Powerfleet Q3 2023 Earnings Call Transcript

Quartr
Provided by Quartr
November 9, 2023

There are 7 speakers on the call.

Operator

Good morning. Welcome to PowerFleet's Third Quarter 2023 Conference Call. Joining us for today's presentation is the company's CEO, Steve To and CFO, David Wilson. Following their remarks, we will open up the call for questions. Before we begin the call, I would like to provide PowerFleet's Safe Harbor statement that includes cautions regarding forward looking statements made during this call.

Operator

During the call, there will be forward looking statements made regarding future events, including PowerFleet's 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 results 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 2023 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 statements.

Operator

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.powerfleet.com. Now, I would like to turn the call over to PowerFleet's CEO, Mr. Steve Toh.

Operator

Sir, please proceed.

Speaker 1

Good morning, everyone, and thank you for being here today. In today's call, I will share an update on our Q3 performance as well as spending some time reviewing progress on the strategic pillars of the business. Turning first to our Q3 performance, we're delighted to report a strong set of Q3 financial results. Our commitment to evolve into a high quality SaaS business required us to take brave decisions to manage existing revenues in ways where our success will become clearer in quarters rather than months. In essence, we've been executing a private equity style transformative playbook in the public market.

Speaker 1

Central to this strategy is building a pipeline of high margin product sales that pulls through sticky high margin SaaS revenue, while shedding non core and non profitable product business. We have been clear that executing this transition would result In revenues coming down through early to mid-twenty 23 before reaching an inflection point where higher product revenue We'll begin to flow through the P and L in the second half of twenty twenty three. I'm pleased to report this inflection point is now evident in our numbers. Our Q3 total revenue performance was our best result in 4 quarters. Total revenue increased by 7% sequentially.

Speaker 1

Q3 product revenue increased quarter over quarter by an impressive 19% at a much improved gross margin. At the same time, our Service revenue increased by 11% on a constant currency basis year over year. Looking at adjusted EBITDA, We made a commitment that we would take the necessary steps to absorb the cost and cash burn of our investment in engineering talent following our Q1 Moving Dots acquisition. Clear success here is evident in our Q3 numbers with sequential adjusted EBITDA increasing threefold to $2,000,000 David will dive into more details on our financial performance shortly. I view the quarterly earnings the revised business strategy following my appointment in January 2022.

Speaker 1

The overriding reason I took the helm of PowerFleet was To realize this vision, it was essential to execute a substantial transformation plan at pace. To succeed, We took aggressive and decisive actions designed to enable PowerFleet to have a credible shot at being at the forefront of the data led SaaS revolution of the industry in the years to come. This remains a bold and ambitious mission for PowerFleet, our investors and now our partners from MiX Telematics. Trust is a key currency in successfully navigating this kind of transition and is built by following through on your commitments. A common mantra For those of you who have joined me on this journey so far is the commitment of the PowerFleet team to say what we do and do what we say.

Speaker 1

To demonstrate that these words have substance, I'll now share proof points from the revolutionary change program focusing on the 3 major areas we knew we would need to significantly transform in the 1st 2 years of my tenure. 1st, scale 2nd, technology And third, the shape and health of our P and L and balance sheet. Looking at scale, we're not here to be an also run-in the industry. We're here to secure a place at the very top table. I'm convinced there will be 4 to 5 consolidated global players that will dominate the space over time and we very much intend to be one of them.

Speaker 1

To get there, we need the depth of resources to invest at the level the market demands and have the breadth of data led solution capability to feed, refine and evolve best in class AI engines, earning the right to be a mission critical provider in an integrated fashion for an energized customer base. With the announcement of the mix combination, both organizations have taken a massive step towards securing the necessary scale. Anticipated achievements of the transaction to support the combined strategy include Annual revenues increasing from $135,000,000 to $280,000,000 adjusted EBITDA increasing from $7,000,000 to $39,000,000 the number of subscribers on our platforms increasing from 700,000 to 1,800,000 The engineering team growing from 90 to over 2 30 colleagues and enterprise customers growing from 3,500 to more than 7,500. Now on to technology, where the Unity AI and data platform strategy has been validated by customers and industry analysts alike. It was also pivotal to MiX's decision to combine forces with PowerFleet.

