Earnings Call Transcript - AIOT Q1 2020

Operator, Operator

Good morning. Welcome to PowerFleet's First Quarter and 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 up 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 in 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 industrial trends are considered forward-looking statements. Such statements include, but are not limited to the company’s financial expectations for 2019 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 statements. Factors that could cause actual results to differ materially could include, amongst 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 would like to turn the call over to PowerFleet's CEO, Mr. Chris Wolfe. Sir, please proceed.

Chris Wolfe, CEO

Thank you, Josh. Good morning, and thank you for joining us today. I hope you're all safe and healthy during this extraordinary time. The COVID-19 health crisis requires remarkable efforts from people, communities, organizations, and governments to keep our people healthy and safe. This crisis has impacted companies and people all over the world and our thoughts go out to all those affected. Internally, our top priorities remain keeping our employees and community safe, maintaining the health and viability of our business, and ensuring our customers keep food and goods going where they need to get to. Across our businesses and geographies, we have adhered to the CDC guidelines and local Health Ministry recommendations while continuing to operate as an essential business as designated by the U.S. Department of Homeland Security. Our Israeli operations were also designated as an essential service because our technology supports emergency responders and critical logistics infrastructure. We spent a considerable amount of time over the last two months accelerating cost-saving synergies, right-sizing our business units as the pandemic’s impact, and government responses have varied considerably, while ensuring our companies and employees' safety. Fortunately, our business continuity plans and IT infrastructure were effective and flexible, allowing us to continue helping our customers and partners meet the challenges of today's remote work environment. I continue to be impressed daily by our team's determination and productivity while navigating these uncharted waters. Our uninterrupted operational execution in Q1 is a testament to their unwavering commitment to helping our customers and partners in a time of increased need. And our steady financial performance for the first quarter highlighted by $30.8 million in total revenue, $17.6 million in high-margin recurring and services revenue, and $2.8 million of operating cash flow we generated demonstrates our business model’s resiliency. PowerFleet continues to provide the utmost customer support during these times to enable our customers to react quickly and safely as they move critical cargo around the globe. Our tracking and monitoring technology is relied upon by global companies in the food and grocery supply chain including Walmart, Nestle, Procter and Gamble, General Mills, Publix, Kraft, and many more. While we have a broad and diversified customer base comprised of blue-chip companies and global enterprises, a small subset of our customers, particularly in the travel industry, have been impacted by the pandemic. Our longstanding partner Avis has not been immune to the current market dynamic and we are working closely with them to support their efforts in right-sizing their fleet. Recognizing the ongoing uncertainty from this global pandemic and its downstream effects on the business and the economy, we believe it was necessary to enact proactive cost-saving measures to ensure our business remains secure and our long-term growth potential remains intact. At the end of March, we implemented a plan to reduce our operating costs and further optimize our organization. These include permanent expense reductions on travel, marketing, eliminating most contract record balances, deferring salary increases, shortening work weeks in certain geographies, and structural changes such as a reduction in our overall workforce. The actions we've taken coupled with our liquidity position give us confidence that we will not only weather the storm, but come out stronger as the world economies reignite. Cash and flexibility are critical during these types of environments, which is why our Board believes that it was prudent to put an at-the-market or ATM instrument in place as part of our previously filed Form S-3. The ATM gives us additional flexibility so that we can delever our balance sheet when it makes sense to do so, and more importantly, allows us to execute against some large revenue opportunities in our pipeline, which I'll review in more detail after Ned walks us through our first quarter financials. Ned?

