PowerFleet Inc (AIOT) 2019 Q3 法說會逐字稿

Good afternoon.

Welcome to PowerFleet's Third Quarter 2019 Conference Call.

Joining us for today's presentation is the company's CEO, Chris Wolfe; and CFO, Ned Mavrommatis.

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 cautions regarding forward-looking statements made during this call.

During the call, there will be forward-looking statements made regarding future events, including PowerFleet'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 industrial trends are considered forward-looking statements.

Such statements include, but are not limited to, the company's financial expectations for 2019 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's CEO, Mr. Chris Wolfe.

Sir, please proceed.

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demonstrate, we continue to execute on our growth plan achieving record quarterly revenue of $16.9 million, which was up 26% year-over-year.

Most exciting is our recurring and services revenue, we're up 17% year-over-year.

On top of this, Q3 marked our third consecutive quarter of improving adjusted EBITDA.

These financial achievements were driven by robust broad-based growth across our 3 businesses coupled with diligent cost management and operational efficiencies, reflecting our continued focus on driving profitable growth.

I am particularly encouraged by these results because as you know, we were busy closing the Pointer acquisition.

These results demonstrate the core strength and the momentum in our strategy and bodes well for 2020 and beyond.

We are now a major IoT solutions provider that is also vertically integrated.

This improves our ability to compete in our fast-growing target markets and increases our overall target -- total addressable market.

I look forward to sharing more details on our operational progress shortly, but first I'll turn the call over to Ned to walk you through our financial results.

Ned?

Thank you, Chris, and good afternoon, everyone.

As you evaluate our financials for the period ended September 30, 2019, it is important to keep in mind they include only financial results from I.D. Systems prior to our acquisition of Pointer Telocation, which closed on October 3, 2019.

Our financial results for the fourth quarter ending December 31, 2019, will include consolidated results for both I.D. Systems and Pointer.

Now with that qualification, let's turn to our financial results.

Revenue for the third quarter of 2019 increased 26% to a record $16.9 million from $13.4 million in the same year ago period.

Services revenue for the third quarter of 2019 increased 34% to $5.8 million from $4.3 million in Q3 of last year.

The increase in services revenue was due to increased high margin recurring revenue and additional development services revenue related to the 75,000-unit order from Avis Budget Group.

Recurring revenue for the third quarter of 2019 increased 17% to $5.8 million from $5 million in Q3 of last year.

We continue to expect recurring revenue to continue to grow as every unit we sell comes with a long-term recurring revenue contract.

Product revenue from the -- for the third quarter of 2019 increased 22% to $11.1 million from $9 million in Q3 of last year.

This was due to additional telemetry unit deliveries to Avis Budget Group.

Gross profit for the third quarter of 2019 increased 12% to $7.6 million from $6.8 million in Q3 of last year.

The increase in gross profit was primarily due to higher revenue in 2019.

As a percentage of revenue, gross profit was 45.2% for the third quarter of 2019 compared to 50.8% in Q3 of last year.

The decrease is due to hardware deliveries in the current year -- quarter to Avis, which have a lower gross profit percentage.

Those units will start generating high margin recurring revenue in future quarters.

Now turning to our expenses.

SG&A expenses for the third quarter of 2019 were $6.3 million, up from $5.9 million in Q3 of last year.

The increase in SG&A expenses was primarily due to higher foreign currency translation, which is a noncash expense.

R&D expenses in third quarter of 2019 were $1.8 million compared to $1.7 million in Q3 of last year.

And finally, acquisition related expenses for the third quarter of 2019 were $1.6 million compared to $51,000 in Q3 of last year.

The increase in acquisition-related expenses was due to our acquisition of Pointer, which closed on October 3.

Turning to our profitability measures.

GAAP net loss for the third quarter of 2019 totaled $2.1 million or $0.12 per basic and diluted share.

This compares to GAAP net loss of almost -- of $900,000 or $0.05 per basic and diluted share in Q3 of last year.

Adjusted EBITDA, a non-GAAP metric, which we define as earnings before interest, tax, depreciation, amortization, stock-based compensation and nonrecurring items for the third quarter, totaled $738,000 or $0.04 per basic and diluted share.

This compares to adjusted EBITDA of $242,000 or $0.01 per basic and diluted share in Q3 of last year.

Finally, with our acquisition of Pointer now closed, we thought it would be prudent to layout our new capitalization structure for investors.

As of today, there are approximately 29.8 million common shares outstanding.

