Earnings Call Transcript - AIOT Q4 2022

Operator, Operator

Good morning. And welcome to PowerFleet’s Fourth Quarter and Full Year 2022 Conference Call. Joining us for today’s presentation is the company’s CEO, Steve Towe; and CFO, David Wilson. 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 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 offerings and other industry trends are considered forward-looking statements. Such statements include, but are not limited to, the company’s financial expectations for 2023 and beyond. All such forward-looking statements imply the presence of risks and 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 statements. Factors that could cause actual results to differ materially could include, amongst other 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 would like to turn the call over to PowerFleet’s CEO, Mr. Steve Towe. Sir, please proceed.

Steve Towe, CEO

Good morning and thank you for joining us today. It’s a pleasure to be speaking with you once again. It’s been a rigorous and exciting first year since I joined the company. I’m incredibly proud of the progress the team has made on the journey of transforming PowerFleet towards our mid- to long-term goal of being recognized as a world-class, high growth and profitable SaaS solutions provider. The Board and I are highly encouraged by the progress we’ve made to date, executing our strategy to turn around the business in the first two years of my tenure as CEO. We’re ahead of schedule and executing well on our mission. As a reminder, my initial priorities were as follows. First, we needed to make dramatic improvements to the caliber and experience of the leadership team in order to become a true IoT SaaS company. Second, we needed to develop a unified SaaS platform strategy that delivers great value for clients to improve our margins and expand the total available market for our solutions. Third, we needed to show evidence that we could drive sales execution and topline traction in high-value markets and vertical segments. As we move towards the next phases of our transformation plan, we’ve been focusing heavily on expense containment and rationalizing certain geographies and product lines that we believe are incapable of driving sufficient rates of return and cash flow. In turn, we’ve been creating strategies for redeploying cost savings to accelerate our product and sales plans in the highest ROI business areas. We’ve accomplished a tremendous amount over the last year through rigorous and rapid execution, powered by hiring a super talented executive team with deep experience working with high growth SaaS companies, including adding David Wilson, our CFO, who you’ll hear from shortly. Our profitable growth strategy that we call PowerFleet Reimagined, which was first introduced at our inaugural Investor Day last June, has been very well received by employees, customers, partners and investors alike. From a technology perspective, in November, we launched PowerFleet Unity, a new game-changing fleet intelligence platform that unites people, assets and data together to transform the way its customers do business. Unity will be the cornerstone of our future shareholder value creation and is ahead of schedule, gaining traction with new customers, highlighted by our recent announcements with Kearney and FEMSA. Even with the dramatic business transformation efforts and fundamental operational change in 2022, we were still able to drive topline growth, improved gross profit, and enhanced profitability, an ambitious objective I articulated to all of you at the beginning of 2022. Our encouraging financial results were achieved in the face of ongoing macroeconomic pressures and significant supply chain headwinds. David will discuss our Q4 