Strong Growth in High Margin SaaS Revenues with Company Positioned for Accelerated Growth in Second Half of 2023
Second Quarter 2023 Service Revenue was 66% of Total Revenue, up from 57% in the Prior Period, Driving an Expansion in Total Company Gross Margins to 50% from 47%
SECOND QUARTER 2023 FINANCIAL AND OPERATIONAL HIGHLIGHTS
- Total service revenue increased by 13% on a constant currency basis, compared to Q2 2022.
- Total service revenue increased sequentially by 3.3% on a constant currency basis, demonstrating traction in the company’s transformation to a SaaS centric business model.
- Total service revenue increased to 66% of total revenue, up from 57% in the prior year, driving an expansion in gross margins to 50% from 47%.
- Services gross margin in the go forward core business (excluding
Argentina ,Brazil , andSouth Africa business units) increased to 71% with total gross margin for the core business of 53%. - EBITDA increased sequentially by 31% to
$1.8 million versus first quarter 2023, pro forma for EBITDA burn from the Movingdots acquisition. - Subscriber count totaled 697,177, an increase of 3% from the prior quarter and 9% year- on-year.
FIRST HALF 2023 FINANCIAL HIGHLIGHTS (COMPARED TO FIRST HALF 2022)
- Transformation into a high value sticky SaaS recurring business continues at pace in our core go forward markets with North American service revenue growing 16% annually, complemented by service revenue in
Israel growing 10% on a constant currency basis. - Growth in services revenue drove expansion in gross margin to 50% from 45% and improved gross profit by
$2 million during the controlled product to SaaS sales funnel and revenue mix transition. - Improved underlying cash generation with cash from operations increasing by
$4 million . - With improved cash generation and liquidity, reinitiated paying the dividend on the convertible preferred instrument in cash versus payment in kind (PIK).
- Taken the necessary steps to reduce annual run rate expense by
$4 million per year exiting third quarter. Central to commitment to ensure Movingdots acquisition is adjusted EBITDA neutral. - Released a highly advanced, sustainability module on Unity platform, at budget and on time; supports asset electrification, and bolsters ESG reporting requirements with net reduction of CO2 emissions.
MANAGEMENT COMMENTARY
“Our transformation into a superior valued business centered on high quality, sticky, recurring SaaS revenue is reflected in our key performance indicators,” said
“We believe that all the heavy lifting transformation items we have executed over recent months have set the foundation for greater earnings potential, a more compelling business model, and a lower cost of capital for our shareholders.”
SECOND QUARTER 2023 FINANCIAL RESULTS
Total revenue was
Services revenues totaled
Products revenue was
Gross profit margin expanded to 50.0% from 46.9% in the prior year period, driven by an improved mix of high-margin services revenue versus products revenue, deal discipline for product sales, terminating unprofitable contracts and eliminating low margin product lines.
In line with expectations, operating expenses increased to
Net loss attributable to common stockholders totaled
Adjusted EBITDA, a non-GAAP metric, totaled
SIX MONTH 2023 FINANCIAL RESULTS
Total revenue was
Services revenues totaled
Products revenue was
Gross profit margin expanded to 50.3% from 45.2% in the prior year period, driven by an improved mix of high-margin services revenue versus products revenue.
Net loss attributable to common stockholders, inclusive of a
Adjusted EBITDA, a non-GAAP metric, totaled
INVESTOR CONFERENCE CALL
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The conference call will be available for replay here and via the investor section of the company’s website at ir.powerfleet.com.
If you have any difficulty connecting with the conference call, please contact Powerfleet’s investor relations team at 949-574-3860.
