Good morning. Welcome to PowerFleet’s Third Quarter 2020 Conference Call. Joining us for the presentation are the company’s CEO, Chris Wolfe, and CFO, Ned Mavrommatis. After their remarks, we will open the call for questions. Before we begin, I want to share PowerFleet’s Safe Harbor statement regarding forward-looking statements made during this call. There will be forward-looking statements about future events, including PowerFleet’s financial performance. Any statements other than present or historical facts, including plans for future operations, expected financial positions, anticipated business results, strategies, competitive positions, growth opportunities, product demand, and industry trends are considered forward-looking statements. These statements encompass the company’s financial expectations for 2020 and beyond. Such forward-looking statements carry risks, uncertainties, and contingencies, many of which are outside of the company’s control. Actual results, performance, or achievements may differ significantly from projections or assumptions in any forward-looking statement. Factors that may cause actual results to differ include, among others, SEC filings, overall economic and business conditions, demand for products and services, competitive factors, the emergence of new technologies, and the company’s cash position. The company does not intend to update any forward-looking statements to reflect future events or circumstances. Finally, I want to remind everyone that this call will be available for replay in the Investor Relations section of the company’s website at www.powerfleet.com. Now, I will turn the call over to PowerFleet’s CEO, Chris Wolfe. Please proceed.

Thank you, Shimoli. Good morning, everyone, and thank you for joining our call today. I hope everyone is staying safe and doing well during these challenging times. Our global team of employees and partners are healthy and are continuing to drive the business forward while we follow countries, state and local health measures. While the pandemic continues to present challenging headwinds in our various geographies, we have seen business momentum pick up from the lows we saw in Q2. Despite the ongoing challenges, we delivered solid sequential improvements in all of our key financial metrics during Q3. We realized a 7% increase in total revenue, a 6% increase in gross profit, and a 71% increase in adjusted EBITDA. These results again demonstrate not only the resiliency of our business and the necessity of our products and services, but also our focus on driving profitable growth. We continue to make very good progress against our strategic initiative of increasing our vertical integration across our product lines, while at the same time judiciously managing costs and realizing efficiencies throughout our organization. Taken together, these measures produced another strong gross margin quarter at 54% and a 4% sequential decrease in OpEx, which drove significant improvements to our bottom line. I will now turn the call over to Ned to discuss our Q3 financial results in more detail. Afterwards, I will discuss our sales and operational progress and outlook. Then we will open the call up for any questions. Ned?

Thank you, Chris, and good morning, everyone. Before I dive into the numbers, it’s important to remind you that our financial results for Q3 2020 include consolidated results for both I.D. Systems and Pointer Telocation, which we acquired on October 3, 2019. Keep in mind that a comparable year-ago period only includes standalone results from I.D. Systems, Inc. Now with those qualifications let’s look at the numbers. Revenue for the third quarter of 2020 increased to $27.6 million from $25.8 million in the prior quarter and from $16.7 million in Q3 last year. High margin recurring and services revenue was $16.7 million or 60% of total revenue. This was an improvement from $16.4 million or 64% of total revenue in the prior quarter and from $5.8 million or 34% of total revenue in Q3 of last year. Product revenue which drives future services revenue was $10.9 million or 40% of total revenue. This compares to $9.4 million or 37% of total revenue and $11.1 million or 66% of total revenue in Q3 of last year. Gross profit increased to $14.9 million or 54% of total revenue from $14 million or 55% of total revenue in the prior quarter and from $7.6 million or 45% of total revenue in Q3 of last year. Now turning to our expenses. Total operating expenses for the third quarter of 2020 were $14.2 million, down from $14.7 million in the prior quarter. The $14.2 million in Q3 was down 4% from the prior quarter and down 19% from Q1 of 2020. We have additional levers to pull in our expenses to further reduce the cost should the situation with the pandemic worsen. Turning to our profitability measures, GAAP net loss for the third quarter of 2020 totaled $1.7 million or $0.06 per basic and diluted share. This was an improvement from a GAAP net loss of $3.8 million or $0.13 per basic and diluted share in the prior quarter and a GAAP net loss of $2.1 million or $0.12 per basic and diluted share in Q3 of last year. Adjusted EBITDA, a non-GAAP metric for Q3 2020 totaled $3.6 million or 13% of total revenue. This was an improvement from adjusted EBITDA of $2.1 million in the prior quarter and adjusted EBITDA of $738,000 in Q3 of last year. The $3.6 million in adjusted EBITDA in Q3 of this year marked the highest level of adjusted EBITDA since the acquisition of Pointer, reflecting the leverage in our financial model. Our liquidity position remains strong at quarter end, with $21.1 million in cash and cash equivalents and a working capital position of $31.2 million. Our focus continues to be on working capital management and cash collections. I am encouraged to report that for the nine months of 2020 we generated $5.3 million of cash from operations, which is an improvement from $4.3 million used in operations in the same period of 2019. In summary, we believe our diversified customer base, predictable high-margin recurring revenue and prudent approach to cash management will help us ensure we successfully navigate these uncertain times. That concludes my prepared remarks. Chris?

