Good morning. Welcome to PowerFleet's Fourth Quarter and Full Year 2020 Conference Call. Joining us for today's presentation is the company's CEO, Chris Wolfe, and CFO, Ned Mavrommatis. Following their remarks, we will open the call for questions. Before we begin the call, I would like to provide PowerFleet's Safe Harbor statement that includes cautions regarding forward-looking statements made during this call. During the call, there will be forward-looking statements made regarding future events, including PowerFleet's future financial performance. All statements other than present and historical facts, which include any statements regarding the company's plans for future operations, anticipated future financial position, anticipated results of operation, business strategy, competitive position, company's expectations regarding opportunities for growth, demand for the company's product offering and other industry trends are considered forward-looking statements. Such statements include, but are not limited to, the company's financial expectations for 2020 and beyond. All such forward-looking statements imply the presence of risks, uncertainties, and contingencies, many of which are beyond the company's control. The company's actual results, performance or achievements may differ materially from those projected or assumed in any forward-looking statement. Factors that could cause actual results to differ materially could include, among others, SEC filings, overall economic and business conditions, demand for the company's products and services, competitive factors, emergence of new technologies, and the company's cash position. The company does not intend to undertake any duty to update any forward-looking statements to reflect future events or circumstances. Finally, I would like to remind everyone that this call will be made available for replay in the Investor Relations section of the company's website at www.powerfleet.com. Now, I'd like to turn the call over to PowerFleet's CEO, Mr. Chris Wolfe. Sir, please proceed.

Hey, thank you, Alice. Good morning, everyone, and thank you for joining our call. I hope everyone is staying healthy and doing well during these very unprecedented times. As you saw from our earnings release, the fourth quarter was a solid finish to a very unpredictable and challenging year for companies globally. PowerFleet's focus on driving profitable growth, along with continued execution against our strategic initiatives, enabled us to deliver a 7% sequential increase in our top line revenues, a 4% sequential increase in high margin recurring services revenue, and a meaningful improvement to our bottom line. These improving financial metrics demonstrate the leverage of our business model and the ongoing benefits from our cost optimization measures, which together helped produce robust gross margins and $8.8 million in operating cash generation for 2020. From a sales perspective, we finished the year strong with several new customer wins, and we entered 2021 with a solid backlog of installations and a robust prospect pipeline. During Q4, we secured and announced a number of notable wins, including Panhandle Transportation Group, Nucor Tubular, and McGuire Transportation. These wins contributed to our basic monthly subscription units, which totaled a record 590,000 at the end of Q4. Before I dive into our business segments and outlook, I'll turn the call over to our CFO, Ned Mavrommatis, to discuss our results for the fourth quarter and full year of 2020. Ned?

