PowerFleet Inc (AIOT) 2021 Q4 法說會逐字稿

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 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 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's 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 of this year. Over the last 22 years, I have 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, Masternaut. Before that, I held senior executive roles at the highly acquisitive market consolidator, Cybit, and Fleetstar Information Systems, the high-velocity, fleet management subsidiary of the Trafficmaster Group now known as Teletrac.

It has 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 in 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, but at 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 full-year 2021. Afterwards, I'll dive into some of our key early initiatives centered around our transformational growth strategy. Ned?

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 a 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% and 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, an improvement compared to $12.1 million or 41% of total revenue in Q4 of last year. For the full year, product revenue was $53 million or 42% of total revenue, an 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 gross 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 gross profit for the fourth quarter of '21 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 Q4 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. GAAP net loss attributable to common stockholders totaled $7.9 million or $0.23 per basic and diluted share, compared to net loss attributable to common stockholders of $3.5 million or $0.12 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, a 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 remained 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 19.

That concludes my prepared remarks. Steve?

Thank you, Ned. As I mentioned in my opening remarks, we are set on delivering transformational growth at an exciting and sustainable pace for the benefit of both PowerFleet and our customers. Some of my early focuses revolved around further strengthening our global leadership team to help bring PowerFleet deeper levels of experience and proven track records in growing rapidly, highly profitable SaaS companies.

We recently bolstered our C-suite with the additions of Jim Zeitunian as our Chief Technology Officer and Patrick Maley as our new Chief Revenue Officer. Jim brings to PowerFleet over 15 years of senior executive leadership experience across software development with an emphasis on building world-class R&D organizations and market-leading applications. Throughout Jim's career, he has helped develop and bring to market, industry-leading and innovative products that have driven new and expansive sources of revenue. Jim's most recent role was as Vice President of Engineering for Coupa Software, a multi-billion dollar SaaS solution provider. Previous to that, Jim led the data science and AI software platform transformation at LLamasoft.

I'm also delighted to announce our new CRO, Patrick Maley, who's joined us this week. Patrick will also hold the title of General Manager for our US business. Patrick has a wealth of experience delivering best-in-class go-to-market teams in the supply chain industry, most recently at BluJay Solutions, a market-leading global trade and supply chain technology company recently acquired by E2open. At BluJay, Patrick served as Chief Marketing Officer and led the rebranding of Kewill to BluJay Solutions. This involved a new brand vision, go-to-market strategy, messaging framework, and reorganization of the sales and marketing teams in Europe, Asia, and North America.

Over his five years at BluJay, the company doubled in size and experienced an over 8x increase in valuation. Prior to BluJay, Patrick served as President of MAM Software, a publicly traded company focused on the automotive aftermarket, where he led the company's SaaS transformation and drive high organic growth. Additionally, Patrick has held sales and marketing leadership roles at RedPrairie, Kinaxis, and Manhattan Associates.

Both Jim and Patrick's experience and leadership will help to guide PowerFleet's transition from a hardware-centric telematics provider into a truly world-class enterprise, software, and AI platform company.

Our vision centers around deepening our relationship with critical business data to where our customers view PowerFleet not just as a market-leading hardware and data capture vendor for their mobile assets, but more strategically a true value-add business change partner that leverages data science and AI to provide critical business insights in a usable format to help solve their unparalleled need for high visibility and unified business operations.

Our vision involves a number of go-forward data-centric initiatives, which we will articulate in detail over the next few months. As a starter to capitalize on the rapid transformations taking place in our industry verticals and furthermore, within the customer enterprises we serve, we are driving forward our modular enterprise application approach. This approach will allow customers to purchase elements of our rich software capabilities at a pace that suits them. It will allow them to prioritize and focus on the individual business problems they're looking to solve across the C-suite. This creates significant upsell opportunity for our business as we create strategic business change roadmaps with our clients.

A second initiative is to increase the role we play across our customer supply chain to solve their unparalleled thirst for increased visibility of the performance of their operations. Our go-forward investments in deep integration capabilities into other operating systems across the business and its supply chain will provide valuable and untapped data harmonization and deep insights into our customers' business end-to-end, information that makes our customers' operation safer for its employees, more effective for its end customers and, through increased efficiency, creates more opportunity to improve the bottom line.

