PowerFleet - Earnings Call - Q2 2026

Executive Summary

• Strong beat and raised guide: Revenue $111.7M (+45% y/y; +7.3% q/q) vs S&P Global consensus $105.5M; Primary EPS $0.02 vs consensus -$0.008; FY26 revenue guidance raised to $435–$445M from $430–$440M. Revenue consensus and Primary EPS consensus from S&P Global estimates; see Estimates Context.*
• Profitability and mix improved: Gross profit $62.6M (56.0% GM) vs $41.3M (54.0%) y/y; Adjusted EBITDA rose to $24.8M (22.2% margin) vs $14.5M (18.8%) y/y; services gross margin strengthened (62.2% GAAP; 77.4% adjusted).
• Non-GAAP methodology refined: Company removed the prior Fleet Complete contract-asset add-back from adjusted EBITDA; growth range (45–55%) unchanged but FY25 base reset to $67.1M from $71.1M; leverage glidepath updated to ~2.25x by Mar-26 (from <2.25x).
• Execution drivers and catalysts: Double-digit organic services ARR growth achieved ahead of plan; product rebound and channel momentum (AT&T, TELUS) support H2 acceleration; net leverage improved to 2.9x, maturity extension secured on Term Loan A.

What Went Well and What Went Wrong

• What Went Well

  • “Defining quarter... record revenue” with 7%+ sequential revenue growth driven by AI-powered SaaS and core markets; product revenue up 27% q/q and margins expanded sequentially (CEO).
  • Adjusted EBITDA up 71% y/y to $24.8M (22% margin), with services mix at 80% and services gross margin (adjusted) at 77% (CFO).
  • Channel traction and enterprise pipeline: 26% increase in new logo wins; 32% sequential increase in North America channel pipeline; AI video cross-sell pipeline up 23% (CRO).

• What Went Wrong

  • GAAP net loss widened to $(4.3)M (–$0.03/share) on higher interest and amortization; margin expansion tempered ~4% by $4.6M incremental non-cash amortization.
  • Macro/tariff sensitivity on CapEx-led product cycles earlier in year; although Q2 product margins improved to 31.5%, management remains cautious on customer CapEx timing.
  • Non-GAAP presentation change reduced prior-period adjusted EBITDA base by $4.0M (removal of Fleet Complete contract asset add-back), requiring investor re-basing of leverage/EBITDA targets.

Transcript

Operator (participant)

Welcome to Powerfleet's Second Quarter 2026 Earnings Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star, zero on your telephone keypad. Please note, this conference is being recorded. I will now turn the conference over to your host, Carolyn Capaccio of Alliance Advisors. You may begin.

Carolyn Capaccio (SVP of Investor Relations)

Thanks, Holly. Good morning, everyone. This presentation contains forward-looking statements within the meaning of federal securities laws. Forward-looking statements include statements with respect to Powerfleet's beliefs, plans, goals, objectives, expectations, anticipations, assumptions, estimates, intentions, and future performance, and involve known and unknown risks, uncertainties, and other factors which may be beyond Powerfleet's control and which may cause its actual results, performance, or achievements to be materially different from future results, excuse me, performance or achievements expressed or implied by such forward-looking statements.

All statements other than the statements of historical facts are statements that could be forward-looking statements. For example, forward-looking statements include statements regarding prospects for additional customers, potential contract values, market forecasts, projections of earnings, revenues, synergies, accretion or other financial information, emerging new products and plans, strategies and objectives of management for future operations, including growing revenue, controlling operating costs, increasing production volumes, and expanding business with core customers.

The risks and uncertainties referred to above are not limited to risks detailed from time to time in Powerfleet's filings with the Securities Exchange Commission, including Powerfleet's annual report on Form 10-K for the year ended December 31st, 2025. These risks could cause actual results to differ materially from those expressed in any forward-looking statements made by or on behalf of Powerfleet. Unless otherwise required by applicable law, Powerfleet assumes no obligation to update the information contained in this presentation and expressly disclaims any obligation to do so, whether a result of new information, future events, or otherwise. Now I'll turn the call over to Powerfleet CEO, Steve Towe. Steve.

Steve Towe (CEO)

Good morning, everyone. It's great to be here this morning with key members of the leadership group, to walk you through what's been a statement quarter for Powerfleet. This set of results marks a transition point for the company. It signals the end of an integration period, following the two major acquisitions we completed and the start of a new chapter, one focused squarely on accelerating sustainable growth. Just six months into aligning into one global enterprise and operating level, we're clicking into gear, starting to deliver expanding revenue growth and healthy business momentum in our key operating metrics. In Q2, our top growth metric, annual services recurring revenue, reached the double-digit growth milestone originally targeted for year-end ahead of schedule. The true strength of growth is how you get there. For us, that means responsibly and efficiently.

