Good morning, and welcome to the Fireside Chat. At this time, all participants are in a listen-only mode, and we will open for questions following the presentation. If anyone should require operator assistance during the conference, please press star zero on your phone keypad. Please note, this conference is being recorded. I will now turn the conference over to your host, David Wilson, CFO of Powerfleet, Incorporated. David, the floor is yours.
Good morning, everyone, and welcome to today's Fireside Chat. My name is David Wilson, CFO of Powerfleet Inc, and I am joined on today's call by Steve Towe, Powerfleet CEO. I'll begin the call by sharing our safe harbor statement. The information shared on today's call contains forward-looking statements within the meaning of federal securities laws. All statements contained in this presentation that do not relate to matters of historical fact should be considered forward-looking statements. For example, forward-looking statements include, without limitation, statements regarding our preliminary financial results for the three months ended June 30, 2024, and our preliminary pro forma results for the 12 months ended March 31, 2024, and the integration of our MiX Telematics businesses, and the ability to recognize the anticipated synergies and benefits of our business combination with MiX Telematics. These forward-looking statements are based on management's current expectations.
These statements are neither promises nor guarantees and are subject to risks, uncertainties, and other factors described from time to time in our periodic filings with the Securities and Exchange Commission. Should one or more of these risks or uncertainties materialize, or should underlying assumptions prove to be incorrect, actual results may vary materially from those indicated or anticipated by these forward-looking statements. The forward-looking statements included in this presentation are made only as of the date of this presentation, and unless otherwise required by applicable law, we assume no obligation to update any forward-looking statements and expressly disclaim any obligations to do so, whether as a result of new information, future events, or otherwise. With the forward-looking statement shared, I'll start by briefly addressing the delay in our Q1 fiscal 2025 earnings call and related filings.
We received a comment letter from the SEC on July 30th regarding the designation of Powerfleet, Inc. as the accounting acquirer under ASC 805 business combinations in our recent combination with MiX Telematics Limited. This accounting matter does not directly impact our cash flow. The matter raised by the SEC was carefully reviewed and deliberated on by both Powerfleet and MiX Telematics, in close collaboration with their external advisors during the preparation of the S-4 and other necessary regulatory filings in connection with the transaction. While relative shareholding is a factor in identifying the accounting acquirer, it's important to recognize that ASC 805 outlines several other considerations under U.S. GAAP that must be evaluated. These include, but are not limited to, the composition of the board of directors, management control, any control premium paid, and the relative sizes of the two entities involved in the merger.
After a comprehensive analysis of all relevant aspects of the transaction, both companies concluded that Powerfleet had gained control over MiX Telematics. Consequently, Powerfleet was identified as the accounting acquirer in this transaction. While we are working closely with our auditors and legal advisors to resolve this matter within the month of August, timing is ultimately dependent upon the SEC review process. As a result, this ongoing review will delay our ability to file our transition report on Form 10-KT for the transition period from January 1, 2024, to March 31, 2024, and our Form 10-Q for the fiscal first quarter ended June 30, 2024. Our preliminary results for the June quarter have been prepared with Powerfleet identified as the accounting acquirer.
This includes additional amortization expenses related to intangible assets, primarily customer relationships, identified during the purchase price allocation, offset in part by reduction in the amortization of capitalized commissions. While we are confident in the rigor of our evaluation process and believe this conclusion aligns with guidelines provided by U.S. GAAP, we understand the importance of the SEC review process and will work closely with them to conclude this matter. I'll now turn the call over to Steve to provide an overview of our first quarter operating and preliminary financial performance. Steve?
Thank you, David, and thank you all for joining us today. I'd like to start by acknowledging that due to the matters David has discussed, there has been a longer than usual gap since our last formal earnings call. However, during this time, we've been deeply focused on executing our strategy and driving meaningful results. Our first quarter financial performance is a strong indicator of the progress we've made and very positive momentum we're seeing across the business. Success is clearly evident in the top-line performance, where we expect a 10% year-over-year revenue growth on a pro forma basis to approximately $75 million.
This growth underscores robust demand for our solutions, particularly driven by the strength of our differentiated in-warehouse safety solutions and the ongoing traction of Unity in North America, and growth in our subscriber base, which increased by 11% year-over-year to 1.95 million. Our preliminary Adjusted EBITDA is anticipated to exceed $13.5 million, representing an increase of over 40% compared to the pro forma Adjusted EBITDA from the same period last year. This strength reflects excellence in execution as we deliver strong top-line growth while effectively implementing our integration and EBITDA expansion initiatives. It demonstrates operating leverage inherent with our business model and our cost synergy program running ahead of schedule, securing $8.7 million in annualized savings as we exit the quarter.