NON-GAAP FINANCIAL MEASURES
To supplement its financial statements presented in accordance with Generally Accepted Accounting Principles (GAAP),
RECONCILIATION OF GAAP TO ADJUSTED EBITDA FINANCIAL MEASURES
Three Months Ended | Six Months Ended | ||||||||||||||
2022 | 2023 | 2022 | 2023 | ||||||||||||
Net loss attributable to common stockholders | $ | (1,334,000 | ) | $ | (4,274,000 | ) | $ | (5,458,000 | ) | $ | (780,000 | ) | |||
Non-controlling interest | 1,000 | 6,000 | 2,000 | 3,000 | |||||||||||
Preferred stock dividend and accretion | 1,216,000 | 1,297,000 | 2,412,000 | 2,572,000 | |||||||||||
Interest (income) expense, net | 560,000 | 457,000 | 991,000 | 974,000 | |||||||||||
Other (income) expense, net | (3,000 | ) | 0 | (2,000 | ) | (1,000 | ) | ||||||||
Income tax (benefit) expense | 40,000 | 39,000 | (663,000 | ) | 436,000 | ||||||||||
Depreciation and amortization | 2,044,000 | 2,267,000 | 4,133,000 | 4,500,000 | |||||||||||
Stock-based compensation | 1,629,000 | 852,000 | 2,086,000 | 1,684,000 | |||||||||||
Foreign currency translation | (1,349,000 | ) | (362,000 | ) | (1,690,000 | ) | (942,000 | ) | |||||||
Severance related expenses | 468,000 | 425,000 | 847,000 | 559,000 | |||||||||||
Gain on Bargain purchase - Movingdots | - | (283,000 | ) | (7,517,000 | ) | ||||||||||
Movingdots Related Expenses | - | 223,000 | 540,000 | ||||||||||||
Adjusted EBITDA | $ | 3,272,000 | $ | 647,000 | $ | 2,658,000 | $ | 2,028,000 |
ABOUT
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
This press release contains forward-looking statements within the meaning of federal securities laws. Forward-looking statements include statements with respect to Powerfleet’s beliefs, plans, goals, objectives, expectations, anticipations, assumptions, estimates, intentions, and future performance, and involve known and unknown risks, uncertainties and other factors, which may be beyond Powerfleet’s control, and which may cause its actual results, performance or achievements to be materially different from future results, performance or achievements expressed or implied by such forward-looking statements. All statements other than statements of historical fact are statements that could be forward-looking statements. For example, forward-looking statements include statements regarding prospects for additional customers; potential contract values; market forecasts; projections of earnings, revenues, synergies, accretion, or other financial information; emerging new products; and plans, strategies, and objectives of management for future operations, including growing revenue, controlling operating costs, increasing production volumes, and expanding business with core customers. The risks and uncertainties referred to above include, but are not limited to, future economic and business conditions, the ability to recognize the anticipated benefits of the acquisition of Movingdots, the loss of key customers or reduction in the purchase of products by any such customers, the failure of the market for Powerfleet’s products to continue to develop, the inability to protect Powerfleet’s intellectual property, the inability to manage growth, the effects of competition from a variety of local, regional, national and other providers of wireless solutions, and other risks detailed from time to time in Powerfleet’s filings with the
Powerfleet Investor Contact
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Powerfleet Media Contact
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(610) 401-1999
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS DATA
Three Months Ended | Six Months Ended | ||||||||||||||
2022 | 2023 | 2022 | 2023 | ||||||||||||
(Unaudited) | (Unaudited) | (Unaudited) | (Unaudited) | ||||||||||||
Revenue: | |||||||||||||||
Products | $ | 14,818,000 | $ | 11,012,000 | $ | 29,210,000 | $ | 23,416,000 | |||||||