and 2022 results in detail, but at a high level in 2022, we delivered 7% topline revenue growth, 8% growth in high margin services revenue, and grew our subscriber base by 8% to 664,000. From a profitability perspective, we improved gross profit by $4 million, reduced loss from operations from Q4 2021 to Q4 2022 by 65%, and grew adjusted EBITDA by 19%. We faced significant FX headwinds in 2022, but on a constant currency basis, our annual total revenue growth was 10%, with services revenue growing 11% for the full year. One of the key thesis questions was, could we improve our growth in the U.S. market in 2023. We proved our thesis by delivering total annual revenue growth in the region of 12% and service revenue growth of 13%. A key driver of our success was our U.S. Industrial business segment, which grew 33% in the second half of 2022 versus the corresponding period in 2021. We’re also excited by the performance of our Mexico business unit, which achieved 34% growth year-over-year in total and 33% in services revenue. Perhaps our progress is most telling and best measured when we compared our financial results for the second half of 2022 versus the first half of 2022. High margin services revenues increased 5% to $40.3 million. On a constant currency basis, the sequential increase was 8% or an impressive 16% on an annualized basis. Overall, gross margins expanded from 45% to 50% with our gross profit increasing by $3 million or 10%. Additionally, the success from our products and reengineering initiatives expanded our product gross margins from 20% to 29% in the second half of the year. From a profitability standpoint, we realized a 54% or $2.9 million improvement in loss from operations, as well as a $2 million or 76% improvement in adjusted EBITDA. Compared to the same period last year, we increased gross profit by $4 million or 13%, improved our operating losses by $3.5 million or 59%, as well as saw a $2.7 million or 132% improvement in adjusted EBITDA. During the fourth quarter, we saw double-digit growth in our key regions, including a 20% increase in the U.S. Industrial segment and a 37% increase in revenue in Mexico, driven by both Unity sales and initial sales of our Industrial Solutions in the region. The overall topline results in Q4 reflect the decisive actions we took to deemphasize underperforming product lines and territories, and terminate unprofitable contracts, measures I alluded to in our Q3 call. To put this into context, unrecognized revenue related to the termination of unprofitable contracts and the de-emphasis of lower margin products was approximately $2.5 million in the quarter. Nevertheless, our tight cash management produced the highest cash collections quarter in the company’s history. While we’re encouraged by our operational and financial progress, especially in the second half of 2022, there is still much more work for us to do to achieve the level of performance we believe is possible for our company. Although the speed of cleanup has exceeded our internal expectations, the operating state of the business when I assumed the CEO position was far more challenged than expected and there are still crucial areas that need to be improved. Along that line, earlier this quarter, the leadership team enacted a focused plan to further optimize our business. When completed, the plan will reduce our OpEx by an additional $3 million annually, which we expect to drive bottom line improvement. This is in addition to the $5 million we took out of the business in 2022, some of which allowed us to pivot and grow our software sales and development teams. Before I discuss our 2023 initiatives and our business outlook, I’m going to invite David to walk through our financial performance for Q4 and 2022 in more detail. David?

