Right, thanks. Good start, okay. All right, well, good afternoon, everyone. My name's Alex Sklar. I'm one of the application software analysts here at Raymond James. Very pleased to have PowerFleet with us again this year. Chief Financial Officer David Wilson. We're going to do a fireside chat.
If there's any questions at the end, though, we can open up to the audience. But, you know, David, you just had an Investor Day, and I think I want to start here because I forget if it was Steve or it was Michael, but you kind of used the term at the event, like, "Phase I is now complete.
Yep.
We're starting Phase II," and so maybe just walk us through what's been happening the last year, what Phase II really means from your seat, what can investors expect next?
Yeah, so we have had an incredibly busy 12 months. I think that would be an understatement. What I'd also say is all the change was by design. So I joined PowerFleet January of 2023. The reason I joined was because of Steve Towe, who is the CEO. He basically joined PowerFleet not for what it was, but what it could become.
So he had a very clear vision in terms of how the telematics market would become a two-tier market in terms of next-generation solutions versus legacy solutions a nd if you are a next-generation solution, there is massive growth opportunity. Look no further than Samsara. So Samsara is, out of 300 public SaaS companies, Samsara is one of two that have reached $1 billion of revenue and been growing north of 30%. So it's a fantastic market to be in if you bring something that's highly differentiated.
So Steve came in with an appreciation that scale really mattered a nd the way to scale up was through M&A. Steve has a background in terms of private equity, accretive M&A. He brought a team in with him with a playbook that knows how to do that. So in terms of stage one, stage one was getting significant scale and also getting ownership of capabilities that far exceed what PowerFleet ever had on a standalone basis.
So to give you an example, PowerFleet standalone may be $130 million of revenue. With the combination of MiX, that is a deal that closed April 2nd of this year. Combination with Fleet Complete closed April 1 of this year. We're on track to be sort of north of $400 million of revenue this year. In terms of building out an enterprise-grade SaaS platform, PowerFleet by itself had probably 85 engineers.
With MiX, which closed April 2nd, rounding up its 300 engineers. With Fleet Complete, we now have 400 engineers. So we now have the capacity to go execute at scale. The other thing that's important is market reach. So one of the benefits of the MiX transaction was they had a global set of distributors, 130 of them. With Fleet Complete, we also have now access to very healthy resale relationships with the likes of AT&T and Telus.
So to give you a sense in terms of our market reach, PowerFleet standalone, 50 direct carriers. With MiX, it doubled to 100. With Fleet Complete, probably 130. We have the 130 resale channels that MiX brought us, but we also have access to thousands of salespeople through the likes of AT&T.
The way, for example, Fleet Complete goes to market is through that reseller channel, and it's 15 AT&T reps typically to one. As a force multiplier, we now have a force multiplier in place, which is purely success-based. AT&T earns money, we earn money, as opposed to a speculative spend. Long way of answering, we now have all the piece parts in place. We have scale.
It's now up to this team to go maximize the opportunity set that we have. In parallel with that, we're also extracting a significant amount of cost synergies as well. You know, there's $37 million we have targeted. In the first six months following MiX, we've realized $13.5 million, but there's a lot of direct EBITDA expansion, cash flow expansion within our direct control we will continue chipping away at.
But in terms of Phase II, we now have everything that we need. We have an opportunity set we could only have dreamt of six, eight months ago, and now it's up to us to maximize the benefit of it.
Yeah, I like the idea of this two-tier market because truthfully, this is massively fragmented. It's fragmented by geo, it's fragmented by some of the point solutions, but now what you have assembled is kind of this one of the broadest kind of offerings underpinned by the Unity platform. So maybe just talk about kind of as you think about that two-tier market, how do you feel about kind of what you're offering from a product standpoint to this market? Is it point of differentiation? Obviously, we can talk about Unity as part of that answer as well.
Yeah, yeah. So there's a lot. There's the real world. So Samsara is a great touchpoint, phenomenally successful business, b ut in large part, if you want to get the full benefit of Samsara, you have to have Samsara devices. So you have to swap out devices. You can't use your existing set of telematics devices that exist today.
If I was to show you the Fortune 500 customers who are customers of AT&T or companies who are customers of AT&T, it cuts across many verticals, and these are very large organizations. But we are one of many telematics providers who serve those customers. That is a huge opportunity for us. So if you're running end-to-end supply chain through the accident of history, the data that you have is highly fragmented.
So every single telematics provider has its own portal, which means if you have lots of different flavors, you're looking at lots of different portals to understand what's going on a nd if you're looking at piece parts of a picture as opposed to the whole picture, that is an acute pain point. So one of the benefits and the value props and the single largest competitive wedge we have with Samsara is being device agnostic.