The $50 million convertible preferred equity investment converts at $7.31 per share, which equates to 6.8 million shares.

Therefore, as converted, there is approximately 36.6 million shares outstanding.

Our balance sheet also remains strong and liquid.

As of today, we have $14 million in cash and cash equivalents and $35 million in debt.

Based on our consolidated adjusted EBITDA outlook for the first 12 months post-close, we're comfortable with our net debt of approximately $21 million.

And we have ample room to pay down the debt even before the loan matures in 5 years, while still investing in PowerFleet's growth.

We also have available an unused line of credit of $10 million.

Lastly, before I turn over the call to Chris, I want to talk about some of the conferences we are going to be attending.

PowerFleet management will be attending the H.C. Wainwright Annual Israel Conference in Tel Aviv on November 10.

The ROTH Capital Technology and New Industrials Day in New York on November 13 and the 22nd Annual Needham Growth Conference in mid-January.

Additionally, we are planning to hold an Investor and Analyst Day in the first quarter of next year.

Please stay tuned for more details as we plan this out.

That concludes my prepared remarks.

Chris?

Thanks, Ned.

Q3 and the first month of Q4 have been quite busy, a productive and exciting time for the company.

The period was highlighted with the close of the Pointer acquisition, the rebranding of the company as PowerFleet and the ringing of the NASDAQ closing bell to celebrate many months of hard work from our collective teams to launch our new company.

Let me first provide an update on each of our 3 businesses and then spend the rest of today's call providing an update on integration efforts and outlook as a combined organization.

Starting first with our PowerFleet for Industrial business.

We saw a healthy mix of sales activity in both U.S. and Europe during the quarter.

This included several follow-on orders from existing customers such as Bridgestone, who selected our enterprise solution to deploy at 3 of its new distribution sites.

Our enterprise solution is an ideal choice for Bridgestone as it empowers their fleet managers by giving them visibility in to how their large fleet is utilized globally, while simultaneously enabling Bridgestone to meet stringent regulatory compliance requirements.

We also received an order for our enterprise solution from TFS, one of our OEM partners in the quarter for a new deployment in the U.S. And as many of you know, another important partner of ours is Jungheinrich, the third largest forklift manufacturer in the world.

After successfully delivering on all development milestones ahead of schedule, we received an initial 650-unit order from Jungheinrich.

We continue to be excited about this partnership and see multiple opportunities to expand our shared business with them in the coming quarters and years ahead.

In addition to our building momentum with Jungheinrich, we also secured a solid win in Q3 with Scotts Miracle-Gro Company for our PowerFleet expert solution, which was purposefully designed for the medium and large fleets.

The Initial order will be deployed at 4 Scotts Miracle-Gro facilities with line of sight to additional expansion opportunities in Q4 and in 2020.

It was another productive period for our PowerFleet for Logistics business as well.

Perhaps the most notable win in Q3 was our existing customer, Knight-Swift, one of the largest truckload carriers in U.S. who selected our LV-400 refrigerated monitoring product to monitor and remotely manage its refrigerated trailers and cargo.

We anticipate the units will be shipped and deployed during the fourth quarter.

In addition to Knight-Swift, NFI adopted our most recent innovation, the LV-500 asset tracking unit.

While several new and existing customers including B.A.H.

Express, Coraluzzo Transport and Associated Grocers selected our state-of-the-art LV-9000 In-Cab technology platform.

In our rental fleet business, we delivered approximately 18,000 telemetry units to Avis in Q3 bringing the total number of units delivered this year through the third quarter to approximately 36,000 and a total of 86,000 including last year's shipments.

From a development standpoint, we completed a major development project in the third quarter related to secure Bluetooth Low Energy, or BLE functionality.

We are nearing completion on other major programs and commencing certification activities on 70 different production year 2020 makes and models.

We continue to work with Avis on defining our next statement of work as well as any potential order for 2020.

Now that we've added Pointer solutions and capabilities into our portfolio, we are taking a global and holistic view of connected vehicles and preparing a much broader go-to-market strategy, which we'll pursue 2020.

Now that I have covered our 3 businesses, I'll spend a few moments discussing our early integration efforts with Pointer and the combined business objectives over the next 12 to 18 months.

While it's only been about a month since the close of the acquisition, it's been a busy and productive period for our organizations.

Our combined teams have integrated well and are working closely together on setting our strategic objectives, consolidating product road maps, working on cost-reduction synergies and pursuing cross-selling opportunities.