David Wilson, CFO

Thanks, Steve, and I’m pleased to connect with many of you for the first time on this call. This week marks my second month with PowerFleet and my time on the Board has reaffirmed two key reasons I chose to join the team. Firstly, there’s a rich set of complementary assets of PowerFleet that have a massive amount of latent value. Secondly, the team that Steve has put in place are aggressive change agents who have the drive and experience required to realize PowerFleet’s full potential. The third key reason I joined PowerFleet is patent recognition. Prior to joining PowerFleet, I was the CFO of ACS, a regional telco, which was an amalgamation of acquired companies that had a newly installed management team tasked with turning the business around and creating a huge amount of value for stakeholders. While the road at ACS was more rocky than smooth in the early quarters, during my tenure, we outperformed the sector by 16 times, turning ACS from a valuation laggard to a valuation leader. I look forward to playing my part in achieving similar success with PowerFleet. Now on to our fourth quarter results for the year ended December 31, 2022. Total revenue was $33.1 million, compared to $34.4 million in Q4 2021. As Steve noted earlier, the step down in revenue was by design, with an increasingly sharp focus on the quality versus the quantity of revenue. In the quarter, we sidestepped approximately $2.5 million in available sales in non-core underperforming product lines and territories. Venturing the business around high margin SaaS revenue is a central tenet of PowerFleet Reimagined, with the fourth quarter mix of service revenue increasing to 60% or $20 million in 2022 from 56% or $19.1 million in 2021. Product revenue, where the quarter’s sales were focused on deals with a high attachment of SaaS service revenue was $13.1 million versus $15.3 million in Q4 last year. Gross profit was $16.4 million, compared to $15.4 million. Importantly, gross margin expanded by 5% to 49% of total revenue, up from 45% last year. Fourth quarter service gross profit was $12.8 million, with margins of 64% of total service revenue in line with expectations. This compared to $12.4 million or 65% of service revenue in Q4 last year. Product gross profit was $3.6 million, compared to $3.1 million in the same year ago period. While deal discipline was a primary driver of quarterly product gross margins expanding to 28% of product revenue, up from 20% last year, 2022 performance was adversely impacted by $600,000 or 5% gross margin for inventory and warranty reserve adjustments and out-of-period charges. Looking at expenses, OpEx was $17.6 million, compared to $18.9 million in the same year ago period. 2022 operating expenses benefited from foreign exchange translation gains of $1 million, which is a reverse to calculated adjusted EBITDA and $0.7 million in incremental stocks and audit professional fees, which flows through to adjusted EBITDA. In terms of profitability metrics, net loss attributable to common stockholders totaled $2.9 million or negative $0.08 per basic and diluted share. This compares to a net loss attributable to common stockholders of $7.9 million or a loss of $0.23 per basic and diluted share in Q4 last year. Finally, adjusted EBITDA, a non-GAAP metric in the fourth quarter of 2022 totaled $1.4 million, compared to an adjusted EBITDA of $1 million in the same year ago period. Our balance sheet remained strong in the quarter with $18 million of cash and cash equivalents. The company’s working capital position at quarter end was $35.5 million. Shifting gears to our financial results for the full year ended December 31, 2022. Total revenue was $135.2 million, an improvement compared to $126.2 million in 2021. High margin services revenue was $78.8 million, compared to $73.2 million in 2021. Product revenue, which drives future services revenue was $56.3 million, compared to $53 million in 2021. Gross profit was $64.2 million or 48% of revenue, compared to $60.2 million or 40% of revenue in 2021. Services gross profit was $50.5 million or 64% of total service revenue, compared to $46.6 million or 64% of total service revenue in 2021. Product gross profit was $13.7 million or 24% of total product revenue, compared to $13.5 million or 26% of product revenue in 2021. Operating expenses were $72 million, compared to $68.2 million in 2021, while net loss attributable to common stockholders totaled $11.9 million or negative $0.34 per basic and diluted share in 2022, which compares to a net loss attributable to common stockholders of $18.8 million or negative $0.52 per basic and diluted share in 2021. Adjusted EBITDA, a non-GAAP metric, totaled $7.3 million, compared to adjusted EBITDA of $6.2 million in 2021. That concludes my remarks. Steve?

