions. Nice to see the top line starting to move in the right direction. Hey, Dave, maybe just quickly, I wanna make sure from the accounting standpoint, what we've got is from an SEC standpoint, determining who the acquiring entity is and then therefore that impacts purchase accounting, intangible allocations, et cetera, right? That is a simple non-cash aspect of what's happened here?

Yeah, that's absolutely right, Scott. So it's really about which side of the ledger in terms of perfect or mixed you assigned intangibles given the price paid would be high in the book value of either company.

Gotcha. And Steve, it's nice to see the sales up 10% year over year. Certainly ahead of, I think, the early expectations when you guys first talked about the combination. I wonder if you could provide a little bit of color on that 10% growth in the June quarter. How much was product versus recurring aspects? And then as we start to look into the customer base and raising the guidance for the year, where are you seeing that strength? You did reference warehouse, but I'm wondering where else in terms of end markets, geographies, and what you're seeing in terms of existing customers increasing the number of modules that they're deploying and how Unity Platform is doing into the mix base. Thanks.

Thanks, Scott, and I'll try and unpack those as we go. So I think ultimately we wanted to come out of the gate strong, and I think the results really represent the customer sentiment and the market sentiment to the transaction and the disruptive and differentiated solutions that we're now bringing to play to a broader customer base. So we were very, very strong in our Unity Safety Solutions, which were up 25% year over year. And within that Unity Service Revenue was up 10% year over year. David will cover off in terms of the overall numbers, the split on revenue. But what I would say is we're seeing, again, strong traction in North America in terms of those solutions we've talked about, but also I would say a good to great performance just across the board. So we're all aware of the macro headwinds, we're all aware of the challenges and the geopolitical issues around the world, but this team has come out very resiliently. And I think you should take this as a strong signal from our customer base just in terms of their response to, from a mixed perspective, a broader portfolio, from a power fleet perspective, I think it's just more of the same, but we're now getting into a groove with the sales team in terms of turning over those winds. 70% of the business is coming from existing business, 30 from New Logo, but just a strong, strong out the gate performance. And I think most notably when companies come together, people are very concerned about that first kind of three to six months and how performance is gonna go. So doing that growth, but doing it also very profitably, I think is a second plus point for the business. So we're delighted with the start. David, you might wanna just cover off some of the mechanics of the revenue.

Yeah, so just building on Steve's comments, Scott. So we had an incredibly strong quarter in terms of product revenue. To Steve's point, this is the differentiated sort of safety centric solutions we're bringing to market. So that resonates well, so we have good traction there. And as you can appreciate, strong product revenue is the precursor to attach services revenue over time. So that gives us a good foundation as results between now and the end of the year. So that was very strong. In terms of service revenue, it was up year over year, mid single digits. A couple of points there. Firstly, if you think back to some of the information that Nick shared previously, they did have some significant sources of churn in their base and clearly the growth that we're seeing there has to outpace that and then some. So we feel good about where we are. And then in terms of how services performing versus our internal plan, it's sort of ahead of plan as well. So a good firm foundation for the rest of this fiscal

year. Hey, great. And if I could quickly follow up, Steve, is Unity remain on track to roll out to the entire mix base? I think the target was six months. And the 30% from new logos is an impressive number. I'm just wondering if you could quickly give us an idea how those ARPUs are comparing our guys coming in with a broader service suite that they're signing up for. Thanks.

Yeah, so I think what is also kicking in is the elements of Unity that increase ARPUs. So what we've seen as we brought this into the new logo base is people are taking the device and data ingestion, the device agnostic data ingestion piece in there, also signing up early on for the unified operations, business systems integration, which helps us on the broader ARPU piece. So that

is very strong. Great, thanks. I'll get back in the queue.

Thank you very much. Your next question is coming from Anthony Stoss of Craig Hallam. Anthony, your line is live.

Thank you. Good morning, guys. Nice results. I want to follow up on the sub count, 1.7 million subscribers. Can you share perhaps more detail where you're seeing the bulk of those new customers coming in line, what products and what services and David, if you want, or Steve, share kind of a goal in terms of sub count by the end of this year? And then also I'd love to hear the 5 million of new phone synergies, where's that coming from?

So it's actually 1.95 million, I think in terms of subscribers. And I think that is being driven in the same, where the revenue is the subscribers are coming. So that's a high alignment in terms of the growth areas versus the subscribers. I don't think yet we've given subscriber guidance for the future. I think that's one for the earnings call when it comes through. And then in terms of the overall synergy piece, that is actually, I think a couple of things to note. First of all, we're ahead of schedule. So I think it's $8.7 million of the annualized plan. We've already delivered in the first quarter. And this again is testament to the strength of the team and also our integration capabilities. And I think where David is referencing, but he can add on in terms of the five years, that's kind of adding in the annualized version of what is taken in the year. So at five plus eight is kind of 13 is the run rate. I think that's where that is. I just like to come back to Scott's question because I realized I didn't answer the question in terms of are we on track for the full capabilities, both hardware and software for mixed customers to consume the unity services. So we're ahead of track. There is more work to be done on certain elements of it, but we're already starting to get those capabilities into the hands of mixed customers.

