PowerFleet - Earnings Call - Q2 2019

Transcript

Speaker 0

Good afternoon. Welcome to ID Systems Second Quarter twenty nineteen Conference Call. Joining us for today's presentation is the company's CEO, Chris Wolfe and CFO, Ned Navramatis. Following their remarks, we will open up the call for questions. Before we begin, I would like to provide ID Systems' Safe Harbor statement that includes cautions regarding forward looking statements during this call.

During the call, there will be forward looking statements made regarding future events, including ID Systems' 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 result 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 2019 and beyond. All such forward looking statements imply the presence of risks, 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.idsystems.com. Now I would like to turn the call over to ID Systems' CEO, Mr. Chris Wolfe.

Sir, please proceed.

Speaker 1

Thank you, Victor. Good afternoon and thank you for joining us today. After the market closed, we issued our financial results for the second quarter and six months ended June 3039, and a press release, a copy of which is available in the Investors section of our website. The second quarter continued the acceleration of our growth strategy as we delivered another quarter of solid results and made significant progress executing on our near and long term growth plan. From a financial standpoint, Q2 was highlighted by a record quarterly revenue, which was up 20% sequentially and 10% year over year.

We also achieved our second consecutive quarter of adjusted EBITDA profitability, demonstrating our continued focus on driving profitable growth. Overall, we believe these results are a solid reflection of the building operational momentum in our business. I look forward to sharing more details on our progress, but first I'd like to turn the call over to Ned. Who'll walk us through our financial results for the second quarter and the first six months of twenty nineteen. Ned?

Speaker 2

Thank you, Chris, and good afternoon, everyone. Turning to our financial results for the second quarter ended June 3039. Revenue for the second quarter of twenty nineteen increased 20% to a record $16,300,000 from $13,600,000 in the prior quarter and increased 10% from $14,800,000 in the same year ago period. The increase in revenue compared to the prior year was driven by our Industrial Truck segment, which increased 14% compared to the prior year second quarter and our Logistics Visibility segment, which increased 24% compared to the prior year second quarter. Product revenue for the second quarter of twenty nineteen was $10,600,000 compared to $10,800,000 in Q2 of last year.

The decrease in product revenue was primarily due to timing of unit deliveries to Avis, which vary from year to year. Service revenue for the second quarter of twenty nineteen were 5,600,000 compared to $4,000,000 in Q2 of last year. The increase in services revenue is due to development service revenue related to the program with Avis as well as an increase in high margin recurring revenue. Recurring revenue for the second quarter of twenty nineteen increased 10% to $5,400,000 from $5,000,000 in Q2 of last year. We expect the growth in recurring revenue to continue to grow as every unit we sell in all three of our segments comes with a long term recurring revenue contract.

Gross profit for the second quarter of twenty nineteen increased 10% to $7,100,000 or 43.4% of total revenue from $6,400,000 or 43.3% of total revenue in Q2 of last year. Turning to our expenses. Selling, general and administrative expenses for the second quarter of twenty nineteen were $6,000,000 up slightly from $5,800,000 in Q2 of last year. The increase in SG and A expenses was primarily due to the inclusion of expenses from CarrierWeb U. S, which were absent in the year ago period.

Research and development expenses in the second quarter of twenty nineteen were $2,000,000 up from $1,500,000 in the same year ago period. The increase in R and D expenses was due to program development timing of Avis projects and finalizing LV series field trial projects as well as the inclusion of R and D expenses from CarrierWeb U. S, which were absent in the year ago period. And finally, acquisition related expenses for the second quarter of twenty nineteen were $1,600,000 compared to $149,000 in Q2 of last year. The increase in acquisition related fees was due to nonrecurring costs related to our pending acquisition of Pointer and the acquisition we completed of CarrierWeb U.

S. Turning to our profitability measures. GAAP net loss for the second quarter of twenty nineteen totaled $2,600,000 or $0.15 per basic and diluted share. This compares to a net loss of $1,100,000 or $0.7 per basic and diluted share in Q2 of last year. Adjusted EBITDA, a non GAAP metric, which we define as earnings before interest, taxes, depreciation, amortization, stock based compensation and non recurring items for the second quarter of twenty nineteen totaled $129,000 or $01 per basic and diluted share.

This compares to adjusted EBITDA of $290,000 or $02 per basic and diluted share in Q2 of last year. And finally, we ended the quarter with $8,400,000 in cash, cash equivalents and no debt. That concludes my prepared remarks. Prior to turning over the call back to Chris, I want to mention that we'll be presenting at the Canaccord Conference in Boston on August 7. Looking forward to seeing everyone that will be attending, and the presentation will be available on our website for those that cannot attend.