So it's meeting the market where it is, which is we will ingest data from third-party devices, we will harmonize that data, and we will present it holistically so you see the complete picture. People will pay us money to do that as well as paying their existing provider. So it is such an acute pain point that it's really sort of greenfield growth. So that's definitely in play.
The other benefit with Unity is unified operations. One thing Samsara has proven is if you can solve a larger problem set than your traditional telematics provider, you can distinguish yourself and get more than your fair share of growth. So as you gather the complete data set, you can also take that data and through a library of integrations, you can in essence use that data to solve a broader set of problems, whether that's into an ERP, time management system, warehouse management system, planning system.
All this data is very valuable outside of Unity, and we get to charge for egressing that information into other systems. So that's another sort of leg in terms of the value prop. Again, another point of differentiation.
So you kind of alluded, so we kind of talked about kind of from the product standpoint what you offer in Unity, but one of the things on the go-to-market side you already talked about is how much you've already grown organically through the merger of the three companies, the distribution channel.
But now, because you've recognized so much of the synergies ahead of plan already and more to come, you've talked about now reinvesting even more behind some of the early green shoots you're seeing. So maybe talk about kind of what that reinvestment for growth is. What are your plans there? What kind of returns did you see that made you excited to want to put more into the market?
Yep. So I think we pride ourselves on, for a multi-variable, getting more than our share of variables working for, as opposed to compensating against each other. So both PowerFleet and legacy MiX spent more than they should have on G&A. So as we work through the $27 million of synergies coming out of that transaction, our ER for G&A probably comes down from sort of 32%-33% to maybe 22%.
An efficient G&A for a global business is probably closer to sort of 15%-17%. So in addition, sort of having those cost synergies drop to the bottom line as we optimize, for example, our G&A spend, it also allows us to reinvest back into our go-to-market. So our guidance this year is five percentage points of growth. To your point, Alex, we grew 9% in the first half of this year organically.
Guidance for next year is 10%, and then over time we think we can be growing north of 20%. When you have something, for example, like this AT&T channel, it becomes really interesting as you continue to sort of squeeze dollars out of, for example, G&A to reinvest it back into quota carriers, b ecause to the extent you can have a single quota carrier attached to 15 AT&T sales reps, that is a force multiplier for you.
So we're focused on how do we do more of that, how do we prove that out. Now, as we scale that up, the more proof points you get, the more you reinvest because you're reinvesting against success as opposed to something speculative. T he other benefit of AT&T is you get this massive reach, but you only pay for success.
We could never invest the same amount of money as Samsara does into go-to-market. We have to do it in a very different way. Getting Fleet Complete, getting access to AT&T and that force multiplier, it's a way for us to get massive reach without spending a massive amount of money.
Some of the reps that you are starting to bring in, I know this is going to be over the next couple of years in terms of some of the organic internal rep investment. Where are you finding these reps from? What is the kind of persona you're looking for to kind of sell the powerful PowerFleet end-to-end solutions?
Yeah, it's Enterprise SaaS. So increasingly, this is a software play. This is using software to solve real-life problems. So Enterprise SaaS, I would say, in the supply chain logistics is ideal, but Enterprise SaaS is the primary profile we're now solving for, solution selling from a software standpoint.
So we've kind of talked about, you just kind of laid out the idea of going from the 5% target to the 10% to higher than that. What does the growth algo look like as you've laid out kind of the more modules within Unity? You've obviously got a big greenfield low-hanging opportunity, but I think one of my favorite slides at the Investor Day was kind of 10x opportunity into the base. How do you see this growth algorithm playing out over the next kind of two years, but maybe even longer term? What are you most excited about from the growth algo standpoint?
Yeah. So from a gross booking standpoint, we believe 70% of our gross bookings can come from existing customers. The reason we have confidence there is as we build out Unity, Unity is a blueprint for best-in-class net dollar retention. So best-in-class net dollar retention is north of 120. Funnily enough, Samsara north of 120.
So as we build this out, this ability to ingest third-party devices and solve that fragmentation of data, that is pure SaaS of what it is. It's also pure software as opposed to sort of a resale of a little bit of hardware services and some telco. As we have that complete data set and as we solve for all these integrations and we charge for the integrations, that is both a source of extra dollars, but also we're now solving headaches for multiple personas within an organization, which makes it incredibly sticky.
So you work up from that way as well. We can cross-sell warehouse to on-road and vice versa. So obviously, if you run a large fleet, it's not unusual you'd have a large warehouse operation, so we can sell that. If you're responsible for safety and logistics end-to-end for supply chain, having a single supplier, a single solution for that that's integrated is really, really valuable.
So there's a huge belief that we can over time, as we industrialize Unity, we can be growing north of 20% with our existing customers, never mind adding new logos. So that's important for us, and obviously everyone's a good student here. You appreciate if you sell to an existing customer, that's far cheaper than landing a new logo. So it's $0.50 on the dollar for every dollar of annuity versus $2, $2 +. So that's a piece part of it.