Steve Towe, CEO

Thanks, David. One of my stated goals on joining the company has been to substantially increase the revenue share of our SaaS and recurring revenues, which has the benefits of increasing our visibility, margins, and relative competitive advantage. We’ve built a great team at PowerFleet and the concentration of this talent around the best and highest quality revenue and profit opportunities as a result of a dynamic capital allocation strategy to yield the highest potential returns to our shareholders, employees, and customers. In this spirit, we have decided to entertain strategic alternatives for our Argentina, Brazil, and South Africa business units. As background, there have been third parties who have expressed interest in these business units and we’ve decided to evaluate these potential opportunities with these partners. In parallel to our organic growth strategy, we are continually evaluating balance sheet accretive M&A opportunities to enhance our capabilities and augment our ability to scale more rapidly. Along that line, this morning, we announced the acquisition of Movingdots, a German-based telematics provider, a fully-owned and operated subsidiary of Swiss Re. Since 2015, Movingdots has served Swiss Re’s technology hub in the automotive and mobility space. For those not familiar with Swiss Re, they are one of the world’s leading providers of reinsurance and insurance. Movingdots spent the last decade designing and perfecting data science algorithms with insurers to provide risk-based drive style analytics for fleets and personal auto risk. Backed with actuarial insights, Movingdots enables data-driven insurance propositions for insurers, car manufacturers, and mobility platform players worldwide. By focusing on customer safety and security needs and by providing transparent and comprehensive monitoring, Movingdots combines insurance analytics with AI and ML technology to drive an individual risk assessment. Movingdots has also developed leading-edge technologies for the sustainability and ESG reporting space. Swiss Re and Movingdots have been searching for the right strategic growth partner to deliver these precisely architected insurance solutions to the global market in a sustainable, profitable, and scalable way. From a customer perspective, Movingdots has several blue-chip insurers as customers and works with major automotive OEMs as partners and also serves more than 160 enterprises in the European market. Movingdots checks all the boxes of a highly complementary and synergistic acquisition. First, it accelerates PowerFleet's entry into Europe by providing a meaningful beachhead with major reference customers and a network of Tier 1 partners. Second, PowerFleet presents a significant opportunity to cross-sell Movingdots solutions into our base of customers and partners and vice versa. Third, the acquisition brings strong technically advanced data science IoT solutions for the insurance and sustainability markets, which present distinct competitive advantages and credibility in a highly strategic end market for PowerFleet. Fourthly, the acquisition enhances our Unity Platform with Movingdots focus on delivering innovative automotive and mobility safety solutions and ESG reporting that will enrich PowerFleet SaaS enterprise applications. Finally, Movingdots has built a hub of software and platform excellence in Germany and beyond. Movingdots employees will strengthen PowerFleet’s current tenured and talented team, all striving to deliver on the promise of people powered IoT. From a consideration perspective, we’ve agreed to acquire Movingdots for €1 and issued 800,000 warrants to Swiss Re that have an exercise price of $7 per PowerFleet common share. Swiss Re has agreed to fund €8 million in cash at close to ensure continuity of Movingdots' telematics offerings and a seamless transition for the company’s talented 50 employees, as well as its value customers and partners. Equally important to Swiss Re was a continued strategic commercial alliance with PowerFleet. Looking to the future, we anticipate generating sequential revenue growth in Q1 despite the expected revenue reduction as a result of our strategic rationalization efforts, driven by robust double-digit growth from our U.S. Industrial segment, a trend we expect to continue through 2023. In summary, we’re focused on realigning and restructuring our cost base to realize the potential of an increasingly robust and competitively differentiated high growth SaaS offering. Movingdots has an important role to play, enriching our Unity offering, while simultaneously providing a leading position in the strategic insurance vertical and enhancing balance sheet liquidity. That concludes our prepared remarks. Now I’ll turn back over to the operator for Q&A.

Operator, Operator

Thank you. Our first question is from Scott Searle with ROTH. Please go ahead with your question. Scott, can you check if your line is muted?

Scott Searle, Analyst

Oh! My apologies. Hey. Good morning. Thanks for taking the questions. Steve, a lot going on this morning, I wanted to quickly clarify a couple of things and then dive into Movingdots. But $2.5 million in sales in the fourth quarter were lost related to basically walking away or terminating bad contracts, I want to confirm that? And then the $3 million reduction in OpEx, I want to understand if that is going forward off of the fourth quarter levels? And then I had a bunch of follow-ups on Movingdots.

David Wilson, CFO

Yes. So in terms of the OpEx, I’ll start at that first one, it’s David Wilson. I know it’s got the first time you would have been on the call. That’s primarily a reduction in terms of go-forward spend. There were also some planned investments we’re going to do this year, which is a part of it, but the vast majority of it would be a reduction in terms of ongoing spend. And in terms of $2.5 million in contracts, Steve, again, I think predates me, but in the Q3 call, he was talking about just being a lot more disciplined in terms of the deals that we do. So there were some low-margin business that would require investment in inventory that we chose not to do. There’s also the roll-off of certain contracts we have, particularly in EMEA, where we have chosen not to pursue that business, so that’s falling off as well. So it’s a combination of both hardware sales in addition to some reduction in terms of recurring services revenue.

Scott Searle, Analyst

Great. Regarding Movingdots, it sounds very exciting, but I want to clarify a few of the basic metrics. The purchase price is €1, and you have 800,000 warrants at $7, which will provide $8 million in cash. However, I’m unsure about the employee count. Is it 50 employees or 115 employees? What is the revenue run rate associated with Movingdots? It appears you’re bringing in a strong data science team with relevant expertise in the insurance sector, but how soon can you start to monetize that and integrate it into the Unity Platform?

