Powerfleet, Inc. Q3 FY2025 earnings call

• Securing global scale through accretive M&A was a key pillar, with the Fleet Complete acquisition transforming the business. - Quarterly revenue grew 45% to $106 million, service revenues 77% of total. Adjusted EBITDA up 77% to $22 million. - Cost synergy program on track, with $15 million annualized savings secured, aiming for over $60 million by year-end. - Go-to-market strategy expanded with scale partner channels, North America evolving hybrid sales approach. - Secured major deals in North America and globally for Unity safety-centric solutions. - Expanded R&D team to 400 engineers, prioritizing high-velocity growth areas and discontinuing non-core ELD business.

Quarterly revenue in Q3 reached $106 million, a $33 million increase, representing 45% growth. Service revenues accounted for 77% of the total revenue. Adjusted gross margins in the quarter exceeded 60%, with service margins close to 70%. Adjusted EBITDA came in at $22 million, a $10 million increase year-over-year, reflecting a 77% growth rate. Product revenue grew by $7.3 million or 42% to $24.7 million. Service revenue grew by $25.5 million or 45% to $81.7 million. Combined adjusted gross margin exceeded 60% versus 55.5% in the prior year.

• Raised fiscal 2025 guidance: organic revenue growth projected at 7% (up from 5%), annual revenue to exceed $362.5 million (up from $352.5 million), annual EBITDA to exceed $75 million (up from $72.5 million).

Q: Hey, good morning. Thanks for taking the questions. Congratulations, great job on the quarter. Steve, maybe to start, in terms of organic growth, 7% is a great number out of the gate here. I'm wondering if you could calibrate us in terms of Fleet Complete contribution in the December quarter. And then given that building in the current fiscal year, how are you starting to think about fiscal 2026? I know it's a little bit early, but you're talking about inflection on the organic growth rate, I'm wondering if you could expand on that a little bit.

A: Yes. Scott, let me start in terms of the Fleet Complete piece. So in terms of Fleet Complete revenues for the quarter, it would be close to $30 million in terms of what it contributed. And so that will give you that view. Obviously, if you back into the PowerFleet piece, we're 76 and change, which was in line with the prior quarter, albeit there was probably about an FX hit of about $1 million across those numbers. So that just gives you a sense in terms of how we did. Obviously, 7% is strong given all the activity that's happened bringing these businesses together. You can appreciate we are spending many, many plates and we're keeping them are spinning so we feel good about that. And then in terms of next year, obviously, we're actively working that now. What I would say is we are beyond excited in terms of what we can do through the telco channel. That's not going to be instantaneous. We're hard at work getting the pump primed for that. And as we noted, as Steve noted on the call, getting things lined up so we can really see that contribute to the top line from sort of the beginning of fiscal 20 -- beginning of second quarter fiscal 2026 onwards. So again, we feel good about what we have. We're actively working it. But there's a lot of moving parts, and we just have to be very thoughtful about what we prioritize and how we see financings.

Q: Hey, good morning, Steve and David. My question, I think, revolves around the last question that was raised in terms of the new deal. Steve, do you feel that as a stand-alone entity PowerFleet prior to these acquisitions would have been able to play at that table, I think you may have answered it but I just wanted to get some clarification there?

A: Yes, very in-depth. When we looked at how could we come in and take PowerFleet to the top table and how could we get the credibility, you need scale. And part of our thesis all along was to get it to a point where we have those core ingredients. And that for multiple reasons, that's depth and breadth of product solution, that scale of the organization to support large enterprises and its financial stability as well. So I think we've given ourselves very nice foundations to go and build on this win, and we're definitely, definitely seeing a difference as a stand-alone PowerFleet, we would have been in a different position fighting at a different level of the market.

Q: Hi guys, my congrats as well on a strong execution. Steve, I wanted to focus in on the AI Video Safety Solutions segment, really strong growth, 52%. I know that was constrained from the prior private equity owner not wanting to spend or higher. What are the things that you're doing differently and when do you think those will have a big impact on the fast-growing market?

A: Yes. So I think we've publicly stated for a long time in terms of our MiX and PowerFleet, one of a better phrase, investment in go-to-market and customer success. We're now doubling down on that in terms of expanding our investment for Fleet Complete as you quite rightly said, things were scaled back pretty dramatically. So I think more people talking to more customers. It doesn't say rocket science, but it makes a big difference for us. And then secondly, what we're able to do now is actually combine the portfolio. So whether that is the MiX came -- sorry, the Fleet Complete cameras, which is the fast in-store cameras, whether it's 360-degree cameras, more high-end stuff that we've got as part of the broader portfolio, whether it's cargo carriers, whether it's pedestrian safety cameras in the warehouse, we have as we come out and said, the broadest portfolio of camera opportunity. We see it as -- we've done a lot of review on to our customer base in terms of Greenfield opportunity there. It is significant. But we have that full range. So we can go to the mid-market, we can go to the enterprise. We can go direct and go indirect. But it's very much one of our three key strategic pillars is to use the competitive advantages we have as hard and fast as we can in the market on a global stage as well. So this isn't just about the channel partners in the U.S., we're seeing strong demand around the globe for those solutions.