Thanks, Ned. Our improving financial performance reflects our global teams' continued operational execution and building sales momentum. During the third quarter, we secured several notable wins in our Industrial business, including Kautex, a top 100 supplier of global automotive OEMs. Kautex is leveraging our next generation PowerFleet enterprise solution to improve safety and efficacy across its global manufacturing centers. After initially installing our solution on all their assets at the Detroit facility, they expanded deployment at two additional North American sites. We have exceeded all their expectations and we are now in discussions regarding deploying our solution at seven other European locations. Our end of Q2 win with Ryder Logistics, a leader in outsourced logistics, is notable as they continue to implement at three sites during Q3. Ryder selected PowerFleet for their enterprise solution on their forklifts and other material handling equipment within its North American supply chain operations. For those less familiar with our industry, Ryder manages critical fleet, transportation and supply chain functions for more than 50,000 customers, many of which make the products that customers use every day. Over the next 12 to 18 months, Ryder will be deploying our enterprise solution on more than 1,000 pieces of material handling equipment at more than 30 sites across North America. In addition to contracts with Ryder, we had several other successful implementations during Q3, including with the largest internet retailer implementing it at five of its U.S. sites. In Q3, we also signed a master purchasing agreement with Daimler Trucks North America, the leading heavy-duty truck manufacturer in North America. They are currently installing our system at two of their sites with plans to install at their Portland headquarters in Q4 and other locations throughout 2021. In our Logistics segment, we won additional business with two existing customers who are expanding their container and chassis fleets. The first one was with Milestone, who purchased approximately 1,000 LV-100 units during Q3, representing a strategic decision to be contracting chassis in their rental business. The other win was with Compass Lease, who purchased 500 LV-100s to track assets in their rental side of the business. It’s important to note that both purchases represent a new strategic investment not previously typical of the rental business model in Logistics as it’s usually low cost-driven. However, both companies see the value of PowerFleet's platforms and are using our software and analytics for internal process improvements including enhanced visibility of assets during high demand leasing. Additionally, both companies can now offer their rental clients extended value by providing the same visibility to their assets during the term of the rental contract. We have also seen the effects of profit increased demand for both dry van and refrigerated trailers, which has stimulated demand for tractors and drivers, leading to an increased demand for intermodal container capacity as intermodal options help move essential goods without tractors and drivers. We are especially excited about a recent win of a 6,000 container fleet that will leverage our LV-500 solar unit and LV-710 freight camera system that we will begin shipping in Q4. This is the largest win utilizing our LV-500 to date. Once we receive the purchase orders, we will issue a press release detailing this great win. Additionally, our customers in the cold chain space have reported an increase in their business, as they move essential food and pharma products. We are currently in 11 field trials, with approximately 40% of those associated with refrigerated tracking, command, and control. While these field trials represent a 30,000 unit near-term opportunity, these customers represent an additional 130,000 units in potential. While we have had great success with our existing Logistics lineup of products, we continue to not only add new functionality and features but push innovative boundaries as well. In Q3, we entered the final stages of field trials for what we call our LV-750 weight sensors. This new product will provide customers with solutions that detect mounted and dismounted states progressing to loaded and unloaded and also estimated weight based on the customers' required use cases and their price points. On top of this, we have recently entered into beta tests on our dual-mode versions of our dry van container and refrigerated platforms, the LV-500 and the LV-400, utilizing both satellite and cellular for wide area communications. These solutions open up additional market opportunities that require communications footprints beyond traditional cellular networks. In addition to new innovations in Logistics, we continuously improve the safety and security of capability across our Industrial fleet management product line as well. Internationally our Pointer Israel operations had a phenomenal Q3, growing both their historical connected car business and our IoT and Logistics offerings. Our revenues and profits from Pointer as well exceeded pre-COVID levels. One exciting recent development is that our Pointer Israel business unit began business development activities in Dubai following the recent peace deals with the UAE and Israel. We are currently working with several potential partners to assess deploying our solutions in the consumer, rental, and vehicle spaces in Arab countries that have signed peace deals with Israel. The vehicle security and fleet markets represent more than a 300,000 unit potential. Our Cellocator Business, which sells products and services outside our core markets, saw demand near pre-COVID levels in Q3. This tells us the recovery is global in nature. Our Mexico operations continue to manage COVID impacts and grew at a rate of 13% year-to-date, as we continue to see strong uptake from our customers Kovack and AXA Insurance. In Brazil, we run three significant deals in Q3 totaling over $4 million in contract value. These contracts are with Petrobras, Raizen, and Endocon. Now let’s turn to our rental car business, which has been folded into what we call our PowerFleet for Vehicles here in the United States. In Q3, we saw Avis's business recovering and we are currently at pre-COVID monthly billing levels. We also have continued discussions with the world’s largest rental car company on conducting a large-scale field trial of our product in 2021. Looking ahead, our now 570,000 subscriber base provides us with not only high-margin recurring services and subscription revenues, but also good visibility as we enter 2021. This visibility supported by our strong financial foundation with $21 million in cash. On top of this, our consistent cash flow and expanding adjusted EBITDA generation provide us with a diversified and stable plan to execute on our growth strategy. While COVID headwinds remain and we see sporadic closures in various countries, we remain confident in our continued ability to execute our strategy and extend our position as one of the world’s leading IoT companies focused on supply chain visibility, fleet management, and unique asset and IoT solutions. With that, we are ready to open the call for your questions. Operator, please provide the appropriate instructions.