Looking forward to the future, given our strong start to the fiscal year, we are raising full year 2025 revenue guidance to exceed $300 million, up from our prior guidance of approximately $300 million. We are also increasing our Adjusted EBITDA guidance to exceed $60 million, which includes an incremental $5 million in secured exit run rate cost synergies, compared to our previous guidance of approximately $60 million. We believe these results reflect the effectiveness of our integration strategy and our ability to drive up top line growth and operational efficiencies. Before we open the floor to questions, I want to reiterate that the accounting item with the SEC is not reflective of our operational performance. We're working diligently to resolve this matter, and we remain confident in the growth and resilience of our business performance.
Thank you for your continued support and confidence in Powerfleet. We look forward to discussing these results in more detail on the next earnings call and addressing your questions during the remainder of the session. Now, let's move on to the Q&A session. Operator?
Thank you very much. At this time, we will be conducting our question and answer session. If you would like to ask a question, you can press star one on your phone keypad now. A confirmation tone will indicate that your line is in the queue. You may press star two if you would like to remove your question from the queue. For any participants using speaker equipment, it may be necessary to pick up your handset before you press the keys. Please wait a moment while we poll for questions. Thank you. Your first question is coming from Scott Searle of Roth Capital. Scott, your line is live.
Hey, good morning. Thanks for taking the questions. Nice to see the top line starting to move in the right direction. Hey, Dave, maybe just quickly, I wanna make sure from the accounting standpoint, what we've got is, is from an SEC standpoint, determining who the acquiring entity is, and then therefore, that impacts, purchase accounting, intangible allocations, et cetera, right? That is the simple non-cash aspect of what's happened here.
Yeah, that's absolutely right, Scott. So it's, it's really about which, which side of the ledger in terms of Powerfleet or MiX you assigned intangibles, given the price paid would be higher than the book value of either company.
Gotcha. And, Steve, it's, it's nice to see the, the sales up 10% year-over-year. It's, you know, certainly ahead of, I think, the early expectations when you guys first talked about the combination. I wonder if you could provide a little bit of color on that 10% growth in the June quarter, how much was product versus recurring aspects? And then as we start to look into the customer base and raising the guidance for the year, where are you seeing that strength? You did reference warehouse, but I'm wondering where else in terms of end markets, geographies, and what you're seeing in terms of existing customers increasing the number of modules that they're deploying, and how Unity platform is doing into the MiX base. Thanks.
Thanks, Scott, and I'll try and unpack those as we go. So, I think ultimately we wanted to come out of the gate strong, and I think the results really represent the customer sentiment and the market sentiment to the transaction, and the disruptive and differentiated solutions that we're now bringing to play to a broader customer base. So, we were very, very strong in our Unity Safety solutions, which were up 25% year-over-year. And within that, Unity service revenue was up 10% year-over-year. David will cover off in terms of the overall numbers, the split on revenue. But what I would say is we're seeing, you know, again, strong traction in North America in terms of those solutions we've talked about.
But also, you know, I would say a good to great performance just across the board. So, you know, we're, we're all aware of the macro headwinds, we're all aware of the challenges and the geopolitical issues around the world, but this, this team has come out very resiliently, and I think, you know, you should take this as a strong signal from our customer base, just in terms of their response to, from a MiX perspective, you know, a broader portfolio. From a Powerfleet perspective, I think it's just more of the same, but we're now getting into a groove with the sales team in terms of turning over those wins. You know, 70% of the business is coming from existing business, 30 from new logo.
But just a strong, strong out-the-gate performance and, I think, you know, most notably when, you know, companies come together, you know, people are very concerned about that first kind of three to six months and how performance is gonna go. So doing that growth, but doing it also very profitably, I think is a, is a second plus point for the business. So we're delighted with the start. David, you might wanna just cover off some of the, the mechanics of the revenue.
Yeah. So just building on Steve's comment, Scott, so we had an incredibly strong quarter in terms of product revenue. To Steve's point, this is a differentiated sort of safety-centric solutions we're bringing to market, so that resonates well. So we have good traction there, and as you can appreciate, strong product revenue is the precursor to attached services revenue over time. So that gives us a good foundation as we look between now and the end of the year. So that was very strong. In terms of service revenue, it was up year-over-year, mid-single digits. A couple of points there. Firstly, if you think back to some of the information that MiX shared previously, they did have some significant sources of churn in their base, and clearly, the growth that we're seeing there has to outpace that and then some.