And Amir Kalpa from the, in terms of the guidance is probably a little bit more complex than it needs to be from an EBITDA standpoint. So the guidance we previously gave as recently as the April fireside chat talked about $60 million of EBITDA, which was really what would we actually post in the year plus giving ourselves full credit for EBITDA costs realized, but not necessarily hitting the ticket for the year. So the rule of thumb was look for about $55 million of posted EBITDA plus an extra sort of $5 million or so in terms of run rate that is in excess of what actually hit the 55. So we'll be more straightforward here on out.

Got it, then if I could just one quick follow up here. Any comments on changes you've seen either insured or also seems with a much better results that your average sale price is probably going up, more products being taken by customers. I'd love to hear any updates you can share on that.

Thanks. So can you just repeat, you cut out at the start of the first part of the question.

If you've seen any changes to churn, and then again, just kind of average sales size.

Yeah, so I think as David articulated earlier, we were aware of some churn in some customers within the mixed base. We've been able to absorb that and I think there is renewed energy across our base, both on the power fleet in the mixed side to reduce churn over time. I think we've got some strong mechanisms that we're putting into place to be able to do that. We are seeing a little increase in ARPA as we said come through, but this is really about account expansion where we've got the growth. Plus obviously some good new logo wins for us as well. There is no whale business in this growth. So this is nice because it's kind of run rate business. But it's really that expanding use of our portfolio and the value added services that we can offer alongside. And I think it's also as well from a device agnostic perspective, customers deciding to bring all of their hardware business to us as well, knowing that they want to have the unity one stop shop and one single pane of glass. So that kind of increments not only your hardware revenue but your subscription revenue costs as well.

Very good, thank you guys.

Thank you very much. Your next question is coming from Dylan Becker of William Blair. Dylan, your line is live.

Hey gentlemen, nice job here both on kind of revenue and profitability. I'm wondering first to what extent are you guys seeing that outperformance come from kind of the core standalone profit businesses just given or early in the integration phase or is it kind of early traction and some of the energy some pull forward anything there, especially maybe as the theme of kind of vendor platform consolidation starts to play out at least how that's kind of resonating in some of your early conversations.

Yeah, so I think this is a few things. I think first of all, we were highly prepared and very experienced at doing integration. So we've hit the ground running beyond fast, which is allowed us to take the team on the journey. And I think there's a huge amount of positive energy in both businesses around the company strategy, around the momentum we can create in the market and ultimately creating a business, which is going to sit at the very, very top table. So I think energy focus has really helped. And I think there's a reinvigoration of both companies off the back of the transaction, but the expansion in EBITDA I think is definitely coming from what we've already put out in terms of the execution plan to be able to do that. I think this isn't just the standalone businesses doing a better job. This is definitely the two companies together from a product portfolio, from a -to-market perspective, from a, I think a sales discipline perspective. And really, I think from a customer's perspective, understanding that this is a new company with broader capabilities, with much improved scale, but having the right attitude in terms of coming for a long-term relationship with customers. So I think we've got those messages out both into our customer base and into our partner base. And I think we're starting to see the outcome of that. And I just remind everyone on the call, this is something that was cornerstone to the strategy that we set out. And we wanted to make sure we hit the ground running. I'll come back to the point that in the first six to nine months of most combinations of this size, it can be a very, very challenging period. So I'm very proud of the fact that we haven't skipped a beat operationally. We've enhanced our overall internal and external approaches. And we've seen a very, very strong results focus to see what's at the back. So that's something that we feel good about. We've got a lot of work ahead, much more work to do to get where we want to, but a very solid start coming out of the gate.

Okay, that's great. That's helpful. Thanks, Steve. Maybe to, I know you guys as a part of the transaction that brought on a lot of engineering talent. I guess, how should we think about this maybe more so as a leading indicator of what's to come on platform innovation, the ability to address kind of probably what I would assume is a lot of customer inbounds for that additional platform functionality to be built out, Unity obviously, and then probably a number of other solutions on top of that as well. Thanks.

Yeah, so look, powerfully in March, 2023, which is only 14, 15 months ago, had 50 engineers within its group. We now have 300. So our ability to transform our innovation, our speed and quality of products and solutions is seismic compared with where it was. So, we're doing this in terms of the broader portfolio we have today, plus the introduction of the Unity strategy as we're able to evolve. And I think it was Scott who mentioned, better AI capabilities, more modules, the ability to do things faster in terms of, and scale in terms of both sets of device and data ingestion plus the third party integrations is only gonna bring goodness for us moving forward. So what excites us is that, we've got this traction and this momentum, and then it does take longer for engineers than 90 days to kind of kick in in terms of its output. But the teams are working on a very discrete roadmap that's being put together for the future. And, you know, those guys are mobilizing and starting to execute well

against that plan. Great, thank you.

Thank you very much. Just a reminder, if anyone has any remaining questions, please press star one on your phone keypad now. Thank you. Your next question is coming from Alexander Sklar of Raymond James. Alexander, your line is live.

