UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
(Mark One)
| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For
the quarterly period ended:
or
| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from __________ to __________
Commission
File Number:
(Exact name of registrant as specified in its charter)
| (State or other jurisdiction | (I.R.S. Employer | |
| of incorporation or organization) | Identification No.) |
| (Address of principal executive offices) | (Zip Code) |
(Registrant’s telephone number, including area code)
(Former name, former address and former fiscal year, if changed since last report)
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||
| The
|
Indicate
by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
Indicate
by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule
405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant
was required to submit such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| Large accelerated filer ☐ | |
| Non-accelerated filer ☐ | Smaller
reporting company |
| Emerging
growth Company |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate
by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐
The number of shares of the registrant’s common stock, $0.01 par value per share, outstanding as of the close of business on May 8, 2023, was .
INDEX
PowerFleet, Inc. and Subsidiaries
| 2 |
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
POWERFLEET, INC. AND SUBSIDIARIES
Condensed Balance Sheets
(In thousands, except per share data)
| December 31, 2022 * | March 31, 2023 | |||||||
| (Unaudited) | ||||||||
| ASSETS | ||||||||
| Current assets: | ||||||||
| Cash and cash equivalents | $ | $ | ||||||
| Restricted cash | ||||||||
| Accounts receivable, net of allowance for credit losses of $ | ||||||||
| Inventory, net | ||||||||
| Deferred costs - current | ||||||||
| Prepaid expenses and other current assets | ||||||||
| Total current assets | ||||||||
| Fixed assets, net | ||||||||
| Goodwill | ||||||||
| Intangible assets, net | ||||||||
| Right of use asset | ||||||||
| Severance payable fund | ||||||||
| Deferred tax asset | ||||||||
| Other assets | ||||||||
| Total assets | $ | $ | ||||||
| LIABILITIES | ||||||||
| Current liabilities: | ||||||||
| Short-term bank debt and current maturities of long-term debt | ||||||||
| Accounts payable and accrued expenses | ||||||||
| Deferred revenue - current | ||||||||
| Lease liability - current | ||||||||
| Total current liabilities | ||||||||
| Long-term debt, less current maturities | ||||||||
| Deferred revenue - less current portion | ||||||||
| Lease liability - less current portion | ||||||||
| Accrued severance payable | ||||||||
| Deferred tax liability | ||||||||
| Other long-term liabilities | ||||||||
| Total liabilities | ||||||||
| Commitments and Contingencies (note 22) | ||||||||
| MEZZANINE EQUITY | ||||||||
| Convertible redeemable preferred stock: Series A – shares authorized, $ par value; and shares issued and outstanding at December 31, 2022 and March 31, 2023 | ||||||||
| Preferred stock; authorized shares, $ par value; | ||||||||
| Common stock; authorized shares, $ par value; and shares issued at December 31, 2022 and March 31, 2023, respectively; shares outstanding, and at December 31, 2022 and March 31, 2023, respectively | ||||||||
| Additional paid-in capital | ||||||||
| Accumulated deficit | ( | ) | ( | ) | ||||
| Accumulated other comprehensive loss | ( | ) | ( | ) | ||||
| Treasury stock; and common shares at cost at December 31, 2022 and March 31, 2023, respectively | ( | ) | ( | ) | ||||
| Total PowerFleet, Inc. stockholders’ equity | ||||||||
| Non-controlling interest | ||||||||
| Total equity | ||||||||
| Total liabilities and stockholders’ equity | $ | $ | ||||||
| * |
See accompanying notes to unaudited condensed consolidated financial statements.
| 3 |
POWERFLEET, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Operations
(In thousands, except per share data)
(Unaudited)
| Three Months Ended March 31, | ||||||||
| 2022 | 2023 | |||||||
| Revenues: | ||||||||
| Products | $ | $ | ||||||
| Services | ||||||||
| Total revenues | ||||||||
| Cost of revenues: | ||||||||
| Cost of products | ||||||||
| Cost of services | ||||||||
| Gross profit | ||||||||
| Operating expenses: | ||||||||
| Selling, general and administrative expenses | ||||||||
| Research and development expenses | ||||||||
| Total operating expenses | ||||||||
| Loss from operations | ( | ) | ( | ) | ||||
| Interest income | ||||||||
| Interest expense, net | ( | ) | ||||||
| Bargain purchase - Movingdots | ||||||||
| Other (expense) income, net | ( | ) | ( | ) | ||||
| Net income (loss) before income taxes | ( | ) | ||||||
| Income tax benefit (expense) | ( | ) | ||||||
| Net income (loss) before non-controlling interest | ( | ) | ||||||
| Non-controlling interest | ( | ) | ||||||
| Net income (loss) | ( | ) | ||||||
| Accretion of preferred stock | ( | ) | ( | ) | ||||
| Preferred stock dividend | ( | ) | ( | ) | ||||
| Net income (loss) attributable to common stockholders | $ | ( | ) | $ | ||||
| Net income (loss) per share attributable to common stockholders - basic | $ | ( | ) | $ | ||||
| Net income (loss) per share attributable to common stockholders -diluted | $ | ( | ) | $ | ||||
| Weighted average common shares outstanding – basic | ||||||||
| Weighted average common shares outstanding - diluted | ||||||||
See accompanying notes to unaudited condensed consolidated financial statements.
| 4 |
POWERFLEET, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Comprehensive Income (Loss)
(In thousands, except per share data)
(Unaudited)
| Three Months Ended | ||||||||
| March 31, | ||||||||
| 2022 | 2023 | |||||||
| Net income (loss) attributable to common stockholders | $ | ( | ) | $ | ||||
| Foreign currency translation adjustment | ||||||||
| Total other comprehensive income | ||||||||
| Comprehensive income (loss) | $ | ( | ) | $ | ||||
See accompanying notes to unaudited condensed consolidated financial statements.
| 5 |
POWERFLEET, INC. AND SUBSIDIARIES
Condensed Consolidated Statement of Changes in Stockholders’ Equity
(In thousands, except per share data)
(Unaudited)
| Common Stock | Additional | Other | ||||||||||||||||||||||||||||||
| Number of Shares | Amount | Paid-in Capital | Accumulated Deficit | Comprehensive Income (Loss) | Treasury Stock | Non-controlling Interest | Stockholders’ Equity | |||||||||||||||||||||||||
| Balance at January 1, 2023 | $ | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | $ | |||||||||||||||||||
| Net income (loss) attributable to common stockholders | - | ( | ) | |||||||||||||||||||||||||||||
| Net loss attributable to non-controlling interest | - | ( | ) | ( | ) | |||||||||||||||||||||||||||
| Foreign currency translation adjustment | - | ( | ) | |||||||||||||||||||||||||||||
| Issuance of restricted shares | ||||||||||||||||||||||||||||||||
| Forfeiture of restricted shares | ( | ) | ||||||||||||||||||||||||||||||
| Shares withheld pursuant to vesting of restricted stock | - | ( | ) | ( | ) | |||||||||||||||||||||||||||
| Stock based compensation | - | |||||||||||||||||||||||||||||||
| Warrant issuance in connection with acquisition | - | |||||||||||||||||||||||||||||||
| Balance at March 31, 2023 | $ | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | $ | |||||||||||||||||||
| Common Stock | Additional | Other | ||||||||||||||||||||||||||||||
| Number of Shares | Amount | Paid-in Capital | Accumulated Deficit | Comprehensive Income (Loss) | Treasury Stock | Non-controlling Interest | Stockholders’ Equity | |||||||||||||||||||||||||
| Balance at January 1, 2022 | $ | $ | $ | ( | ) | $ | $ | ( | ) | $ | $ | |||||||||||||||||||||
| Net loss attributable to common stockholders | - | ( | ) | ( | ) | ( | ) | |||||||||||||||||||||||||
| Net income attributable to non-controlling interest | - | |||||||||||||||||||||||||||||||
| Foreign currency translation adjustment | - | |||||||||||||||||||||||||||||||
| Issuance of restricted shares | ( | ) | ||||||||||||||||||||||||||||||
| Forfeiture of restricted shares | ( | ) | ( | ) | ||||||||||||||||||||||||||||
| Vesting of restricted stock units | ||||||||||||||||||||||||||||||||
| Shares withheld pursuant to vesting of restricted stock | - | ( | ) | ( | ) | |||||||||||||||||||||||||||
| Stock based compensation | - | |||||||||||||||||||||||||||||||
| Balance at March 31, 2022 | $ | $ | $ | ( | ) | $ | $ | ( | ) | $ | $ | |||||||||||||||||||||
See accompanying notes to unaudited condensed consolidated financial statements.
