Powerfleet, Inc. — Q1 2021 Form 10-Q
Reporting period: Three months ended March 31, 2021; comparative period is the three months ended March 31, 2020. Financial amounts below are in U.S. dollars, generally millions unless stated otherwise. Powerfleet provides subscription-based wireless IoT/M2M solutions for tracking and managing industrial, logistics and vehicle assets. The interim statements are unaudited.
Financial performance and liquidity
| Metric | Q1 2021 | Q1 2020 |
|---|---|---|
| Revenue | $29.0 | $30.8 |
| Product revenue | $11.4 | $13.2 |
| Service revenue | $17.6 | $17.6 |
| Gross profit / margin | $14.5 / 49.9% | $14.9 / 48.3% |
| Operating loss | $(1.9) | $(3.4) |
| Net loss | $(1.8) | $(3.4) |
| Net loss attributable to common stockholders | $(3.0), or $(0.09) per share | $(4.5), or $(0.16) per share |
| Operating cash flow | $0.8 | $2.8 |
| Capital expenditures / investing cash flow | $0.6 / $(0.6) | $0.5 / $(0.5) |
At March 31, cash and cash equivalents were $41.0 million, restricted cash was $0.3 million, and working capital was $53.2 million. Current assets were $90.5 million and current liabilities $37.2 million. Term debt totaled $26.2 million, including $5.2 million of current maturities; short-term bank debt was $0.4 million. No amounts were drawn on the $10 million revolving facility. The company reported compliance with credit-agreement financial covenants.
Changes versus the prior-year quarter
- Revenue fell $1.8 million, or 5.9%, primarily because Q1 2020 included a $2.3 million product shipment to Avis that did not recur. Management cited increased Logistics revenue, but did not quantify the increase.
- Product revenue declined 13.5%, while services revenue was broadly flat. Services rose to 60.6% of revenue from 57.1%.
- Gross margin improved to 49.9% from 48.3%. Product gross margin declined to 28.6% from 29.6% due principally to mix; service gross margin rose to 63.8% from 62.3%.
- SG&A decreased 10% to $13.6 million and R&D decreased 13.5% to $2.7 million, mainly reflecting lower headcount following cost-reduction initiatives in 2020. Operating loss and common-stockholder loss narrowed.
- Operating cash flow decreased to $0.8 million from $2.8 million, with working-capital movements including a $3.4 million increase in accounts receivable and a $0.8 million increase in inventory.
Financing, outlook and risks
- A February 2021 public offering of 4.428 million common shares generated approximately $28.8 million gross proceeds and $26.9 million net proceeds. Financing cash flow was $24.3 million, including the offering proceeds, $1.3 million of debt repayments and $1.0 million of preferred dividends.
- Management said available working capital, expected operating cash flows and available revolving-credit borrowings were expected to cover capital requirements through at least May 12, 2022. The company stated that operating cash flows alone had not yet been sufficient to fund operations. No specific revenue or earnings guidance was provided.
- COVID-19’s effects on customers, suppliers, results and cash flows remained uncertain. Management reported targeted reductions in discretionary operating expenses and capital expenditures. Other stated risks include uneven customer deployment and sales cycles, competition, technology and integration challenges, foreign-currency exposure, and inflation in emerging markets.
- Series A preferred stock carries cumulative dividends of at least 7.5% annually, with potential increases under its terms, and has conversion, redemption and consent rights. The company paid $1.0 million in preferred dividends during the quarter. These terms may affect future cash needs and common-stockholder dilution.
- Hapoalim had agreed in principle to lower term-loan rates and waive a required $3.0 million escrow deposit; the filing said a definitive amendment remained to be executed, while the interim rate reductions and waiver were in effect.
- A Brazilian tax notice originally claimed approximately $9.7 million; following an administrative decision, the remaining claim was $182,000. Management’s counsel considered a favorable outcome probable, and no provision was recorded. Management believed the matter and other litigation would not materially adversely affect the company.
- Disclosure controls and procedures were assessed as effective at the reasonable-assurance level; the company reported no material change in internal control over financial reporting during the quarter.
Important facts for investors to verify
- Whether service revenue and Logistics growth can offset lower product sales and the nonrecurrence of the Avis shipment.
- Receivables, inventory and operating cash flow trends, and whether liquidity remains adequate without relying on further equity issuance.
- Term-debt repayment schedule, covenant compliance, and final documentation of the Hapoalim amendment.
- Preferred-stock dividend, conversion and redemption terms, including their potential cash and dilution effects.
- Developments in the COVID-19 outlook, foreign-exchange and inflation exposure, and the remaining Brazilian tax claim.