Speaker 1

Josh and his team have produced a successful incredibly well run business There's been steeped in the industry for over 25 years. The fact that they believe wholeheartedly that the Uniti vision is the right one to take a leading position In our fast evolving industry is a compelling validation for the unique Uniti Data Highway and integrated ecosystem. Another proud achievement this year remains the Q1 acquisition of Movin Dots, which secured some unique IP in the insurance space alongside a sizable team of data scientists and AI experts with deep domain knowledge. We believe that the combined engineering teams and data sets PowerFleet and MiX will provide the strategic pillars for us to be a technological and market leader in the rapidly evolving artificial intelligence of things or AIoT space driven through the Uniti platform. Now on to the evolution of our P and L and balance sheet.

Speaker 1

I shared at the start of this call our progress against a strategy to evolve the P and L to successfully build a pipeline of strategic product sales, The pull through sticky high margin SaaS revenue, while shedding non core and non profitable product business and that we've reached the inflection point In our strong Q3 performance, I'd like to add some more color on the strategic evolution of our P and L and balance sheet. Looking at the geographical distribution of revenue, we've been very clear that we would directly address the mine share and hidden cost drag about subscale businesses in Brazil, Argentina and South Africa. At a single stroke, our announced combination with mix Enables us to retain and scale these books of business, particularly in South Africa, which will combine with MiX's powerful local operation and Brazil where reaching critical mass On a combined basis, now comes true. With regards to the balance sheet, the mix combination provides an elegant and shareholder friendly pathway to meet our commitments to adjust the challenging ABRY preferred instrument. Based on any measure, these are major accomplishments across all three areas And this is a testament to the ability of the team to deliver compelling results against ambitious targets.

Speaker 1

As I approach my 2 year anniversary, I'm proud to say that the prospects and the strategic potential of the business are transformed. The right chess pieces are now in place for the next phase of our journey, a phase that is centered on realizing significant enterprise value for our shareholders. Ahead of sharing insights and thoughts on this, I'll ask David to walk through our Q3 results in detail. David?

Speaker 2

Thanks, Steve, and good morning, everyone. Continuing the spirit of transparency and accountability, I'll firstly provide an update on the key strategic priorities that I called out on our prior call before providing additional insight on the numbers. Strategic priority number 1 is to accelerate our business transformation while living within the limits of our current balance Our October 10 mix business combination announcement is a game changer, while the realized results from our cut to cover activities for Moving Dots With adjusted EBITDA traveling sequentially demonstrated a team that connects SCOOP decisively and at pace. While these initiatives are major wins, They naturally created some headwind in our short term financial results with $1,400,000 in one time transaction rationalization expenses incurred in the quarter. Priority number 2 is to improve the underlying operating leverage of our business by implementing a common and scalable software platform across all geographies.

Speaker 2

The central tenant of this initiative is the rollout of a global ERP system and as I'm sure you can appreciate, Our business combination with mix significantly increases the scale of this endeavor and presented us with alternate pathways. Based on an initial review, we concluded that the most expeditious option to get the entire global business on a single ERP instance is to standardize our MiX Dynamics 365 solution that is actively being rolled out. A global ERP is of a critical importance Both for realizing 1,000,000 of dollars in spend efficiencies and building out a rich set of SaaS metrics that provide proof points on the durability of revenue And operating leverage inherent in our business model. ERP is a major work stream for integration planning and execution and we will continue to provide regular insights and updates on future calls. Now onto our financial performance for the quarter.

Speaker 2

Starting with revenue, where the underlying quality is radically improved versus the prior year. While total revenue for the quarter ended September 30, 23 of $34,200,000 was in line with last year. Approximately $2,000,000 of low value product revenue has been actively shed from the business and replaced with high margin service revenue, up 4% on an absolute basis and over 11% on a constant currency basis. Additionally, our product sales are increasingly high margin, differentiated and centered on pulling through sticky SaaS revenue. Success here is evident in sequential performance where product margins increased from 22% to over 30%.

Speaker 2

Total gross profit margin for the quarter of 50% was in line with the prior year. Product gross margin of 33% benefited from $400,000 in out of period import duty recovery. On an adjusted basis, product margin was 30%. Meanwhile, service gross margin of 61 percent was hindered by $400,000 in out of period infrastructure expense and $300,000 in Uniti depreciation expense. Adjusting for these items, service gross margin was in line with the 64% posted in the prior year.