Services | 19,776,000 | 21,038,000 | 38,545,000 | 41,473,000 | |||||||||||
Total Revenues | 34,594,000 | 32,050,000 | 67,755,000 | 64,889,000 | |||||||||||
Cost of revenue: | |||||||||||||||
Cost of products | 11,336,000 | 8,550,000 | 23,314,000 | 17,552,000 | |||||||||||
Cost of services | 7,028,000 | 7,467,000 | 13,812,000 | 14,686,000 | |||||||||||
Total cost of revenues: | 18,364,000 | 16,017,000 | 37,126,000 | 32,238,000 | |||||||||||
Gross Profit | 16,230,000 | 16,033,000 | 30,629,000 | 32,651,000 | |||||||||||
Operating expenses: | |||||||||||||||
Selling, general and administrative expenses | 15,817,000 | 16,987,000 | 30,729,000 | 33,774,000 | |||||||||||
Research and development expenses | 2,001,000 | 2,179,000 | 5,230,000 | 3,902,000 | |||||||||||
Total Operating Expenses | 17,818,000 | 19,166,000 | 35,959,000 | 37,676,000 | |||||||||||
Loss from operations | (1,588,000 | ) | (3,133,000 | ) | (5,330,000 | ) | (5,025,000 | ) | |||||||
Interest income | 15,000 | 22,000 | 28,000 | 46,000 | |||||||||||
Interest expense | (575,000 | ) | (173,000 | ) | (1,019,000 | ) | (310,000 | ) | |||||||
Gain on Bargain purchase - Movingdots | - | 283,000 | - | 7,517,000 | |||||||||||
Foreign currency translation of debt | 2,068,000 | - | 2,612,000 | - | |||||||||||
Other (expense) income, net | 3,000 | 69,000 | 2,000 | 3,000 | |||||||||||
Net (loss) / income before income taxes | (77,000 | ) | (2,932,000 | ) | (3,707,000 | ) | 2,231,000 | ||||||||
Income tax benefit (expense) | (40,000 | ) | (39,000 | ) | 663,000 | (436,000 | ) | ||||||||
Net (loss) / income before non-controlling interest | (117,000 | ) | (2,971,000 | ) | (3,044,000 | ) | 1,795,000 | ||||||||
Non-controlling interest | (1,000 | ) | (6,000 | ) | (2,000 | ) | (3,000 | ) | |||||||
Net (loss) / income | (118,000 | ) | (2,977,000 | ) | (3,046,000 | ) | 1,792,000 | ||||||||
Accretion of preferred stock | (168,000 | ) | (168,000 | ) | (336,000 | ) | (336,000 | ) | |||||||
Preferred stock dividend | (1,048,000 | ) | (1,129,000 | ) | (2,076,000 | ) | (2,236,000 | ) | |||||||
Net (loss) / income attributable to common stockholders | $ | (1,334,000 | ) | $ | (4,274,000 | ) | $ | (5,458,000 | ) | $ | (780,000 | ) | |||
Net (loss) / income per share - basic | $ | (0.01 | ) | $ | (0.12 | ) | $ | (0.15 | ) | $ | 0.01 | ||||
Net (loss) / income per share - diluted | (0.01 | ) | $ | (0.12 | ) | (0.15 | ) | 0.01 | |||||||
Weighted average common shares outstanding - basic | 35,386,000 | 35,605,000 | 35,359,000 | 35,577,000 | |||||||||||
Weighted average common shares outstanding - diluted | 35,386,000 | 35,605,000 | 35,359,000 | 35,670,000 |
CONDENSED CONSOLIDATED BALANCE SHEET DATA
As of | |||||
(Unaudited) | |||||
ASSETS | |||||
Current assets: | |||||
Cash and cash equivalents | $ | 17,680,000 | $ | 21,729,000 | |
Restricted cash | 309,000 | 309,000 | |||
Accounts receivable, net | 32,493,000 | 31,318,000 | |||
Inventory, net | 22,272,000 | 22,125,000 | |||
Deferred costs - current | 762,000 | 338,000 | |||
Prepaid expenses and other current assets | 7,709,000 | 7,298,000 | |||
Total current assets | 81,225,000 | 83,117,000 | |||
Deferred costs - less current portion | - | - | |||
Fixed assets, net | 9,249,000 | 10,226,000 | |||
83,487,000 | 83,487,000 | ||||
Intangible assets, net | 22,908,000 | 21,871,000 | |||
Right of use asset | 7,820,000 | 6,936,000 | |||
Severance payable fund | 3,760,000 | 3,566,000 | |||
Deferred tax asset | 3,225,000 | 1,942,000 | |||
Other assets | 5,761,000 | 6,131,000 | |||
Total assets | $ | 217,435,000 | $ | 217,276,000 | |
LIABILITIES | |||||
Current liabilities: | |||||
Short-term bank debt and current maturities of long-term debt | $ | 10,312,000 | $ | 11,197,000 | |
Accounts payable and accrued expenses | 26,598,000 | 24,960,000 | |||
Deferred revenue - current | 6,363,000 | 6,193,000 | |||
Lease liability - current | 2,441,000 | 2,448,000 | |||