What we now have with Fleet Complete and AT&T and Telus is we can now actually turbocharge our new logo acquisition as well because in essence, we're going to get a lot more access to the very largest companies at the very highest levels, a nd as opposed to having to spend a lot of money to generate that demand, we get to access that demand and pay after the fact if that demand converts into revenue.
So it's almost like going online and Google, right? You used to have to pay for advertising, and then you just pay for success. AT&T is analogous to that because we pay for the success for a revenue share.
So I wanted to hit on kind of maybe two of the expansion things you already touched on, but just here a little bit. I was surprised at the opportunity to kind of 5x on a unit or vehicle standpoint within the kind of installed base. So I'm curious, what is it like within the base that they've only bought 20% across? Is it from, what would be the?
T hen is that incremental 80, does that feel more greenfield within the base o r some of that is the result of acquisitions and you got to wait to do some replacement there or just ingest it all with Unity? I'm curious on that piece and then ask if the camera's next.
Yeah, so to your original point, we believe today if our customers were 100% penetrated, we believe we could have 10x the ROI if we had everything a nd nobody gets everything. But to your point, in terms of the telematics devices, we think rounding up, we maybe supply 20% of our existing customers.
The other 80% will be decisions are taken deep in an organization. There's M&A activity. At a certain point in time, either it had a price advantage or it had a point of differentiation that people cared about a nd that is where the center of gravity is. It's for this stuff to be heterogeneous, not homogeneous. So we don't believe that we have anywhere close to anywhere close to sort of 50% of our existing customers. We think it's maybe 20%.
To the extent that fragmentation is an acute pain point from customers and we can solve that, customers will pay us to do that, and they will pay their existing provider and us to do that, and over time, they will just pay us because as we replace these units, they're more likely to come to us. S o we're building this out. We're building Unity out. As it becomes industrialized and we can do it at scale, there's significant opportunity, and it really is about serving pent-up demand as opposed to creating demand in terms of solving these headaches.
Does that piece feel more? It's never low-hanging, but you just use the term low-hanging. Does that piece seem more low-hanging fruit relative to some of the other cross-expansion opportunities in your seat today?
Yes and no. I would say in terms of generating the demand, people are hungry for that. So if that existed today at industrial scale, we'd be growing north of 10% already. So you have to sort of build this out over time to industrial scale and that's why getting those extra engineers is very, very important. So building enterprise SaaS software doesn't happen overnight.
So you have to sort of build that out over time. But there's definitely a complementary sale in terms of on-road warehouse, and we'll drive that. There's also real opportunity to move the mid-market solution, the FC Hub solution that Fleet Complete has to other geos in South Africa being a really interesting one. So we're in this situation where we have lots of levers to go pull. We just have to be really disciplined about which ones matter. When we pull them, we pull them well, and we delight customers, and we maximize the opportunity.
Quickly, if your calendar 2025 revenue comes in above your expectations, which is a good thing, will we see it in net income, or will you take that opportunity to grow faster or in different geographies?
Right. Great question. To the extent we're growing at a faster rate, clearly something is clicking and something is going right, and we'll be foolish not to put more powder behind that. So we would. Now, we're disciplined as well. So for that growth to be happening, it's likely happening because something like AT&T has just caught on fire, right? So it's sort of success-based to a degree.
So as I said, there's lots of different avenues. We need to see which ones really gain traction, but is it feasible that some things could gain a lot more traction than we're maybe expecting? Absolutely, yes, and we would do more of that. But it's not as if we're spending a huge amount of go-to-market. This is more we pay on the back end of success as opposed to paying ahead of success. So it's more success-based. To use the success too often in a sentence.
So I think the other kind of exciting growth driver, video safety and the AI cameras, that's probably already been the fastest growing piece of the business at Legacy PowerFleet, and MiX kind of combined a nd then you had Fleet Complete, which now has this kind of higher velocity mid-market camera product.
So how do you feel about the video camera opportunity in cab and even external? We showed some of those things in the warehouse that could be real interesting b ut how do you feel about the video opportunity going forw ard as a growth lever?
Yeah, so the benefit is it's largely greenfield. Samsara says that video camera penetration in North America, which is probably the most advanced, is maybe 10%. So there's a huge amount of growth that happens there. The benefit that we have with Fleet Complete is just the speed of install and the fact customers can install it themselves.
So they have a 15-minute install AI camera. It doesn't have all the bells and whistles of an enterprise-grade camera, but it gets you 80% of the way there. So anyone that's sort of marginal in whether they want to do it or not, it sort of opens up that aperture in terms of the market opportunity there. In warehouse is also important. Safety is important.