Thank you, Chris, and good morning, everyone. Turning to our results for Q4 and the full year of 2020. Revenue for the fourth quarter of 2020 increased to $29.4 million from $27.6 million in the prior quarter but decreased from $35.1 million in Q4 of last year. The year-over-year decrease in revenue was related to the reduction in product revenue from our last major shipment to Avis in Q4 of 2019 and the impact from COVID-19. Revenue for the full year 2020 increased to $113.6 million from $81.9 million in 2019. High margin, recurring and services revenue for the fourth quarter was $17.3 million or 59% of total revenue. This compares to $16.7 million or 60% of total revenue in the prior quarter and $18.7 million or 53% of total revenue in Q4 of last year. For the full year 2020, services revenue was $67.9 million or 60% of our total revenue, compared to $36.5 million or 45% of total revenue in 2019. Product revenue, which drives future service revenue, was $12.1 million or 41% of total revenue. This compares to $10.9 million or 40% of total revenue in the prior quarter and $16.5 million or 47% of total revenue in Q4 of last year. For the full year of 2020, product revenue was $45.7 million or 40% of total revenue, compared to $45.4 million or 55% of total revenue in 2019. Gross profit increased to $15.2 million or 52% of total revenue from $14.9 million or 54% of total revenue in the prior quarter and $16.6 million or 47% of total revenue in Q4 of last year. For the full year 2020, gross profit increased to $59 million or 52% of total revenue from $38.4 million or 47% of total revenue in 2019. Now turning to our expenses. Total operating expenses for the fourth quarter of 2020 were $15.3 million, up from $14.2 million in the prior quarter. The $15.3 million in Q4 was up 7% from the prior quarter but was down 23% from Q4 of 2019. For the full year, operating expenses were $62.5 million compared to $48.5 million in 2019. Turning to our profitability measures. GAAP net loss attributable to common stockholders for the fourth quarter of 2019 totaled $3.5 million or $0.12 per basic and diluted share. This compares to a GAAP net loss of $1.7 million or $0.06 per basic and diluted share in the prior quarter and GAAP net loss of $5.2 million or $0.18 per basic and diluted share in Q4 of last year. Net loss in the fourth quarter of 2020 included $2 million in noncash expense related to foreign currency translation of debt outstanding in local currency at our company's Israeli subsidiary. For the full year 2020, GAAP net loss was $13.6 million or $0.46 per basic and diluted share, compared to GAAP net loss of $12 million or $0.59 per basic and diluted share in 2019. Net loss for 2020 includes $2.1 million in noncash expense related to foreign currency translation of debt outstanding in local currency at the company's Israeli subsidiary. Due to this noncash expense as well as additional gains and losses that may not be indicative of our core operating results, we introduced non-GAAP net income to supplement our GAAP results. Non-GAAP net income attributable to stockholders for Q4 of 2020 totaled $2 million or $0.07 per basic and $0.05 per diluted share. This was an improvement compared to non-GAAP net loss attributable to common stockholders of $606,000 or $0.02 for basic and diluted share in Q4 of last year. For the full year 2020, non-GAAP net income attributable to common stockholders totaled $3.7 million or $0.12 per basic and $0.10 per diluted share, which was a significant improvement compared to non-GAAP net loss attributable to common stockholders of $4.7 million or $0.23 per basic and diluted share in 2019. Adjusted EBITDA for Q4 2020 totaled $3.2 million or 11% of total revenue, compared to adjusted EBITDA of $3.6 million in the prior quarter and adjusted EBITDA of $2.1 million in Q4 of last year. For the full year of 2020, adjusted EBITDA totaled $9.1 million compared to adjusted EBITDA of $3.2 million in 2019. Our liquidity position remained strong at quarter end with $18.1 million in cash and cash equivalents and working capital of $28.9 million. On February 21, we closed an underwritten public offering that generated net proceeds of approximately $27 million. As of today, our cash position exceeds $45 million, giving us ample resources and runway to execute our growth strategy. I'm encouraged to report that for the full year of 2020 we generated $8.8 million in cash from operations, which is a significant improvement from $7.3 million used in operations in the same period in 2019. In summary, we believe our diversified customer base, predictable, high margin recurring and services revenue and prudent approach to cash management will really help us ensure that we successfully navigate these uncertain times. That concludes my prepared remarks. Chris?