| 6 |
POWERFLEET, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
(In thousands, except per share data)
(Unaudited)
| Three Months Ended March 31, | ||||||||
| 2022 | 2023 | |||||||
| Cash flows from operating activities | ||||||||
| Net income (loss) | $ | ( | ) | $ | ||||
| Adjustments to reconcile net income (loss) to cash (used in) provided by operating activities: | ||||||||
| Non-controlling interest | ( | ) | ||||||
| Gain on bargain purchase | ( | ) | ||||||
| Inventory reserve | ||||||||
| Stock based compensation expense | ||||||||
| Depreciation and amortization | ||||||||
| Right-of-use assets, non-cash lease expense | ||||||||
| Bad debt expense | ||||||||
| Deferred income taxes | ( | ) | ||||||
| Other non-cash items | ||||||||
| Changes in: | ||||||||
| Accounts receivable | ( | ) | ||||||
| Inventory | ( | ) | ( | ) | ||||
| Prepaid expenses and other assets | ( | ) | ||||||
| Deferred costs | ||||||||
| Deferred revenue | ( | ) | ||||||
| Accounts payable and accrued expenses | ( | ) | ||||||
| Lease liabilities | ( | ) | ( | ) | ||||
| Net cash (used in) provided by operating activities | ( | ) | ||||||
| Acquisitions, net of cash assumed | ||||||||
Purchase of investments | ( | ) | ||||||
| Capitalized software development costs | ( | ) | ||||||
| Capital expenditures | ( | ) | ( | ) | ||||
| Net cash (used in) provided by investing activities | ( | ) | ||||||
| Cash flows from financing activities: | ||||||||
| Repayment of long-term debt | ( | ) | ( | ) | ||||
| Short-term bank debt, net | ( | ) | ||||||
| Purchase of treasury stock upon vesting of restricted stock | ( | ) | ( | ) | ||||
| Net cash used in financing activities | ( | ) | ( | ) | ||||
| Effect of foreign exchange rate changes on cash and cash equivalents | ( | ) | ( | ) | ||||
| Net (decrease) increase in cash, cash equivalents and restricted cash | ( | ) | ||||||
| Cash, cash equivalents and restricted cash - beginning of period | ||||||||
| Cash, cash equivalents and restricted cash - end of period | $ | $ | ||||||
| Reconciliation of cash, cash equivalents, and restricted cash, beginning of period | ||||||||
| Cash and cash equivalents | ||||||||
| Restricted cash | ||||||||
| Cash, cash equivalents, and restricted cash, beginning of period | $ | $ | ||||||
| Reconciliation of cash, cash equivalents, and restricted cash, end of period | ||||||||
| Cash and cash equivalents | ||||||||
| Restricted cash | ||||||||
| Cash, cash equivalents, and restricted cash, end of period | $ | $ | ||||||
| Supplemental disclosure of cash flow information: | ||||||||
| Cash paid for: | ||||||||
| Taxes | ||||||||
| Interest | ||||||||
| Noncash investing and financing activities: | ||||||||
| Value of warrant issued in connection with Movingdots acquisition | $ | $ | ||||||
See accompanying notes to unaudited condensed consolidated financial statements.
| 7 |
POWERFLEET, INC. AND SUBSIDIARIES
Notes to Unaudited Condensed Consolidated Financial Statements
March 31, 2023
In thousands (except per share data)
NOTE 1 - DESCRIPTION OF THE COMPANY AND BASIS OF PRESENTATION
Description of the Company
PowerFleet, Inc. (the “Company” or “Powerfleet”) is a global leader of Internet-of-Things (“IoT”) solutions providing valuable business intelligence for managing high-value enterprise assets that improve operational efficiencies.
I.D. Systems, Inc. (“I.D. Systems”) was incorporated in the State of Delaware in 1993. Powerfleet was incorporated in the State of Delaware in February 2019 for the purpose of effectuating the transactions (the “Transactions”) pursuant to which the Company acquired Pointer Telocation Ltd. (“Pointer”) and commenced operations on October 3, 2019. Upon the closing of the Transactions, Powerfleet became the parent entity of I.D. Systems and Pointer.
Basis of presentation
The unaudited interim condensed consolidated financial statements include the accounts of the Company and its wholly owned and majority-owned subsidiaries. All material intercompany balances and transactions have been eliminated in consolidation. The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) for interim financial information and the instructions to Form 10-Q. Accordingly, they do not include all of the information and footnotes required by U.S. GAAP for complete financial statements. In the opinion of management, such statements include all adjustments (consisting only of normal recurring items) which are considered necessary for a fair presentation of the consolidated financial position of the Company as of March 31, 2023, the consolidated results of its operations for the three-month periods ended March 31, 2022 and 2023, the consolidated change in stockholders’ equity for the three-month periods ended March 31, 2022 and 2023, and the consolidated cash flows for the three-month periods ended March 31, 2022 and 2023. The results of operations for the three-month period ended March 31, 2023 are not necessarily indicative of the operating results for the full year. These financial statements should be read in conjunction with the audited consolidated financial statements and related disclosures for the year ended December 31, 2022 included in the Company’s Annual Report on Form 10-K for the year then ended.
| 8 |
Liquidity
As
of March 31, 2023, the Company had cash (including restricted cash) and cash equivalents of $
In
addition, the Company’s subsidiaries, PowerFleet Israel Ltd. (“Powerfleet Israel”) and Pointer Telocation Ltd. (“Pointer”
and, together with Powerfleet Israel, the “Borrowers”) are party to a Credit Agreement (the “Credit Agreement”)
with Bank Hapoalim B.M. (“Hapoalim”), pursuant to which Hapoalim provided Powerfleet Israel with two senior secured term
loan facilities denominated in New Israeli Shekels (NIS) in an initial aggregate principal amount of $
On
October 31, 2022, the Borrowers entered into a third amendment to the Credit Agreement (the “Third Amendment”) with
Hapoalim. The Third Amendment provides for, among other things, a new revolving credit facility to Pointer denominated in NIS in an
initial aggregate principal amount of $
The New Revolver is secured by a first ranking fixed pledge and assignment by Pointer over its new bank account, which was opened in connection with the New Revolver, and all of the rights relating thereunder as well as a cross guarantee by Powerfleet Israel.
Pointer
is required to pay a credit allocation fee equal to
Pointer
has a one-year $
The Company believes that its available working capital, anticipated level of future revenues, expected cash flows from operations and available borrowings under its revolving credit facility with Hapoalim will provide sufficient funds to cover capital requirements through at least May 10, 2024.
| 9 |
NOTE 2 – USE OF ESTIMATES
The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. The Company continually evaluates estimates used in the preparation of the financial statements for reasonableness. The most significant estimates relate to realization of deferred tax assets, accounting for uncertain tax positions, the impairment of intangible assets, including goodwill, capitalized software development costs, stock-based compensation costs, warrant assumptions, and standalone selling price related to multiple element revenue arrangements. Actual results could differ from those estimates.
NOTE 3 – ACQUISITION
On March 6, 2023, the Company entered into a share purchase and transfer agreement (the “Agreement”) with Swiss Re Reinsurance Holding Company Ltd (the “Seller”), pursuant to which the Company would acquire all of the outstanding shares of Movingdots GmbH (“Movingdots”), a wholly owned subsidiary of the Seller, for consideration consisting of € the issuance by the Company of a ten-year warrant to purchase shares of the Company’s common stock at an exercise price of $ per share (the “Common Stock Warrants”) with fair value of approximately $ million at March 31, 2023 (the “Acquisition”) and noncash consideration with an immaterial fair value in the form of a non-exclusive irrevocable, perpetual, fully paid-up, royalty free license agreement between Movingdots and the Seller for certain of the acquired IP. The Acquisition was consummated on March 31, 2023 (the “Movingdots Closing”).