Chris? Thanks, Ned. Similar to our last call, I'd like to review the highlights from our three business segments and then spend the balance

Speaker 1

of my prepared remarks on the status of our acquisition of Pointer and the evolution to PowerFleet, which will be the rebranded company post closing. In our industrial truck management business, where we sell analytics, software as a service and purpose built ruggedized telemetry units, we had a good quarter and missed having a great quarter due to one significant order worth over $1,000,000 that slipped into Q3. In addition, we were off to a very encouraging start with our new partner Jungheinrich, the third largest forklift manufacturer in the world. To recap the strategic partnership, which we forged in Q1, this affords ID Systems an opportunity to provide a sophisticated white label solution to Jungheinrich's customer base. During Q2, we successfully finished white labeling our SaaS solution.

We developed a Jungheinrich specific telemetry unit and recently began shipping initial units to their end customers in Europe. We see growing excitement and momentum through the Jungheinrich worldwide dealer network as the product launch is being rolled out and ramped up. Beyond Jungheinrich partnership, we also secured multiple new wins and follow on orders across all of our geographies, not only in Europe with Jungheinrich, but also in North America with companies like PACCAR, Bayer Pharma, Nestle, and Georgia Pacific. Lastly, launch of PowerFleet Essence product is gaining ground. As we mentioned previously, this product is targeting small fleets that are used in stores and small facilities.

As planned and hoped, we have entered a large scale trial of PowerFleet Essence that has significant potential for 2020. We believe our continued success demonstrates the growing demand for ID Systems solutions and how our technology empowers these customers to effectively manage our assets, keep their employees safe and optimize productivity regardless of their fleet size and budget. The second quarter also marked another milestone period for our Logistics Visibility Solutions Group. Perhaps the most significant achievement during Q2 was the successful integration of CarrierWeb US assets into our business. Again, to recap for those newer to our story, CarrierWeb is a provider of real time, in cab, workflow, driver productivity applications, electronic driver devices, as well as two way refrigerated command and control.

By adding CarrierWare's comprehensive refrigerated product to ID Systems' already robust LDS product line, we substantially bolstered our ability to be more effectively at selling to mixed fleets that are both dry van and reefer fleets. In fact, we currently have several reefer pilots underway, representing nearly 19,000 units of potential opportunity. Keep in mind that the average revenue per unit for reefer products tends to be triple that of those for drive in devices. While Ned mentioned that our Q2 operating expenses were higher due to CarrierWeb, we have near term plans to achieve approximately $250,000 in additional savings in the coming months. On top of this, we secured multiple wins during Q2, including deals with S and L Transportation for NCAD and American Intermodal Management for chassis tracking.

The latter was a significant expansion of 2,700 units scheduled to roll out in Q3. Also in the quarter, after several months of field trials, we commercially released our award winning LV series platform and started taking initial orders from various large enterprise customers such as Ashley Furniture, Walmart, and NFI. Lastly, Freight Cam, our patent pending high definition cargo detection and deep learning system that works with our LD series telemetry units, is being viewed as a true game changer and has gotten us into several additional pilots with a pipeline of 125,000 potential units. Shifting gears to our rental fleet business during the second quarter, we delivered 18,000 telemetry units to Avis Budget Group. From a development and a certification standpoint, we certified all 70 U.

S. Make, models and years ahead of plan and made significant progress on the remaining development programs that are underway. In step with this, we began planning for the certification of Avis vehicles in Europe, which we expect to commence in the third quarter of this year. Shipments of the remaining units under the current 75,000 unit order will vary based on Avis' in fleeting of new cars, but we see the preponderance of these units shipping before year end. In the short term, however, this has increased our inventory and reduced our cash position, but this should flip back later this year.

Overall, we're very encouraged by our initial success and positive feedback we've received from Avis, especially our product's high quality and ease of installation. One integral part of our success with Avis is our collaboration with Pointer, who we've partnered with on building the 75,000 telemetry units. Our commercial relationship with Pointer goes back more than two years. But as most of you know, in March we signed a definitive agreement to acquire Pointer for $72,000,000 in cash and approximately 11,000,000 shares of PowerFleet, a newly created holding company. The shareholder meetings are scheduled for August 29 and we expect the transaction to close in early October.

The ID Systems and Pointer leadership teams are working closely on integration planning to ensure seamless transition across every facet of the combined business. As part of this, we've already started our rebranding efforts to PowerFleet, including launching a new, more functional and informative corporate website. Altogether, we remain confident in our ability to achieve our twelve month financial outlook as a combined business, which we believe has the potential to generate more than $150,000,000 in total revenue, double digit organic growth and adjusted EBITDA margins of between 1520% of total revenue. Clearly, our vision of creating power fleet as a global IoT telematics software solutions provider is materializing. We believe our ability to realize this vision will translate to significant shareholder value through global scale, an elevated market position, and also sustainable profitability and cash flow generation.