This year, our goal is to unify our platforms to a single set of interfaces and enable customers to access information across the whole asset estate through a highly intuitive single pane of glass, transforming the way operators can manage their business. Taken together, these steps will be an important foundation as we establish PowerFleet as a fully mission-critical software provider for the expanded IoT market.

The foundational initiatives have been designed in harmony with a much increased focus and commitment to accelerate our platform strategy in evolving to a highly scalable, world-class SaaS and AI capability provider, which primes our fleet to maximize the transformational impact we make for our customers and ultimately increases the wallet share we can derive in the future.

For the US market in 2022, alongside our traditional set of solutions servicing the logistics and industrial verticals, we will also be bringing to market extended propositions around safety and driver behavior, enhancing our video camera telemetry offering for all vehicle types, delivering a new rich set of data capabilities in the electric vehicle space, and providing an evolution of our proposition for the connected car and vehicle rental and vehicle subscription space. These solutions have been developed and implemented through our appointed division in multiple geographies, and we are confident we now have the market ready to make good traction in the US market.

We believe these harmonized capabilities will position PowerFleet as having one of the most comprehensive set of capabilities across all assets and vehicle types in the global market for enterprise customers to manage their mobile assets and operations, all visible through a single set of user interfaces. Longer term, the successful execution of our strategy will translate to very solid international revenue growth, underpinned by a highly scalable, repeatable, and profitable global organization.

We're working hard to expand our gross margins of our recurring revenues and to reduce our operating expenses through closer integration of our business units. Despite the continued significant challenges in global supply chains, we look to continue to build on the revenue growth momentum we saw in Q4 of last year. While it's still early days for me at the helm and we have a lot more hard work ahead of us, I can say that I'm increasingly confident in our ability to capitalize on the extensive opportunity for strategic data providers in the global IoT market.

Now, I'll turn it back to the operator for Q&A.

(Operator Instructions) Mike Walkley.

Hi, thanks. Mike Walkley with Canaccord Genuity. Steve, I guess, first question for you, just with the long-term strategic roadmap to establish PowerFleet as a mission-critical software provider for the IoT market, can you discuss what this means in terms of changes for your go-to-market strategy? Do you have the right people in place for this? Are you going to have to hire new salespeople and also maybe how this impacts your R&D roadmap also?

Yes. Great question. Thank you. So I think as you've seen already with the appointment of Patrick and Jim, we're adding some expertise to broaden out our go-to-market scope and our ability to deliver world-class software platforms. So I think it's an evolution, not a revolution. In terms of our industrial market and our logistics fleets, we've got some very effective salespeople within those particular sectors, but we will be adding some resources to support some of the growth in some of the other verticals where maybe we need some particular vertical specialization. And on the software side, I think we've been very impressed with the software capabilities that the team have. But we want to accelerate our roadmap, and so we will be adding some resources to be able to do that on a global basis.

Thanks. And just building on that question, will you continue to design your own hardware? Or does this become less important, maybe outsource hardware and focus more on the software roadmap?

So we believe our core unit types should always be part of PowerFleet, and we will always look to develop those ourselves. We have some great IP in that space. I think people trust us as a provider. I think we're able to obtain premiums because of the quality that we deliver as part of that, and that will always be part of our core heritage. So it's kind of we're adding and beefing up our software side to match our hardware element.

What I would say is we want to focus on a smaller number of devices ourselves and really put our efforts into those devices, which will be our volume. And if there are best-of-breed devices that we can bring along from more of the ancillary elements of the business, then we will work with our strategic partners to do so.

Thanks. And then last question for me, and I'll pass the line. Ned, just on the hardware. Obviously, supply chain expedites shipping, et cetera. But how should we think about the slope of the recovery for hardware gross margins? And now that we're kind of two-thirds through the March quarter, how are seasonal trends for the March quarter? And can you meet supply? Just any update on supply to meet the demand for the March quarter.

