Powerfleet Reports Second Quarter and First Half 2023 Financial Results

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%

WOODCLIFF LAKE, N.J., Aug. 08, 2023 (GLOBE NEWSWIRE) -- Powerfleet, Inc. ( PWFL), reported results for the second quarter and six months ended June 30, 2023.

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, and South 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 Powerfleet CEO Steve Towe. “While we are still relatively early in our journey, strong proof points are now evident in the shape of our P&L, our mix of revenue and associated SaaS growth rates of 12% for the quarter and 15% for the half of 2023 on a constant currency basis. In the first half 2023, service revenue in our strategically important North American business grew by an impressive 16%, complemented by Israel, which was up 10% on a constant currency basis. New logo SaaS wins, centered around our Unity platform and advanced Safety solutions, were strong in Q2, alongside service gross margins of 71% and total gross margin of 53% in our core business unit. These fundamental SaaS metrics are very strong indicators supporting our longer-term strategic business value creation objectives.

“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.”

David Wilson, Powerfleet CFO, added: “Our Unity platform continues to track ahead of schedule, and I have no doubt that the pace of delivery and the level of capabilities within Unity are greatly enhanced by the Movingdots acquisition. That said, the importance of being good stewards of capital remains paramount and we have successfully executed the necessary steps to achieve our previously stated $3 million expense reduction challenge. Additionally, we have taken actions to secure an additional $1 million in annualized expense reductions. With $4 million of secured cost savings, we are positioned to exceed our commitment to ensure Movingdots is an adjusted EBITDA neutral transaction exiting the third quarter.”

SECOND QUARTER 2023 FINANCIAL RESULTS

Total revenue was $32.1 million, compared to $34.6 million in the same year-ago period, with growth in services revenue offsetting lower product sales.

Services revenues totaled $21.0 million, up $1.3 million year-over-year, accounting for 66% of total revenue. On a constant currency basis, services revenue grew by 13%, reflecting the company's successful execution of its SaaS growth strategy.

Products revenue was $11.0 million, or 34% of total revenue, compared to $14.8 million, or 43% of total revenue in the prior year period. Total revenue performance reflects actively shedding low margin and non-core hardware business.

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 $19.2 million from $17.8 million in the same year-ago period, with the increase solely attributable to the Movingdots acquisition.

Net loss attributable to common stockholders totaled $4.3 million, or $(0.12) per basic and diluted share (based on 35.6 million weighted average shares outstanding), compared to net loss attributable to common stockholders of $1.3 million, or $(0.04) per basic and diluted share (based on 35.4 million weighted average shares outstanding), in the same year-ago period.

Adjusted EBITDA, a non-GAAP metric, totaled $647,000, compared to $3.3 million in the same year-ago period reflecting Adjusted EBITDA losses from the Movingdots acquisition. See the section below titled “Non-GAAP Financial Measures” for more information about adjusted EBITDA and its reconciliation to GAAP net income (loss).

Powerfleet had $22.0 million in cash and cash equivalents and a working capital position of $38.3 million at quarter-end.

SIX MONTH 2023 FINANCIAL RESULTS

Total revenue was $64.9 million, compared to $67.8 million in the same year-ago period, with growth in services revenue offsetting lower product sales.

Services revenues totaled $41.5 million, up approximately $3.0 million year-over-year, accounting for 64% of total revenue. On a constant currency basis, services revenue grew by 15%, reflecting the company's successful execution of its SaaS growth strategy.

Products revenue was $23.4 million, or 36% of total revenue, compared to $29.2 million, or 43% of total revenue in the prior year period. Total revenue performance reflects actively shedding low margin and non-core business.

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 $7.5 million gain on bargain purchase for Movingdots, totaled $780,000, or $0.01 per basic and diluted share (based on 35.6 million and 35.7 million weighted average shares outstanding for basic and diluted respectively), compared to net loss attributable to common stockholders of $(5.5) million, or $(0.15) per basic and diluted share (based on 35.4 million weighted average shares outstanding), in the same year-ago period.