And with that we're ready to open the call for your questions. Please provide the appropriate instructions.

Speaker 0

Of course. And our first question comes from the line of Josh Nichols from B. Riley FBR. You may begin.

Speaker 3

Yes. Thanks for taking my question and great to hear things are moving along pretty quickly with Jungheinrich. I was wondering if you could help frame a little bit more about the size of this opportunity longer term as we think about, one, how many of these materials handling units Jungheinrich is selling? What the ultimate penetration rate of this white label solution could be as we progress through this year and next?

Speaker 1

Yeah, thanks Josh. Our deal with Jung Heinrich which we signed initially is for a minimum of 2,000 units a year for the next two years. To be quite honest with you, I think both companies would be, I would say disappointed would be the least of what I would say. Jungheinrich ships about 150,000 forklifts and mature handling trucks a year. We believe, and I hope our goal is that we're shooting at the 10% penetration rate of what they ship out a year.

However, we have to earn that. We have to get the channel up and running. We have to train their people. But right now the excitement is there to be successful.

Speaker 3

Thanks. And then is that right, you said the LVS segment was up 24% year over year in 2Q. Did I hear that right?

Speaker 2

Correct. Q2 to Q2.

Speaker 3

Great. And then I guess could you just that segment seems to be performing quite well. Could you just talk a little bit about the expectations a little bit for the industrial truck in the second half and how things are going?

Speaker 1

Yes. I think in the industrial truck, the pipeline looks very strong. Actually through the dealer channel is I'm not mentioning the OEM channel with Jungheinrich, you're talking industrial truck, right? So the strategic accounts look strong, the dealer channel looks strong. So again, feel fairly confident in the rest of the year holding very good numbers.

And we haven't, we didn't ship one Jungheinrich private labeled unit in the first half. So all those units will start coming in the second half.

Speaker 3

Thanks. And then last question for me, then I'll hop back into the queue. Great to hear that it seems like things are moving along, the proxy is out for the acquisition with Pointer. I guess how are things going as far as the integration planning front and opportunities that you think that you could talk about as far as Pointer and some of the four gs product offerings and how you could maybe incorporate some of that into your existing offerings?

Speaker 1

Yes. It's probably important for everyone to know that the 150,000,000 target is really based on the current growth plans for both companies and that it doesn't take into consideration any what we call cross selling opportunities, which there are some fairly significant opportunities for us to pursue. Number one, taking our industrial truck products and selling them through geographies that Pointer and Cellocator are in today. And number two, looking at their fleet management systems that they sell globally and bringing those back into The United States. As a matter of fact, we're already starting some pilots in The States with those products.

And just so you understand what those products are, that really goes after smaller vehicle fleets for service and utility and delivery. Typically what we call the Class one to five fleets. There's 25,000,000 to 30,000,000 of those vehicles in The US market. And historically in our logistics visibility side, as an example, we typically go after the Class seven and eight, which most people would consider like a semi truck and tractor. So again, it's a brand new opportunities on selling on both of those sides.

We've had in the last two months what we call speed dating sessions between all the business leads to come up to speed on all the business activities across all geographies and verticals. As well as product roadmap meetings, etcetera. And there's a lot of opportunity for us to consolidate platforms. We already have people working on the strategies there, as well as even where or are hosting. The good thing is we're both on the same technology stack.

So we're a Microsoft stack technology wise and so is Pointer and Cellocator. So that actually helps us out quite a bit.

Speaker 3

Thanks guys. I'll hop back in the queue.

Speaker 0

Okay. Thanks Josh. Thank you. And our next question comes from the line of from Ladenburg. You may begin.

Speaker 4

Hi. Thanks for taking the question. So

Speaker 5

jump right

Speaker 4

in on the Jungheinrich. Nice to see that you've gotten all the work done there to move forward, guess. Could you talk a little bit about what do you think the first deployments would look like? What kind of customers are taking the first ones? Is there like a test period or trial period?

And how should we judge success over the first quarter or two? Like I know you said you expect a minimum of 2,000 a year, hopefully much more than that. But what does it look like in the early stages of the rollout here?

Speaker 1

Yes. Just so everyone's aware too, it's probably important to note Jungheinrich has been representing our product to the world's largest online retailer in Europe. So they have a lot of familiarity with our product and our people and working with us. The only difference in the products, and it's significant, I mean on the white labeling, it is a Jungheinrich product. But we actually did some specific vehicle integration to make their product easier to install as well as operate a little slightly differently for Jungheinrich.