Speaker 2

On to operating expenses, which increased by $2,000,000 to $20,400,000 compared to the same ago period with the current year impacted by one time deal and rationalization costs of $1,400,000 Net loss attributable to Com shareholders totaled $5,000,000 or $0.14 per basic and diluted share and adjusted EBITDA was $2,000,000 3 times higher than the prior quarter following cut to cover activities for Moving Dot. Our balance sheet remained strong at quarter end with $19,600,000 in cash and cash equivalents and a working capital position of $34,500,000 Looking to the future, we recognize that the macro environment poses certain challenges in Specifically, the ongoing conflict in Israel has understandably brought about temporary fluctuations in product demand and foreign currency challenges. It is worthy to note that over 80% of our book of business in Israel is recurring subscription revenue that is centered on transportation, safety and security, An essential versus discretionary need. Most importantly, I'm relieved to report that despite the horrific ongoing events and related strain to all those impacted, Our Xareldi team members are currently safe and our facilities remain unaffected. While we continue to closely monitor the situation, This assurance of safety is paramount.

Speaker 2

We have also enacted our business continuity plan to ensure we have redundant capabilities The services our Israeli team provides to our global business, particularly around supply chain and distribution. That concludes my remarks. Steve?

Speaker 1

Thanks, David. Our Q3 financial results are a testament to the exceptional execution by our global team. These on plan results are particularly impressive when you take into consideration they were achieved in the midst of an immense effort to sign our transformative business combination with MiX. Moving back to the overall view of the business, we continue to gain strong traction. This is especially true as we witnessed The resounding success of Uniti, our safety driven industrial solutions and our connected car offerings.

Speaker 1

In Q3, we are delighted to announce new logo wins in North America with the likes of Balvoline, Summit Construction and Development, OI Glass and CMC and major account expansion projects with the likes of NACPAK, Brink's, General Motors, Georgia Pacific And FEMSA. From a market development perspective, safety remains at the very heart of what we do. Here are some examples of what we achieved in Q3. PowerFleet expanded its existing relationship with Mitsubishi Logi Next America, MLA, the 4th largest forklift manufacturer in the world. We signed a white label agreement creating a competitive advantage for MLA and an additional revenue stream for PowerFleet.

Speaker 1

The U. S. Department of Transportation launched an initiative and subsequent campaign to reduce the rising number of serious injuries and deaths on America's Highway, Roads and Streets. After an extensive review process, PowerFleets in our Unity platform were selected as a partner to join the U. S.

Speaker 1

ABI Research, a leading analyst in the IoT industry, We released a competitive report that compared vendors of video safety solutions to provide a third party assessment and ranking. After full assessment process, which includes innovation criteria like solution options, user experience and use cases, PowerFleet was named as a top innovator and ranked within the top 5 providers in the world. To close off our prepared remarks, I'll now set expectations on what the combined PowerFleet and mix team is committed to deliver over the coming quarters in a similar fashion to my initial commitments I made for the business at the beginning of 2022. Delivery will be across the following three vectors: Technology, financial performance and realizing shareholder value. Starting with technology, We will continue to strengthen and broaden the capabilities of Uniti and demonstrate this is a true software platform capable of expanding wallet share with our existing customers As well as acting as a powerful magnet for new ones, Unity is on the path to become a platform and ecosystem that in the future will go well beyond traditional telematics.

Speaker 1

Scaling our device agnostic and data ingestion capabilities, harnessing our AI led insights for customers and providing flexibility on how they consume those insights, whether through our advanced applications or other integration points, Position Unity as a true data highway and ecosystem hub for broader IoT use cases. Looking at financial performance, we expect to deliver accelerated revenue growth. We expect to realize readily available revenue synergies from the mix combination sourced from compelling cross sell and upsell opportunities through the combined complementary product portfolios. PowerFleet Solutions will also benefit From the global reach of MiXI's 120 indirect channel partners, expect Uniti to be an engine driving a steady quarterly climb of net dollar retention To best in class levels through the following areas. The device agnostic capabilities of Unity expands the set of revenue generating subscribers well beyond those we directly supply.