Steve Towe, CEO

So great question, Scott. So, first of all, it’s 50 employees that we’re bringing in. And if you look at Movingdots, I mean, previously stated, we wanted to get a European beachhead. We want to take a leading position in safety and sustainability in insurance. We believe that is a key market driver. We wanted to bring in some great talent to drive and expedite Unity and our data science capabilities and we’ve done that in one fall swoop. So we feel very good about that. And obviously, that’s supported with an ongoing relationship with Swiss Re and then providing $8.5 million in cash towards future growth together. We’ve taken some good time to look at the go-to-market approach. That will take some time to get revenues moving. They’ve spent an inordinate amount of time, almost a decade perfecting the solutions, which if you think about it for the insurance market to be robust and ensure the risk profiles that are being put forward, it has to be bulletproof. So it’s an amazing product, it’s got modest revenues today and we look to expand in the future. We’ll give more details on the financials. We’re still under confidentiality through to close on any kind of more detail on the financials, but we’ll update that at our next call.

Scott Searle, Analyst

Got you. But, Steve, the expected closing is in the current quarter. Is that correct or is this going to go into the second quarter?

Steve Towe, CEO

So the 31st of March, 1st of April, I’m not sure which date yet, but very soon, three weeks to four weeks from there.

Scott Searle, Analyst

Got you. Lastly, as we look at the core business today and the outlook for the first half of 2023, what are you observing? I’m not sure if I heard specific guidance regarding services, but could you discuss what the outlook entails? What does the pipeline look like? There seems to be significant early engagement on the Unity Platform, so I’m curious about how that is evolving into richer features and higher ARPUs within the customer base. Additionally, could you provide a brief update on supply chain challenges and whether they are impacting revenue timelines? Thanks.

Steve Towe, CEO

Yeah. Thanks, Scott. I’ll try and break those down. So, firstly, in terms of pipeline, we feel very good, very bullish about the future. We’ve invested a lot in new sales and marketing to drive that pipeline and I think we’re ahead of schedule in terms of getting some of the customers onto the Unity Platform. Unity is today feature-rich by combining all of our previous platforms together, the launch of the first new module. We’re very excited about safety and security, which is coming out at the end of this month. And obviously, from an ARPU perspective, the modularity of it allows us to drive significant increases over time. The first deals that we’ve got are probably, I would say, 20% higher in ARPU than our standard deals have been due to the kind of promise of Unity moving forward. So we feel very good about it, we feel very confident that we have a winning formula with the platform and we’re bullish about the future.

Scott Searle, Analyst

Great. Thank you. I’ll get back in the queue.

Operator, Operator

Thank you. Our next question will come from Mike Walkley with Canaccord Genuity. Please proceed with your question.

Daniel Park, Analyst

Hi, guys. Good morning. This is Daniel on for Mike. Thanks for taking my questions. So, I guess, first off, congrats on the solid Q4 results and recovering gross margins. I just wanted to double click on this, was this primarily driven by mix, maybe improving supply input costs or other factors such as passing on increased costs, obviously, we know the supply chain remains pretty challenging. But can you just discuss how you’re managing this and what it means for hardware gross margins over the next year?

Steve Towe, CEO

Sure. I apologize, Scott, I didn’t complete my response regarding the supply chain aspect. Supply chain challenges persist, and we've unexpectedly faced price increases from our partners. We aim to quickly pass some of these costs to our customers whenever possible and appropriate, but there are still issues with components. Over the past year, we’ve done an excellent job ensuring we can meet our customers' needs. In the first half, we faced significant headwinds, including over $4 million in one-time expenses for high-priced components. However, we have worked to reengineer and manage many of those components, which has led to improvements. I believe we are now securing better quality deals and managing price and value more effectively as a company, and we expect this trend to continue. Additionally, factoring in the favorable exchange rate impacts in the second half, we are likely reporting a couple of percentage points higher than what was indicated today. While there is still volatility, we are confident in our ability to move forward. Overall, it’s about improved sales execution, better cost management, and enhanced alignment within our organization.

Daniel Park, Analyst

Great. And I guess in regards to the pace of the additional $2 million savings, is this both in gross margin and OpEx or just more in OpEx?

David Wilson, CFO

It’s both, but I would say, heavily weighted towards OpEx.