The extensive synergy programs we aggressively executed are already moving the dial meaningfully, and we're delighted to also post meaningful adjusted EBITDA expansion this quarter, both sequentially and year-overfyear. This quarter clearly demonstrates the shape of the future of PowerFleet, integrated, efficient, and built for profitable growth. Next slide. When you step back and look at the quarter, you can see a clear pattern of balanced execution. Services and ARR are growing strongly. Margins are expanding both at total gross margin level, and particularly encouragingly within the services line. This consistent improvement speaks to the strength of our SaaS-led model and our operating discipline. What's also particularly pleasing for this quarter is the return to growth in product revenue, inclusive of expanding margins. It underscores the durability of our business, and the effectiveness of the actions we took to offset tariff pressures and broader macroeconomic challenges.

Together, these results demonstrate a company that's accelerating profitable growth, scaling efficiently while maintaining quality and control. Next slide, please. We felt it was the right time in our evolution to add a high-quality executive as chief revenue officer, with a proven track record in driving SaaS growth at scale, someone who's led multiple A-player teams and brings deep SaaS enterprise go-to-market experience. It's a crucial role with the major accelerated growth opportunity directly in front of us. It brings executive bandwidth, and further high-revenue expansion experience to the global team. I'm delighted to welcome Jeff Loutenbach. Jeff, over to you.

Jeff Loutenbach (CRO)

Thanks, Steve. Great to be here. Having spent time with the teams and customers, I've been able to see for myself momentum building across the business. One key element of our future success is North America, and it's been encouraging to walk into a double-digit year-over-year revenue performance in that region, a clear sign of traction and developing brand strength. One of the proof points of our scale strategy was that as Powerfleet grew, we'd see more invitations to large RFPs and greater visibility in the enterprise market. That's now happening, with a 26% increase in new logo wins as more customers recognize us as a top-tier provider. Our core value proposition, safety, compliance, sustainability, and efficiency, continue to resonate strongly. We've seen a sharp rise in demand within our on-site and in-warehouse safety segment, where we're delivering real impact.

To give you a sense of the traction, one of our largest new deals this quarter came from a major engagement with a global industrial manufacturer, a multi-billion dollar enterprise recognized as one of the world's leading producers of heavy machinery and power systems serving construction, mining, and energy markets worldwide. They're deploying Unity to modernize asset visibility, optimize equipment utilization and reinforce compliance standards across their international operations. We also notably secured a major North American logistics and fleet management company, one of the world's largest providers of third-party logistics and supply chain services, operating thousands of vehicles and hundreds of distribution facilities across the region. They've selected Unity to enhance operator safety, strengthen compliance, and deliver deeper operational visibility across their nationwide logistics network. Both are multi-year strategic programs with significant expansion runway, indicators of the scale of opportunity ahead and the value our platform is delivering.

Next slide. Looking forward, we're seeing strong progress in our strategic partner channels, another key pillar of our growth plan. Global channel bookings increased meaningfully in Q2 from Q1, particularly with partners like AT&T and TELUS, where momentum in the North America channel continues to grow with a 32% sequential increase in quarterly pipeline bill. More generally, our global cross-sell pipeline activity grew substantially. Notably, we are seeing solid traction with AI video upselling into our base, and that's showing up with a healthy 23% expansion in the video pipeline this quarter. These are encouraging proof points, evidence that our commercial engine is working as designed and that we're building a flywheel capable of sustaining double-digit growth into FY 2027. With that, I'll hand it over to David to walk through the financials.

David Wilson (CFO)

Thanks, Jeff. Before running through our regular financial reviews, I'll begin with the headline. Service revenue, excluding legacy Fleet Complete book of business, grew 12% organically year-over -year, even as we've continued deliberately exiting non-core revenue streams in the quarters following our combination with MiX in April 2024. High-margin recurring SaaS revenue is the cornerstone of our future, and that progress is clearly visible in our sales mix, with service revenue now representing 80% of total revenue, up from 74% last year. Next slide. Now on to our regular financial review, starting with a quick recap of the key pro forma adjustments, as well as a change in our prime methodology for calculating adjusted EBITDA. One-time expenses, this quarter, expenses includes $2.1 million in one-time charges for restructuring, integrations, and transaction costs, excluded from adjusted EBITDA and EPS for ongoing run rates.