Great, thank you. Steve, just in terms of revisiting the growth opportunity now, four months or so post the merger, can you just talk about how you feel about coverage of your TAM and the pipeline, and then even maybe some of the productivity stats you're observing from a rep standpoint, any changes to how you're viewing the growth opportunity just given the strong Q1 results?

No, and look, we'll cover more often in the earnings call. We're also planning to do an investor day in the fall, and we'll be a lot more granular in terms of that output and that execution. Over time, the TAM will increase for the business because we're able to serve more verticals, more markets, more geographies at scale. And we'll kind of take our shareholders on a journey towards that. I mean, the one data point that I think is important to add is we're adding 28 quota carriers to the business we're currently recruiting those folks as we go, and that's in sales and revenue led customer success across the business, which is a significant increase for the business. And so in terms of the savings that we are creating from the EBITDA expansion plan, on top of that, we're having the capability to invest more feet on the street. And this is all part of it. I've articulated previously, both businesses for different reasons have had to be playing defense for a long, long time. This is us now getting on that front foot, starting to play offense and getting more visibility in the market and getting deeper into those markets. So that is gonna go, that's gonna continue to grow. It's gonna be an evolving strategy, which will ultimately open more doors for us, both in terms of pipeline. What I would say in terms of the conversion rate from sales from reps, we have seen an increase in the last 90 days. And I think that is just across the board and intensity. I think confidence within the sales teams and a reinvigoration of our sales teams, being a bigger company with a broader portfolio and be able to create better value for customers. And those sales teams really being able to see the wallet share opportunity that's ahead of us with the redefined proposition.

That's great, Paul. I appreciate all that, Steve. And then maybe just one follow up for you, David. Just in terms of what you saw in the sequential trends from the separate entities kind of in March versus the combined company in June, you gave us the preliminary full year number. Can you just talk about the linearity of growth and then any effects impact between the two quarters to call out? It just seems like a really nice uptick in the June quarter. And I'm just kind of curious, was that on the services side as well or was that kind of all on the product side in terms of sequential improvement? Thanks.

Yeah, no, it's across the board. So there's strength across the board. To Steve's earlier point, we really did use the companies coming together as a swing board. And we're definitely seeing sort of an acceleration in terms of both the numbers that we're posting in addition to the head of steam that we're building up for future quarters. So again, we're delighted with what we've been able to accomplish at the testament to these two organizations coming together and coalescing as opposed to sort of moving apart, which quite often happens under M&A. So again, there's a huge opportunity here. It's very clear what we need to focus on when we get done, when we've got traction and

we're getting it done. All right, great, thank you both.

Thank you. Thank you very much. Your next question is coming from Greg Jeebus of Northland Securities. Greg, your line is live.

Great, good morning, Stephen and David. Congrats on the quarter. Thanks for taking the questions. You know, I think most everything has been addressed, but wanted to get a sense, you know, with kind of the cost synergy seemingly tracking ahead of expectations. You still kind of on a longer term basis have the same visibility to recognize 27 million in EBITDA uplift that you previously discussed?

Yeah, we feel totally confident in that number. It's always better to have execution behind you to be able to say that when you're significantly within the plan. And as I said, you know, this year is going to be, you know, north of 50% of it executed by the time that we get through this year. But we were very confident in being able to deliver it, but it takes a lot of hard work. It's tough stuff to do. Yes, there's some low hanging fruit, but you know, we've gone well past the low hanging fruit into the more challenging things and couldn't be more delighted with the attitude and approach, but also, you know, the skill and ability of people to make that happen for us. So we feel very good about that number. And as I articulated earlier, we've gone past that in terms of actual savings in the business, which is allowing us to repurpose more into our -to-market efforts.

Okay, great. And wanted to get a sense of how pricing with new logo growth has trended and maybe how gross margins trended in the course.

Yeah, so Steve's earlier point, in terms of new people coming in, they tend to be primarily drawn by the promise of unity, and that is a higher margin, higher ARPU differentiated service. So that's working well. In terms of the margin, to the point earlier, this is differentiated solutions, safety solutions. It is healthy margin business. So certainly from a product gross margin standpoint, we saw a nice sort of pickup sequentially in terms of gross margin on the product side of things. And in terms of service side of things, it continues to perform well. So again, we feel good about where we

are from a gross margin standpoint. Great, appreciate the call.

Thank you very much. Well, we appear to have reached the end of our question and answer session. I will now hand back over to Steve for closing remarks.

So we just like to say thank you everybody for your continued support. It feels like a very long time since we've been able to come and update on the business. So we're delighted to be able to have done so. We will provide more color once we're through this process with the SEC, we take it very seriously in terms of, making sure that we follow that process and we're very confident in the way that we're approaching that process. So we appreciate the ongoing dialogue. We will always want to be very upfront and straightforward and be there for our shareholders to ask questions. So these sessions are super important to us. And we look forward to keep updating now and for our shareholders to feel and understand the momentum and the positivity and the excitement that we have for the business moving forward. So have a great day, we'll be back in touch very soon. And we appreciate your support, thank you.

Thank you very much. This does conclude today's conference call. You may disconnect your phone line at this time and have a wonderful day. Thank you for your participation.