Steve Towe, CEO

I mean I think one thing that I talked about in January last year was we were going to execute ruthlessly the changes that we need to make. And I’m, again, very encouraged by the way that the team has taken on the challenges, really creating a very strong basis for success moving forward and tackling a lot of tough challenges in the business. I think if we look at the efficiency programs that we’ve run, the way that we’ve been able to rebrand the company, bring in some super talented individuals, and reduce costs at the same time, plus do an acquisition is testament to a team that is very focused on the opportunity ahead of us.

Daniel Park, Analyst

Great. Thank you very much for the additional color.

Operator, Operator

Thank you. Our next question comes from Gary Prestopino with Barrington. Please proceed with your question.

Gary Prestopino, Analyst

Hey. Good morning, everyone. Several questions here and really a lot to get through in a short period of time from when you issued the press release, but first of all, on the $2.5 million of the business that you did not or you walked away from in Q4, how does that break down between products and services?

David Wilson, CFO

Yeah. I would say 95% of it is product. So the vast majority is product.

Gary Prestopino, Analyst

Okay. So 95% is product. Okay. So now that business doesn’t include or does it include your valuation that you’re going through with Argentina, Brazil, and South Africa, or was that included in that $2.5 million?

Steve Towe, CEO

No. That was some contracts in various territories around the world, some in Latin America, some in Europe, some in the U.S. So it was spread across. We have a historic heritage business of course locator, which was a hardware-only business. And that’s in India, Colombia, Croatia, and it’s just not high-quality business for us. So we walked away from a number of opportunities and ran down contracts and inventory in that space. Our ambition…

Gary Prestopino, Analyst

So…

Steve Towe, CEO

Sorry. Go ahead.

Gary Prestopino, Analyst

No. No. Go ahead. I’m sorry, Steve. Go ahead.

Steve Towe, CEO

So our ambition, obviously, is to focus on high-quality SaaS recurring revenue and that type of business just doesn’t really fit the mold of what we’re trying to achieve moving forward.

Gary Prestopino, Analyst

Okay. So in 2023, as you finish this evaluation, I think you said, you’ve got parties that may be willing to take over the business in these various regions. We would expect that there will be further adjustments to the sales in 2023 going forward as you move out of these countries. Is that correct?

David Wilson, CFO

Yeah. That’s correct. So for those regions in 2022 was about $13 million worth of revenue. So that is right.

Steve Towe, CEO

Yeah.

Gary Prestopino, Analyst

Okay. All right. That’s good to hear and I guess that’s fairly low margin or problematic.

Steve Towe, CEO

I mean, these regions are quality businesses. The way the business was previously run was independent territories. So there’s a lot of complexity…

Gary Prestopino, Analyst

Right.

Steve Towe, CEO

…and some differentiation in those local territories. And look, we’ve got phenomenal growth opportunities in some good core territories where we have great established customer bases and large momentum. If you look, as we said, in terms of the U.S., one of the big questions was, could we really drive the U.S.? I think in a year of transformation, we’ve proven that out. If we look at our Mexican business unit growing at 30%-odd a year, that is very strong. We’re now going to have a good, strong European business alongside it. So we just want to not spread ourselves too thin. We have dilution in our activities and distraction by some of these smaller territories that we believe may be better served in different organizations or smaller organizations. So it’s a very focused strategy on high-quality growth and we think it’s smart and true and sensible to do what we’re doing there.

Gary Prestopino, Analyst

No. That’s fine. So, look, then just looking at the quarter a little bit here and I realize these are my numbers, but it looked like you had been on a run rate of close to high $2s million, $2.8 million, $2.9 million, or 2 point, I’m sorry, $2.8 million of adjusted EBITDA Q2, Q3. Step down of $1.4 million this quarter. Obviously, some of that is related to the business that you jettisoned. But I’m also looking at this and seeing the service revenue was only up about, I think, 5% year-over-year and after being up in the high single digits Q2, Q3. So what would explain that step down in the growth in service revenue, I mean, if you’ve got the subscribers there, how does that go down?