Speaker 1

Our value added modules and integration points provide significant headroom on the amount of revenue we can generate per subscriber. And finally, our solutions become increasingly sticky as the value of the data that we provide, which is well beyond the underlying asset owner in organizations. Expect rapidly expanding adjusted EBITDA. The opportunities coming out of the combination are both substantial and readily accessible and we expect adjusted EBITDA to more than double from a trailing 12 month starting point. And finally, expect best in class Rule of 40 financial performance within 2 years of close.

Speaker 1

Now on to shareholder value creation, Where we expect to take major strides in recalibrating the way PowerFleet is viewed and valued by the market. Areas of focus include the following. The mix combination provides size and scale that will enable us to attract a much broader set of investors. The steady release of Unity AIoT powered offerings will enable us to break away from the market's traditional view of telematics providers. The rollout of our global ERP for the combined company will allow us to report an increasingly rich set of SaaS metrics, which will provide clarity and transparency on the quality and durability of our recurring revenue book of business with a specific focus on net dollar retention.

Speaker 1

And finally, securing an enterprise value that is underpinned by a rule of 40 revenue multiple. We clearly now have a compelling short to mid term value proposition to present to the markets. And as a result, we will be intensifying our investor outreach. This starts next week where the joint PowerFleet and MiX team will attend the ROTH Investor Conference in Midtown Manhattan on November 15. We will host our joint Investor Day with MiX at the InterContinental New York Barclay Hotel in Midtown Manhattan At 2 p.

Speaker 1

M. Eastern Time on November 16, David will be joining the mix team at the Raymond James TMT Conference in New York on December 5. And finally, we plan to execute an investor roadshow early in the New Year. We look forward to seeing as many of you as possible at these events. I'll now turn it back over to the operator for Q and A.

Speaker 1

Operator?

Operator

Thank you. The floor is now open for questions. And our first question this morning is coming from Scott Searle from ROTH MKM. Scott, your line is live. Please go ahead.

Speaker 3

Hey, good morning. Thanks for taking my questions. Nice job in the quarter guys. I know it's a difficult macro backdrop. David, maybe just quickly for Clarification, my audio was a little choppy.

Speaker 3

I wanted to clarify if there was $1,400,000 I thought transformation costs in the quarter, I wanted to confirm that. It sounds like the ERP systems that you're going to use going forward are going to be mix. I want to just clarify that as well. And then immediately in the December quarter, How are you expecting things to trend sequentially? I know there are some macro headwinds out there, particularly in markets like Israel, but just wondering if you could quickly comment on how you see things progressing In the intermediate term or near term before we start to see the combination impact from mix?

Speaker 2

Great. Thanks, Scott. So in terms of the choppy audio, the $1,400,000 that referred to one time costs incurred in the quarter, Both in terms of the transaction costs for the mixed deal in addition to certain rationalization costs attached to the ongoing cost reduction to cover moving docks. So that was the $1,400,000 that was referred to in the prepared remarks. Yes.

Speaker 2

And in terms of the ERP, we've obviously evaluated Both the NetSuite path that we were on as well as the Dynamics 365 path that the mix team were on. And as we've looked at it, The most expeditious and the quickest way for us to get on the common platform is actually to move with the Dynamics platform. So again, that will be a very important piece of work So we'll be planning for between now and close and aggressively executing post close. So we're there in terms of that piece. And then in terms of looking forward to future financial performance, the key issue is obviously Israel.

Speaker 2

It is obviously a very important piece of our business. As I referred to in the prepared remarks, the vast majority of that revenue is recurring in nature. It is also an essential need as opposed to a discretionary need. So last quarter, Israeli business was just north of sort of $10,000,000 So around about $2,000,000 in product payment recurring services. We expect the recurring services piece to hold up very well.

Speaker 2

So other than FX issues and obviously the FX rate has actually improved over the last week or so, but it was clearly weaker earlier in the quarter. There will be some exposure there. And then from a product standpoint, a fair amount of that product revenue is actually sold to the consumer through dealerships, And you can appreciate that's a piece of the market that will be definitely sort of softened in terms of demand just given going on in the country? So that's the sort of key headwind. But in terms of the fundamentals of the business, we're performing well, obviously, very clear in our Q3 numbers.