As a result of the Acquisition, Movingdots, a German company providing insurance telematics and sustainable mobility solutions, became a direct, wholly owned subsidiary of Powerfleet. Movingdots end-to-end telematics app solution will enhance Powerfleet’s SaaS-based fleet intelligence platform, Unity, with additional customization capabilities and insurance risk insights. Movingdots’ expertise in safety and sustainability aligns with Unity’s focus on data-powered applications. The Acquisition also strengthens Powerfleet’s global reach, particularly in Europe.
As part of the Agreement the Seller was also obligated to (i) transfer certain intellectual property rights from the Seller to Movingdots, (ii) enter into a distribution agreement pursuant to which the Seller is allowed to promote the Movingdots solutions, and (iii) grant a license agreement between the Seller’s affiliates and Movingdots.
The warrant was valued using the Black-Scholes Model using the following assumptions:
| March 31, | ||||
| 2023 | ||||
| Expected volatility | % | |||
| Expected term (in years) | ||||
| Risk free interest rate | % | |||
| Dividend yield | % | |||
| Fair value per share | $ | |||
Purchase Price Allocation
The
Acquisition met the criteria for a business combination to be accounted for using the acquisition method under ASC 805, Business
Combinations (“ASC 805”), with the Company identified as the legal and the accounting acquirer. There is certain
information that is not readily available at the time the financial statements of Movingdots were prepared as the Acquisition closed on March 31, 2023. For provisional
purchase price allocation purposes, the assets acquired and liabilities assumed are stated at their carrying values which management
assumed approximates their fair values given their short-term nature. Also, the Company recognized approximately $
The following table details the provisional allocation of the purchase price to the assets acquired and liabilities assumed in connection with the acquisition of Movingdots:
| Consideration: | ||||
| Cash | $ | |||
| Fair value of Powerfleet warrants on March 31, 2023 | ||||
| Total consideration | $ | |||
| Assets acquired: | ||||
| Cash | $ | |||
| Accounts receivable | ||||
| Prepaid expenses | ||||
| Other current assets | ||||
| Inventory | ||||
| Fixed assets | ||||
| Total assets acquired | ||||
| Liabilities assumed: | ||||
| Trade payable | ||||
| Deferred credits | ||||
| Provisions and other liabilities | ||||
| Total liabilities assumed | ||||
| Total identifiable net assets acquired | ||||
| Gain on bargain purchase | ( | ) | ||
| Purchase price consideration | $ |
The provisional fair value estimates of the assets acquired and liabilities assumed, including intangibles and income taxes, and the noncash consideration are subject to subsequent adjustments as additional information is obtained during the applicable measurement period. Determining the fair values of the assets and liabilities of Movingdots required certain assumptions and judgment.
Consistent
with the requirements of ASC 805, the Company assessed whether all assets acquired and liabilities assumed have been appropriately identified,
measured and recognized, and performed re-measurements to verify that the consideration paid, assets acquired and liabilities assumed
have been properly valued. After applying the requirements of ASC 805-30-25-4, the Company recognized a gain on bargain purchase as the
estimated fair value of the identifiable net assets acquired exceeded the purchase consideration transferred by approximately $
The
gain on bargain purchase primarily resulted from the Seller’s motivation to divest its investment in Movingdots and its
telematic business, which was deemed a non-core business of the Seller on a go-forward basis. The sale of Movingdots was not subject to a competitive bidding process. Under the Agreement, the Seller also agreed to make
a cash injection into Movingdots prior to the Movingdots Closing in a form of additional paid in capital to ensure Movingdots had
available cash in the amount of €
If
the Company makes an on-sale transfer of any shares of Movingdots that were acquired in connection with the Acquisition at any time
between the signing date of the Agreement and through twelve months after the Movingdots Closing, to any third-party purchaser (an
“on-sale transfer”), for an amount that is in excess of the purchase price consideration transferred, then the Company
shall pay the Seller an amount in cash (“on sale compensation”) equal to
Management views that the insurance telematics and sustainability are important spaces for the Company to have propositions to enable future strategic value, supporting the more evolved, IOT data-rich mass subscription space. The acquisition of Movingdots and its business will, among other things:
| ● | open strategic relationships with some key customers such as Mercedes, BMW and Vodafone; | |
| ● | provide greater go-to-market opportunity to the Company with the European beachhead for future regional expansion, customer acquisition tool to upsell the Company’s portfolio into German and European markets, and maintain a distribution channel and partnership with the Seller; and | |
| ● | provide the Company with access to a team with technical skillsets across application development and management, cloud platform development, user experience/user interface design development and technical product management; |
The following table represents the combined pro forma revenue and earnings for the three-month period ended March 31, 2022:
| Three Months Ended March 31, 2022 | ||||||||
| Historical | Pro forma combined | |||||||
| Revenues | $ | $ | ||||||
| Operating loss | $ | ( | ) | $ | ( | ) | ||
| Net loss per share – basic and diluted | $ | ( | ) | $ | ( | ) | ||
The following table represents the combined pro forma revenue and earnings for the three-month period ended March 31, 2023:
| Three Months Ended March 31, 2023 | ||||||||
| Historical | Pro forma combined | |||||||
| Revenues | $ | $ | ||||||
| Operating loss | $ | ( | ) | $ | ( | ) | ||
| Net income (loss) per share – basic | $ | $ | ( | ) | ||||
| Net income (loss) per share - diluted | $ | $ | ( | ) | ||||
The combined pro forma revenue and earnings for the three-month periods ended March 31, 2022 and 2023 were prepared as though the Acquisition had occurred as of January 1, 2022. This summary is not necessarily indicative of what the results of operations would have been had the Acquisition occurred as of that date, nor does it purport to represent results of operations for any future periods.
NOTE 4 – CASH AND CASH EQUIVALENTS
The Company considers all highly liquid debt instruments with an original maturity of three months or less when purchased to be cash equivalents unless they are legally or contractually restricted. The Company’s cash and cash equivalent balances exceed Federal Deposit Insurance Corporation (“FDIC”) and other local jurisdictional limits. Restricted cash at December 31, 2022 and March 31, 2023 consists of cash held in escrow for purchases from a vendor.
| 10 |
NOTE 5 - REVENUE RECOGNITION
The Company and its subsidiaries generate revenue from sales of systems and products and from customer SaaS and hosting infrastructure fees. Revenue is measured as the amount of consideration the Company expects to receive in exchange for transferring goods or providing services. Sales, value add, and other taxes the Company collects concurrently with revenue-producing activities are excluded from revenue. Incidental items that are immaterial in the context of the contract are recognized as expense. The expected costs associated with the Company’s base warranties continue to be recognized as expense when the products are sold (see Note 14).
Revenue is recognized when performance obligations under the terms of a contract with our customer are satisfied. Product sales are recognized at a point in time when title transfers, when the products are shipped, or when control of the system is transferred to the customer, which usually is upon delivery of the system and when contractual performance obligations have been satisfied. For products which do not have standalone value to the customer separate from the SaaS services provided, the Company considers both hardware and SaaS services a bundled performance obligation. Under the applicable accounting guidance, all of the Company’s billings for equipment and the related cost for these systems are deferred, recorded, and classified as a current and long-term liability and a current and long-term asset, respectively. The deferred revenue and cost are recognized over the service contract life, ranging from one to five years, beginning at the time that a customer acknowledges acceptance of the equipment and service.
The Company recognizes revenue for remotely hosted SaaS agreements and post-contract maintenance and support agreements beyond our standard warranties over the life of the contract. Revenue is recognized ratably over the service periods and the cost of providing these services is expensed as incurred. Amounts invoiced to customers which are not recognized as revenue are classified as deferred revenue and classified as short-term or long-term based upon the terms of future services to be delivered. Deferred revenue also includes prepayment of extended maintenance, hosting and support contracts.