Hey, thanks, Ned. Our improving financial performance reflects our global team's continued operational execution and building sales momentum. In our Industrial segment, which includes forklifts and material handling equipment, we continue to see improving sales traction across our strategic direct sales team and our indirect channels, which include our OEM white label product and our expanding U.S. partner network. Along that line, in our U.S. partner channels, we continue to see increased activity in sales over Q3 levels, including volume unit orders from our new strategic OEM partner, Jungheinrich, the third largest forklift manufacturer in the world. Our partnership with Toyota Motor Manufacturing continues to gain traction. During the quarter, they expanded by installing a plant in Mississippi. And on top of this, working with our partner, Attached Solutions, we also secured a new Toyota plant in Mexico. Also in Q4, we signed and deployed our first e-commerce distribution center for the world's largest brick-and-mortar retailer. We also had several other notable wins and deployments in the period, including Mazda Toyota Motors, Coca-Cola Minute Maid, Daimler, and Audi. In terms of priorities and initiatives in our Industrial segment in 2021, after our successful upgrade with Walgreens, we’ve been aggressively working with our long-standing customers to transition them from our older legacy platforms to our next-generation solutions and to a recurring revenue model. We expect to see several of these major customers commence our transition in the second half of this year. It is worth noting that these major migrations require both the telemetry unit refresh and a migration to our Software as a Service cloud-based platform. This legacy customer base also represents over 30,000 units in high-value product sales potential, and nearly all these customers pay little or no recurring SaaS fees today. It was an equally busy quarter in our Logistics segment. And as I mentioned in my opening remarks, we secured a great win with Panhandle Transportation Group, a 525-unit refrigerated fleet will begin shipping our LV-400 reefer telemetry platform during Q1. We also started delivery of the previously announced 6,000 unit, solar and supercap LV-500 container telemetry platform, which also included our LV-710 freight camera system. Additionally, and not previously announced, a major supermarket chain in the southeast placed an order for about 1,200 trailer and reefer platforms in Q4, and we've already started shipping these units. On the R&D front, PowerFleet has designed a family of products to help our customers with the critical activity of weight sensing to maximize revenue, ensure safety, optimize asset utilization and comply with regulatory requirements. Our LV-300 WS, WS standing for weight sensing, telemetry platform is a single device that not only provides asset telemetry data but also focuses on weight detection, which provides accurate detection of events such as mounted and dismounted containers on and off chassis. Our LV-750 weight on axle sensor, when paired up with the LV-300 WS, goes a step further and focuses on weight measurement to include not only the information on mounted and dismounted containers, but also can tell if the container is loaded or not. Given the container bottlenecks that we are experiencing at the port of Los Angeles, these new capabilities are aimed squarely at fixing a major industry pain point. We recently completed a major milestone in our weight sensing initiative with American Intermodal Management. Our work has led to American Intermodal Management placing an initial order for 1,000 LV-300 WS platforms and matching LV-750 weight on axle sensors, which are currently being installed on new chassis being built in Mexico this quarter. In the first half of 2021, we plan to release two new multimode telemetry platforms, and we recently started field trials for a major customer. These products will broaden our portfolio and increase our overall market potential. Additionally, we will continue our R&D efforts and push to see if we can achieve legal weight on axle, which, if successful and at the right price point, can be an industry game changer. Internationally, sales for our Pointer Israel operations exceeded 2019 levels, which is a very impressive feat given the closing of the economy several times in 2020 due to COVID. Israeli vaccinations are nearing 50% of the population, and much of our workforce has had their first vaccination. Pointer Israel has increased its share of the premium car market with wins at Volvo, Honda, and increased market share in the rental car market with wins at Budget, Pery Car Rental, and Eldan Car Rental. We also continue in our installations of wireless defibrillators throughout the country with Magen David Adom, MDA. MDA is the state of Israel's national EMS organization responsible for emergency pre-hospital medical care and blood services. MDA is playing a critical central role in Israel's response to the COVID crisis, including testing, sampling, scheduling, and managing vaccinations. In addition to the MDA, Pointer Israel won a major tender with Maccabi Health. And our temperature and IoT projects are gaining momentum in pharma, food, cannabis, grocery, and honey production. In terms of our other international geographies, our Pointer Argentina operations signed Edenred in Mexico, targeting an initial deployment of 2,000 units starting in Q1 with a possible upside potential of 45,000 units. Our Pointer Mexico operation continues to roll out at KAVAK, which is the Carvana of Mexico; and AXA Insurance, with KAVAK having the potential for 10,000 units annually and AXA having the potential for an additional 2,400 units. This is just very cool. Our India team working under Cellocator has been working with Tata Consulting Services, and we've been selected to provide mobility platforms for a 6,000 unit IoT project in Northern Europe. In our Vehicle segment, we are launching newer Cat M1 and Cat M platforms, and we are seeing significant interest in the construction equipment segment. This growing interest and traction was confirmed by our reseller agreement that we recently signed with a major construction equipment company for a minimum of 2,500 units annually, which started shipping in Q1. In addition to this win, we are currently in field trials with three large construction equipment prospects. PowerFleet continues to enhance our solution for vehicle Class 1 to 5 customers that include smaller vehicles used in service fleets and delivery and commercial fleets, with a focus on car sharing and rental self-service. These offerings within rental fleets have seen an increase due to COVID, due to the demand for touchless interaction as well as midterm car rental and fractional ownership as an alternative to public transportation and personal car ownership. As we look ahead to 2021, the end market demand for our dry van, container, and cold chain mobility platforms are steadily improving in North America and globally. We now have a very strong balance sheet that gives us the capability to move diligently and quickly on potential acquisitions that can bolster our position geographically and grow our business segments as we expand our product, software, and analytics software. As the global economy recovers and countries reopen, PowerFleet is well-positioned to leverage our enhanced scale, strong balance sheet, and expansive international footprint to effectively compete and win global tenders. We believe these factors will enable PowerFleet to capture an increasing share of the growing multibillion-dollar global industrial IoT market. And with that, we are ready to open the call up for your questions. Operator, please provide the appropriate instructions.