Yes. So thanks, Mike. We did a lot of work to make sure we're able to meet the demand as you saw that in the fourth quarter, and we expect that to continue in the first quarter and beyond. When you specifically look at the product gross margins, I think in the early part of the year, especially in the first quarter, they're going to be similar to the fourth quarter. But we expect those to gradually start improving as we go through 2022, just because we are not only looking to get things better -- due to supply chain issues getting better, but we're also focused on implementing some operating efficiencies on how we deliver the product, which should yield a better product gross margin as we go throughout 2022.

Great. Thanks for taking my questions.

Thanks, Mike.

Scott Searle.

Yes. Scott Searle with ROTH Capital. Good morning, guys. Thanks for taking the questions.

To build on some of Mike's questions on the gross margin front, Ned, I'm wondering if you could address a little bit where some of the pressure points are. Are they specific to a couple of components? Is it all freight related? And then as you're thinking about this year and that gradual improvement, how should we be thinking about your exiting of 2022 from a gross margin standpoint?

Yes. I think the pressure points obviously are all related to the supply chain issue. So you have the situation where you have to buy components at a much higher price. There's also PPV associated with certain components. And freight costs are a lot higher as well. As we look, this gradual improvement is going to start in Q2. We want to exit the year with the product gross margins in the mid- to high 20s.

Okay. Very helpful. And also to just follow up and clarify, I think you said OpEx expected to be flattish over the course of this year, and we're talking about reappropriating resources, particularly on the R&D front, more from hardware-centric to software-centric initiatives. Is that correct?

Yes. So that is correct. So the goal is to keep OpEx flat especially in the first quarter. We are going to start to see some improvement in OpEx starting in the second quarter and beyond because we are going to put a significant cost-saving initiative. So we're going to start seeing some of those benefits, and we are going to start to reappropriate some resources to maybe ensure we have resources where we need them.

Very good. And Steve, I know you're a whole 60 days in at this point in time. But it sounds like you're relatively happy with the existing portfolio and assets that you have. I was wondering if you could expand a little bit in terms of the internal data sciences capability. It sounds like you've laid out a couple of things in terms of a modular approach, as well as investing in other AI and opening up those opportunities. But when do we start to see an actual benefit and impacting the P&L from a top line perspective?

Yes. I think obviously we're 60 days in, and we're just laying down our plans in terms of when we're able to execute future capability. Now in terms of our overall product strategy, we expect this will take an 18 months in totality to be exactly where we wanted to be. But we are counting on the team internally to bring some advantage into the marketplace within probably Q3 to Q4 this year.

So whether we see any impact in revenue this year, we'll have to wait and see. It depends on how well we execute. We're confident we're going to execute well. But ultimately, we do very much not want to kind of put ourselves in a freeze for 18 months. We want to develop new capabilities, new opportunities for our sales team to upsell within 2022.

Okay. Great. And lastly, if I could, and then I'll hop back in line. But there have been a lot of initiatives and opportunities percolating in the pipeline. You made some reference to the auto rental market and other initiatives on that front. But I wonder if you could give us kind of a quick update in terms of how demand is looking overall when you start to think about some of the warehouse and forklift opportunities that the company has historically had and some of those additional opportunities within fleet and otherwise, kind of what the demand characteristics are looking like as we head into 2022?

Yes. So we're cautiously encouraged on all fronts. I think if you look at the top line growth that we got in Q4, I think that was a good performance. And I would say that we are encouraged by what we're seeing so far in Q1. And that's across all the verticals whether that be the warehouse, industrial, logistics and some new lines that we're seeing in the vehicle space.

I think what we are seeing is a further demand from our customers in order to create more data solutions, particularly around safety, particularly around fuel usage with all the challenges going on in the world. So I think we're encouraged by how much we've actually broadened out our sales force particularly in the US to take advantage of some of those opportunities. But I think demand for us is increasing, and I think it will be how we can capitalize on that in the coming weeks and months.

Thank you so much.

Jaeson Schmidt.

Jaeson with Lake Street. Just following up on some of the previous questions on sort of this new software and SaaS initiative are refocused on that. So given your comments on the modular approach, is it fair to assume that this really wasn't a product issue and that you think may be more of a pricing issue, go-to-market pricing model with the products and software combined?