In fact, we already introduced Pointer's fleet management solutions to the U.S. logistics market for service and delivery vehicle, and we have received encouraging feedback from the marketplace.

Over the next 12 months, we'll continue bringing the companies together to form one fully integrated and powerful global telematics IoT solutions company.

This will enable us to realize our global vision and execute against our near-term objectives.

We are actively working with our partners, customers and employees to power up our PowerFleet brand awareness, which has been very well received globally.

Throughout 2020, we'll be integrating our marketing, G&A and IT areas as well as product manager -- management, our engineering and software development organizations.

Our customer-facing sales and support organizations will remain largely unchanged as what we have is working and well aligned with our vertical go-to-market strategies.

From a branding perspective, Pointer and Cellocator brands will be used in their current geographies, whereas PowerFleet will be the overall global U.S. and European brand.

And as of now, Pointer and Cellocator are suffixed by PowerFleet.

I got to see that myself personally in Mexico and it was awesome.

We are encouraged by the early traction we're achieving in our integration efforts.

And we look forward to keeping the investment community appraised of our progress in the months and quarters ahead.

In summary, closing that Pointer acquisition marked a giant leap forward in our pursuit of creating a powerful global IoT telematics software and solutions company.

Looking ahead, we remain confident in our ability to achieve our 12-month financial outlook as a combined business.

This includes driving double-digit organic growth and generating more than $150 million in consolidated revenue and between 15% and 20% of adjusted EBITDA.

As a combined organization, we are ideally positioned to generate significant shareholder value through global operational and financial scale in execution, sustainable profitability in cash flow generation.

And one last thing.

Our ticker symbol now is PWFL.

So I invite you to invest in us, power up your portfolio and profit from our success.

And with that, we're ready to open the call for your questions.

Operator, please provide the appropriate instructions.

(Operator Instructions) Our first question comes from Mike Walkley with Canaccord Genuity.

Congratulations on the strong last quarter of I.D. System results.

Thanks, Mike.

Question for you, Chris.

Just more on the -- I know it's only been a month, but can you give us any more initial feedback, just from customers on the cross-selling opportunities?

And what should we look for, for some major integration milestones as you move towards the fully integrated PowerFleet?

Well, the cross-selling opportunities, I think, the biggest thing that we're seeing now is bringing, what we call, the Class 1-5 solutions that Pointer has into the United States.

And so we literally just got through a strategic planning session on that.

And that's kind of what I alluded to with connected vehicles.

So I think next year, you're going to see us kind of go big in the U.S. as far as how do we penetrate what I call more of the service delivery and a lower end fleet of vehicle set, which we are not in today.

And we can do that in a variety of ways.

I just don't want to go into it on the phone today.

Secondarily, the Industrial Truck segment has a lot of opportunities, specifically looking at opportunities in Brazil and Mexico today.

And refrigerated, it's kind of interesting, the CarrierWeb acquisition got us 2-way command and control refrigeration and that literally has global applicability for a lot of the Pointer locations and geographies we are in.

I have a lot of excitement about that.

Okay.

Maybe a follow-up question for Ned.

It sounds like from Chris's prepared comments, you guys are comfortable with the $150 million combined revenue and over 15% adjusted EBITDA margins.

As we build towards that over, say, the course of 2020, Ned, how should we think about maybe the first combined quarters for the company in terms of adjusted EBITDA margin.

I imagine it could take some time to scale the business towards those 15% to 20% and then also probably need some time to execute on some of the cost synergies?

Yes.

It's going to take a couple of quarters, and we think once we go into the second quarter, we'll be able to see that run rate.

But so far, some of the benefits of bringing some of the Cellocator products here in the U.S., that's our existing product that we're selling.

We're seeing some of the synergies expected in the supply chain already to -- immediately start to pay dividends.

Yes.

This is Chris.

Just, I wanted to -- maybe your last question to make sure.

We have a lot of activities going on in the cost savings area, specifically around the IT and also platform consolidation.

The thing is, a lot of those won't finish in next year, right?

That's really the follow-on year.

Yes.

Absolutely.

That makes sense.

And just last question for me and I'll pass on the line.

Stronger product revenue than we were expecting during the quarter, can you just update us on where you're seeing some of the strength and if you -- on the old I.D. Systems side and if you see that continuing into Q4?

And also just maybe an update on Jungheinrich as part of that?

Sure.

I let Chris talk about Jungheinrich.

But we actually saw strength in product revenue in all 3 of our segments.

We delivered approximately 18,000 units to Avis in the second -- in the third quarter, which was similar to the second quarter.