Thank you. Our first question is from Mike Walkley with Canaccord Genuity. Please go ahead with your question.

Great. Thanks. I hope everybody on the call and their families are safe and well. Chris and Ned, congratulations on the strong EBITDA margins. Great to see them return to double-digit levels. Just on the 570,000 subscribers, I think that’s up 20,000 sequentially. Can you give us just some color on where you have seen maybe the strongest adds in this tough environment, and also on the other side, are you still seeing any customers downsizing just given macro concerns? And then, finally, just based on the subscriber number, do you expect it to continue to grow absent any kind of economic shock from the pandemic worsening? Thanks.

Thanks, Mike. As far as the subscriber growth, it was really across the board. That’s kind of why we wanted to focus on the win in Brazil and the win in Mexico. Again, I think a lot of new investors that don’t really know our story, like the Industrial side, you have to keep in mind, we have shipped well over 100,000, probably 140,000 total units in the lifespan of that. Well half of those are not on recurring today. So, again, as we get customers to refresh those, all go on to recurring. So I think it’s just a broad-based recovery, which is great to see and so that wasn’t really one shining out a massive deal that brought in a lot of subscribers.

Great. Thanks. And Chris, just PowerFleet for Logistics, you mentioned those two customer wins. Can you provide maybe more color on who you beat out to win the deal, why they chose you, and what that potential opportunity can be for PowerFleet?

Yeah. Those two customers, well, we mentioned, those are actually existing customers, but this is new business with them. And just so everyone knows, typically those are put out for bid, just anyone running a logistics company or leasing company. You always put your new business out for bid. I can’t go into who we are competing against, but we definitely had to compete for that business. I think obviously being an entrenched provider helped us, but again, they put us through the paces. I think the opportunity with them is, as I mentioned before, there is uptake demand for trailers, uptake demand for containers. If you have a container, you have to have a chassis. And so the leasing companies that are actually leasing this equipment take care of that excess demand. The more demand there is obviously the more opportunity for us to grow. And we will just grow with our customers. Matter of fact, that container fleet that I mentioned, the 6,000 LV-500s, I mean that’s a monster win for us. That’s a brand new fleet to put into context. That is not an existing fleet. This is a brand new container fleet that’s going to be hitting the road.

That sounds great. And one last question for Ned, and then I will pass the line here. Ned, very strong services and hardware gross margins in the quarter. Was there anything special in the mix or trends we should expect to continue? And while I know you have not given guidance, just kind of based on the pipeline, would you expect both those businesses to potentially grow sequentially? Thank you.

Yeah. So if you look at the service gross margins, Mike, those are going to remain strong at these levels going forward and they have going to continue to improve as we grow the service revenue. The product margins tend to fluctuate a couple of percentage points based on product mix. We did have a very good product mix during this quarter. Also, the reason we did the acquisition of Pointer and Cellocator is to be vertically integrated and really control our gross margins, and you have starting to see that benefit hit the product margins. That’s why we are proud of our gross margin performance in the quarter.