I would categorize it as probably an evolution in terms of the way that we sell to our customers. So I think we've done well at being positioned within kind of the transport end of the verticals. But I think we have a lot of data and a lot of business insights that we can sell to across the C-suite. So the way that we're moving to the modular suite will allow us to tackle individual business issues depending on the C-suite holder. And it will allow the company that we work with over time to really kind of capitalize on different business change and transformation that we're looking to do, and that should increase our wallet share.

So I think with any modular approach, we would hope that we're able to improve our top line revenues and our gross margin. So I don't think, in any way, we had product challenges that we weren't capitalizing on. But it's just a refreshed approach that I think gives us a broader perspective. And actually, the value that we're able to create for our clients' return on investment, we'll be able to demonstrate that more effectively.

Okay. That's helpful. And then just looking at the opportunity with the post office, just curious if that timeline has shifted at all just given all the background noise in the macro?

Hi, Jaeson. It's Ned. Yes, we continue to work with the postal service. We implemented a site, and we'll continue to work with them. So obviously it's an agency that -- it takes a little bit longer. But, no, we're still working with them, and we don't see -- we see them contributing to revenue in 2022.

All right. Thanks a lot, guys.

(Operator Instructions) Gary Prestopino.

Barrington Research. Good morning, everyone. A couple of questions. Just on the OpEx, Ned. When you say it's going to be flat with Q4, would that mean backing out the $1 million of one-time fee so you get about $17 million, $18 million? Is that kind of the way to look at it?

That's correct. Yes.

Okay. And then just a bigger picture question here because in the last couple of months here, things have changed somewhat dramatically strategically with the company. Steve, as you look at the company and you want to get more into the software realm as I'm understanding what you're saying. First of all, will most of these new software initiatives, if they are new, be developed at pointer? Or do you have to really fully staff up more so in the US to develop some of these products? And then I have some follow-ups.

Okay. So last year, we actually globalized our software team. So we have colleagues in multiple geographies into our US and other supporting territories. So we expect that global model to continue. We will be developing in-house for sure, but we will be adding, as we've said, and repurposing some resources to beef up that in order to accelerate some time scales around some of the solutions that we wanted to bring to the market quickly.

Okay. So in terms of what you're talking about software and you mentioned data and all that, data capture, the majority of the thrust is going to be software with AI, with data analytics that you can monetize and sell to the end user through a SaaS platform, is that kind of the key? I mean, are we looking at possibly adding another revenue line to the company over time of software along with services.?

Yes. So there's three core elements to the different go-to-market opportunities we have. One is modular enterprise applications, so solving business issues and selling that directly to the enterprise and mid-market that we sell to today. Secondly, we are working with a number of strategic partners on integrations of other supply chain systems, where either our data will power their systems or we will offer joint propositions, and we'll bring those to market over the coming weeks and months. And that's why we're calling things unified operations.

So how can we power other systems alongside us and affect each other's systems performance to ultimately offer incremental solutions to our customers and more seamless operations and supply chains. That's number two. And obviously, what we also do is, at scale, we collect an awful lot of data, which is becoming more and more important for third parties. So as a third step and it will be further down the line, we'll look to see how we can monetize that data and use that data with different third parties. But that's very much further down the line. The first two strategies are the most immediate.

Okay. Thank you.

There are no further questions in queue. I would like to turn the floor back over to Steve for any closing comments.

Thank you, everyone, for joining us this morning. We plan to host an Investor and Analyst Day in mid-May to early June that will provide greater detail on PowerFleet's enhanced vision and growth strategy. The details of the event will be announced by late May.

In closing, I'd like to thank our talented employees for their diligent efforts and operational execution, and extend a thank you to our valued customers for putting their trust in PowerFleet, and thank our investors for your continued support and confidence in our ability to realize our new vision. We look forward to speaking to you all again soon.

Thank you, ladies and gentlemen. This does conclude today's conference call. You may disconnect your phone lines at this time, and have a wonderful day. Thank you for your participation.