Total current liabilities | 45,714,000 | 44,798,000 | |||
Long-term debt, less current maturities | 11,403,000 | 9,940,000 | |||
Deferred revenue - less current portion | 4,390,000 | 4,582,000 | |||
Lease liability - less current portion | 5,628,000 | 4,715,000 | |||
Accrued severance payable | 4,365,000 | 4,284,000 | |||
Deferred tax liability | 4,919,000 | 4,030,000 | |||
Other long-term liabilities | 636,000 | 668,000 | |||
Total liabilities | 77,055,000 | 73,017,000 | |||
MEZZANINE EQUITY | |||||
Convertible redeemable Preferred stock: Series A | 57,565,000 | 59,008,000 | |||
STOCKHOLDERS' EQUITY | - | - | |||
82,737,000 | 85,188,000 | ||||
Non-controlling interest | 78,000 | 63,000 | |||
Total equity | 82,815,000 | 85,251,000 | |||
Total liabilities and stockholders' equity | $ | 217,435,000 | $ | 217,276,000 |
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOW DATA
Six Months Ended | |||||||
2022 | 2023 | ||||||
(Unaudited) | |||||||
Cash flows from operating activities (net of net assets acquired): | |||||||
Net (loss) / income | $ | (3,046,000 | ) | $ | 1,792,000 | ||
Adjustments to reconcile net loss to cash (used in) provided by operating activities: | |||||||
Non-controlling interest | 2,000 | 3,000 | |||||
Gain on bargain purchase | - | (7,517,000 | ) | ||||
Inventory reserve | 119,000 | 375,000 | |||||
Stock based compensation expense | 2,086,000 | 1,684,000 | |||||
Depreciation and amortization | 4,133,000 | 4,498,000 | |||||
Right-of-use assets, non-cash lease expense | 1,382,000 | 1,318,000 | |||||
Bad debt expense | (364,000 | ) | 826,000 | ||||
Deferred taxes | (663,000 | ) | 398,000 | ||||
Other non-cash items | 604,000 | 73,000 | |||||
Changes in: | |||||||
Operating assets and liabilities | (6,953,000 | ) | (2,110,000 | ) | |||
Net cash (used in) provided by operating activities | (2,700,000 | ) | 1,340,000 | ||||
Cash flows from investing activities: | |||||||
Acquisitions, net of cash assumed | - | 8,722,000 | |||||
Purchase of investment | - | (100,000 | ) | ||||
Capitalized software development costs | - | (1,677,000 | ) | ||||
Capital expenditures | (2,013,000 | ) | (2,108,000 | ) | |||
Net cash (used in) investing activities | (2,013,000 | ) | 4,837,000 | ||||
Cash flows from financing activities: | |||||||
Payment of preferred stock dividend | - | (1,128,000 | ) | ||||
Repayment of long-term debt | (2,897,000 | ) | (2,658,000 | ) | |||
Short-term bank debt, net | 2,330,000 | 2,736,000 | |||||
Purchase of treasury stock upon vesting of restricted stock | (186,000 | ) | (48,000 | ) | |||
Proceeds from exercise of stock options | - | 36,000 | |||||
Net cash (used in) provided by financing activities | (753,000 | ) | (1,062,000 | ) | |||
Effect of foreign exchange rate changes on cash and cash equivalents | (3,282,000 | ) | (1,066,000 | ) | |||
Net increase in cash, cash equivalents and restricted cash | (8,748,000 | ) | 4,049,000 | ||||
Cash, cash equivalents and restricted cash - beginning of period | 26,760,000 | 17,989,000 | |||||
Cash, cash equivalents and restricted cash - end of period | $ | 18,012,000 | $ | 22,038,000 |
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS DATA
Three Months Ended | ||||||||
Total | Core Business | |||||||
(Unaudited) | (Unaudited) | (Unaudited) | ||||||
Revenue: | ||||||||
Products | $ | 11,012,000 | $ | 322,838 | $ | 10,689,162 | ||
Services | 21,038,000 | 3,105,099 | 17,932,901 | |||||
Total Revenues | 32,050,000 | 3,427,937 | 28,622,063 | |||||
Cost of revenue: | ||||||||
Cost of products | 8,550,000 | 241,769 | 8,308,231 | |||||
Cost of services | 7,467,000 | 2,205,391 | 5,261,609 | |||||
Total cost of revenues: | 16,017,000 | 2,447,160 | 13,569,840 | |||||
Gross Profit | 16,033,000 | 980,777 | 15,052,223 |
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS DATA
Three Months Ended | |||||||||||
