PowerFleet, Inc. — Q2 2021 Form 10-Q
Reporting period: Three and six months ended June 30, 2021; balance-sheet comparisons are to December 31, 2020. PowerFleet provides subscription-based IoT/M2M asset-management solutions. Unless stated otherwise, financial amounts below are in millions of U.S. dollars; the filing reports statements in thousands.
Financial performance and position
| Metric | Q2 2021 | Q2 2020 | Six months 2021 | Six months 2020 |
|---|---|---|---|---|
| Revenue | $33.5 | $25.8 | $62.5 | $56.6 |
| Gross profit / margin | $16.0 / 47.8% | $14.0 / 54.5% | $30.5 / 48.8% | $28.9 / 51.1% |
| Operating loss | $(0.2) | $(0.7) | $(2.0) | $(4.1) |
| Net loss attributable to common stockholders | $(2.6) | $(3.8) | $(5.6) | $(8.3) |
| Loss per common share, basic and diluted | $(0.08) | $(0.13) | $(0.16) | $(0.28) |
- Q2 revenue rose 30.2% year over year; first-half revenue rose 10.6%. Q2 product revenue increased 64.6% and services revenue increased 10.5%. For the first half, product revenue increased 19.0% and services revenue 5.0%.
- Gross margin narrowed year over year by 6.7 percentage points in Q2 and 2.3 points for the first half. Management attributed the decline mainly to product mix; service margin also reflected higher implementation expenses.
- At June 30, cash and cash equivalents were $39.9 million, restricted cash was $0.3 million, and working capital was $53.3 million. Total assets were $232.8 million and total liabilities were $78.0 million.
- Debt included $25.5 million of long-term debt, including current maturities, and $0.4 million of short-term bank debt. No amounts were outstanding under the $10 million revolving facility. The company reported compliance with credit-agreement covenants.
- First-half operating cash flow was $3.2 million, versus $4.4 million in 2020; investing cash outflow was $1.5 million, versus $0.8 million. Financing cash inflow was $22.0 million, including $26.9 million net proceeds from the February share offering, offset in part by debt repayments and preferred dividends.
Changes versus the prior comparable period
- Revenue growth was strongest in Q2, with product sales rebounding from a prior-year period management said was affected by COVID-19. Service growth was principally attributed to PowerFleet for Vehicles solutions.
- Despite higher gross profit dollars, cost of revenue grew faster than revenue in Q2, reducing gross margin. Operating losses and net losses attributable to common shareholders improved in both the quarter and first half.
- Cash and cash equivalents increased from $18.1 million at year-end to $39.9 million at June 30, substantially supported by the public equity offering. Long-term debt declined from $28.5 million to $25.5 million.
- Common shares issued increased from 32.3 million at December 31 to 37.3 million at June 30; the February offering issued approximately 4.43 million shares.
Outlook, risks and notable items
- Management said available working capital, expected revenues and operating cash flows, and available revolving-credit borrowings should fund capital requirements through at least August 10, 2022. The company also stated it had not historically generated enough operating cash flow on its own to fund operations. No specific revenue or earnings guidance was provided.
- COVID-19 continued to create uncertainty for customers, suppliers, results and cash flows. Other cited risks include inflationary pressures in emerging markets, foreign-exchange exposure, competition, customer concentration in deployment decisions, long and unpredictable sales cycles, product development and integration risks.
- On June 9, 2021, the company agreed to a conditional right to redeem 10,000 Series A preferred shares for $1,450 per share plus accrued dividends—approximately $14.5 million before accrued dividends. Shareholders approved a related charter amendment in July, but the company had not exercised the redemption right as of August 9. The agreement would terminate October 1, 2021 if the redemption had not closed; closing conditions include legally available funds and financial-capacity tests.
- Series A preferred stock carries cumulative dividends at a minimum 7.5% annual rate. The company paid approximately $2.1 million of preferred dividends in the first half of 2021.
- Two Brazilian tax disputes are disclosed. One assessment totaled approximately $1.7 million including interest and penalties; another claim was reduced to $0.2 million after an administrative decision. Management, citing counsel, said loss was not probable or expected to result in material costs, and recorded no provision for these matters.
- Management reported no material off-balance-sheet arrangements, effective disclosure controls, and no material change in internal control over financial reporting during the quarter.
Important facts for investors to verify
- Whether revenue growth continues and product mix or implementation costs stabilize gross margins.
- Whether operating cash flow can support operations and capital needs without further equity financing.
- Whether the preferred-stock redemption is completed, its final cash cost, and the effect on liquidity and future preferred dividends.
- Debt repayment schedule, covenant compliance, and final documentation of the agreed credit-facility interest-rate reductions.
- Developments in COVID-19, inflation, foreign exchange, sales-cycle variability, and the disclosed Brazilian tax disputes.