Amortization impact, results include $5.8 million in non-cash amortization related to the MiX and Fleet Complete acquisitions, impacting services gross margins by over 5%. Change to the calculation of adjusted EBITDA, following consultation with the SEC, including a detailed review of question 100.04 of the compliance and disclosure interpretations on non-GAAP financial measures, we concluded our presentation of adjusted EBITDA will no longer include an EBITDA adjustment for recognition of pre-October 1, 2024 contract assets Fleet Complete. These amounts reflect certain in-vehicle devices delivered by Fleet Complete prior to the acquisition, but invoiced and collected thereafter. This treatment was applicable for a finite transition period, and reflects cash received for hardware that will never be recognized as revenue by Powerfleet. The adjustment was intended to align reporting results more closely with operating cash flows, and the change has no impact on underlying economics or cash generation.

Now on to Q2, which was a banner period delivering record top and bottom-line performance. Total revenue increased 45% year-over-year to $111.7 million, including strong organic growth of 9% overall and 12% in strategically important services. Turning to adjusted EBITDA, which rose more than 70% to $24.8 million. Alongside this strong performance, we also invoiced $1.3 million in Fleet Complete IVD recoveries, which historically were included in adjusted EBITDA and will continue to flow through operating cash as collected. These results validate the strategic rationale for our M&A program, and highlight the powerful market opportunities emerging through our Unity product strategy. Next slide. Turning to margins, we continue to deliver strong year-over-year improvement, a stronger mix and 77% service gross margins drove a 400 basis point increase in adjusted EBITDA gross margins to 68%.

Product margins also improved by 640 basis points sequentially to 31.5%, supported by a rebound in higher margin on-site demand following Q1 tariff headwinds. On operating expenses, we are driving G&A efficiencies, investing in go-to-market and maintaining gross R&D at 8% of revenue. G&A declined to 25% of revenue, three points lower than last year, reflecting synergy capture and operating leverage. We expect G&A as a percent of revenue to continue stepping down by roughly one point per quarter in the second half. Sales and marketing represented 18% of revenue, as we continue to invest in enablement and capacity to support momentum. R&D remains steady at 8% of revenue or 4% net of capitalized software, as we advance innovation in AI, safety, and compliance. Overall, we're very pleased with our continued P&L progression, expanding margins, disciplined reinvestment, and strong execution across the organization. Next slide, please.

Closing on leverage, where previously reported leverage ratios have been amended to exclude the previously discussed Fleet Complete EBITDA addback. We exited Q2 with a net debt-to-EBITDA ratio of 2.9x, an improvement of half a turn from 3.4x at the end of fiscal 2025. Looking ahead, we now expect to close the year at approximately 2.25x, compared to our prior guidance of below 2.25x. Net debt at quarter-end was $243 million, compared to adjusted net debt of $229 million at the end of fiscal 2025.

This represents a $14 million increase, or $6 million better than initial guidance of a $20 million increase in the first half. For the year, we are maintaining expectations to exit the year with net debt of approximately $220 million, representing a reduction of $20 million in the second half. Finally, and as discussed in last week's 8-K, we extended the maturity date of our initial term loan A with R&B by one year to March 31, 2028. With that, I'll hand over to Melissa to walk through our adjusted EBITDA optimization progress. Melissa.

Melissa Ingram (COO)

Thanks, David. I want to pause to recognize what we've achieved as a company. After 18 months of complex work, the integration is complete, with more than $30 million in annualized synergies realized and that's a real milestone worth noting. To have maintained the level of top-line performance we have, while executing a multi-business integration is no small task. Now, with integration behind us, we will move decisively into the next phase, optimization and efficiency. We'll evolve our organizational model to ensure we're structured for long-term efficiency, with clear accountability across functions and regions. We'll continue to optimize our resource mix, ensuring the right capabilities are in the right places, balancing internal expertise with flexible external partnerships to stay agile. We're embedding automation and AI more deeply, to simplify how we work and enhance our customer experience.

Across support, service, and operations, we're advancing further the tools that reduce manual effort, improve response time, and free our people to focus on higher-value activities. We will refine how we serve subscale segments to improve strategic fit and margin contribution, ensuring every part of the business is aligned to sustainable, profitable growth. In parallel, we'll centralize core operating functions further, strengthening our organizational centers of gravity and embedding best practices globally. Another area of focus is vendor and partner consolidation. We've made real progress here, capturing economies of scale and ensuring we're working with strategic partners who can grow with us. On the technology front, we'll complete our core systems rollout and streamline our technical architecture and hosting to enhance speed, reliability, and cost efficiency. All of these initiatives share one goal, to further expand adjusted EBITDA margins and create capacity for reinvestment in sustainable growth.

