Good morning. Welcome to PowerFleet's first quarter 2022 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 and 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. During the first quarter, we built on the solid uplift in revenue from the prior quarter and delivered an encouraging 14% year-over-year revenue growth. The double-digit growth momentum we generated in the first quarter was driven by further commitment from some of our major customers, including Walmart, Albertsons, and American Intermodal Management. More broadly, we saw growth across our core international verticals and markets, particularly in Mexico and our Pointer operations, both of which are realizing solid growth with new and existing partners. It's been a little over four months now since I joined PowerFleet, and my experience and interactions continue to exceed my expectations. The company has solid technology, a strong reputation, a world-class customer base, and a committed global team. Our updated strategy is being very well received by customers, partners, and employees alike.
Additionally, our team and key partners are excited about the direction of the business and the increasing role PowerFleet is playing across our customer supply chain to solve the unparalleled need for high visibility and insight through unifying their operations. Before I discuss our growth strategy, operational initiatives, and business outlook, I would like to thank Ned for his valuable contributions he has made to PowerFleet over the years. Ned has been a great business partner since I joined the company, and I greatly appreciate his support as we search for our next financial leader to help us build on the operational and financial momentum and capitalize on the growth opportunities on the horizon. On behalf of the board and leadership team, I wish Ned great success in his next endeavor.
In the interim, our Global Controller, Joaquin Fong, will manage the day-to-day global finance operations until the CFO search is completed. With that, I'll turn to Ned to cover our financial results for the first quarter of 2022. Ned?
Thank you for the kind words, Steve. I look forward to supporting the company not only in a consulting capacity over the coming months, but also as a shareholder and a friend of the PowerFleet family for the years ahead. Turning to our financial results for the first quarter ended March 31, 2022, total revenue increased 14% to $33.2 million from $29 million in the same year-ago period. High margin recurring and services revenue was $18.8 million or 57% of total revenue. This was an improvement on a dollar basis compared to $17.6 million or 61% of total revenue in Q1 of last year. Product revenue, which drives future services revenue, was $14.4 million or 43% of total revenue.
This compares to $11.4 million or 39% of total revenue in Q1 of 2021. Gross profit was $14.4 million or 43% of total revenue, compared to $14.5 million or 50% of total revenue in the same year-ago period. Services gross profit was $12 million or 64% of total service revenue, an improvement compared to $11.2 million or 64% of total service revenue in Q1 of last year. Product gross profit was $2.4 million or 17% of total product revenue, compared to $3.3 million or 29% of total product revenue in the same year-ago period. Product gross profit was negatively impacted in Q1 2022 by product mix, higher costs associated with supply chain issues and electronic component shortages and inflation.
During Q1 of 2022, we incurred approximately $1.3 million in purchase price variance, or PPV, related to supply chain issues and electronic component shortages, which impacted our product gross profit by 9%. Looking at our expenses, total operating expenses were $18.1 million, down from $18.9 million in the prior quarter, but up from $16.4 million in Q1 of last year. A key initiative of our transformation strategy is to rationalize costs in non-core areas, the benefit of which we expect to see starting in Q2. Looking at our profitability metrics, GAAP net loss attributable to common stockholder totaled $4.1 million, or $0.12 per basic and diluted share.
This compares to GAAP net loss attributable to common stockholders of $3 million, or $0.09 per basic and diluted share in Q1 of last year. Non-GAAP net loss, a non-GAAP metric, totaled $2.2 million, or $0.06 per basic and diluted share, compared to non-GAAP net income of $61,000 or $0.00 per basic and diluted share in the same year ago period. Adjusted EBITDA loss, a non-GAAP metric, totaled $993,000, compared to adjusted EBITDA of $1.4 million in the same year ago period. At quarter end, the company had $20.9 million in cash and cash equivalents and $40.5 million of working capital. That concludes my prepared remarks. Steve?