The Company earns other service revenues from installation services, training and technical support services which are short-term in nature and revenue for these services are recognized at the time of performance when the service is provided.
The Company also derives revenue from leasing arrangements. Such arrangements provide for monthly payments covering product or system sale, maintenance, support and interest. These arrangements meet the criteria to be accounted for as operating or sales-type leases. Accordingly, for sales-type leases an asset is established for the “sales-type lease receivable” at the present value of the expected lease payments and revenue is deferred and recognized over the service contract, as described above. Maintenance revenues and interest income are recognized monthly over the lease term.
The Company’s contracts with customers may include multiple performance obligations. For such arrangements, the Company allocates revenue to each performance obligation based on its relative standalone selling price. The Company generally determines standalone selling prices based on observable prices charged to customers or adjusted market assessment or using expected cost-plus margin when one is available. Adjusted market assessment price is determined based on overall pricing objectives taking into consideration market conditions and entity specific factors.
The Company recognizes an asset for the incremental costs of obtaining the contract arising from the sales commissions to employees because the Company expects to recover those costs through future fees from the customers. The Company amortizes the asset over one to five years because the asset relates to the services transferred to the customer during the contract term of one to five years.
The Company does not disclose the value of unsatisfied performance obligations for (i) contracts with an original expected length of one year or less and (ii) contracts for which the Company recognizes revenue at the amount to which the Company has the right to invoice for services performed.
The following table presents the Company’s revenues disaggregated by revenue source for the three-months ended March 31, 2022 and 2023:
| Three Months Ended March 31, | ||||||||
| 2022 | 2023 | |||||||
| Products | $ | $ | ||||||
| Services | ||||||||
| $ | $ | |||||||
| 11 |
The balances of contract assets and contract liabilities from contracts with customers are as follows as of December 31, 2022 and March 31, 2023:
| December 31, 2022 | March 31, 2023 | |||||||
| (unaudited) | ||||||||
| Assets: | ||||||||
| Deferred contract costs | $ | $ | ||||||
| Deferred costs | $ | $ | ||||||
| Liabilities: | ||||||||
| Deferred revenue- services (1) | $ | $ | ||||||
| Deferred revenue - products (1) | ||||||||
| 10,753 | 10,705 | |||||||
| Less: Deferred revenue and contract liabilities - current portion | ( | ) | ( | ) | ||||
| Deferred revenue and contract liabilities - less current portion | $ | $ | ||||||
| (1) |
NOTE 6 – ALLOWANCE FOR CREDIT LOSSES
The Company’s accounts receivable were evaluated to determine an appropriate allowance for credit losses related to trade receivables. The Company’s historical collections were analyzed by the number of days past due to determine the uncollectible rate in each range of days past due. The estimate of the allowance for credit losses is charged to the allowance for credit losses based on the age of receivables multiplied by the historical uncollectible rate for the range of days past due or earlier if the account is deemed uncollectible for other reasons. Recoveries of amounts previously charged as uncollectible are credited to the allowance for credit losses.
An analysis of the allowance for credit losses for the period ended March 31, 2023 is as follows:
| Allowance for credit losses, December 31, 2022 | $ | |||
| Current period provision for expected credit losses | ||||
| Write-offs charged against the allowance | ( | ) | ||
| Foreign currency translation | ||||
| Recoveries | ||||
| Allowance for credit losses, March 31, 2023 | $ |
During the quarter ended March 31, 2023, the change in the allowance for credit losses was due to the change in the age of receivables.
NOTE 7 – PREPAID EXPENSES AND OTHER ASSETS
Prepaid expenses and other current assets consist of the following:
| December 31, 2022 | March 31, 2023 | |||||||
| (Unaudited) | ||||||||
| Sales-type lease receivables, current | $ | $ | ||||||
| Prepaid expenses | ||||||||
| Contract assets | ||||||||
| Other current assets | ||||||||
| $ | $ | |||||||
| 12 |
NOTE 8 - INVENTORY
Inventory, which primarily consists of finished goods and components used in the Company’s products, is stated at the lower of cost or net realizable value using the “moving average” cost method or the first-in first-out (FIFO) method. Inventory is shown net of a valuation reserve of $453 at December 31, 2022 and $375 at March 31, 2023.
Inventories consist of the following:
| December 31, 2022 | March 31, 2023 | |||||||
| (Unaudited) | ||||||||
| Components | $ | $ | ||||||
| Work in process | ||||||||
| Finished goods, net | ||||||||
| $ | $ | |||||||
NOTE 9 - FIXED ASSETS
Fixed assets are stated at cost, less accumulated depreciation and amortization, and are summarized as follows:
| December 31, 2022 | March 31, 2023 | |||||||
| (Unaudited) | ||||||||
| Installed products | $ | $ | ||||||
| Computer software | ||||||||
| Computer and electronic equipment | ||||||||
| Furniture and fixtures | ||||||||
| Leasehold improvements | ||||||||
| Accumulated depreciation and amortization | ( | ) | ( | ) | ||||
| $ | $ | |||||||
Depreciation
and amortization expense of fixed assets for the three-month periods ended March 31, 2022 and March 31, 2023 was $
| 13 |
NOTE 10 - INTANGIBLE ASSETS AND GOODWILL
Costs incurred internally in researching and developing software products are charged to expense until technological feasibility has been established for the product. Once technological feasibility is established, software costs are capitalized until the product is available for general release to customers. Judgment is required in determining when technological feasibility of a product is established. The amortization of these costs will be included in cost of revenue over the estimated life of the products.
The following table summarizes identifiable intangible assets of the Company as of December 31, 2022 and March 31, 2023:
| March 31, 2023 | Useful Lives (In Years) | Gross Carrying Amount | Accumulated Amortization | Net Carrying Amount | ||||||||||||
| Amortized: | ||||||||||||||||
| Customer relationships | $ | $ | ( | ) | $ | |||||||||||
| Trademark and tradename | ( | ) | ||||||||||||||
| Patents | ( | ) | ||||||||||||||
| Technology | ( | ) | ||||||||||||||
| Favorable contract interest | ( | ) | ||||||||||||||
| Covenant not to compete | ( | ) | ||||||||||||||
| Software to be sold or leased | ||||||||||||||||
| ( | ) | |||||||||||||||
| Unamortized: | ||||||||||||||||
| Customer List | - | |||||||||||||||
| Trademark and tradename | - | |||||||||||||||
| - | ||||||||||||||||
| Total | $ | $ | ( | ) | $ | |||||||||||
| December 31, 2022 | Useful Lives (In Years) | Gross Carrying Amount | Accumulated Amortization | Net Carrying Amount | ||||||||||||
| Amortized: | ||||||||||||||||
| Customer relationships | $ | $ | ( | ) | $ | |||||||||||
| Trademark and tradename | ( | ) | ||||||||||||||
| Patents | ( | ) | ||||||||||||||
| Technology | ( | ) | ||||||||||||||
| Favorable contract interest | ( | ) | ||||||||||||||
| Covenant not to compete | ( | ) | ||||||||||||||
| Software to be sold or leased | ||||||||||||||||
| ( | ) | |||||||||||||||
| Unamortized: | ||||||||||||||||
| Customer List | - | |||||||||||||||
| Trademark and tradename | - | |||||||||||||||
| - | ||||||||||||||||
| Total | $ | $ | ( | ) | $ | |||||||||||
| 14 |
Global uncertainties continue to adversely impact the broader global economy and have caused significant volatility in financial markets. If there is a lack of recovery or further global softening in certain markets, or a sustained decline in the value of the Company’s common stock, the Company may conclude that indicators of impairment exist and would then be required to calculate whether or not an impairment exists for its goodwill, other intangibles, and long-lived assets, the results of which could result in material impairment charges. The Company tests goodwill and other indefinite lives intangible assets on an annual basis in the fourth quarter and more frequently if the Company believes indicators of impairment exists. As of December 31, 2022 and March 31, 2023, the Company determined that no impairment existed to the goodwill, customer list and trademark and trade name of its acquired intangibles.