Next slide, please. Looking ahead, I'm very excited about our upcoming Unity AIoT Innovation Showcase later this week. It's a great opportunity to highlight why Powerfleet is being recognized as a leader in our space. We'll be exploring three lenses. One, the product and solution innovation behind Unity. Two, the customer outcomes we're enabling, the measurable impact on safety, performance, and transformation. Three, the people driving it all, a highly integrated front-foot team delivering at scale. It's a chance for investors and partners to see the strength and momentum of the Powerfleet platform up close. Back to you, Steve.

Steve Towe (CEO)

Finally, I'm also pleased to share that Powerfleet has received another coveted industry recognition. We've been awarded the Frost & Sullivan's 2025 North America Product Leadership Award. For context, Frost & Sullivan is a highly respected global research and consulting firm, and this award is their highest recognition based on rigorous, independent evaluation of innovation, market impact, and customer satisfaction. It's an objective endorsement of the differentiation we've built through Unity, and the consistency of our customer experience. We're honored to receive it and proud of the team whose work made it possible. Before we open for questions, I want to close by reflecting a little further on what this set of results signals to investors for the future. It marks a fundamental shift.

The moment where the power of the combinations we have undertaken, the dramatic 18-month integration we undertook and the operational discipline we've bravely driven into the organization is clearly visible in our results. This quarter gives clear evidence that our unique solution strategy and market thesis is resonating strongly, delivering growth that's sustainable, margins that are expanding and execution that's consistent across the board. My thanks to all our employees, our customers, and our investors for their continued partnership and confidence. Operator, let's open the line for questions.

Operator (participant)

Certainly. At this time, we will be conducting a question-and-answer session. If you would like to ask a question, please press star, one on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star, two if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment please, while we poll for questions. Your first question for today is from Scott Searle with ROTH Capital.

Scott Searle (Analyst)

Hey, good morning. Thanks for taking the questions, and congrats on the quarter. Great job in seeing the organic SaaS growth break through that 10% barrier to 12%. Maybe to dive in on that front, Steve and Dave, looking at the guidance for this year, I'm wondering if you could provide a little bit of color about how you're thinking about services and organic SaaS growth into the third and fourth quarter of this year. Also, as part of that, it sounds like Fleet Complete has got some revenue recognition transition issues going on, so how you're thinking about that, particularly as we start to go into 2027. I think Jeff indicated sustainable double-digit growth as we get into fiscal 2027. I'm wondering if you'd give us some early thoughts on that front, and then I had a follow-up.

Steve Towe (CEO)

Cool. Scott, let me just start with the guidance. We were pretty clear from the get-go that we expected to be growing sort of 10% organically for Q4. No change in terms of expectations there. Obviously, we've done a nice job increasing the midpoint of the range over time. You can see that coming through. Again, things have gone well. Things are going well. We're building up momentum. This is not a steady-state business. The trajectory is very clear up and to the right, but it's not as if it's just a smooth road all the way. We feel good about where we are. Obviously, it's very clear in the numbers in terms of what we're posting. Again, you'll see that 10% organic growth in Q4 as expected [crosstalk].

Scott Searle (Analyst)

Dave, just a follow up

Steve Towe (CEO)

Yeah.

Scott Searle (Analyst)

Oh, sorry. My apologies.

Steve Towe (CEO)

Yeah. No, that's you.

Scott Searle (Analyst)

No, just going to say, on the outlook then in terms of how you're thinking about Fleet Complete kind of being blended into that organic number and early thoughts on 2027, particularly given the build of the opportunity pipeline, it sounds like across the board, both from a carrier partner standpoint, AI video standpoint and warehouse, seems like everything is on the upswing.

Steve Towe (CEO)

Yeah. No, [crosstalk]. I'll [take] that one, David. Look, Scott, I think we are ahead of schedule, which is great. Momentum is building. If you look at our internal dashboard from our growth perspective, we're ahead of where we wanted to be. Now it's about that consistency, that rhythm and driving opportunity that's ahead of us. We've got absolute stellar momentum. We've brought Jeff and team to help with that execution. The flywheel will continue to turn. We're very optimistic about what we've put out in terms of 2027 previously. You'll hear at the end of the week, some more granularity around that. In general, from a market perspective, from a solution set resonating perspective, from an ARPU expansion perspective, from a wallet share perspective, then we're in a very, very good spot.