Our first question comes from Mike Walkley with Canaccord Genuity. Please proceed.

Great. Thank you. Chris and Ned, I hope you and everyone's families on the call are staying healthy and well.

Thanks, Mike.

Congrats again on achieving another double-digit adjusted EBITDA margin to close the year. Chris, regarding the strong backlog as we enter 2021, can you share insights on areas of strength and any updates on the large opportunities you were pursuing? Additionally, how do you envision the business improving throughout 2021 if economies continue to reopen?

Yes, thanks, Mike. We are actually seeing traction with new sales, and even as we enter 2021, I previously mentioned the Ryder logistics win, which we announced around June of last year. In 2020, we only installed six locations at Ryder, and there are 24 more to go. This represents nearly a fourfold increase with just one customer. Additionally, there is potential growth with Nucor Tubular and Kautex, which we announced last year in the industrial sector. The industrial sector faced significant challenges in 2020, so the fact that we are seeing a strong recovery is very encouraging. We are still actively pursuing large prospects and have made some progress. As we prepare for Q4, I want to be cautious in my comments. However, I mentioned some of the successes we are experiencing with existing customers, such as the United States Postal Service and Ford Motor Company. As we start deploying these locations this year, hopefully before the second half, we anticipate seeing significant developments in the industrial sector. On the logistics side, our field trials are ongoing, and we expect to see results unfolding in Q1 and into Q2.

Great. That's helpful. And then just on the quarter, another strong net add of 20,000 to get to 590,000. Maybe you can just talk about where you're seeing some strength? And are you still having any customers turning things off just due to impacted industries or is that behind you now and you should see steady growth barring any virus getting worse?

Yes, assuming the virus does not worsen, we have observed stabilization in the third quarter, which is encouraging, and this trend seems to be continuing. Currently, we are not facing significant issues with customers needing to turn off units in large numbers due to financial difficulties. Furthermore, we are achieving a net addition of 20,000, which is positive for us. In the past, our performance heavily relied on the success or failure of one or two customers each quarter. Now, the diverse nature of our company enables us to navigate such situations much more effectively. We are not dependent on any single customer in a quarter, and this stability is evident across the board.

Great. Last question for me and I'll pass it on. Ned, product sales were a bit higher than expected. Most of those had been turned on or converted to subs or that gives you some visibility into sub growth already into the March quarter. And then the 35% gross margin, I know mix can fluctuate quarter-to-quarter based on hardware. But is that kind of a good gross margin for 2021 on hardware as you look at kind of your backlog for 2021?

Sure, Mike. Yes. The first part of your question is absolutely. Every piece of hardware that we sell comes with the long-term service contracts. So it's the high product revenue today gives us more visibility into growing service revenue. On the product margins, it's primarily mix. We have products that generate 20% gross margin. And then we have products that generate 45%. So it's really the mix. I think between 30% and 35% on the product side, we feel very comfortable going forward.

Great. Thanks for taking my questions and best wishes for a successful '21.

Thanks, Mike.

Thanks, Mike.