At
March 31, 2023, the weighted-average amortization period for the intangible assets was
Amortization
expense for the three-month periods ended March 31, 2022 and March 31, 2023 was $
| 2023 (remaining) | $ | |||
| 2024 | ||||
| 2025 | ||||
| 2026 | ||||
| 2027 | ||||
| Thereafter | ||||
| $ |
There have been no changes in the carrying amount of goodwill from January 1, 2023 to March 31, 2023.
For the three-month period ended March 31, 2023, the Company did not identify any indicators of impairment.
| 15 |
During the first fiscal quarter of 2023, the Company granted shares of restricted stock to certain executives, which vests as to % of such shares on each of the first, second, third and fourth anniversaries of the grant date, provided that the executive is employed by the Company on each such date.
During the first fiscal quarter of 2023, the Company granted options to purchase shares of the Company’s common stock to certain executives, consisting of options to purchase shares of common stock with time-based vesting conditions and options to purchase shares of common stock with performance-based vesting conditions (which we refer to as “market-based stock options”). The options have an exercise price of $. The market-based stock options will vest and become exercisable if the volume weighted average price of the Company’s common stock during a consecutive 60-day trading period (the “60 Day VWAP”) reaches . The Company valued the market-based stock option awards using a Monte Carlo simulation model using a daily price forecast over ten years until expiration utilizing Geometric Brownian Motion that considers a variety of factors including, but not limited to, the Company’s common stock price, risk-free rate (), and expected stock price volatility () over the expected life of awards ( years). The weighted average fair value of market-based stock options granted during the period was $.
[A] Stock options:
| Options | Weighted- Average Exercise Price | Weighted- Average Remaining Contractual Terms | Aggregate Intrinsic Value | |||||||||||||
| Outstanding at beginning of year | $ | |||||||||||||||
| Granted | ||||||||||||||||
| Exercised | ||||||||||||||||
| Forfeited or expired | ||||||||||||||||
| Outstanding at end of period | $ | years | $ | |||||||||||||
| Exercisable at end of period | $ | - | $ | |||||||||||||
| 16 |
The following table summarizes the activity relating to the Company’s stock options, excluding the market-based stock options that were granted to certain executives, for the three-month period ended March 31, 2023:
| Options | Weighted- Average Exercise Price | Weighted- Average Remaining Contractual Terms | Aggregate Intrinsic Value | |||||||||||||
| Outstanding at beginning of year | $ | |||||||||||||||
| Granted | ||||||||||||||||
| Exercised | ||||||||||||||||
| Forfeited or expired | ( | ) | ||||||||||||||
| Outstanding at end of period | $ | years | $ | |||||||||||||
| Exercisable at end of period | $ | years | $ | |||||||||||||
| March 31, | ||||||||
| 2022 | 2023 | |||||||
| Expected volatility | % | % | ||||||
| Expected life of options (in years) | ||||||||
| Risk free interest rate | % | % | ||||||
| Dividend yield | % | % | ||||||
| Weighted-average fair value of options granted during year | $ | $ | ||||||
Expected volatility is based on historical volatility of the Company’s common stock and the expected life of options is based on historical data with respect to employee exercise periods.
The Company recorded stock-based compensation expense of $ and $ for the three-month periods ended March 31, 2022 and March 31, 2023, respectively, in connection with awards made under the stock option plans.
The fair value of options vested during the three-month periods ended March 31, 2022 and 2023 was $and $, respectively. There were option exercises that occurred during the three-month periods ended March 31, 2022 and 2023.
| 17 |
As of March 31, 2023, there was $ of total unrecognized compensation cost related to non-vested options granted under the Company’s stock option plans excluding the market-based stock options that were granted to certain senior managers, including the Company’s executive officers. That cost is expected to be recognized over a weighted-average period of years.
As of March 31, 2023, there was $ of total unrecognized compensation cost related to non-vested options granted under the Company’s stock option plans for the market-based stock options that were granted to certain senior managers, including the Company’s executive officers. That cost is expected to be recognized over a weighted-average period of years.
The Company estimates forfeitures at the time of valuation and reduces expense ratably over the vesting period. This estimate is adjusted periodically based on the extent to which actual forfeitures differ, or are expected to differ, from the previous estimate.
[B] Restricted Stock Awards:
The Company grants restricted stock to employees, whereby the employees are contractually restricted from transferring the shares until they are vested. The stock is unvested at the time of grant and, upon vesting, there are no legal restrictions on the stock. The fair value of each share is based on the Company’s closing stock price on the date of the grant. A summary of all non-vested restricted stock for the three-month period ended March 31, 2023 is as follows:
| Number of Non- Vested Shares | Weighted- Average Grant Date Fair Value | |||||||
| Restricted stock, non-vested, beginning of year | $ | |||||||
| Granted | ||||||||
| Vested | ( | ) | ||||||
| Forfeited | ( | ) | ||||||
| Restricted stock, non-vested, end of period | $ | |||||||
The Company recorded stock-based compensation expenses of $ and $ for the three-month periods ended March 31, 2022 and 2023, respectively, in connection with restricted stock grants. As of March 31, 2023, there was $ of total unrecognized compensation cost related to non-vested shares. That cost is expected to be recognized over a weighted-average period of years.
| 18 |
Net income (loss) per share for the three-month periods ended March 31, 2022 and 2023 are as follows:
| Three Months Ended | ||||||||
| March 31, | ||||||||
| 2022 | 2023 | |||||||
| Basic and diluted loss per share | ||||||||
| Net income (loss) attributable to common stockholders | $ | ( | ) | $ | ||||
| Addback: Preferred stock dividend and accretion | ||||||||
| Allocation of earning to participating securities | ( | ) | ||||||
| Numerator for basic EPS – income available to common stockholders | ( | ) | ||||||
| Weighted-average common share outstanding - basic | ||||||||
| Effect of dilutive securities | ||||||||
| Weighted-average common share outstanding - diluted | ||||||||
| Net income (loss) attributable to common stockholders - basic | $ | ( | ) | $ | ||||
| Net income (loss) attributable to common stockholders - diluted | $ | ( | ) | $ | ||||
Basic income (loss) per share is calculated by dividing net income (loss) attributable to common shareholders by the weighted-average number of common shares outstanding during the period. Diluted income (loss) per share reflects the potential dilution assuming common shares were issued upon the exercise of outstanding options and the proceeds thereof were used to purchase outstanding common shares. Dilutive potential common shares include outstanding stock options, warrants and restricted stock and performance share awards. We include participating securities (unvested share-based payment awards and equivalents that contain non-forfeitable rights to dividends or dividend equivalents) in the computation of earnings per share pursuant to the two-class method. Our participating securities consist solely of preferred stock, which have contractual participation rights equivalent to those of stockholders of unrestricted common stock. The two-class method of computing earnings per share is an allocation method that calculates earnings per share for common stock and participating securities. During periods of net loss, no effect is given to the participating securities because they do not share in the losses of the Company. For the three-month period ended March 31, 2022, the basic and diluted weighted-average shares outstanding are the same, since the effect from the potential exercise of outstanding stock options, conversion of preferred stock, and vesting of restricted stock and restricted stock units totaling would have been anti-dilutive due to the loss. For the three-month period ended March 31, 2023, the two-class method of computing earnings per share was anti-dilutive. As a result, the weighted-average number of shares outstanding used in the computation of diluted earnings per share does not include shares from the conversion of preferred stock, warrants, stock options and restricted stock awards because the effect would have been anti-dilutive.