So just to give you a sense, you're obviously familiar with the fact that on the back of the pandemic, there's a lot of experienced people that never sort of returned to work. So there is a shortage of skilled labor. So in terms of investing, in terms of additional safety support there, that is important, particularly in warehouse. If you think about what's happening, things are increasingly electric as opposed to a diesel engine, so it's quieter, so safety becomes more of an issue as well.
I n terms of the penalties, the insurance premium savings, all of those things, there's a really hard ROI payback. So the joy of video in warehouse on the road is, A, there's an immediate return in terms of premiums. There's regulatory drivers as well. C, you're not displacing. It's additive to people's existing spend.
So you hit on some of the compliance and regulatory drivers. I think it's probably underappreciated still, some of the sustainability as a driver a nd there's some new global regulations, I think, even on one of the things that came with the investor day around cold chain and some of the refrigerated coming in.
But what are some of the growth catalysts on top of the ROI has been consistent for a while, probably getting stronger, but what are some of the other growth catalysts, the demand catalysts that you're looking at the next 18 months that you're particularly excited about?
Yeah, so I don't think we need to do anything new, right? So we're in this situation where every dollar we invest in Unity, getting that industrialized so we can do it at scale, that is phenomenally well spent. Every dollar we spend in terms of really maximizing AT&T is really well spent. So the signal from the market is super clear that what we're building, people really care about.
There's definitely demand in terms of being both the solution for in warehouse and on the road. So we have all the piece parts that we need. It's a question of ruthless prioritization and investing. So yeah, it's clearly a great market. It's growing very nicely. Samsara is a proof point for that. We just need to continue to sort of enhance the value and the problems that we can solve for our customers. As we do that, we will do very, very well.
So at the outset, we talked about kind of the two-tier system and so two-tier kind of market. O bviously, there's going to be some of the winners, and that means there's probably going to be even more losers over the next five years. You've got your hands full here the next 12 + months with some of the integration work, b ut how interested are you from a philosophical standpoint on participating in some of the consolidation that's probably going to happen over the next decade?
Yeah. So I think we create huge optionality to play, but we get to grow by being device agnostic. We naturally get to sort of solve the set of problems that if I have a legacy device with a legacy provider, in essence, I can actually solve that problem for them by ingesting.
A gain, when those assets get renewed, they're going to buy ours naturally. So we can actually sort of Pac-Man up organically. But as we digest, as we settle down in terms of all the M&A that we've done, if we have AT&T humming and other things humming, there is the opportunity to buy books of business. I think increasingly it is a buyer's market. So these are books of business that are going to wither on the vine over time.
A lot of these are founder-owner-led, and these are people who started the business late 1990s, early 2000s. They're coming to sort of the end of their sort of working chapter, so they'll be looking for a good home for those assets, and to the extent you can buy a book of business, not disrupt the customers, not have to have them change out the hardware, provide those customers the richer set of things they can go pay for, you get revenue synergies relatively straightforward in a straightforward manner.
Also, we believe we are masters in terms of taking out cost synergies. So there's certain things that we can do that position us very well to do highly accretive M&A in a buyer's market. If you create that optionality, that's a pretty interesting place to be.
We hit on a lot here in a short time frame, but I guess maybe you've had to wrap up. You've had a lot of investor conversations since the quarter. You had the investor day. As you talk to folks and hear some of the questions being asked of you, what do you think are still just one or two areas that investors underappreciate that we're going to have a greater appreciation for over the coming kind of 12 - 18 months?
Yeah, I think it's just the latent opportunity, and there's so many moving parts, right? So there's a lot of change, but what I would say is we pride ourselves in terms of doing M&A well, so there's always a degree of angst in terms of you brought all this stuff together. Are you biting off more than you can chew?
In part, the reason we did the Fleet Complete transaction was we already had our feet under us in terms of MiX. We extracted 50% of the $27 million of cost synergies within six months, and we grew the top line by 9%, so we had our feet under us. We knew we had good traction. We had that under control. That gave us the right to go do Fleet Complete, and Fleet Complete, there was a window. They were going through a process.
Either you got the asset now or you didn't. But also, the hardest part of the cost synergy $27 million we need to go realize is back office systems. The other benefit that we have with Fleet Complete is the back office systems they've already built. They've been running on for sort of three, four years is exactly the same set of assets we were looking to roll out within PowerFleet.
So having it fully baked, having a team that's been there, seen that done it to drive that, that de-risks it, it accelerates it. So it also enables us to underpin the cost synergies we need to do. So it's actually, I think, a net benefit in terms of our ability to keep all these moving parts moving in the right direction.
I think the distribution channel you got and the high velocity camera were great things, but that's such an interesting thing. You were already going down that road. You acquired the talent that did the roll out of the back end systems there, and then you acquired some of the systems there. So that was great. Added part of the acquisition, b ut David, thanks for the time.
Thank you.
Thanks, PowerFleet. Thanks to everyone.
I appreciate your patience and appreciate your interest as well. Thank you so much.
Great.