I think you can hear the pride that the team has in terms of the numbers. In terms of Fleet Complete, there's no kind of revenue recognition challenges. I'll ask David to kind of walk through his note on Fleet Complete again. Fleet Complete has brought those channels with us, the likes of AT&T and TELUS. As we get into 2027, we now do not think about the Fleet Complete or other parts of the business. It's all one, and the message remains the same. Strong, durable, profitable, double-digit, both SaaS growth and top-line growth in general. [crosstalk].

David Wilson (CFO)

[crosstalk]. Yeah. Scott, in terms of the Fleet Complete, that's an EBITDA adjustment. This is basically invoicing that happens, cash that's collected post the close of the Fleet Complete transaction. It's not stuff we recognize historically as revenue. We will never recognize it as revenue, but it does generate significant cash. The thought was to include that as part of the EBITDA adjustments, just to mirror operating cash flow. Obviously, it's a huge economic positive, but that was the EBITDA adjustment for Fleet Complete, which based on consultation with the FCC, we will no longer be including.

Scott Searle (Analyst)

Great. As a quick follow-up, I'm wondering if you could provide some more high-level thoughts in terms of North America. Obviously, it's a pretty dynamic environment from a supply chain perspective. I'm wondering how you're seeing sell cycles, the ability to close deals. It certainly seems like the pipeline is building on that front. Dave, also just kind of in this current environment, how you guys are thinking about hedging policy for some of the international markets. Thanks.

Steve Towe (CEO)

Okay. I'll take the first one. Look, I mean, as Jeff alluded to, he's walked into a double-digit growth rate for North America. We believe everything being equal now, that customers are buying again. Where we saw kind of some of that product softness with the tariff decisions, the strong rebound, both in the top-line growth, but also in the margin as well is testament to the work that we've done.

What we are seeing is a strong demand and need for efficiency, and for safety and compliance. Where customers are needing more optimization, they're needing to be more efficient in what they do, and they need stronger visibility because of these changing times, our solutions are really resonating. I think the couple of large wins that Jeff alluded to too are strategic wins that, because of the power of the combination, we are now winning that business at larger enterprise scale. We feel really good about the future there.

David Wilson (CFO)

From a hedging strategy, Scott, from an FX standpoint, we do have a portion of our debt in both shekel, which has been traditionally a powerful cash generator for us. We have just south of $30 million of shekel-denominated debt. For South Africa, we have around about $20 million of ZAR-denominated revolver debt. We do have the balance sheet sort of hedging from an FX standpoint.

Operator (participant)

Your next question for today is from Anthony Stoss with Craig-Hallum.

Anthony Stoss (Analyst)

Morning, Steve and crew. My congrats on strong execution. A couple of questions. The up 67% in your warehouse solutions, Steve, what do you attribute that to? Is it mainly one big customer? Is it across the board? Also, perhaps an update on all your channel partners, AT&T, TELUS, and the European giant, where do they stand training and launch-wise? Thanks.

Steve Towe (CEO)

Yeah, so it's across the board. I think we are doing a better job in terms of sales execution, number one. I think the combination of solutions now, where customers can get true visibility of what is going on on their site too and in their warehouse, but also combine that with what is going on over the road, which is our unique proposition, that's a real game changer for our customers. I think that's kind of resonating through. The evolution really of kind of more advanced video technology to save lives in the warehouse, again I would encourage everyone to tune in on Friday, where you will hear from our customers talking about what those solutions are doing for them and how it's changing the world. That is a really I think a positive trend generally.

We've done a lot of that in the U.S., but we are now getting real traction in other markets as well and through those channel partners. I think we talked about the pipeline growth in terms of the channel partners. We talked about the bookings improvement globally. That's all from those partnerships that we have talked about, whether that's AT&T, TELUS, MTN. We are still gearing up with a couple of other partners that we talked about earlier in the year for 2027. That just brings real strength and diversity to our opportunity base. We have some exciting future conversations going on with those channel partners, about how we get more integrated into their solutions, how they can take the best of Unity and offer broader new solutions, and more innovation to their customers as well. Again, you'll hear some of that if you tune in on Friday.

Anthony Stoss (Analyst)

Very good. Congrats again, guys. Thanks.

Operator (participant)

Your next question for today is from Gary Prestopino with Barrington Research.

Gary Prestopino (Analyst)

Hi. Good morning, everyone. Hey, Steve. In terms of great new business awards and all that, could you maybe tell us how this is starting to shake out in terms of, are the majority of the new business awards coming from Unity or is it products with services attached?