NOTE 13 - SHORT-TERM BANK DEBT AND LONG-TERM DEBT
| December 31, 2022 | March 31, 2023 | |||||||
| (Unaudited) | ||||||||
| Short-term bank debt | $ | $ | ||||||
| Current maturities of long-term debt | $ | $ | ||||||
| Long term debt - less current maturities | $ | $ | ||||||
| 19 |
Long-term debt
In
connection with the Transactions, Powerfleet Israel incurred NIS denominated debt in term loan borrowings on the closing date of the Transactions (the “Closing Date”) under the
Credit Agreement, pursuant to which Hapoalim agreed to provide Powerfleet Israel with two senior secured term loan facilities in an initial
aggregate principal amount of $
The
Credit Facilities will mature on the date that is five years from the Closing Date. The indicative interest rate provided for the Term
Facilities in the original Credit Agreement was approximately
On
August 23, 2021, the Borrowers entered into an amendment (the “Amendment”),
effective as of August 1, 2021, to the Credit Agreement with Hapoalim. The Amendment memorializes the agreements between the Borrowers
and Hapoalim regarding a reduction in the interest rates of the two Term Facilities. Pursuant to the Amendment, commencing as of November
12, 2020, the interest rate with respect to the Term A Facility was reduced to a fixed rate of
In
connection with the Credit Facilities, the Company incurred debt issuance costs of $
On October 31, 2022, the Borrowers entered into the Third Amendment with Hapoalim. The Third Amendment provides for, among other things, the New Revolver. The New Revolver will be available for a period of one month, commencing on October 31, 2022, and will continue to be available for successive one-month periods until and including October 30, 2023, unless the Borrowers deliver a notice to Hapoalim of their request not to renew the New Revolver.
The New Revolver is secured by a first ranking fixed pledge and assignment by Pointer over its new bank account, which was opened in connection with the New Revolver, and all of the rights relating thereunder as well as a cross guarantee by Powerfleet Israel.
Pointer
is required to pay a credit allocation fee equal to
Pointer
has a one-year $
Scheduled maturities of the long-term debt as of March 31, 2023 are as follows:
| April – March 2024 | $ | |||
| January – December 2024 | ||||
| Less: Current Portion through March 31, 2024 | ||||
| Total | $ |
The Term B Facility is not subject to amortization over the life of the loan and instead the original principal amount is due in one installment on the fifth anniversary of the date of the consummation of the Transactions.
| 20 |
NOTE 14 - ACCOUNTS PAYABLE AND ACCRUED EXPENSES
Accounts payable and accrued expenses consist of the following:
| December 31, 2022 | March 31, 2023 | |||||||
| (Unaudited) | ||||||||
| Accounts payable | $ | $ | | |||||
| Accrued warranty | ||||||||
| Accrued compensation | ||||||||
| Government authorities | ||||||||
| Other current liabilities | ||||||||
| $ | $ |
The following table summarizes warranty activity for the three-month periods ended March 31, 2022 and 2023:
| Three Months Ended March 31, | ||||||||
| 2022 | 2023 | |||||||
| Accrued warranty reserve, beginning of year | $ | $ | ||||||
| Accrual for product warranties issued | ||||||||
| Product replacements and other warranty expenditures | ( | ) | ( | ) | ||||
| Expiration of warranties | ( | ) | ( | ) | ||||
| Accrued warranty reserve, end of period (a) | $ | $ | | |||||
| (a) |
| 21 |
NOTE 15 - STOCKHOLDERS’ EQUITY
[A] Redeemable preferred stock
The Company is authorized to issue shares of preferred stock, par value $ per share of which shares are designated Series A Convertible Preferred Stock (“Series A Preferred Stock”) and shares are undesignated.
Series A Preferred Stock
In connection with the completion of the Transactions, on October 3, 2019, the Company issued shares of Series A Preferred Stock to ABRY Senior Equity V, L.P., ABRY Senior Equity Co-Investment Fund V, L.P and ABRY Investment Partnership, L.P. (the “Investors”). For the three-month periods ended March 31, 2022 and March 31, 2023, the Company issued and additional shares of Series A Preferred Stock, respectively.
Liquidation
Dividends
Holders
of Series A Preferred Stock are entitled to receive cumulative dividends at a minimum rate of
Voting; Consent Rights
The
holders of Series A Preferred Stock will be given notice by the Company of any meeting of stockholders or action to be taken by written
consent in lieu of a meeting of stockholders as to which the holders of common stock are given notice at the same time as provided in,
and in accordance with, the Company’s Amended and Restated Bylaws. Except as required by applicable law or as otherwise specifically
set forth in the Charter, the holders of Series A Preferred Stock are not entitled to vote on any matter presented to the Company’s
stockholders unless and until any holder of Series A Preferred Stock provides written notification to the Company that such holder is
electing, on behalf of all holders of Series A Preferred Stock, to activate their voting rights and in doing so rendering the Series
A Preferred Stock voting capital stock of the Company (such notice, a “Series A Voting Activation Notice”).
| 22 |
Redemption
At
any time, each holder of Series A Preferred Stock may elect to convert each share of such holder’s then-outstanding Series A Preferred
Stock into the number of shares of the Company’s common stock equal to the quotient of (x) the Series A Issue Price, plus any accrued
and unpaid dividends, divided by (y) the Series A Conversion Price in effect at the time of conversion. The Series A Conversion Price
is initially equal to $
Further, at any time (i) after the 66-month anniversary of the Original Issuance Date, (ii) following delivery of a mandatory conversion notice by us, or (iii) upon a deemed liquidation event, subject to Delaware law governing distributions to stockholders, the holders of the Series A Preferred Stock may elect to require us to redeem all or any portion of the outstanding shares of Series A Preferred Stock for an amount per share equal to the Redemption Price.
NOTE 16 - ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)
Comprehensive income (loss) includes net income (loss) and foreign currency translation gains and losses.
The accumulated balances for each classification of other comprehensive income (loss) for the three-month period ended March 31, 2023 are as follows:
| Foreign currency translation adjustment | Accumulated other comprehensive income/(loss) | |||||||
| Balance at January 1, 2023 | $ | ( | ) | $ | ( | ) | ||
| Net current period change | ||||||||
| Balance at March 31, 2023 | $ | ( | ) | $ | ( | ) | ||
The accumulated balances for each classification of other comprehensive income (loss) for the three-month period ended March 31, 2022 are as follows:
| Foreign currency translation adjustment | Accumulated other comprehensive income/(loss) | |||||||
| Balance at January 1, 2022 | $ | $ | ||||||
| Net current period change | ||||||||
| Balance at March 31, 2022 | $ | $ | ||||||
The
Company’s reporting currency is the U.S. dollar (USD). For businesses where the majority of the revenues are generated in USD
or linked to the USD and a substantial portion of the costs are incurred in USD, the Company’s management believes that the
USD is the primary currency of the economic environment and thus their functional currency. Due to the fact that Argentina has been
determined to be highly inflationary, the financial statements of our subsidiary in Argentina have been remeasured as if its
functional currency was the USD. The Company also has foreign operations where the functional currency is the local currency. For
these operations, assets and liabilities are translated using the end-of-period exchange rates and revenues, expenses and cash flows
are translated using average rates of exchange for the period. Equity is translated at the rate of exchange at the date of the
equity transaction. Translation adjustments are recognized in stockholders’ equity as a component of accumulated other
comprehensive income (loss). Net translation gains (losses) from the translation of foreign currency financial statements of $(
| 23 |
Foreign
currency transaction gains and losses related to operational expenses denominated in a currency other than the functional currency are
included in determining net income or loss. Foreign currency transaction gains (losses) for the three-month periods ended March 31, 2022
and 2023 of $(
NOTE 17 – SEGMENT INFORMATION
The Company operates in one reportable segment, wireless IoT asset management. The following table summarizes revenues by geographic region.
| Three Months Ended March 31, | ||||||||
| 2022 | 2023 | |||||||
| United States | $ | $ | | |||||
| Israel | ||||||||
| Other | ||||||||
| $ | $ | |||||||
| December 31, 2022 | March 31, 2023 | |||||||
| (Unaudited) | ||||||||
| Long lived assets by geographic region: | ||||||||
| United States | $ | $ | ||||||
| Israel | ||||||||
| Other | ||||||||
| $ | $ | |||||||
NOTE 18 - INCOME TAXES
The Company records its interim tax provision based upon a projection of the Company’s annual effective tax rate (“AETR”). This AETR is applied to the year-to-date consolidated pre-tax income to determine the interim provision for income taxes before discrete items. The Company updates the AETR on a quarterly basis as the pre-tax income projections are revised and tax laws are enacted. The effective tax rate (“ETR”) each period is impacted by a number of factors, including the relative mix of domestic and foreign earnings and adjustments to recorded valuation allowances. The currently forecasted ETR may vary from the actual year-end due to the changes in these factors.
| Three Months Ended March 31, | ||||||||
| 2022 | 2023 | |||||||
| Domestic pre-tax book income (loss) | $ | ( | ) | $ | ||||
| Foreign pre-tax book income (loss) | ( | ) | ||||||
| Total income before income (loss) taxes | ( | ) | ||||||
| Income tax benefit (expense) | ( | ) | ||||||
| Total income (loss) after taxes | $ | ( | ) | $ | ||||
| Effective tax rate | % | ( | )% | |||||
For the three-month periods ended March 31, 2022 and 2023, the effective tax rate differed from the statutory tax rates primarily due to the mix of domestic and foreign earnings amongst taxable jurisdictions, recorded valuation allowances to fully reserve against deferred tax assets in non-Israel jurisdictions and certain discrete items.