David Wilson, CFO

Yeah. So I can pick that one up. So there was $300,000 of FX impact between Q3 and Q4. So that was a step down. There was also, and I am sorry, I’m not answering your question directly, but in terms of nonrecurring revenue, it’s a small part of our business. It’s probably sub 3% of our total services revenue, but that was actually down $150,000 sequentially. So that one-time revenue was just lower in Q4 than it was in Q3. So, again, that probably had some impact in terms of the jump-off point you’re expecting going into the quarter.

Steve Towe, CEO

I would like to mention that we reached agreements with some customers to discontinue their contracts. As a result, they are transitioning away from the platform, which involved terminating certain service contracts.

Gary Prestopino, Analyst

Okay. Okay. That’s good. So then in terms of this acquisition that you’ve made. First of all, is Movingdots is Swiss Re the sole account right now of this Movingdots or are they out selling it to other insurance companies or fleets or whatever? How does that work?

Steve Towe, CEO

Yeah. So, obviously, a good percentage of their go-to-market business is within Swiss Re. So they are one of the world’s largest reinsurers. So they have a number of products…

Gary Prestopino, Analyst

Right. Correct.

Steve Towe, CEO

…and are selling it into their base as part of their proposition, but they also have some independent relationships with other insurers on a global basis, plus their previous heritage to insurance was core fleet telematics, which they have some customers as well. So this is a business where the product and the capability of the team is fantastic. The rationale for the relationship is around now proving that out in the market and really going and maximizing the sales opportunity and that’s why it’s such a better together story. I think Swiss Re are very aware to go and sell this at scale through and deploy it through channels that PowerFleet can bring is going to be far more effective than where they have been and that’s why this makes this such a good synergistic acquisition.

Gary Prestopino, Analyst

Well, that’s the question I wanted to pose to you. I mean I realize you still haven’t closed this, but obviously, Swiss Re trying to sell this to other insurance companies, that’s simply not going to work in a lot of cases because it’s insurance-to-insurance. But is the plan here to try and expand this product on the European Continent to other insurance companies, as well as any business that you’re doing in the legacy business of PowerFleet? I mean how do you see growing this, I guess?

Steve Towe, CEO

So, first of all, I think it’s independently recognized and it’s been interesting over the last probably four months or five months with analysts, investors alike, people now really seeing the synergy between insurance, safety, risk, and telematics. So that…

Gary Prestopino, Analyst

Right.

Steve Towe, CEO

That sector is expanding, and we aim to lead the market there. The transition to electric vehicles also affects insurance risk premiums. We possess advanced technology for electric vehicles. In our industrial and warehouse safety sector, we're seeing significant growth in pedestrian safety, which connects insurance risk to saving lives. This aligns perfectly with our organizational goals. From both B2B and B2B2C perspectives, we have strong existing channels and partnerships, including with AXA and Swiss Movingdots, utilizing both smartphone technology and hardwired telematics. We believe this is beneficial not just for Europe but for many of our other regions and channels. When we integrate this into Unity, we will focus on safety and security, enhancing our capabilities and providing us a competitive edge. The credibility of our approach is particularly strong since it has been validated by an insurer. We see a great opportunity for insurance companies to adopt this with their customers, and we are ready to leverage that commercially.

Gary Prestopino, Analyst

Okay. That all sounds good. And then what’s the revenue model here, Steve?

Steve Towe, CEO

In terms of subscription versus hardware and service, you mean?

Gary Prestopino, Analyst

Yeah. I mean is it basically a sales SaaS subscription-based revenue model?

Steve Towe, CEO

Yes. Yes. It is.

Operator, Operator

Thank you. There are no further questions at this time. I would like to hand the floor back over to Steve Towe for any closing comments.

Steve Towe, CEO

Thank you, Operator. Thank you all for the insightful questions and for joining us this morning. I look forward to speaking with you again very soon. Take care and have a great day.

Operator, Operator

This concludes today’s conference. You may disconnect your lines at this time. Thank you for your participation.