Steve Towe (CEO)

Everything that we sell is within the Unity ecosystem and platform. There isn't something that's kind of separate. I think the differentiators really are adding in the single pane of glass, so the ability for customers to look at multiple different devices or sensors, or data streams coming into the platform, being able to integrate our data into their other third-party systems. Again, we've got some good visibility for investors and partners at the event later this week, and you'll see some demos of that. It's really I think about us expanding from being a point supplier to a mission-critical partner. People are looking for connected intelligence. The days of telematics and boxes, and hardware, software is really moving now to, you can be a high-grade partner in providing connected intelligence that allows us to make real-time decisions.

You give us visibility. With your AI capabilities, you're able to shortcut where we need to go to make the changes that we need to. That is done in a seamless integrated way. I think all of that together is what is ultimately, we're now being seen as a different level in terms of the opportunity we can provide to medium-large customers. I think that's where we've seen this real shift I think in both who we talk to in the organization, and what people are willing to pay for our solutions because of the level of benefit that we provide. Ultimately, we're now seen as an integrated partner, because of the increased scale that we've got, the credibility of our offerings have gone exponentially in terms of where we're now seen with medium-to-large enterprises. It's not one single thing, Gary.

I think it's a play out of the thesis and the strategy, which is resonating well. What's really exciting is, we're only scratching the surface at the moment. If you think about the solutions coming together from the three companies, we're only kind of six months into that and you're already seeing the traction, and the strength of the results and the durabilities of those results coming through. Again, we've got a lot to do. There's a lot we can do better. We are still a work in progress, but ultimately, we're very, very confident about the future.

Gary Prestopino (Analyst)

Yeah. I guess what I was just trying to get at, Steve is, Unity is device agnostic. I guess, is the traction pretty good with entities that are not using your products?

Steve Towe (CEO)

It absolutely is. As we said before, a lot of customers have multi-source for this stuff. It's not just kind of the sensors that you would traditionally think about with Powerfleet. These are other IoT sensors that they have in their estate. There are other data streams that they have in their estate. When we go and talk to CIOs and CTOs and they say, "Look, we've just got this data mess. Can you simplify this for me? Can you allow us to see the wood for the trees?" Once you are able to do that, can you make sure that it's usable, it's simple,and we can action it? That is where I think the power of Unity's unique capabilities really make swift business change.

Sometimes when we've deployed these solutions and our competitors deploy these solutions, it can take you a decent amount of time to actually start to get the value back. Whereas I think we are now ahead of break-even within the first 12 months of deployment, we're making meaningful change. We're seeing customers who we expected to kind of do second phase rollouts over maybe a 12-18 month period, kind of shortcutting that to a 6-12 month period now, because they've got the rhythm and because we've been able to simplify the spaghetti mess that they had in their organization.

Gary Prestopino (Analyst)

Just one last quick question. I mean, in feedback from your customers, I think you had six modules for Unity as you initially rolled out. Are you developing any further? With any feedback from your clients, what do you feel like you're missing in that Unity platform with the modules, if anything?

Steve Towe (CEO)

Yeah. It's more about enhancing the modules to the next level. It sounds like I am plugging Friday. I am not meaning to. Ultimately, you will see how the strength of our AI capabilities, the data that we can pull, our real-time interventions that we make with our customers, a topic of safety is a very broad topic. You will see just how we're really kind of doubling down on the granularity of what we are able to achieve with our customers.

I would not say, so we are expanding kind of horizontally into more different sets of modularity, but the strength of those modules. I will come back to this from the question we had earlier, to have true visibility of your safety environment across all your employees, whether that's on a site or whether it's over the road, is transformational for customers in a number of ways. Really doubling down on that, the advancement of the data analytics we can provide, the speed and accuracy of those, is where we're spending the majority of our time at the moment.

Gary Prestopino (Analyst)

Thank you very much.

Operator (participant)

Your next question is from Dylan Becker with William Blair.

Dylan Becker (Analyst)

Hey, gentlemen. Appreciate it. Really nice job here. Maybe, Steve, starting with you, the 12% organic services, obviously ahead of plan is quite impressive. I wonder if given kind of the pipeline strength that you guys are seeing, that's affording you the ability to kind of unlock some of that held-back spend around go-to-markets. Maybe if that kind of shifts how you think about the model going forward, given the vast opportunity here, kind of reinvesting maybe some of that incrementally with our growth or even the upside that you would see traditionally back into go-to-market and product development initiatives, because it feels like the market's really kind of resonating relative to the solutions you're able to provide at this point.