Our next question comes from Jaeson Schmidt with Lake Street. Please proceed.

Hey, guys. Thanks for taking my questions. Just curious if you could comment on what you've seen from an order pattern standpoint here in January and February, if some of the momentum you saw late last year has continued here in the first two months of the quarter?

Yes. I mean, again, we are not done and typically, a lot of our sales, like a lot of companies, they come in at the last month of the quarter. But again, we haven't seen it slow down. As a matter of fact, if anything, we've seen business activity picking up, which is good, especially in our indirect channels because they have more touch points in the overall global economy, especially like in the U.S. economy, which is the biggest market that we are in. So again, the activity level has been high. I myself attend almost every sales pipeline call. And it's probably the strongest calls I've been in probably in the last two years, even pre-COVID.

Okay. That's helpful. And then could you just give us an update on where you're at with the other rental car company?

Conversations are ongoing, and notably, a third-party has recently initiated a request for proposals in that area. This involves another major rental car company, and we are also participating in that RFP. Discussions are proceeding, although I anticipate a slow process with this significant rental car company. However, the level of interest remains strong, and we continue to keep them informed about our activities. Ultimately, it is up to them to decide when and if they want to move forward with a program, as they need to conduct what we refer to as a large-scale field trial, and we currently have a proposal submitted for that.

Okay. And the last one for me, and I'll jump back into the queue. Ned, how should we think about OpEx ramping here in 2021?

We are going to slightly start investing a little bit more in sales and marketing. As Chris mentioned, we are beginning to see a significant increase in the activity and people doing business. So we are going to start investing a bit, but again, very conscious. Our goal is to have profitable growth.

Okay. Thanks a lot, guys.

Thanks, Jaeson.

Our next question comes from Scott Searle with ROTH Capital. Please proceed.

Hey. Good morning. Thanks for taking my questions. Hey, just to follow-up on the gross margin front, Ned, I know that there is volatility quarter-to-quarter depending on mix, but we've seen a lot of component issues throughout the industry and the supply chains with other vendors. Are you seeing any issues on that front? How is that impacting not only your gross margins, but your ability to ship in service or are you seeing any push outs on that front?

I'll just talk a little bit about the gross margin, and then Chris can talk a little about the supply chain. When you look at our service gross margins, they're very consistent at 65% and growing. In Q4, the product gross margins were not impacted at all by the supply chain issues. It was just primarily mix. And as I mentioned before, we feel comfortable looking at it going forward. The product gross margins being anywhere from 30% to 35%. As we look forward, the supply chain is an issue not only for us, but the whole industry. So Chris, maybe you want to take that?

Yes. To be very specific, there are a couple of components, actually module shortages that have been going on that have not necessarily impacted us as of yet, and we are in the middle of making sure they don't. So by pulling in orders, you will probably see some of our inventory go up just to make sure that we have ample supply for and also for surge, getting back to the other question about large field trials that come to culmination. For modules and supercaps, the long lead times. So that's what we're trying to do right now. It's just remediate any risk and make sure that we can take advantage of upside by pulling in subcomponents and modules early. We don't have to do the build-out of the full product that we can pull in the parts so that we have ample supply. But it is concerning, and some of the long lead times are getting into like 6 months, right? So you have to plan ahead.

Okay.

So you have to plan ahead.

Got you. And just to follow-up on some earlier comments for clarification with the United States Postal Service. It sounds like now that is moving ahead. It's just a timing issue. And to follow-up on your comment on Budget, is Budget now just specifically through Pointer in Israel or is that expanding out to Budget globally?

Yes, Avis Budget Group includes Budget as part of its operations. In the U.S., some of the 120,000 units they acquired may belong to the Budget portfolio, which is a licensee of Avis Budget Group. Our agreement with Avis permits us to sell to these licensees, and there are quite a few both domestically and in many international markets. We have also been approached by other countries, such as Mexico. Whether they choose our Avis product directly or another product from the Pointer acquisition, we are presenting them with our range of offerings. Securing a win with one of the Pointer products is still an excellent outcome for a licensee.