Thank you, Ned. Our company's laser-focused in 2022 on establishing a world-class SaaS and AI platform to maximize the impact we make for our customers and increase the wallet share that we can derive in the future. PowerFleet is well-positioned to capitalize on this opportunity due to the depth and breadth of our solutions, specifically the rich history of innovative platform devices and sensors, our suite of software applications and data, coupled with the growing need for real-time AI-based solutions across our SaaS offerings. Our strategic roadmap has been finessed with several go-forward data-centric initiatives. As we started to capitalize on the rapid transformations taking place in our industry, we're driving forward a modular enterprise application methodology to help our customers prioritize and implement their digital transformations at a pace to suit their organization.
It will allow them to prioritize and focus on the business problems they are looking to solve across the C-suite. In turn, this will create significant upsell opportunities as we collaborate with our customers to create strategic business change roadmaps. Another initiative is unifying our platforms to a single set of interfaces, which we remain on track to deliver this year. The unification will enable PowerFleet customers to access information across their entire assets estate through a highly intuitive single pane of glass, transforming the way operators can manage their business. We've already enjoyed several fruitful strategic conversations with major customers and key partners about our broader technology roadmap. In parallel, we are ramping up pipeline for the unification of our platforms, which will significantly enhance our ability to cross-sell solutions across the organization.
The completion of the unification will position PowerFleet as a leading global end-to-end IoT provider, catering to all asset types in a cohesive fashion. Our mission is to become a cornerstone of our customer strategy to unify their operations. As part of this effort, we have rapidly galvanized our global data and third-party integration capabilities and now have more than 80 data integrations with other best-of-breed partners, which also offer pivotal services to manage our customer supply chains and their business operations. We will continue to add significantly to the growing number of key integration points over the coming quarters. We continue to navigate through the global supply chain and electronic component issues and deliver on our customer commitments, supplying products and solutions that they rely on for their business operations.
As we progress through 2022, we expect product gross profit to gradually improve as we begin to realize the benefits from our operational and product reengineering initiatives. In the longer term, we are confident these measures will give us a better control on cost management levers for our supply chain. In step with this, we're working hard to expand recurring revenues while reducing operating expenses through even closer integration of our business units. From a sales perspective, the leadership team and I are fully focused on optimizing PowerFleet's global go-to-market growth strategy and better promoting our company's vision to improve safety, productivity, efficiency, and sustainability across business operations with intuitive and innovative IoT SaaS solutions. Along that line, we recently attended MODEX 2022, the premier industrial supply chain event.
The customers and prospects we met with at the trade show were very responsive to PowerFleet's positioning as having one of the most comprehensive set of capabilities in the industrial market segment. There is excitement and demand for our newly launched pedestrian and vehicle warning system, which uses advanced AI capabilities to manage safety, prevent accidents, and reduce damage in our customer warehouse facilities. The team is fully focused on executing well on driving transformation and accelerating our vision. The successful execution of our strategic roadmap will create a highly scalable, repeatable, and profitable global organization. That concludes our prepared remarks. Now I'll turn it back to the operator for Q&A.
Ladies and gentlemen, the floor is now open for questions. If you have any questions or comments, please press star one on your phone at this time. We ask that while posing your question, you please pick up your handset if listening on speakerphone to provide optimum sound quality. Please hold while we poll for questions. Your first question for today is coming from Mike Walkley from Canaccord Genuity. Mike, your line is live.
Great. Thanks for taking my questions and, congrats on a solid start to the year, and Ned, best wishes in your future endeavors. First question from me, Steve, is just on the supply chain, you know, we know it's very challenging. Can you just, you know, elaborate further on what PowerFleet is doing to manage this and, how we should think about the slope of recovery for hardware gross margins over the next several quarters?
Sure. Thank you for the question, and a good question to start. In terms of the medium term, we have looked to re-engineer a number of potential component challenges out of the estate, and that obviously takes time for us to work through. In the meantime, there is a shortage of components. There are components that are nearing end of life or got to end of life, and prices in the market are being sent up off the back of that. We've taken a philosophy where we can practically just continue to implement those solutions with our customers, provide the products, and that's where you've seen the hit in gross margin. That will start to ease because we are seeing a slight improvement, I would say, in the situation over the coming quarters, plus the re-engineering work.