We feel good about where we are. Then in terms of how services is performing versus our internal plan, it's sort of ahead of plan as well. A good firm foundation for the rest of this fiscal year.
Hey, great. And if I could quickly follow up. Steve, is Unity remain on track to roll out to the entire MiX base? I think the target was six months, and the 30% from new logos is an impressive number. I'm just wondering if you could quickly give us an idea how those ARPU's are comparing, or guys coming in with a broader service suite that they're signing up for? Thanks.
Yeah. So, I think what is also kicking in is the elements of Unity that increase ARPU. So, you know, what we've seen as we've brought this into the new logo base is, you know, people are taking the device and data ingestion, the device agnostic data ingestion piece, and they're also signing up early on for the unified operations business systems integration, which helps us on the broader ARPU piece. So that is very strong.
Great, thanks. I'll get back in the queue.
Thank you very much. Your next question is coming from Anthony Stoss of Craig-Hallum. Anthony, your line is live.
Thank you. Good morning, guys. Nice results. I want to follow up on the sub count, 1.7 million subscribers. Can you share perhaps more detail, where you're seeing the bulk of those new customers coming online, what products? And David, if you want, or Steve, share kind of a goal in terms of sub count by the end of this year. And then also, I'd love to hear the $5 million of newfound synergies, where is that coming from?
So it's actually 1.95 million, I think, in terms of of subscribers. And I think, you know, that is being driven in the same, you know, where the revenue is, the subscribers are coming. So, you know, that's a high alignment in terms of the growth areas versus the subscribers. I don't think yet we've given subscriber guidance for the future. I think that's one for the earnings call when it comes through. And then in terms of the the overall synergy piece, that is actually... I think a couple of things to note.
First of all, we're ahead of schedule, so I think it's $8.7 million of the, of the annualized plan we've already delivered in the first quarter, and this, again, is testament to the strength of the team and also our integration capabilities. I think where David is referencing, but he can add on, in terms of the five years, that's, that's kind of adding in the annualized, version of what is taken in the year. So add 5 + 8 is kind of 13, is the, is the run rate. I think that's where that is. I'd just like to come back to Scott's question, because I realized I didn't answer the question in terms of, are we on track for the full capabilities, both hardware and software, for MiX customers to, consume the Unity services? So we're ahead of track.
There is more work to be done on certain elements of it, but we're already starting to get those capabilities into the hands of MiX customers.
Let me cover from me, Tony, in terms of the guidance, it's probably just a little bit more complex than it needs to be from an EBITDA standpoint. So the guidance we previously gave, as recently as the April Fireside Chat, talked about $60 million of EBITDA, which was really what would we actually post in the year, plus giving ourselves full credit for EBITDA costs realized, but not necessarily hitting the ticket for the year. So the rule of thumb was, look for about $55 million of posted EBITDA, plus an extra sort of $5 million or so in terms of run rate, that is in excess of what actually hit the 55. So we'll be more straightforward here on out.
Got it. Then if I could just, one quick follow-up here. Any comments on changes that you've seen, either in churn or also it seems with the much better results, that your average sale price is probably going up, more products being taken by your customers? I'd love to hear any updates you can share on that. Thanks.
Can you just repeat? You cut out at the start of the first part of the question?
If you've seen any changes to churn, and then again, just kind of average sales size.
Yeah. So I think as David articulated early on, we were aware of some churn in some customers within the MiX base. We've been able to absorb that, and I think there is renewed energy across our base, both on the Powerfleet and the MiX side, to, you know, reduce churn over time. And I think we've got some strong mechanisms that we're putting into place to be able to do that. We are seeing, you know, a little increase in ARPU, as we've said, come through, but this is really about account expansion, where we've got the growth, plus obviously some good new logo wins for us as well. There is no whale business in this growth, so this is nice because it's kind of run rate business.
But it's really that expanding use of our portfolio and the value-added services that we can offer alongside. And I think it's, it's also as well, from a device agnostic perspective, customers deciding to bring all of their hardware business to us as well, knowing that they want to have the Unity one-stop shop and one single pane of glass. So that kind of increments not only your hardware revenue, but your subscription revenue costs as well.
Very good. Thank you, guys.