Steve Towe (CEO)

Yeah. We talked about, we held back on a $4 million investment as the tariff challenges hit. We have pressed the button on that. That's in the sales channels, and in kind of customer and account engagement, plus some more resources into the channel opportunity. Over time, we will be good stewards in terms of ensuring that we feel confident about the growth, and we can stand behind any more investment. We have the ability to flex the model dependent on that growth rate, and on our confidence levels. We will flex in the model through 2027 and 2028 appropriately, because as you say, as this flywheel starts to turn, as we kind of open up more opportunities and we just get more I think exposure into the global markets that we're now attacking, then we will maintain flexibility and optionality to double down on go-to-market investment.

Dylan Becker (Analyst)

Perfect, okay. Thank you. Very helpful, maybe following up again with you here, Steve or maybe this is for Jeff as well too, encouraging to see some of the new logo momentum in the business. If I look at it to low single-digit millions for a Fortune 500 entity, feels like you're kind of just scratching the surface relative to that opportunity. Maybe if you could kind of help reconcile, obviously getting more shots on goal, getting a foot in the door, but maybe also how that kind of breeds conviction in the opportunity to significantly expand within several of those accounts, maybe better line of sight now that you have built and established that relationship, kind of the opportunity from a cross-selling perspective as well too. Thank you.

Steve Towe (CEO)

Jeff, why don't you take that one, and I'll follow up?

Jeff Loutenbach (CRO)

Yeah, so there is great opportunity with new logo moving forward. As we talked about, we made a pivot from a selling perspective to on-site envision. The sales organization, that's resonating really well with the opportunity. You heard about the pipeline increases. We can do so much better moving forward, and there is so much opportunity out there in these markets that are untapped for us.

I feel like we're just getting our sea legs underneath us, relative to the opportunity statement and enabling the field on the new value propositions as we move into these different market segments, but leveraging the install base that we already have. The customers are there for us to expand. From a new logo perspective, it's attacking the verticals too. That opportunity is there as well. I'm really optimistic about the opportunity around new logo, especially as we continue to gain skills and progress skills in those areas.

Steve Towe (CEO)

Yeah. Thanks, Jeff. Just to respond around ,we're scratching the surface on those accounts, you're absolutely right. There's a 5x, 10x opportunity in those accounts, both nationally and internationally as well. We're strengthening our global accounts model. You will again hear from some of the customers that we alluded to earlier in the year, about some large-scale deployments and how they're feeling about expansion opportunities with us as well. What's exciting is, it's multi-dimensional. If you look around the modularity of the solution, to Gary's point, people can grow in the solution, whether that's in terms of doing more of the same with us on a global basis, expanding sites, expanding the volume of vehicles that they have with us or growing different divisions or territories. We're really I think infused by the space we're creating for ourselves, particularly in that kind of large enterprise market.

Dylan Becker (Analyst)

Very helpful. Thank you, guys.

Operator (participant)

Your next question for today is from Alex Sklar with Raymond James.

Alex Sklar (Analyst)

Great, thank you. Steve or David, I just wanted to follow up on Dylan's question there on the enterprise momentum, and just asked it a little bit differently. If you go back one to two years in time, can you just help put some context behind how incremental these enterprise opportunities have become for Powerfleet in terms of pipeline mix today? With that and kind of overall brand awareness, how much more room do you have to go on the brand awareness marketing side? Thanks.

Steve Towe (CEO)

Yeah. I think it's night and day, our exposure, our win rates, our abilities to be successful in those large enterprise arenas. Heritage Powerfleet of 18, 24 months ago is unrecognizable from the opportunity and the credibility, and the trust frankly, in terms of being a mission-critical provider and partner to those enterprise markets. I think we're building brand momentum. The innovation awards that we get, we're getting I think recognized now as very much a top-tier provider, one of the top three in the world that's really leading in terms of its innovation and profitable growth. Ensuring that we are being good stewards of the company's capital, and making sure that we are doing things responsibly I think is a very good sign in these times, is having a partner that does that.

I think that's always been our mantra, and we continue to excel there. There is always more work to do. There are markets that we are attacking, where we have less brand presence than others in the marketplace, but that offers great opportunity for us. Overall, I think we are in a different paradigm and in a different sphere to where we were two years ago. I think the upside opportunity there remains fairly immense.