Ned Mavrommatis, CFO

Thank you Chris, and good morning, everyone. Our financial results for the first quarter of 2020 include consolidated results from I.D. Systems and Pointer Telocation Ltd., which were acquired on October 3, 2019. Keep in mind that the comparable year-ago period only includes standalone financial results from I.D. Systems. Now with those qualifications, let's look at the numbers. Revenue for the first quarter of 2020 increased to $30.8 million from $13.6 million in the same year-ago period. High-margin recurring revenue was $17.6 million or 57% of total revenue, compared to $6.4 million or 47% of total revenue in the same year-ago period. Product revenue, which drives future services revenue, was $13.2 million or 43% of total revenue, compared to $7.3 million or 53% of total revenue in Q1 last year. Gross profit increased to $14.9 million or 48% of total revenue from $7 million or 52% of total revenue in Q1 of last year. Now turning to our expenses for the first quarter of 2020, total operating expenses were $18.3 million compared to $9.2 million in Q1 last year. Looking at the various components of OpEx, selling, general, and administrative expenses were $13.4 million compared to $7.2 million in Q1 of last year. Research and development expenses were $3.2 million compared to $1.7 million in Q1 of last year, and depreciation and amortization expenses were $1.7 million compared to $358,000 in the same year-ago period. As Chris mentioned in March, we proactively implemented several cost-saving measures, of which we expect to see the financial benefit starting in the second quarter. Some of the cost-saving measures already implemented include a reduction in force, eliminating most third-party contractors, and imposing a temporary hiring freeze. In certain geographies, we reduced to a four-day work week and reduced salaries by 20%. We're monitoring the situation closely and have additional levers to pull should the COVID-19 situation worsen. Turning to the profitability measures, GAAP net loss for the first quarter of 2020 totaled $4.5 million or $0.16 per basic and diluted share. This compares to a GAAP net loss of $2.2 million or $0.12 per basic and diluted share in Q1 of last year. Adjusted EBITDA, a non-GAAP metric, which we define as earnings before interest, taxes, depreciation, amortization, stock-based compensation, and non-recurring items for the first quarter of 2020 totaled $152,000. This compares to adjusted EBITDA of $240,000 in Q1 of last year. Our cash position remains strong with $16.6 million in cash at quarter end. Working capital of $24.1 million, and we also have available $10 million line of credit with Bank Hapoalim in Israel, which is unused at this point. We're focused on working capital management and as you can see from our Q1 results, we generated $2.8 million in cash flow from operations. I am pleased to report that our cash position remains stable at the end of April. We believe that the $8 million of annualized costs that we took out recently from our business coupled with our overall cash and available resources, puts us in a strong position to meet our $4 million of bank debt that's due over the next 12 months. As of today, our pipeline remains strong and our business is fully operational. However, given the uncertainties, we cannot accurately predict the specific event or duration of the impact of COVID-19 on our financial results. Recognizing this reality, we believe it is prudent to withdraw all financial guidance until visibility returns to pre-COVID-19 levels. In summary, we believe our diversified customer base, predictable recurring revenue, and prudent approach to cash management will help to ensure that we successfully navigate these uncertain times. That concludes my prepared remarks. Chris?

Chris Wolfe, CEO

Yes, thanks for the financial overview, Ned. In the midst of the COVID-induced market disruption, our team has done an extraordinary job executing against our organizational and program integration plans and targeted cost savings. As I mentioned in my opening remarks, as country and state shutdowns were initiated, we took proactive actions to keep our employees safe, reduce expenses, and maintain uninterrupted operational capabilities. The slowdown also forced us to look at critical priorities in our strategic plan, including temporarily shelving some initiatives that I talked about nearly seven to eight weeks ago, while we pulled other initiatives forward. Taken together, this has accelerated cost savings across the organization. As product volumes returned to pre-COVID levels, we anticipate we will realize even greater savings from our consolidated supply chain. In terms of product development and engineering, we've been executing on our Software-as-a-Service platform consolidation efforts and expect to be in beta by the end of Q3, which is on track with our internal schedule. The consolidation work will allow us to save over $1 million annually once finalized in 2021. Simultaneously, this gives our customers full visibility of their assets and real-time incidents regardless of asset type and whether the asset is in a facility, in the yard, at a job site, or over the road. Our weight-on-axle R&D initiative is being tested by a major customer with encouraging results today, giving us confidence that we can commercialize this product over the next several months. The first iteration of this product can tell if a container is loaded onto a chassis, and it can also indicate if the container is loaded or empty. We're striving to achieve legal weight on axle in future iterations, which would be a game-changer in the logistics market. This strategic customer has more than 120,000 chassis that we're targeting for this product. The cellular version of our industrial truck platform is also slated to launch in Q3. This will allow us to take our proven material handling solutions for access control, safety, and utilization reporting into shipper and container yards, ports, rail yards, and onto construction sites as well as to equipment rental companies that have equipment operating outside of a facility. It's a significant synergistic market opportunity for millions of vehicles that leverage our existing sales organization. Our opportunity pipeline remains not only intact but also robust. We had a strong start to the year in terms of new business development and pipeline creation. However, in mid-March to early April, activity tapered off as COVID-19 really took hold, and many of our customers and channel partners focused on their own COVID-19 actions such as working from home, shutting down facilities, and stopping visitations to their sites. That being said, we have not seen major deals get canceled or lost, but several have been suspended or delayed pending business revival when countries and states go back to work. We are cautiously optimistic as we recently have seen an uptick in activity both in terms of deals progressing in our pipeline, as well as a number of inbound opportunities. One notable deal includes the world's largest online retailer in the U.S. that selected one of our forklift manufacturing partners to deploy our PowerFleet technology at several U.S. sites, which will happen in Q2. Additionally, we were selected by one of the world's largest logistics companies to deploy our industrial mobility solutions in nearly all their U.S. facilities, representing over 1,000 high-end vehicles and mobility solutions. We also recently won a major 3,000-unit tender in South Africa and a similar-sized deal in Mexico. As I mentioned on our last call, we were pursuing a major opportunity with a U.S. government entity that equates to more than 5,000 high-end industrial unit subscribers. If successful, we expect this contract to be awarded in the third quarter. Additionally, we are pursuing several large commercial tenders, including a 23,000-subscriber opportunity in the U.S., a 30,000-subscriber opportunity in Europe, and a 7,000-subscriber opportunity in Argentina. In parallel with these activities, we're collaborating with a major rental car company on an active pilot. This company's thesis is that our technology is mission-critical in this environment because it provides them with real-time visibility into their inventory, even if it's not being rented. This prospect stated that our ease of installation and fuel accuracy are key differentiators of our technology. While we're early in the evaluation process, we were asked to provide pricing quotes for 100,000, 200,000, and 300,000 subscriber units, which is always a good sign. Although we're starting to see Israel and various U.S. states beginning to reopen, no one can truly say how long the current situation will persist. Rest assured that many on the PowerFleet leadership team have navigated through turbulent markets and recessionary times before, and we believe that this experience will enable us to weather the COVID-19 storm and set us up for success as global economies reignite in the months ahead. The proactive measures we've taken in the near term will allow us to drive our business forward today, and the resiliency in our business model and our secular growth drivers in our verticals ensure that our business is positioned well for tomorrow. And with that, we're ready to open the call for your questions. Operator, please provide the appropriate instructions.