Okay. And then growth the next quarter, any comment or just kind of no guidance for now?

At this point, we have not given any guidance. But as Chris mentioned in the prepared remarks, we feel very good about what we have seen about the business. Obviously, we have concerns with COVID or that some economies globally are beginning to shut down again. But so far the pipeline and our sales activity is very positive.

Right. Congrats again on the execution, and I will pass the line.

Thanks, Mike.

Thanks, Mike.

And our next question is from Jaeson Schmidt with Lake Street. Please proceed with your question.

Hey guys. Thanks for taking my questions. Just curious if you could comment on sort of the linearity of order patterns you saw in Q3 and any additional color you could provide on what you have seen from order momentum here in October and here in November?

It's interesting to note that our subscriber growth has been broad-based. This is encouraging as it indicates that our run rate business is on the mend. In the U.S., our dealer network consists of 500 dealers selling our products, similar to our Young Heinrich channel in Europe. That business has bounced back to pre-COVID levels in Q3, which is fantastic. Strategically, we've secured significant deals, and we're beginning to see recovery in that area, which was most affected in Q2. By "strategics," I mean large companies with whom we interact directly. Many of them deferred capital expenditures in Q2 due to COVID, but we are starting to see that return. To put this in perspective, over $11 million in business was essentially put on hold, but we’re beginning to see it come back. Regarding recent shutdowns, Israel had a three-week shutdown at the end of Q3, though fortunately, it coincided with their holiday period, so the impact was minimal. Germany has seen some effects, but we haven't been impacted with Young Heinrich as of now, and the U.K. is shutting down again. The main concern is uncertainty; while we've experienced a pickup in momentum overall, we remain cautious about potential future developments. However, as long as we continue to see strategic deals coming in, we feel more optimistic about Q4 and the year ahead.

Okay. That’s really helpful. And then looking at your large online retailer customer here in the U.S., I know that’s really driven by your partnership. But how should we think about the potential trajectory of a further rollout? Would we expect a further expansion here in Q4 and throughout 2021?

We have visibility into some of that. I am not at liberty to go into the details. That being said, we have seen the momentum pick up there over the last year, even in the midst of COVID, you know, with our partner. I think we are going to continue to see that in 2021. Again, what we are hearing is that large retailers or online retailers looking to narrow down their choices in telemetry. Right now they actually pick a telemetry unit depending on the forklifts they pick at different sites. We see that continuing. But I think they are starting to be very selective, and so we think that actually bodes very well for us next year.

Okay. And the last one for me, and I will jump back into the queue. Ned, how should we think about OpEx here in Q4? I know you mentioned there are additional levers to be pulled if needed depending on the macro situation, but is OpEx going to remain relatively flat?

Yes. Our goal is to really maintain the expenses flat at this level, and obviously, you see, as the revenue grows a lot of that goes right to the bottom line?

Okay. Perfect. Thanks a lot, guys.

Thanks, Jason.

And our next question is from Gary Prestopino with Barrington Research. Please proceed with your question.

Hey. Good morning, Ned and Chris.

Hi, Gary.

Chris, I thought I heard you say, you have 100,000 units that have been shipped, but are not reflecting any kind of revenue on the services side, is that correct?

Yeah. Let me make sure that’s very clear. Historically, I.D. Systems used to sell only Industrial vehicles, right? I mean, we have been talking back in the dark ages.

Right.

Prior to four years ago, every unit that was shipped there did not have recurring revenue. We have been discussing customers like Ford and Walmart at their distribution centers, as well as the United States Postal Service.

Right.

A significant number of customers do not pay maintenance fees, so I want to clarify that about half of the units we shipped, which is around 50,000, do not generate recurring revenue for us. These units are in a refresh cycle, a topic we have previously discussed, and due to the end of life on the product, technology upgrades are now essential. Therefore, about 50,000 units typically have an average revenue per user of approximately $10 a month.

Okay. But I am trying to understand that it's not guaranteed they will transition to the services side and start generating recurring revenue for you?

No, it's not guaranteed. However, I believe many in the 70% range will transition. They really like the product.

Okay.

…they get value out of it. Yeah.

Great. I apologize for this, but you went through this so quickly. Could you please go over the new business awards in the quarter in Logistics and Industrial again, but a little more slowly?

Well, again, with the…

With some of the key ones, Chris, some of the key one, obviously.

Okay. So all of those deals were signed but not initially shipped. I hope that’s clear.

Right.