As we kind of go out to the end of the year, we should see our sales rebound quite steadily.
Great. Thanks. I know focus is growing on, you know, AI and SaaS revenue. Maybe you could talk about or elaborate more on, you know, how's your sales team adapting to this, you know, what might be changing in terms of your go-to-market strategy and discussions with your customers.
Yes. I think we've talked before, this is an and strategy. It's, you know, first of all, let's get as many devices and subscribers as we can into the market and then focus on the expansion strategy to really kind of cement ourselves with the data solutions that we provide. From a sales team perspective, this has been very well received because they have more solutions now to go and sell to customers, both in terms of data sets that we're able to provide, but also the breadth across the different asset types. What we are obviously looking at longer term to do is make sure we can be a very good one-stop shop across all of those asset types.
We have a number of conversations now going on with different members of the C-suite within the organizations to make sure that we're looking at appropriate solutions across the business as a whole, rather than maybe in a particular segment.
Great. Last question for me, and I'll pass back the line. Just as you think about the model, you know, obviously you want greater mix of SaaS revenue longer term, but there's also, you know, some cost cutting, I guess, initiatives or efficiency initiatives going on. So should we think about overall operating expense dollars declining over the course of the year? Or do you need to hire a new sales team, you know, with the changing go-to-market strategy?
Yeah, it's a bit of balancing of both. Obviously, you know, we feel there's a really good market opportunity and we need to put some further feet on the street for the market segments. We've talked before about bringing the Pointer solutions as an example to the U.S. market in quite a large way. I think, you know, we'll be adding people. At the same time, the cost reductions and integration efforts will take time to come in. You know, there may be some costs go up before we see the full fruit of the reductions. At the same time, there are some quick wins as well from a cost reduction perspective.
Great. Thanks for taking my questions and best wishes for success this year.
Thanks a lot.
Your next question for today is coming from Jaeson Schmidt with Lake Street. Jaeson, your line is live.
Hey, guys. Thanks for taking my questions. A really nice momentum on the revenue line in March. Just curious what you're seeing from an order pattern standpoint here in April and early May.
Yeah. We're seeing good momentum remain in our pipelines. I think that, you know, the Q4 was a strong revenue quarter, Q1 was a strong revenue quarter, and we're seeing demand continue. I think customers are, again, thinking of us now in a different light. You know, not only near-term pipeline, but also longer term pipeline as to how PowerFleet can be a partner on a broader basis. As I said in the note, you know, we're feeling that those conversations are fruitful and that helps both the short term and the long term.
Okay. No, that's really helpful. Then just looking at the equipment gross margin line, I know you expect improvement this year as some of the initiatives kind of flow through. But just curious if some of this improvement is also assuming the supply chain backdrop overall improves?
A lot of it, as I've said, is our re-engineering, and we obviously have been putting that into execution, you know, from mid-year last year through the rest of this year. We are seeing slight improvement, but I wouldn't say anything that makes us feel totally confident that, you know, that pattern is gonna continue at this point in time.
Okay. Just the last one from me, and I'll jump back in the queue. I know you spelled out Mexico in the release, but from a geographical perspective, any other areas that jump out, either positive or negative?
I mean, what's great is the improvement is being spread around the globe. Our Israeli team saw good growth, our Mexican team, as we said, and also our U.S. team as well. I mean, those three territories, I would say are leading the way for us. I wouldn't say anything from a negative perspective, but they're really standing out as getting market share and market gain.
Okay, great. Appreciate the color. Thanks, guys.
Your next question for today is coming from Scott Searle with ROTH Capital Partners. Scott, your line is live.