On August 16, 2022, the President of the United States signed into law
H.R. 5376, commonly referred to as the Inflation Reduction Act of 2022 (the “IRA”). The IRA is federal legislation designed
to raise revenue from, among other things, the imposition of certain corporate tax measures, while authorizing spending on energy and
climate change initiatives and subsidizing the Affordable Care Act. The IRA also introduced a
On August 9, 2022, the President of the United States signed into law H.R. 4346, “The CHIPS and Science Act of 2022.” CHIPS is a federal statue providing funding for research and domestic production of semiconductors. Additional funding can be provided through CHIPS to various federal agencies as well as towards climate science research. Tax measures include a 25% advanced investment tax credit for certain investments in semiconductor manufacturing. The passage of the CHIPS and Science Act did not have a material impact to the Company nor its calculated AETR as of March 31, 2023.
| 24 |
NOTE 19 - LEASES
The
Company has operating leases for office space and office equipment. The Company’s leases have remaining lease terms of
The Company has lease arrangements which are classified as short-term in nature. These leases meet the criteria for operating lease classification. Lease costs associated with the short-term leases are included in selling, general and administrative expenses on the Company’s condensed consolidated statements of operations during the three-months ended March 31, 2022 and 2023.
Components of lease expense are as follows:
| Three Months Ended March 31, | ||||||||
| 2022 | 2023 | |||||||
| Short term lease cost: | $ | $ | ||||||
Supplemental cash flow information and non-cash activity related to our operating leases are as follows:
Three Months Ended March 31, | ||||||||
| 2022 | 2023 | |||||||
| Non-cash activity: | ||||||||
| Right-of-use assets obtained in exchange for lease obligations | $ | $ | ||||||
Weighted-average remaining lease term and discount rate for our operating leases are as follows:
| March 31, 2023 | ||||
| Weighted-average remaining lease term (in years) | ||||
| Weighted-average discount rate | % | |||
Scheduled maturities of operating lease liabilities outstanding as of March 31, 2023 are as follows:
| April - December 2023 | $ | |||
| 2024 | ||||
| 2025 | ||||
| 2026 | ||||
| 2027 | ||||
| Thereafter | ||||
| Total lease payments | ||||
| Less: Imputed interest | ( | ) | ||
| Present value of lease liabilities | $ |
| 25 |
NOTE 20 - FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company’s cash and cash equivalents are carried at fair value. The carrying value of financing receivables approximates fair value due to the interest rate implicit in the instruments approximating current market rates. The carrying value of accounts receivables, accounts payable and accrued liabilities and short term bank debt approximates their fair values due to the short period to maturity of these instruments. The fair value of the Company’s long term debt is based on observable relevant market information and future cash flows discounted at current rates, which are Level 2 measurements.
| March 31, 2023 | ||||||||
| Carrying Amount | Fair Value | |||||||
| Long term debt | $ | $ | ||||||
NOTE 21 - CONCENTRATION OF CUSTOMERS
For
the three-month periods ended March 31, 2022 and 2023, there were no customers who generated revenues greater than 10% of the Company’s
consolidated total revenues or generated greater than
NOTE 22 - COMMITMENTS AND CONTINGENCIES
Except for normal operating leases, the Company is not currently subject to any material commitments.
From time to time, the Company is involved in various litigation matters involving claims incidental to its business and acquisitions, including employment matters, acquisition related claims, patent infringement and contractual matters, among other issues. While the outcome of any such litigation matters cannot be predicted with certainty, management currently believes that the outcome of these proceedings, including the matters described below, either individually or in the aggregate, will not have a material adverse effect on its business, results of operations or financial condition. The Company records reserves related to legal matters when losses related to such litigation or contingencies are both probable and reasonably estimable.
In
August 2014, Pointer do Brasil Comercial Ltda. (“Pointer Brazil”) received a notification of lack of payment of VAT tax (Brazilian
ICMS tax) in the amount of $
In
July 2015, Pointer Brazil received a tax deficiency notice alleging that the services provided by Pointer Brazil should be classified
as “telecommunication services” and therefore Pointer Brazil should be subject to the state value-added tax. The aggregate
amount claimed to be owed under the notice was approximately $
On
February 24, 2022, Pointer Mexico received a notification for 2016 and 2017 tax assessment in the amounts of $
NOTE 23 - RECENT ACCOUNTING PRONOUNCEMENTS
In June 2016, the FASB issued ASU No. 2016-13, “Financial Instruments - Credit Losses (Topic 326) Measurement of Credit Losses on Financial Instruments,” which amends the guidance on measuring credit losses on financial assets held at amortized cost. The amendment is intended to address the issue that the previous “incurred loss” methodology was restrictive for an entity’s ability to record credit losses based on not yet meeting the “probable” threshold. The new language will require these assets to be valued at amortized cost presented at the net amount expected to be collected with a valuation provision. The Company adopted ASU No. 2016-13 on January 1, 2023. The adoption of the standard did not result in a material impact on the consolidated financial statements.
| 26 |
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following discussion and analysis of the consolidated financial condition and results of operations of PowerFleet, Inc. and its subsidiaries (“Powerfleet”, “we”, “our” or “us”) should be read in conjunction with the consolidated financial statements and notes thereto appearing in Part I, Item 1 of this report. In the following discussions, most percentages and dollar amounts have been rounded to aid presentation, and, accordingly, all amounts are approximations.
Cautionary Note Regarding Forward-Looking Statements
This report contains “forward-looking statements” (within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”)), which may include information concerning the Company’s beliefs, plans, objectives, goals, expectations, strategies, anticipations, assumptions, estimates, intentions, future events, future revenues or performance, capital expenditures and other information that is not historical information. Forward-looking statements involve known and unknown risks, uncertainties and other factors, which may be beyond the Company’s control, and which may cause the Company’s actual results, performance or achievements to be materially different from future results, performance or achievements expressed or implied by such forward-looking statements. When used in this report, the words “seek,” “estimate,” “expect,” “anticipate,” “project,” “plan,” “contemplate,” “plan,” “continue,” “intend,” “believe” and variations of such words or similar expressions are intended to identify forward-looking statements. All forward-looking statements are based upon the Company’s current expectations and various assumptions. The Company believes there is a reasonable basis for its expectations and beliefs, but there can be no assurance that the Company will realize its expectations or that its beliefs will prove to be correct.
There are a number of risks and uncertainties that could cause the Company’s actual results to differ materially from the forward-looking statements contained in this report. Important factors that could cause the Company’s actual results to differ materially from those expressed as forward-looking statements herein include, but are not limited, to: future economic and business conditions; the ability to recognize the anticipated benefit of the acquisition of Movingdots GmbH (“Movingdots”); the loss of any of the Company’s key customers or reduction in the purchase of the Company’s products by any such customers; the failure of the markets for the Company’s products to continue to develop; the possibility that the Company may not be able to integrate successfully the business, operations and employees of Movingdots; the Company’s inability to adequately protect its intellectual property; the Company’s inability to manage growth; the effects of competition from a wide variety of local, regional, national and other providers of wireless solutions; changes in laws and regulations or changes in generally accepted accounting policies, rules and practices; changes in technology or products, which may be more difficult or costly, or less effective, than anticipated; the effects of outbreaks of pandemics or contagious diseases, including the length and severity of the recent global outbreak of the novel coronavirus, COVID-19, and its impact on the Company’s business; and other risks detailed from time to time in the Company’s filings with the Securities and Exchange Commission (the “SEC”), including the Company’s annual report on Form 10-K for the year ended December 31, 2022 (the “2022 Annual Report”).