…Kautex we have started implementing sites, right? We implemented Detroit and we implemented two North American and now there’s…

Right.

We have seven more sites planned across Europe. Currently, for Ryder Logistics, we have around six or seven sites, but this can change. Installations are starting nearly every day, and we expect to roll out a total of 30 sites next year. This means we have approximately 24 sites left to set up, and we are only beginning to approach the total of 1,000 units. It’s important to remember that the retail price for these products is around $1,600, not just $200. On the Logistics front, there were three significant deals, one of which was finalized just before the quarter ended, while the other two involved extensions of existing fleets, which encompasses around 1,500 units, plus a new order for 6,000 units that we were notified of just as the quarter wrapped up.

So you got a 6,000 unit. I sorry, would you say a 6,000 unit order?

Yeah. 6,000 order of our LV-500 in freight cam, which is our high-end product, right?

Great. So, it seems to me that you have really started to see a lot of momentum there just overall. And I guess a lot has changed with the perception of the company since the Pointer acquisition in the market. Is that a fair statement?

I think that's a fair observation. More importantly, these field trials, if it weren't for COVID, would have about a six-month impact.

Right.

…installed, I think people are seeing the value. I mean once Dan and Ross signed this summer, that’s a huge name, people who don’t know who they are. And so we started getting a lot more inbound inquiries once you get those kinds of wins.

That’s good. I mean especially in this environment you to be winning new businesses is great. All right. Thank you so much.

Okay. Thanks, Gary.

Our next question is from Glenn Mattson with Ladenburg. Please proceed with your question.

Hi. Thanks for taking the question. Great quarter. Ned, could you remind me about the priorities for cash flow going forward? Will the focus be on paying down debt quickly, or what will be the use of cash?

That’s correct, Glenn. Our goal is really to continue to pay down the debt. If you look at our working capital we have $21 million in cash, strong working capital improved versus the prior quarter and we have generated $5.2 million in cash flow from operations and we will continue paying down the debt. There’s also one thing…

Great. Thanks.

...I want to point out on the debt, sorry about that, one thing I want to point out on the debt. We closed the debt about a year ago. Since then the interest rate environment has improved a lot better. So we are looking at opportunities where we can reduce the interest on the debt, which would be a very positive thing, and hopefully get it done in the next couple of quarters and we should announce that when we get it done.

Great. Regarding the deferred revenue, how should we interpret that? It was slightly down sequentially, but the business remains strong. Is there a specific dynamic that could explain the seasonal decrease, or is there a difference in how bookings operate?

The deferred revenue shouldn’t have any real impact; if you look at our business model, we usually get paid for the hardware upfront and the services we invoice and collect them monthly. So in certain cases, we have certain customers that prepay. So you might see the deferred revenue go up and down. But it should not be an indicator of future business.

Great. Thank you. And then, Chris, just stepping back for a minute and looking at, like, taking an assessment. It seems the business is doing really well. The Pointer acquisition has been integrated at this point. It’s the costs have, like a lot of them have taken out, there’s been this pandemic in between when you signed the deal to now. Maybe could you just kind of point out where you think you hit the mark or exceeded on your initial expectations or where there’s still room for improvement over the next whatever period of time, six months or a year or so, how we will look about that?

It’s a great question. We have made significant progress with our IT integration, particularly in consolidating tenants, which has greatly improved our efficiency globally. The team has also worked on financial consolidation, enabling us to operate more effectively worldwide, especially when closing our books. In addition, we have observed significant savings in our supply chain and operations, primarily driven by volume increases. The team's performance has been excellent. We have successfully integrated and launched a beta version of our analytics platform, which is part of a broader platform consolidation that takes time. Once the beta is complete, we expect additional cost savings, along with further savings as we continue consolidating our other platforms next year. We anticipate an additional $1 million in savings from this software platform consolidation. It's important to note that from the end customer's perspective, they may not even notice the platform consolidation because they experience a seamless integration as long as their data is secure and stable. Our goal is to make this process transparent for customers while achieving cost savings over the next year through consolidation.

Great. Thanks. Good color. That’s it for me. Congrats on the quarter.

Thanks, Glenn.

And we have reached the end of the question-and-answer session. I will now turn the call over to the CEO, Chris Wolfe for closing remarks.

Yeah. Thank you for joining us today. I’d like to thank our employees for their diligent efforts and great results. Our customers for putting their trust in our products and services, and our investors for their support of our vision. Please stay healthy and we look forward to speaking to you again soon. Operator?

Thank you for joining us today for our presentation. You may now disconnect.