Speaker 2

We're building up a very nice head of steam. So the fundamentals are very, very strong and we think we can absorb the Israeli headwind.

Speaker 3

Very good. And Steve, if I could, from a high level, it seems like you continue to add more logos, You get add ons with existing customers, and you had 11% I think growth in the services side year over year in constant currency. Could you comment a little bit in terms of what that total TCV opportunity pipeline looks like? I think over the last couple of quarters, you had some relatively big growth on a sequential basis. How is that trending?

Speaker 3

Also kind of the initial cut when you start to look at the combination with mix and upsell opportunities, what does that look like? And also just competitively, now you're a different company when you add the mix scale in terms of reach and product breadth. How are you doing in terms of getting to the table now with Samsara and Geotab? Is that changing the dialogue out in the marketplace in terms of how you guys are perceived? Thanks.

Speaker 1

Thanks. So firstly, Scott, I don't think we've ever given a full TCV pipeline number. We've talked about the growth sequentially. It's continued. So roundabout net around $35,000,000 to $40,000,000 of new pipeline has been added, which is great.

Speaker 1

I think in terms of customer sentiment towards the business, it's extremely strong. So both as PowerFleet alone you've seen, Every quarter we come out with the new logos and the account expansions. You see the broader market appreciation that we're starting to receive now. And that kind of links in as well to the positioning with mix as in terms of being a business at scale. So we've already seen more inbound interest.

Speaker 1

I think this takes us to almost the very top table. And I think we are now seeing Ourselves in a position where we will fight more business against the biggest boys in the industry, and we're confident of our chances in those interactions

Speaker 3

Great. Thanks so much. I'll get back in the queue and look forward to seeing you guys next week at our conference in the Analyst Day.

Speaker 4

All the best.

Speaker 1

Thank you.

Operator

Thank you. Your next question is coming from Mike Walkley from Canaccord Genuity. Mike, your line is live. Please go ahead.

Speaker 4

Great. Thank you. Congratulations on the strong results and our prayers and best wishes to your Israel employee base. I guess to start off very strong quarter in gross margin, which has been part of your strategy. I guess David on the hardware side, Is 30% kind of a good number to think about going forward?

Speaker 4

Or is there anything we should think about on mix for your standalone business in terms of gross margin trends?

Speaker 2

Yes. So in terms of the 30%, that is definitely a target that we've spoken about in the past. In terms of the quarter itself, clearly very strong, centered in North America, which is sort of at the forefront in terms of gaining traction in terms of the Unity story. So that's an important piece of it. So I would say 30% is reflective of expectations on a go forward basis.

Speaker 2

There's always some and when you use with mix, obviously, mix is a challenging word to use. But within our business, there's often sort of mix issues in terms of Things that are highly differentiated, for example, like our industrial solution, we have more pricing power there than maybe the logistics side of things. So there's always sort of fluctuations, but I think on a blended basis, 30% and then growing from there is a good expectation to

Speaker 1

And just coming over the top of that, as we signaled in terms of taking out the Lower product margin business and unprofitable product lines. That was the reason that we were down where we were. So this is a great proof point in terms of the newer pipeline that we've built, the execution of that new pipeline and our commitment to do higher margin profitable business.

Speaker 4

Great explanation and congrats on that execution as you're coming out the other side. I guess just a follow-up question, building on some of Scott's questions. Just on the pipeline of business, it sounds like Israel as expected, Products could be a little soft. North America has been a strong business year to date. How are you seeing kind of the pipeline And trends for your different regions?

Speaker 1

Yes. So I mean if you look at the North American year to date and quarterly That was our number one focus. It's our number one strategic arena that we think we can get to a very High level in terms of market leadership and I think that is playing out well and the pipeline strength there is growing as is our reputation. It took a while for us to be known in the market. And I think now to kind of Scott's earlier question as well, we're starting to see far more inbound interest into the business as we go.

Speaker 1

So that's very strong. Europe will be a big growth area for us in 2024. So As you're aware, we've invested in Europe. We've got nice pipeline building there, very competent in terms of Our ability is to execute considering particularly the background and experience that I and others that I bought into the business have of that market. I think our kind of Latin American business was naturally in a place of uncertainty.