So again, I think the nice thing is they have a product that actually works phenomenally well with their trucks coming out the line. But again, they're already familiar with selling our product. They've already been bringing their dealers up to speed. We see they're basically hitting the ground running. We don't see there's any kind of pilot or field trialing going on.

Speaker 4

Okay, so can you give us any sense of what kind of volumes you would expect in the back half for instance?

Speaker 1

Well, think initially we're probably talking somewhere in the neighborhood of 500 units a quarter potential.

Speaker 4

Right. Okay, great. That makes sense. And I missed something you said Chris about the an order that slipped that could have, did you say there was a $3,000,000 order that slipped or something?

Speaker 1

No it was just slightly over $1,000,000

Speaker 4

Okay. And that was in what segment again?

Speaker 1

That was in the industrial truck segment in North America.

Speaker 4

Okay, great.

Speaker 1

All indications even going into the quarter was we were going to land that and it just pushed out mainly due to vacations in Canada.

Speaker 4

Great. Jump back in but nice quarter guys.

Speaker 1

Thanks, Glenn.

Speaker 0

Thank you. Our next question comes from the line of Gary Prestopino from Barrington Research. You may begin.

Speaker 5

Hi, good afternoon everyone. You gave segment revenue growth for I think two segments. What was the automotive growth or did I miss that in your narrative, Ned?

Speaker 2

Sure. It was actually down slightly. The automotive business in this quarter was about $4,700,000 Last quarter, it was about $5,000,000 That had to do with last year in Q2, we actually had a big delivery of hardware to Avis for the initial 50,000 units.

Speaker 5

Okay. That's great. And then I'm rather new to the story, but I just want to make sure I've got this right. This 75,000 of telemetry units, that's targeted for Avis Europe, is that correct?

Speaker 1

No, that's actually targeted for Avis U. S.

Speaker 3

And Okay. Yeah.

Speaker 5

Okay, I just wanted to you're doing certification for Avis vehicles in Europe, but you haven't got any orders for anything shipped over there yet, right?

Speaker 1

That's correct.

Speaker 5

Okay. Then Chris, you mentioned something, was trying to write this down. You said there was something 125,000 unit market in your narrative and I couldn't write it down. What does that pertain to?

Speaker 1

Yes, the 125,000 units is actually in our pipeline. So it actually represents a little over seven of the top 100 carriers that are in active pilots right now with our new LVS and Freight Cam platforms. Again, can't reiterate enough what Freight Cam is. It would be great one of these days to do a show and tell on this line, but maybe not the right venue. Literally when you can see the freight and you can see the behavior of the freight, how it's loaded, how much percent of capacity you have back, usually the comments you get back is wow, this is really good stuff.

And this is like from some of the top logistics players in the field. Again, that 125,000 is in our pipeline being worked right now as opportunities.

Speaker 5

Okay, that's an opportunity, nothing signed, right?

Speaker 1

No, no, but they are piloting, right?

Speaker 5

No, that's fine. I'm just trying to make And sure I get it right then that's in the LBS business, right?

Speaker 1

Yes, correct.

Speaker 3

Okay, thank you.

Speaker 0

Thanks Gary. Thank you. Our next question comes from the line of William Gibson from Roth Capital Partners. You may begin.

Speaker 6

Thank you. Of course we talked about you talked about CarrierWeb and refrigerated trucks and that business. But what do they get on average on their in cab installations?

Speaker 1

So our in cab product is about $800 retail for the actual hardware. And then the recurring on in cab is about $30 a month.

Speaker 6

Okay. And for modeling purposes for the combination of PowerFleet, is November 1 a good date?

Speaker 2

Hey Bill, it's Ned. We're really going to push towards the October. The vote is set for August 29. In Israel, there's a thirty day waiting cooling off period post the vote, so you have to wait thirty days prior to closing. And then there's some Jewish holidays in late September, so we're going to push hard for the first few days October, but that's the plan.

Speaker 6

Okay, good. Appreciate it.

Speaker 2

Thank We want to start the fourth quarter as PowerFleet, one combined organization.

Speaker 3

And

Speaker 0

I'm showing no further questions at this time. I'd like to turn the call back to Chris Wolfe for closing remarks.

Speaker 1

Yeah, thank you for joining us today. Again, I'd like to thank our employees, customers, partners and shareholders for their support. We look forward to updating you on our next call. Operator?

Speaker 0

Ladies and gentlemen, thank you for participating in today's conference. This does conclude the program and you may all disconnect. Everyone have a great day.