Q: Hey gentlemen. Nice job here. Another congrats. Maybe Steve for you, we talked about other channels going to start contributing kind of second quarter or so, give or take next year. There's the education and the ramp of that. But can you give us a sense kind of their interest right now, kind of the feedback you're hearing that you have all of these assets, they have more tools to go sell, they see the market demand, but give us a sense of kind of how active and hungry they are now to be able to go out there and sell more powerfully and how that obviously kind of aids in the confidence of the double-digit momentum next year? Thanks.

A: Yes, so I would say their appetite has exceeded our expectations. We thought it would be strong. But I think in terms of the fact that they are looking for high ARPU solutions, higher ARPU solutions, they're looking for data consumption. You'll remember the SVP from AT&T who described the fact that this year was video, video, video for the organization. We'll have comments on this core kind of play into that. And I think as well, there's been limited partner opportunities for those guys in the marketplace. And I think that some of the relationships they've had outside of Fleet Complete has been established, but I think there's more than enough room for -- to take our end-to-end solutions to market very quickly and very substantially and the winning play is Unity. So if you think about the telcos in terms of wanting kind of being end-to-end solution provider, they want to be the manager and the custodian of data and they want to be right in the heartbeat of the customer's operation, Unity really takes you there. And their view is there's a lot more expanded market verticals that we could play in with Unity over time. We're being cautious because we want to obviously maximize where we are today. But in the broader AIoT space, this is a solution that they've been crying out for. And to be honest, some of them have tried to build themselves, but they haven't had kind of the ability to focus on it. So I think if you take Unity, I think if you take the video solutions, there's a huge appetite for in-warehouse. I think that's a new and unique solution in Greenfield for them as well with a lot of the safety and compliance drivers. And the other one, interestingly is cold chain. So they've really jumped on the cold chain solutions. We were voted obviously by ABI Research as having the best solution end-to-end in smart cold chain. So that's another one which is -- they're very excited to get moving. So we couldn't be more delighted with their engagement. We obviously have to do things really, really well. And from experience, the time spent to get these things off to a great start is really the key to long-term success. We're in the middle of that. But truly, it exceeded our expectation is just the interest and appetite from those large channels.

Q: Great, thank you. Steve, on the go-to-market side just want to see how you're tracking on hiring plans to date relative to that 55% growth outlook that you laid out at Investor Day over the next kind of 12 to 18 months?

A: Yes. So we're on track. We're exploring opportunities to go further through self-funding, as you're aware, so yes, that's all I can say, we're on track. We're delighted with some of the talent that we've been able to bring in and we feel good about 2026 and 2027.

Q: Hey good morning Steve and Dave. Thanks for taking the questions. Congrats on the strong results. Given the large beverage company in North America win, you mentioned Australian utility provider, an order from a top mining operator. I just wanted to -- I know you covered a little bit -- give a little bit more color on what are maybe their deciding factors in their selection of PowerFleet.

A: So I think Unity number one. I think breadth and depth of solutions in terms of in-warehouse and over the road would be number two. And I think also the way that we're locking up in terms of customer success and long-term relationship. And then finally, I would say the improved balance sheet. So those four factors are very key in terms of seeing this as a truly international, truly global player at scale that can go on long-term mission-critical journeys with our customers. And we're holding price very nicely in the marketplace as well. So it's not becoming any price sale, it's very much a value sale, unlocking that value for our customers. And we're really strong in terms of being able to interpret ROI for customers at which they can build for.

Q: Thanks for taking the follow-up. Dave, maybe just to quickly follow-up on the accounting issue. Could you just clarify again how long that impact is expected to go, what we should be thinking about in fiscal 2027? And then Steve, in terms of new logos, I think at the Analyst Day you guys talked about growth, about 30% coming from new logos and 70% coming from mining the existing base. Given what's happened in the 90 days since the Analyst Day, have you seen any change in your thought process on that front, new logos versus upsell, cross-sell of the existing base? And lastly, maybe if you guys have given any thought in terms of operating metrics going forward that you're going to be sharing with the Street? Thanks.

A: So let me start with the first and the last, Scott. So, in terms of the pickup in terms of the accounting treatment, one thing we are solving for is rebundling the hardware piece of it. So it's not treated as a separate deliverable. So that is active work that's underway. We expect that will hit within the next sort of five months or so, targeting maybe closer sort of beginning of fiscal 2026. That will reduce the revenue pickup from something that's sort of three today to something closer to $1 million per quarter. So it becomes pretty de-minimus pretty quickly in terms of what's driving that piece of it. And in terms of operating metrics, so much of what we want to do and want to share is predicated upon getting a modern back-office system in place in terms of ERP, in terms of billing, just so we can actually drive metrics globally consistently, so we don't have to hang flank the metrics. The overriding one that we're solving for is net dollar retention. So that is something that we're very keen to drive the business against. We think we're very well positioned as we bring everything together to have a business that can be a really strong engine to get to best-in-class performance there. But that is the one that we're focused on, but it is predicated upon getting the new systems up and running so we can do it consistently, and we can do it accurately on a global business in many different countries with obviously lots of different starting points. So that's what we're driving towards.

Q: Thanks so much and congrats again.