Hey, good morning. Thanks for taking the questions. Ned, I wanna wish you all the best luck going forward. It's been fun working with you over the years. Hey, maybe just to follow up on a couple of the earlier questions, on the gross margin front. Steve, you're going through product redesigns. I'm wondering what that entails then from a certification process, if you could put, you know, some time frames around that. Then as we start to think about the recovery on the product side, what should we be expecting kinda exit rate in 2022? And what are the ultimate targets here? This used to be a business that ran at 30%+. We're at 17%. Is that still an achievable number subject to mix?
Okay. Let's take those two in separation. In terms of the certification, some we do need certification, some we don't, in terms of the minor designs and everything that we're changing. That has all taken place where it needs to and will continue to take place. We see really the fruits of that, of the full engineering work to take place in Q4 this year. That's the first part. In the second part, I think, you know, getting back to mid-20s% is a good short-term target for us. 30%+, I mean, there's a lot of macroeconomics that we need to look at to be able to be certain of that moving forward. You know, we expect to improve on that mid-20s%, you know, later in the year and early next year.
Gotcha. Very helpful. On the OpEx front, up sequentially, I'm wondering if there are any one-time items in there to call out. I know at the beginning of the year, you got things like FICA and otherwise. If there's anything to highlight in terms of that base level OpEx that we're starting from.
Ned, do you wanna take that one?
Sure. It's actually down slightly compared to Q4, but not anything specific. During the first quarter, there's a few hundred thousand of one-time items, and that gets hit in the first quarter that should not be there in the second quarter.
Gotcha. Okay. Lastly, Steve, if I could, you know, you've talked about the evolution of the platform, more modular and identifying some partners. It sounds like you've gotten further along on that front. I think you had, in the past, talked about starting to see some of the initial betas rolling into the marketplace with those partners in the H2 . Are those metrics, are those timelines still tracking? I'm also wondering from a metric standpoint going forward as you think about the business, how you're gonna be reporting the business going forward. Lastly, if I could, I know you guys had talked before about an Analyst Day. Is that something that we should still be thinking about, or is that kinda looking more like in the third quarter, fourth quarter kinda timeframe? Thanks.
I'm not sure I caught from the first one in terms of the integrations, those eight integrations are live now, so the team have done a fantastic job to move very quickly. I think that's a fantastic start for us, and we'll now be, you know, really publishing that in anger from the H2 of the year and getting our go-to-market teams behind it. In terms of. Can you just explain your question a lot more in terms of reporting the business?
Yeah, Steve, I'm just in terms of metrics of subscribers, enterprises that you're working with or otherwise, how you're thinking about, I guess, measuring the business both internally and what you're gonna be reporting to the street going forward. I know it's still early in your tenure, but if there are any early thoughts in terms of how we should be thinking about the business, particularly on the SaaS side?
I don't think we would be saying anything different to what we've been saying before or looking at the business in a different way. Obviously, we're gonna go very strong on recurring revenues and the metrics around that. I think quality across the organization is something that, you know, throughout the organization internally, we're making sure that we're at the top of our game. Maybe a bit more strength around those particular metrics. The general running of the business, I think we have good metrics today. In terms of your third question, yes, we are hosting an Analyst Investor Day on the fourteenth of June in New York City.
Great. Thanks so much.
There are no further questions in queue. I would like to turn the floor over to Steve for closing remarks.
Thank you to everyone for the insightful questions, and thanks today for joining the call. As I just mentioned, we are hosting an Investor and Analyst Day in New York City on Tuesday, June fourteenth, from 12 noon to 3 P.M. Eastern Time. The event will provide an opportunity to meet the expanded leadership team and gain insight into our strategic roadmap, growth drivers, and long-term outlook, and to really spend some time with the heart of the business. To RSVP for the event, please contact Matt Glover via PWFL@gatewayir.com. In closing, I'd like to thank our employees for their diligent efforts and operational execution, extend a thank you to our valued customers for putting their trust in PowerFleet, and thanks to our investors for your continued support and confidence in our ability to realize our vision.
Thank you, ladies and gentlemen. This does conclude today's event. You may disconnect at this time and have a wonderful day. Thank you for your participation.