But we also saw, in our Logistics Visibility business as well as Industrial Truck, so we had a good quarter of continued sales.

And we don't see any reason why that's going to change in the fourth quarter.

And to add onto that.

It's just with Jungheinrich, again, this was the initial order once we completed all the milestones.

And it was actually significantly greater than we thought it would be.

So again, by contract, you need to give us 2000 a year and so you'd assume the first quarter had been 500 and it was 650.

So I think they're phenomenally pleased with what they're getting so far.

Our next question comes from Jaeson Schmidt with Lake Street.

Just wondering if you're seeing anything out of the ordinary from a pricing standpoint in any of your business lines?

This is Chris.

Obviously, Avis is kind of closed caption, so not necessarily.

Obviously, it's always competitive intrusion potential.

But the order is the order, and we're working with Avis to get it shipped as quickly as possible.

On the Industrial Truck side, there is not that much price competition.

However, we are in some fairly significant potential deals on that side where we know we'll have to be aggressive on price just because of the size.

And so again, we don't really see it across the board there.

And then in the logistics side, which is historically very competitive, I mean yes, it's almost on a deal-by-deal basis depending on who the competitors are and how desperate they are.

Again, I think a lot of competitors do not have the breadth of solutions.

They don't have the bumper-to-bumper solution.

They don't have the focus on cargo.

So if they can only win on price, that's the way they are going to try and win.

So we see it but again, it's probably not a customer we needed to get.

Okay.

And then I know you touched on it a bit in your prepared remarks, by looking at the CarrierWeb business now that you've had that under your belt for a few quarters, is growth in that business playing out as you had originally expected?

Yes, it is.

I mean again, everyone -- just for the maybe educational background is the ELD Mandate, which is kind of driving in-cab purchases was already well underway.

It's 80% done.

The time line is coming up December 15.

So anybody that was going to buy a brand new In-Cab system has already done so.

That being said, there's people are still buying, there's still 15% to 20% of fleets that still need to buy.

So we are in those games in the consideration process.

That being said is, a lot of people stayed with their old platform on 3G networks just to get through the ELD Mandate and will be considering acquisitions going forward in the future.

So again, we see -- we're very happy with the product and where it's at today.

We are almost ecstatic with the refrigerated product and what our opportunities are with that product.

(Operator Instructions) Our next question comes from Josh Nichols of B. Riley.

I want to ask -- I know in the combined outlook, you've not included any potential cross-selling opportunities.

You talked a little bit about how you're already bringing Pointer offerings to the U.S. Do you think that the Pointer's driver behavior is one thing that could be a good cross-selling opportunity for you guys and also serve as a product differentiation -- product differentiator?

Absolutely.

Kind of -- maybe I should tell the group just case and point on organizational realignment because I do think it's important.

Right now, the CTO of the company is Moses Zelniker.

He was the CTO of Pointer and that's a phenomenal move for us and as well as Nessy Turgeman.

He is the Senior VP of Global software.

And what that allows us to do is literally leverage these really technology center of excellence, like in other words, let's consolidate our hardware selection platforms.

Let's consolidate our software.

And I do see that, through that, we are going to get a lot of leverage going forward on being able to bring these solutions to market and bring them cost effectively and quickly.

Great.

And then I want to ask, you had a host of LVS products that kind of came to market last year.

You had Freight Cam, In-Cab offerings, refrigeration units and just -- as you mentioned, just the top 10 of these freight carriers are a couple million units a piece.

Are you -- could you -- any update you can provide on the trials?

And are you seeing more interest in these add-on offerings like you could do, like I said for In-Cab camera things like that as opposed to just basic LVS unit, which may only be like $5 a month or something like that?

Yes.

The answer to that is absolutely.

On the LVS-500, we've already secured -- again, they're not doing a rip and replace, they're doing a migration, which means new trailer builds.

So you're not going to -- even if you get an order, it's not necessarily going to be for the 80,000 units out of the gate.

It's going to be for the next 5,000 units that they are building in the next 2 quarters.

Unless the 3G sunset happens abruptly, which it may happen actually a lot faster than most people realize.

So the field trials that we are in right now, I mean we actually just -- yes, we're getting ready to finalize one that we are in and that will be out soon, I hope.

And then we are in a couple others that are probably in the Q1 range.

I'm not counting the ones that I mentioned earlier in the call.

You mentioned that you've been, I think, ecstatic about the opportunities in the refrigeration units.

Could you just highlight a couple of the opportunities.