Thank you very much. Your next question is coming from Dylan Becker of William Blair. Dylan, your line is live.
Hey, gentlemen, nice job here, both on kind of revenue and profitability. I'm wondering first, to what extent are you guys seeing that outperformance come from kind of the core standalone profit, businesses, just given we're early in the integration phase? Or is it kind of early traction in some of the synergies, some pull-forward, anything there? Especially maybe as the theme of kind of vendor platform consolidation starts to play out, at least how that's kind of resonating in some of your early conversations.
Yeah. So I think this is a few things. I think, first of all, you know, we were highly prepared and very experienced at doing integration, so we've hit the ground running beyond fast, which has, you know, allowed us to take the team on the journey. And I think there's a huge amount of positive energy in both businesses around the company strategy, around the momentum we've been creating in the market, and ultimately creating a business which is gonna sit at the very, very top table. So I think energy focus has really helped, and I think there's a reinvigoration of both companies off the back of the transaction. But the expansion in EBITDA, I think, is definitely coming from, you know, what we've already put out in terms of the execution plan to be able to do that.
I think this isn't just the standalone businesses doing a better job. This is definitely two companies together from a product portfolio, from a go-to-market perspective, from a, I think, a sales discipline perspective. And really, I think from a customer perspective, understanding that this is a new company with broader capabilities, with much improved scale, but having the right attitude in terms of coming for a long-term relationship with customers. So I think we've got those messages out, both into our customer base and into our partner base, and I think we're starting to see the outcome of that. I'd just remind everyone on the call, you know, this is, this is something that was cornerstone to the strategy that we set out, and we wanted to make sure we hit the ground running.
I'll come back to the point that, you know, in the first six, nine months of most, you know, combinations of this size, it can be a very, very challenging period. So I'm very proud of the fact that we haven't skipped a beat operationally. We've enhanced our overall internal and external approaches, and, you know, we've seen a very, very strong results focus achievement since then. So, you know, that's something that we feel good about. We've got a lot of work ahead, much more work to do to get where we want to, but a very solid start coming out the gate.
Okay, that's great. That's helpful. Thanks, Steve. Maybe two, I know you guys, as a part of the, the transaction, have brought on a lot of engineering talent. I guess, how should we think about this, maybe more so as a leading indicator of what's to come on platform innovation, the ability to address kind of probably what I would assume is a lot of customer inbound, for that additional platform functionality to be, to be built out, Unity, obviously, and then, probably a number of other solutions on top of that as well? Thanks.
Yeah. So look, Powerfleet in March 2023, which is only 14, 15 months ago, had 50 engineers within its group. We now have 300. So our ability to transform our innovation, our speed and quality of products and solutions is, you know, seismic compared with where it was. So, you know, we're doing this in terms of the broader portfolio we have today, plus the introduction of the Unity strategy. As we're able to evolve, and I think it was Scott who mentioned, you know, better AI capabilities, more modules, the ability to do things faster in terms and scale in terms of both sets of device and data ingestion, plus the third-party integrations, is only gonna bring goodness for us moving forward.
So what excites us is that, you know, we, we've got this traction and this momentum, and then it does take longer for engineers than 90 days to kind of, you know, kick in, in terms of its output. But, you know, the teams are working on a very discrete roadmap that's being put together for the future. And, you know, those guys are mobilizing and starting to execute well against that plan.
Great. Thank you.
Thank you very much. Just a reminder, if anyone has any remaining questions, please press star one on your phone keypad now. Thank you. Your next question is coming from Alexander Sklar of Raymond James. Alexander, your line is live.
Great, thank you. Steve, just in terms of revisiting the growth opportunity now, four months or so post the merger, can you just talk about how you feel about coverage of your TAM and the pipeline, and then even maybe some of the productivity stats you're observing from a rep standpoint? Any changes to how you're viewing the growth opportunity, just given the strong Q1 results? Thanks.
No, and look, we'll cover more of it in the earnings call. We're also planning to do an investor day in the fall, and, you know, we'll be a lot more granular in terms of, you know, that output and that execution. You know, over time, the TAM will increase for the business, because we're able to serve more verticals, more markets, more geographies at scale. And we'll kind of, you know, take our shareholders on a journey towards that. I mean, the one data point that I think is important to add is we're adding 28 quota carriers to the business. We're currently recruiting those folks as we go, and that's in sales and revenue-led customer success across the business, which is a significant increase for the business.