Speaker 1

And since we've now been able to settle the future of that business and we're going to have businesses of scale with the mix combination then we're starting to see pipeline grow again. And from an Israel perspective, despite the fact that we naturally in the short term have some headwinds, the development of pipeline, particularly in the B2B space, It still remains strong for the medium term. So I think if you look overall, we're getting traction there. We're getting the proof points in In terms of the new strategy, Unity is really coming over the top in terms of being able to get incremental opportunities for revenue. And then if you take the mix combination, then in terms of the solutions that mix have that we don't have, particularly the strong in cab Logistics stuff that we're not so no caught on.

Speaker 1

And then vice versa in terms of the industrial solutions that will be available to all mixed territories, We can definitely see the path to the incremental growth rates that we're alluding to.

Speaker 4

Great. Well, congrats on all that you accomplished to date and I'll pass the line.

Speaker 5

Thanks, Mike.

Operator

Thank you. The next question is coming from Jaeson Schmidt from Lake Street. Jaeson, your line is live. Please go ahead.

Speaker 5

Hey guys, thanks for taking my questions. Just given the macro backdrop, curious what you're seeing from a Pricing standpoint, if you've seen it get a lot more competitive, I know the telematics space is always fairly competitive, but have you seen any Significant changes just given the current macro?

Speaker 1

I think we're seeing some competitor desperation is how I would describe it. Business is trying to be won at very low rates. We're not going there. I mean, you've seen from our strategy over the last year for us, we would rather take We're more selective over revenue in terms of maintaining and growing profitability. And I think we're selling far more value.

Speaker 1

So Particularly in the North American market, we have hired a very good set of enterprise software sales folks To concentrate very much on the value proposition across the C suite and that's allowing us to hold pricing. So no doubt the pressure is out there. But again, we have very strong conviction in terms of the growth of EBITDA and the growth of revenue alongside it Based on the quality of pipeline that we're delivering and we think there's more than enough out there for us to be comfortable.

Speaker 5

Okay. That's really helpful. And then just as a follow-up, are you seeing any meaningful headwinds from the supply chain?

Speaker 1

In terms of component supply for ourselves?

Speaker 5

Correct.

Speaker 1

No. We've done an awful lot of work in terms of dual and triple sourcing capabilities. Again, a big shout out to our Israeli supply chain distribution team in terms of how they go about sourcing and making sure that we've got enough in Bentry to fulfill. So very confident again that as long as our sales team can deliver, then we'll be able to supply effectively in the coming quarters.

Speaker 5

All right, perfect. Thanks a lot guys.

Operator

Thank you. Your next question is coming from Gary Prestopino from Barrington Research. Gary, your line is live. Please go ahead.

Speaker 6

Thanks. Good morning, Steve and David. A couple of questions. First of all, David, you called out a couple of one time Expenses related to the gross profit on services, and I couldn't write them down. Could you just go through that again, please?

Speaker 2

Yes, absolutely. So there's 2 that offset each other. 1 is a $400,000 pickup in terms of just import duty from prior periods sort of a rebate there that benefited the product margin side of things. And we've also been very In terms of just working the infrastructure side of things as we transform things, there was a catch up billing that came through to the tune of $400,000 that sort of offsets the benefit from the duty standpoint. So again, from a total gross margin standpoint, this thing is neutral.

Speaker 2

But that was the pickup that sort of hindered service margins in the quarter.

Speaker 6

Well, you're saying one thing is for product, one thing is for service. I'm trying to understand what you you said that there was something that impacted the services margin because it was down year over year. So that's what I'm trying to get at. Was that a one time issue or is that something that's going to be ongoing?

Speaker 2

There's 2 issues. So one is a one time issue, which is this $400,000 out of period infrastructure cost that impacted margins. The other thing that has happened and is more prominent this quarter is an increase, a significant step up in terms of the amount of depreciation we're taking on the Unity platform. So that was about a $300,000 hit. That will be something that will obviously continue on a go forward basis.

Speaker 2

The only thing I'd add there is the amount of operating leverage on Unity is massive just because that's essentially a fixed cost Versus the revenue growth that we'll be enjoying on the back of that investment. So there is a pickup in terms of non cash costs that have impacted gross Margin this quarter and it will be an impact next quarter too.