I know you're doing -- already doing a lot of business with Walmart.

They have a lot of refrigeration units.

But just, what makes you so optimistic about that particular market and where the opportunities lie?

Well, I think in that market, there's very few competitors, number one.

Actually in -- from what we hear from the customers in that market, it's the quality has been very suspect.

So it just gives us an opportunity with a high-quality product 2-way command and control and you're kind of hitting the market at the right time with an LTE platform with Bluetooth technology that gives them a lot more capabilities.

And the reason we like that is the average revenue per unit there is $15 per month versus the $5, right?

So and the average hardware price is typically $500 versus maybe in the 3 range -- $300 range.

So again it's a higher value proposition.

It's stickier.

It's a more critically needed data set that's coming from the unit.

And again, I think right now, there's going to be -- there's 500-and-something-thousand refrigerated units just in the United States, not counting railcars, which again is another big opportunity for us.

So as a matter of fact, we've got a pilot going on right now in the railcar space, which is not initially something we focused on in the past, but it looks like a good opportunity for us.

And then the last question for me.

I don't want to monopolize too much of the call and then I'll hop back in the queue.

Could you just remind us again, when exactly is the exclusivity lapsing with Avis?

Is it December?

And what are your thoughts about continuing down that road or potentially venturing with other potential opportunity sets for the Connected Vehicle Solution?

Yes.

Exclusivity is actually over, I don't want to give you an incorrect date, I think, it's like December 13.

They have a month prior to that, which is like coming up here very shortly to give us an order for 50,000 or they lose exclusivity on December 13.

Now again, they can sign anywhere around then and exclusivity would extend.

So we're in active negotiations with Avis.

However, we are actually making alternative plans as well.

So we have to be ready to move forward and -- either way.

And I think everyone that was -- lived through this a year ago knew that it was a couple of months before we were able to negotiate another deal.

So I'd just say it's a work in progress.

Our next question comes from Gary Prestopino with Barrington Research.

Chris, I was just looking at Ned -- I was just looking at my notes from last quarter and maybe the prior questioner may have answered this but I want to make sure I'm right.

You had about 7 pilots for the -- with carriers -- or 7 of the top carriers in pilot for the Freight Cam product, the LVS Freight Cam product.

Is that still ongoing?

And was any of these wins that you got this quarter in that segment related to any of these trials?

Yes.

Actually we -- one was related to those trials and one we expect to close very soon was related to those trials and one we did lose.

So it's like 2 out of 3 is still not bad batting average in this market.

No.

Not at all.

And is there any way that when you went through the new business that you signed up in each of your -- well, the 2 segments, the Industrial and Logistics.

Is there any way you can give us some kind of a range of units that were won in each of those segments this quarter?

Yes.

We can give you -- the units that we shipped during the quarter.

In the Industrial Truck it was 2,500 units and then in our Logistics it was 5,600 units.

Our next question comes from William Gibson with ROTH Capital Partners.

I think the question was asked, but I didn't catch the answer.

Do you have a estimate of Avis shipments for fourth quarter or a range of what they could be?

It's a -- we are not -- we are still working with Avis on the quantity and the deliveries, Bill.

We did ship additional units post the third quarter, but we do not have a clear picture exactly how many units we're going to ship in the fourth quarter yet.

Due to holidays though, we will know here shortly because we do have to have a lead time.

So it's something we expect imminently as their ships schedule.

And then just a follow-up on Heinrich.

You talked about the early excitement, but do you have a sense now of just what percent of their annual shipments or a target of what you hope you could get, say, 2 years out or something like that?

I would be -- I can tell you what Chris Wolfe's goal is.

But it'd be speculation right now.

We do have a meeting actually with Jungheinrich here in the -- before Christmas time.

And actually our team that's in also Düsseldorf, we have offices there, is meeting with them real time.

So I think we'll know just how the whole business is shaping up over the next -- because they are ramping up.

They've already trained the sales force, trained the support team.

So this is globally, right.

It's not just in Germany.

So now they just -- now they have the product, now they can get it through the pipe.

And I think we're going to actually see how fast they can get it through pipe and get their sales teams engaged here in the next few months.

I'm not showing any further questions at this time.

I would now like to turn the call back over to Chris Wolfe for any further remarks.

We'd like to thank you for joining us today.

And I'd like to thank our global employees, customers, partners and shareholders for their continued support.

We look forward to updating you on our next call.

Operator?

Thank you for joining us today for our presentation.

You may now disconnect.