There may be other factors of which the Company is currently unaware or which it currently deems immaterial that may cause its actual results to differ materially from the forward-looking statements. All forward-looking statements attributable to the Company or persons acting on the Company’s behalf apply only as of the date they are made and are expressly qualified in their entirety by the cautionary statements included in this report. Except as may be required by law, the Company undertakes no obligation to publicly update or revise any forward-looking statement to reflect events or circumstances occurring after the date they were made or to reflect the occurrence of unanticipated events, or otherwise.
The Company makes available through its Internet website, free of charge, its Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, and amendments to such reports and other filings made by the Company with the SEC, as soon as practicable after the Company electronically files such reports and filings with the SEC. The Company’s website address is www.powerfleet.com. The information contained in the Company’s website is not incorporated by reference into this report.
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Overview
PowerFleet, Inc. (together with its subsidiaries, “Powerfleet,” the “Company,” “we,” “our” or “us”) is a global leader of Internet-of-Things (“IoT”) solutions providing valuable business intelligence for managing high-value enterprise assets that improve operational efficiencies.
We are headquartered in Woodcliff Lake, New Jersey, with offices located around the globe.
Our Powerfleet for Industrial solutions are designed to provide on-premise or in-facility asset and operator management, monitoring, and visibility for industrial trucks such as forklifts, man-lifts, tuggers and ground support equipment at airports. These solutions utilize a variety of communications capabilities such as Bluetooth®, WiFi, and proprietary radio frequency.
Our Powerfleet for Logistics solutions are designed to provide bumper-to-bumper asset management, monitoring, and visibility for over-the-road based assets such as heavy trucks, dry-van trailers, refrigerated trailers and shipping containers and their associated cargo. These systems provide mobile-asset tracking and condition-monitoring solutions to meet the transportation market’s desire for greater visibility, safety, security, and productivity throughout global supply chains.
Our Powerfleet for Vehicles solutions are designed both to enhance the vehicle fleet management process, whether it’s a rental car, a private fleet, or automotive original equipment manufacturer (OEM) partners. We achieve this by providing critical information that can be used to increase revenues, reduce costs and improve customer service.
Our patented technologies are a proven solution for organizations that must monitor and analyze their assets to improve safety, increase efficiency, reduce costs, and drive profitability. Our offerings are sold under the global brands Powerfleet, Pointer, and Cellocator.
We have an established history of IoT device development and innovation creating devices that can withstand harsh and rugged environments. With 46 patents and patent applications and over 25 years’ experience, we believe we are well positioned to evolve our offerings for even greater value to customers through our cloud-based applications for unified operations.
We deliver advanced data solutions that connect mobile assets to increase visibility, operational efficiency and profitability. Across our spectrum of vertical markets, we differentiate ourselves by developing mobility platforms that collect data from unique sensors. Further, because we are original equipment manufacturer (OEM) agnostic, we help organizations view and manage their mixed assets homogeneously. All of our solutions are paired with software as a service (SaaS) and analytics platforms to provide an even deeper level of insights and understanding of how assets are utilized and how drivers and operators operate those assets. These insights include a full set of Key Performance Indicators (KPIs) to drive operational and strategic decisions. Our customers typically get a return on their investment in less than 12 months from deployment.
Our enterprise software applications have machine learning capabilities and are built to integrate with our customers’ management systems to provide a single, integrated view of asset and operator activity across multiple locations while providing real-time enterprise-wide benchmarks and peer-industry comparisons. We look for analytics, as well as the data contained therein, to differentiate us from our competitors, adding significant value to customers’ business operations, and helping to contribute to their bottom line. Our solutions also feature open application programming interfaces (APIs) for additional integrations and development to boost other enterprise management systems and third-party applications.
We market and sell our connected IoT data solutions to a wide range of customers in the commercial and government sectors. Our customers operate in diverse markets, such as manufacturing, automotive manufacturing, wholesale and retail, food and grocery distribution, pharmaceutical and medical distribution, construction, mining, utilities, aerospace, vehicle rental, as well as logistics, shipping, transportation, and field services. Traditionally, these businesses have relied on manual, often paper-based, processes or on-premise legacy software to operate their high-value assets, manage workforce resources, and distributed sites; and face environmental, safety, and other regulatory requirements. In today’s landscape, it is crucial for these businesses to invest in solutions that enable easy analysis and sharing of real-time information.
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Our Solutions
We provide critical actionable information that powers unified operations throughout organizations. We are solving the challenge of inefficient data collection, real-time visibility, and analysis that leads to transformative business operations. Our SaaS cloud-based applications take data from our IoT devices and ecosystem of third-party and partner applications to present actionable information for customers to increase efficiencies, improve safety and security, and increase their profitability in easy-to-understand reports, dashboards, and real-time alerts.
Our objective is to become a leading global provider of IoT SaaS solutions for high-value enterprise assets to drive optimized operations and create safer environments. In the first quarter of 2023 we began to consolidate and augment many of our existing capabilities on a single customer software platform branded as “Unity.” We have designed our Unity platform to enable rapid and deep integration with IoT devices and third-party business systems to a highly scalable data pipeline that powers artificial intelligence-driven insights to help companies save lives, time, and money. Unity is an increasingly important initiative to meet our objective of becoming a leading global provider of IoT SaaS solutions for high-value enterprise assets to drive optimized operations and create safer environments. To achieve this goal, we intend to prove value, retain and grow business with existing customers and pursue opportunities with new customers by:
| ● | focusing our business solutions by vertical markets and go to market strategies to each market; | |
| ● | positioning ourselves as an innovative thought leader; | |
| ● | maintaining a world class sales and marketing team; | |
| ● | identifying, seizing, and managing revenue opportunities; | |
| ● | expanding our customer base, achieving wider market penetration and educating customers with mixed assets in their organization about our other applications; | |
| ● | implementing improved marketing, sales and support strategies; | |
| ● | shortening our initial sales cycles by helping our customers through: |
| ○ | identifying and quantifying benefits expected from our solutions; | ||
| ○ | accelerating transitions from implementation to roll-out; and | ||
| ○ | building service revenue through long-term SaaS contracts; |
| ● | differentiating our product offering through analytics, machine learning, unique sensors, and value-added services; | |
| ● | producing incremental revenue at a high profit margin; and | |
| ● | expanding our partnerships and integrations. |
We also plan to expand into new applications and markets by:
| ● | pursuing opportunities to integrate our system with computer hardware and software vendors, including: |
| ○ | OEMs; | |
| ○ | transportation management systems; | |
| ○ | warehouse management systems; | |
| ○ | labor and timecard systems; | |
| ○ | enterprise resource planning; and | |
| ○ | yard management systems; |
| ● | establishing relationships with global distributors; and | |
| ● | evaluating and pursuing strategically sound acquisitions of companies. |
Key Applications of our IoT Solutions
We provide real-time intelligence for organizations with high-value assets allowing them to make informed decisions and ultimately improve their operations, safety, and bottom line. Our applications enable organizations to capture IoT data from various types of assets with devices and sensors creating a holistic view for analysis and action.
The core applications that our IoT solutions address include:
End-to-end Visibility: Organizations with expensive assets such as vehicles, machinery, or equipment need to keep track of where the assets are located, monitor for misuse, and understand how and when assets are being used. By having complete visibility of their assets, customers can improve security, utilization and customer service. In addition, our visibility solutions help with personnel workflows and resource management, freight visibility through load status, equipment availability status, dwell and idle time, geofencing, two-way temperature control and management, multizone temperature monitoring, arrival and departure times, and supply chain allocation.
Regulatory Compliance: Businesses must comply with government regulations and provide proof of compliance, which is commonly an onerous process to enforce and maintain. Our solution