So, in terms of the savings that we are creating from the EBITDA expansion plan, on top of that, we're having the capability to invest more feet on the street. And this is all part of it. You know, I've articulated previously, both businesses, for different reasons, have had to be playing defense for a long, long time. This is us now getting on that front, for starting to play offense and, you know, getting, getting more visibility in the market and getting deeper into those markets. So that is gonna go, that's gonna continue to grow. It's gonna be an evolving strategy, which will ultimately open more doors for us, both in terms of pipeline.
What I would say in terms of the conversion rate from sales from our reps, we have seen an increase in the last 90 days, and I think that is just across the board, an intensity, I think confidence within the sales teams and a reinvigoration of our sales teams, being a bigger company with a broader portfolio and be able to create better value for customers. And those sales teams really being able to see the wallet share opportunity that's ahead of us with the redefined proposition.
All right. That, that's great color. I appreciate all that, Steve. And then maybe just one follow-up for you, David. Just in terms of what you saw on the sequential trends from the separate entities, kind of in March versus the, the combined company in June, you gave us the preliminary full year number. Can you just talk about the linearity of growth and then any FX impact between the two quarters to call out? It just seems like a really nice uptick in the June quarter, and I'm just kind of curious, is that - was that on the services side as well, or was that kind of all on the, on the product side in terms of sequential improvement? Thanks.
Yeah. No, it's across the board, so there's strength across the board. To Steve's earlier point, we really did use the companies coming together as a springboard, and we're definitely seeing sort of an acceleration in terms of both the numbers that we're posting, in addition to the head of steam that we're building out for future quarters. So, again, we're delighted with what we've been able to accomplish. It's a testament to these two organizations coming together and coalescing, as opposed to sort of moving apart, which quite often happens under M&A. So again, it's. There's huge opportunity here. It's very clear what we need to focus on, what we need to get done, and we've got traction, and we're getting it done.
All right, great. Thank you both.
Thank you.
Thank you very much. Your next question is coming from Greg Gibas of Northland Securities. Greg, your line is live.
Great. Good morning, Steve and David. Congrats on the quarter. Thanks for taking the questions. You know, I think most everything has been addressed, but wanted to get a sense, you know, with, with kind of the cost synergy seemingly tracking ahead of expectations, do you still kind of, on a longer term basis, have the same visibility to recognize $27 million in EBITDA uplift, uplift, that you previously discussed?
Yeah, we feel totally confident in that number. It's always better to have execution behind you and to be able to say that when you're significantly within the plan. And as I said, you know, this year is gonna be, you know, north of 50% of it executed by the time that we get through this year. But we were very confident in being able to deliver it, but it takes a lot of hard work. It's tough stuff to do. Yes, there's some low-hanging fruit, but, you know, we, we've gone well past the low-hanging fruit into the more challenging things and couldn't be more delighted with the attitude and approach, but also, you know, the skill and ability of people to make that happen for us.
So we feel very good about that number, and as I articulated earlier, we've gone past that in terms of actual savings in the business, which is allowing us to repurpose, more into our go-to market.
Okay, great. Wanted to get a sense of how pricing with new logo growth has trended and maybe how gross margins trended in the quarter?
Yeah. So to Steve's earlier point, in terms of new people coming in, they tend to be primarily drawn by the promise of Unity, and that is a higher margin, higher ARPU differentiated service. So that's working well. In terms of the margin, to the point earlier, this is differentiated solutions, safety solutions. It is healthy margin business. So certainly from a product gross margin standpoint, we saw a nice sort of pickup sequentially in terms of gross margin on the product side of things. And in terms of service side of things, it continues to perform well. So again, we feel good about where we are from a gross margin standpoint.
Great. Appreciate the call in.
Thank you very much. Well, we appear to have reached the end of our question and answer session. I will now hand back over to Steve for closing remarks.
So we just want to say thank you, everybody, for your continued support. It feels like a very long time since we've been able to come and update on the business. So, you know, we're delighted to be able to have done so. We will provide more color, once we're through this process, with the SEC. We take it very seriously in terms of, you know, making sure that we follow that process, and we're very confident in, in the way that we're approaching that process. So we appreciate the ongoing dialogue.
We will always want to be very upfront and straightforward and be there for our shareholders to ask questions, so these sessions are super important to us, and we look forward to keep updating now and, and for our shareholders to feel and understand the momentum and the positivity and the excitement that we have for the business moving forward. Have a great day. We'll be back in touch very soon, and we appreciate your support. Thank you.
Thank you very much. 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.