Total | Movingdots | Powerfleet Pre- Acquisition Business | |||||||||
(Unaudited) | (Unaudited) | (Unaudited) | |||||||||
Revenue: | |||||||||||
Products | $ | 11,012,000 | $ | 6,700 | $ | 11,005,300 | |||||
Services | 21,038,000 | 181,842 | 20,856,158 | ||||||||
Total Revenues | 32,050,000 | 188,542 | 31,861,458 | ||||||||
Cost of revenue: | |||||||||||
Cost of products | 8,550,000 | (3,134 | ) | 8,553,134 | |||||||
Cost of services | 7,467,000 | 153,249 | 7,313,751 | ||||||||
Total cost of revenues: | 16,017,000 | 150,115 | 15,866,885 | ||||||||
Gross Profit | 16,033,000 | 38,427 | 15,994,573 | ||||||||
Operating expenses: | |||||||||||
Selling, general and administrative expenses | 16,987,000 | 683,801 | 16,303,199 | ||||||||
Research and development expenses | 2,179,000 | 654,773 | 1,524,227 | ||||||||
Total Operating Expenses | 19,166,000 | 1,338,574 | 17,827,426 | ||||||||
Loss from operations | (3,133,000 | ) | (1,300,147 | ) | (1,832,853 | ) | |||||
Adjusted EBITDA | 647,000 | (1,167,000 | ) | 1,814,000 |
CONSTANT CURRENCY
Constant currency information has been presented to illustrate the impact of changes in currency rates on the company’s results. The constant currency information has been determined by adjusting the current financial reporting period results to the prior period average exchange rates, determined as the average of the monthly exchange rates applicable to the period. The measurement has been performed for each of the company’s currencies. The constant currency growth percentage has been calculated by utilizing the constant currency results compared to the prior period results.
The constant currency information represents non-GAAP information. The company believes this provides a useful basis to measure the performance of its business as it removes distortion from the effects of foreign currency movements during the period; however, this information should be considered as supplemental in nature and should not be considered in isolation or as a substitute for the related financial information prepared in accordance with GAAP. See the section above titled “Non-GAAP Financial Measures” for more information.
Due to a portion of the company’s customers who are invoiced in non-
Six Months Ended | Year Over Year Change | |||||||
($ in Thousands) | 2022 | 2023 | $ | % | ||||
Service Revenue: | ||||||||
Service Revenue as reported | 7.6% | |||||||
Conversion impact of | ||||||||
Service revenue on a constant currency basis | $38,545 | $44,365 | $5,820 | 15.1% | ||||
Six Months Ended | Year Over Year Change | |||||||
($ in Thousands) | 2022 | 2023 | $ | % | ||||
Product Revenue: | ||||||||
Product Revenue as reported | ( | (19.9%) | ||||||
Conversion impact of | ||||||||
Product revenue on a constant currency basis | $29,210 | $23,711 | ( | (18.8%) | ||||
Six Months Ended | Year Over Year Change | |||||||
($ in Thousands) | 2022 | 2023 | $ | % | ||||
Total Revenue: | ||||||||
Total Revenue as reported | ( | (4.2%) | ||||||
Conversion impact of | ||||||||
Total revenue on a constant currency basis | $67,755 | $68,076 | $321 | 0.5% |
Three Months Ended | Year Over Year Change | |||||
($ in Thousands) | 2022 | 2023 | $ | % | ||
Service Revenue: | ||||||
Service Revenue as reported | 6.4% | |||||
Conversion impact of | ||||||
Service revenue on a constant currency basis | 13.0% | |||||
Three Months Ended | Year Over Year Change | |||||
($ in Thousands) | 2022 | 2023 | $ | % | ||
Product Revenue: | ||||||
Product Revenue as reported | ( | (25.7%) | ||||
Conversion impact of | ||||||
Product revenue on a constant currency basis | ( | (24.9%) | ||||
Three Months Ended | Year Over Year Change | |||||
($ in Thousands) | 2022 | 2023 | $ | % | ||
Total Revenue: | ||||||
Total Revenue as reported | ( | (7.4%) | ||||
Conversion impact of | ||||||
Total revenue on a constant currency basis | ( | (3.2%) |
Source:
2023 GlobeNewswire, Inc., source