Speaker 6

Okay. And then is it safe to assume that most of the impact on the currency dealt with Israel Shekel?

Speaker 2

Yes.

Speaker 6

Okay. And then David, could you I'm sorry, Steve, could you maybe talk about the Unity platform? How much is that helping to drive new logos? And as well as where are you with trying to get the your base business, your base customer base to Accept or adopt the Unity platform? I assume it's very early stages at this point.

Speaker 1

Yes. So it's significantly helping us In the race to win new business, Uniti is a consolidation platform. So a lot of our customers have multiple providers because this is a fragmented market. So to be able to see their data and harmonize it in one single place is super attractive to them. They also have too much data, too many operating systems And they are looking for someone to help them simplify that to integrate those data sources into the different ways that people want to consume it, Which is fairly unique in this market.

Speaker 1

So that simplification, that ease of use, that ability for us to Really kind of take people on a digital transformation journey also is helping us to win new business, plus then the value added modules with better, More predictive AI insights on top and making the business benefit case a lot smarter for customers. So That's all in terms of the reasons why we are winning more new logos and why people are now seeing us as a differentiated solution. That's number 1. And then number 2 in terms of people adopting Uniti. So the way that we put Uniti together is everyone sees their existing functionality that they previously saw in their heritage platforms on Unity today.

Speaker 1

So in fact, the customers are on Unity. What they then have the ability to do is take on top of that the value added services of more device and data ingestion, More integration and the value added modules that are kind of premium modules on top of the feature functions that they have today. So it's a very easy path. We are fairly early still in kind of the upsell process of that. So we have put together an inside sales team that is now just going out and kind of Really kind of having those good conversations and this is all kind of ARPU uplift that we will see continue in the future.

Speaker 1

So That's all part of this strategy. And as I said, the confidence in proof points are very strong today.

Speaker 6

Okay. Thank you. And then Just briefly comment on your markets, industrial logistics, I believe the third one was transportation. What how did they each perform in the quarter? And what would be the outlook going into Q4 For those market segments?

Speaker 1

Yes. So our safety solutions across the board, whether that's safety in the warehouse Or safety on the road. So we look at it not just by vertical, but and kind of are we in the warehouse or are we a Or are we a light commercial or are we a car? We look at it as kind of the solutions we're delivering. So safety solutions across the piece, We're seeing extremely strong traction, Paul.

Speaker 1

A lot in the warehouse in terms of the pedestrian Proximity alert solutions that we have, a strong kind of, I think sway towards video solutions, as we talked about the ABI Research The logistics kind of, I would say, more commoditized stuff is still the clunky area for us. I think people are still weighing up their overall needs following the post pandemic and rationalizing their assets to states. So we don't see a huge growth at that end, but that is more kind of, as I say, the lower ARPU revenue that we enjoy today, But it's not kind of the key growth area for us moving forward. So moving into Q4, moving into Q1, we're seeing pipelines around Safety, insurance, sustainability and compliance as really strong. And that's where we focused our efforts in terms of solution design, In terms of marketing and in terms of being the best of the best because we truly believe that if we win the race in that space, Then where customers want to consolidate, have fewer suppliers, then we will win the traditional telematics business alongside it.

Speaker 1

And so far, the early signs of that strategy are coming through nicely. Thank you.

Operator

Thank you. And there are no further questions in queue at this time and the Q and A session has now concluded. I would now like to turn the floor back to Steve To for closing remarks. Sorry, Steve, just turning the floor back to Steve for closing remarks at this time.

Speaker 1

Thank you. Sorry, I had a slight audio problem there. So everyone, thank you for the insightful questions and thanks again to everyone joining us this morning. As I mentioned, we'll be hosting an Investor Day alongside the mix team next Thursday, November 16 at 2 pm Eastern Time in New York City. If you're interested in attending this event, please get in touch with our Investor Relations representative, Matt Glover from Gateway Group, who can provide you with all the necessary information.

Speaker 1

We look forward to seeing many of you next week. Until then, take care and talk to you soon.

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Earnings Conference Call
Powerfleet Q3 2023
00:00 / 00:00
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