Adjusted EBITDA, a non-GAAP metric, totaled $2.0 million, compared to $2.7 million in the prior year period reflecting Adjusted EBITDA losses from the Movingdots acquisition. See the section below titled “Non-GAAP Financial Measures” for more information about adjusted EBITDA and its reconciliation to GAAP net income (loss).

INVESTOR CONFERENCE CALL
Powerfleet management will discuss these results and business outlook on a conference call today (Tuesday, August 8, 2023) at 8:30 a.m. Eastern time (5:30 a.m. Pacific time).

Powerfleet management will host the presentation, followed by a question-and-answer session.

Join the live Webcast
Toll Free Dial In: 888-506-0062
International Dial In: 973-528-0011
Participant Access Code: 360336

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), Powerfleet provides certain non-GAAP measures of financial performance. These non-GAAP measures include adjusted EBITDA and total revenue and services revenue excluding foreign exchange effect. Reference to these non-GAAP measures should be considered in addition to results prepared under current accounting standards, but are not a substitute for, or superior to, GAAP results. These non-GAAP measures are provided to enhance investors’ overall understanding of Powerfleet’s current financial performance. Specifically, Powerfleet believes the non-GAAP measures provide useful information to both management and investors by excluding certain expenses, gains and losses that may not be indicative of its core operating results and business outlook. These non-GAAP measures are not measures of financial performance or liquidity under GAAP and, accordingly, should not be considered as an alternative to net income or cash flow from operating activities as an indicator of operating performance or liquidity. Because Powerfleet’s method for calculating the non-GAAP measures may differ from other companies’ methods, the non-GAAP measures may not be comparable to similarly titled measures reported by other companies. Reconciliation of all non-GAAP measures included in this press release to the nearest GAAP measures can be found in the financial tables included in this press release.

POWERFLEET, INC. AND SUBSIDIARIES
RECONCILIATION OF GAAP TO ADJUSTED EBITDA FINANCIAL MEASURES

Three Months Ended Six Months Ended June 30, June 30, 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 POWERFLEET

Powerfleet ( PWFL; TASE: PWFL) is a global leader of internet of things (IoT) software-as-a-service (SaaS) solutions that optimize the performance of mobile assets and resources to unify business operations. Our data science insights and advanced modular software solutions help drive digital transformation through our customers’ and partners’ ecosystems to help save lives, time, and money. We help connect companies, enabling customers and their customers to realize more effective strategies and results. Powerfleet’s tenured and talented team is at the heart of our approach to partnership and tangible success. The company is headquartered in Woodcliff Lake, New Jersey, with our Pointer Innovation Center (PIC) in Israel and field offices around the globe. For more information, please visit www.powerfleet.com.

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 Securities and Exchange Commission, including Powerfleet’s most recent annual report on Form 10-K. These risks could cause actual results to differ materially from those expressed in any forward-looking statements made by, or on behalf of, Powerfleet. Unless otherwise required by applicable law, Powerfleet assumes no obligation to update the information contained in this press release, and expressly disclaims any obligation to do so, whether a result of new information, future events, or otherwise.

Powerfleet Investor Contact
Matt Glover
Gateway Group, Inc.
[email protected]
(949) 574-3860

Powerfleet Media Contact
Andrea Hayton
Powerfleet, Inc.
[email protected]
(610) 401-1999

POWERFLEET, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS DATA

Three Months Ended Six Months Ended June 30, June 30, 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