Alex Sklar (Analyst)

Okay, great. David, maybe one for you on the back-to-base motion. I know we're working through some final system integrations to get precise NRR, but can you help frame directionally what you're seeing from the install base through maybe end of second quarter, October? Where across kind of retention, upsell, cross-sell have you seen the biggest level of improvement? Where are you still kind of pushing hardest to get to kind of some of the aspirational goals? Thanks.

Steve Towe (CEO)

Clearly, if you look at just the acceleration in growth, a huge part of that is NRR in terms of selling more to our existing customers. To everyone's point, we're early there in terms of the potential, both in terms of the customer demand as well as the solutions we're bringing to market. It is moving positively. If you look back the last couple of quarters, obviously we were clear in terms of our prepared remarks that for NRR, for example, this time last year, we were still actively shedding revenue in terms of getting the right base and getting rid of distractions from a product delivery standpoint, and a market-focused standpoint. That's working well. As you look at the sort of second half of this year, from a Fleet Complete standpoint, there was a similar exercise in terms of shedding some revenue as well.

What I would say is, when you look at just the traditional Powerfleet business, excluding Fleet Complete, which is the 12% organic growth from an ARR standpoint, a major part of that is positive net revenue retention. Everything you would expect to see happening in terms of, firstly, cleaning the book of business, secondly, the complementary nature of our products, thirdly, the sort of pent-up demand within customers is clearly coming through in terms of the growth that we are posting.

What I would say is, for the second half of this fiscal year, you'r,e going to have a bit of a headwind in terms of the Fleet Complete because we did the same thing with Fleet Complete that happened with MiX, in terms of getting the right revenue base in place that's aligned with our future, as opposed to holding on to things that are sort of a distraction and create friction in terms of where we need to go. Very, very positive, and things are playing out as expected.

Alex Sklar (Analyst)

Okay. Great. Thank you both.

Operator (participant)

Your next question for today is from Greg Gibas with Northland Securities.

Greg Gibas (Analyst)

Great. Good morning, guys. Thanks for taking the questions, and congrats on the results. Really nice to see that 23% increase in the cross-sell pipeline. Wondering if you could maybe provide some color on where you're seeing success or solid traction with your cross-sell efforts.

Steve Towe (CEO)

Yeah. It's in warehouse to over the road and vice versa. There is a lot of traction in video, and that is multiple different video solutions that are based around safety and compliance, but really kind of expanding our reach in terms of the breadth of the organizations, whether that's from an insurance perspective, whether that is, as I said, compliance. Whether it's getting true safety visibility or just operational efficiency for the end-to-end supply chain. It's really where we've had strength in one, either the over-the-road or the in-warehouse section, it's really kind of transferring those either way. We have that uniqueness, because we are talking to the right people in the organization who care about the objectives of both of those different parts of the business, that's resonating super strongly.

Greg Gibas (Analyst)

Great to hear. If I could, could you maybe characterize the greater demand environment, and I guess, demand trends as it relates to what you're hearing on pauses on purchasing? Would you say that that headwind has fully subsided at this point?

Steve Towe (CEO)

I think people are still cautious, right? I mean, there's still dynamics in the macroeconomic conditions that cause people to be, I think, thinking through just how much capital they're going to spend and when they're going to spend it. Obviously, if you look at the rebound we've had from the product perspective, then we are seeing people making those decisions. That's really positive. On top of that, we've been able to improve price and improve margin as we go. I think there's always a watchtower on these things, and we continue to be cautious in our approach towards things. We've seen, I think there's a real shift and a need for change in organizations, transformation, efficiency, optimization, and visibility. It's kind of, where do we sit in the food chain of decisions in terms of being kind of mission-critical to businesses? I think that's only improving.

Greg Gibas (Analyst)

Great. I guess one last one, if I could, as it relates to the accounting adjustment. You mentioned the $4 million impact on 2025. How much are you guys taking out of 2026 that was baked in?

Jeff Loutenbach (CRO)

Yeah. The number for this quarter was about $1.3 million, so it's probably a percentage point just over of EBITDA margin, would be the way to think about it, Greg.

Greg Gibas (Analyst)

Okay, got it. Thanks very much.

Operator (participant)

We have reached the end of the question-and-answer session, and I will now turn the call over to Steve Towe for closing remarks.

Steve Towe (CEO)

Thanks, everyone for joining us today and your continued support. We look forward to updating you on our progress next quarter. Have a great day, and we look forward to our innovation event on Friday. Thank you. Bye-bye.

Operator (participant)

This concludes today's conference, and you may disconnect your lines at this time. Thank you for your participation.