Got you. And U.S. Postal Service?

Yes. I think there are important discussions and planning taking place. We will make an announcement when we start deploying at facilities, and we hope that will begin in a couple of months.

Great. And lastly, if I could, just given the mix of business and where you're shifting, you're moving to more value, I'm kind of wondering how you're thinking about recurring revenue from an ARPU standpoint as you start to win some of these higher-value opportunities, including weight on axle and other weight sensor-driven initiatives. And also as you're kind of moving into some different directions, cold chain keeps coming up a lot. I'm wondering if the competitive list of vendors or the short list you're fighting against is changing at all. Thanks.

When discussing weight on axle, I want to highlight the value of our freight camera. People may not realize that we utilize machine learning for imaging, which enables us to assess how trailers are loaded and detect any shifts during transit. This allows us to provide guidance on how to unload a trailer, marking a significant advancement in our offerings. This capability is linked to weight on axle, enhancing visibility and helping our customers improve their operational efficiency. The industry faces various challenges, notably at major hubs like the Port of Los Angeles and issues surrounding chassis containers. Our aim is to expedite truck movements in and out of yards by ensuring accurate trailer locations. Consequently, our pricing strategy has shifted to focus on solution sales, where we offer a comprehensive package that includes hardware, analytics, and software components. The average revenue per user (ARPU) can vary depending on the specific industry and solution being provided. Generally, the ARPU for a chassis tracking product is around $4 to $5 monthly, with additional charges for extra data services linked to weight readings and freight cameras. Furthermore, the rollout of 5G technology allows for reduced data rates, enabling us to transmit more sensor data efficiently. Regarding cold chain initiatives, we've begun competing with systems integrators and have formed partnerships, such as with Tata Consulting Services, one of the largest in the field. This collaboration presents an excellent opportunity for us, as we can either independently pursue projects or team up with established partners to capture IoT market opportunities. Our agility and innovative approach in the IoT sector set us apart, allowing us to quickly identify problems and deliver effective solutions.

Great. Thank you.

Okay. Thanks.

Our final question is from Gary Prestopino with Barrington Research. Please proceed.

Hey. Good morning, everyone. I just want to clarify. You had 590,000 on air subscriber units at the end of the year?

Yes.

Okay. Chris, could you give us an idea of the growth in your backlog overall compared to the end of last year?

I mentioned earlier that we've seen a broader trend across various areas. For instance, in Israel, two years ago there were no IoT programs in our operations there, which primarily focused on vehicle sales through OEMs and SVR. Now, 10% of our revenue from Israel comes from IoT projects, which is a significant change in just two years. We expect this trend to continue as we remain focused on it. In our logistics segment, where we've made substantial investments in the Panhandle Group, we have a 6,000 unit container fleet at McGuire, and we're seeing solid traction. We do not always announce when current customers refresh, but we're witnessing steady sales progression in logistics. The industrial segment, however, has always been more volatile as it's primarily a cost center. When the economy falters, companies typically avoid adding costs to these centers, which was the case for us last year. However, we are starting to see recovery as business activity picks up and new projects are initiated. For example, Toyota's manufacturing was put on hold but is now beginning to come back, which is very encouraging.

Okay, great. And then lastly, Ned, can you provide us with the components of non-GAAP net income for all of the quarters for 2019 and 2020 for modeling purposes?

Sure, I can. Obviously, it's in the press release. There's a table, Gary, that has the GAAP to non-GAAP. So I don't want to read it over the conference.

No, I'm looking at the press release, and I'm seeing it for December and for the year, both the quarter and the year. Maybe I don't have the full press release available right now. But there is a breakdown by Q1, Q2, Q3 for 2019 and 2020 of all the individual components.

Yes, and I will point that out to you after the call if that's okay.

Okay. I'm sorry. I'm looking at this on two separate screens here. So all right, I'll take a look at it. Thank you.

Okay. Thanks.

Thanks, Gary.

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

Thank you for joining us today. I'd like to thank our employees for their diligent efforts and great results and 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 with you again soon. Thank you.

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