POWERFLEET, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEET DATA

As of December 31, 2022 June 30, 2023 (Unaudited)ASSETS Current assets: Cash and cash equivalents$17,680,000 $21,729,000Restricted cash 309,000 309,000 Accounts receivable, net 32,493,000 31,318,000Inventory, net 22,272,000 22,125,000Deferred costs - current 762,000 338,000Prepaid expenses and other current assets 7,709,000 7,298,000Total current assets 81,225,000 83,117,000 Deferred costs - less current portion - -Fixed assets, net 9,249,000 10,226,000Goodwill 83,487,000 83,487,000Intangible assets, net 22,908,000 21,871,000Right of use asset 7,820,000 6,936,000Severance payable fund 3,760,000 3,566,000Deferred tax asset 3,225,000 1,942,000Other assets 5,761,000 6,131,000Total assets$217,435,000 $217,276,000 LIABILITIES Current liabilities: Short-term bank debt and current maturities of long-term debt$10,312,000 $11,197,000Accounts payable and accrued expenses 26,598,000 24,960,000Deferred revenue - current 6,363,000 6,193,000Lease liability - current 2,441,000 2,448,000Total current liabilities 45,714,000 44,798,000 Long-term debt, less current maturities 11,403,000 9,940,000Deferred revenue - less current portion 4,390,000 4,582,000Lease liability - less current portion 5,628,000 4,715,000Accrued severance payable 4,365,000 4,284,000Deferred tax liability 4,919,000 4,030,000Other 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 - -Total Powerfleet, Inc. stockholders' equity 82,737,000 85,188,000Non-controlling interest 78,000 63,000Total equity 82,815,000 85,251,000Total liabilities and stockholders' equity$217,435,000 $217,276,000

POWERFLEET, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOW DATA

Six Months Ended June 30, 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

POWERFLEET, INC. CORE BUSINESS
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS DATA

Three Months Ended June 30, 2023 Total Powerfleet BASA / 3rd party Cellocator Core Business (Unaudited) (Unaudited) (Unaudited)Revenue: Products$11,012,000 $322,838 $10,689,162Services 21,038,000 3,105,099 17,932,901 Total Revenues 32,050,000 3,427,937 28,622,063Cost of revenue: Cost of products 8,550,000 241,769 8,308,231Cost 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

POWERFLEET, INC. PRE-MOVINGDOTS ACQUISITION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS DATA

Three Months Ended June 30, 2023 Total Powerfleet 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-U.S. Dollar denominated currencies, the company also calculates subscription revenue growth rate on a constant currency basis, thereby removing the effect of currency fluctuation on results of operations.

Six Months Ended Jun 30, Year Over Year Change($ in Thousands)2022 2023 $% Service Revenue: Service Revenue as reported$38,545 $41,478 $2,9337.6%Conversion impact of U.S. Dollar $2,887 $2,887 Service revenue on a constant currency basis$38,545 $44,365 $5,82015.1% Six Months Ended Jun 30, Year Over Year Change($ in Thousands)2022 2023 $% Product Revenue: Product Revenue as reported$29,210 $23,411 ($5,799)(19.9%)Conversion impact of U.S. Dollar $300 $300 Product revenue on a constant currency basis$29,210 $23,711 ($5,499)(18.8%) Six Months Ended Jun 30, Year Over Year Change($ in Thousands)2022 2023 $% Total Revenue: Total Revenue as reported$67,755 $64,889 ($2,866)(4.2%)Conversion impact of U.S. Dollar $3,187 $3,187 Total revenue on a constant currency basis$67,755 $68,076 $3210.5%

Three Months Ended Jun 30, Year Over Year Change($ in Thousands)2022 2023 $% Service Revenue: Service Revenue as reported$19,777 $21,044 $1,2676.4%Conversion impact of U.S. Dollar $1,299 $1,299 Service revenue on a constant currency basis$19,777 $22,343 $2,56613.0% Three Months Ended Jun 30, Year Over Year Change($ in Thousands)2022 2023 $% Product Revenue: Product Revenue as reported$14,818 $11,006 ($3,812)(25.7%)Conversion impact of U.S. Dollar $125 $125 Product revenue on a constant currency basis$14,818 $11,131 ($3,687)(24.9%) Three Months Ended Jun 30,Year Over Year Change($ in Thousands)2022 2023 $% Total Revenue: Total Revenue as reported$34,595 $32,050 ($2,545)(7.4%)Conversion impact of U.S. Dollar $1,424 $1,424 Total revenue on a constant currency basis$34,595 $33,474 ($1,121)(3.2%)