Operator, Operator

Our first question comes from Mike Walkley with Canaccord Genuity. You may proceed with your question.

Mike Walkley, Analyst

So just on the higher-margin recurring revenue services, can you help us just walk through your customer base? What areas of the business are holding up better that are more sticky, given that you're critical and maybe some other services like in Avis that you might have some under-utilized assets that are temporarily shut down out of service for those markets? Are we just trying to look at how much of the business is stable and how much might come off in the short term? Thank you.

Chris Wolfe, CEO

That's a very good question. It's really interesting that we've not seen actually, hardly any—I would say it's very marginal—any reduction in our recurring revenues, except for with Avis, where we gave them a slight discount for a period; it's very limited, it's for three months to hopefully get them through what we call the belly of the crisis. And again, they are partnered with us, but it's more of a discount, they're still under contract for the whole 125,000 units and committed to a 60-month term, and they've been paying faithfully. So they've been a great partner. Our other businesses are all under long-term contracts. We've seen maybe just a couple of people asking for deferral, not asking to be shutdown. So again, that's very promising. And I'd say that's across the board, whether it's industrial, logistics, or in our fleet management businesses, and that's also globally. We're not really seeing much impact at all to our $70-plus million in recurring services revenue.

Mike Walkley, Analyst

And just building on that, given the critical needs, especially in the food and other areas, are you seeing any kind of uptick in business or they're just so busy executing right now, it's hard to pull assets offline to add hardware, and it's just kind of steady in some of those critical businesses that are probably quite busy right now?

Chris Wolfe, CEO

Yes again, some of the customers I mentioned are phenomenally busy right now. So the good thing is they're making a lot of money and they're actually saving money because of fuel costs at the same time. So I do think a lot of those companies are going to be phenomenally stronger and able to do capital expenditures here, once things I think normalize, if there is going to be a normalization. But the other side of the logistics puzzle, or even in our industrial truck side, is if you're doing heavy manufacturing or automotive—those industries have basically gone dormant. So, I think it's an interesting balance between the two—like that large logistics company I mentioned, their plan was to aggressively roll out our technology this year. They're rolling out three sites in Q2, but they have hundreds of sites. So again, it's just a—there's kind of a slow roll and a little bit at the front end just to wait and see until the states open up because some of the facilities they manage have actually been shut down.

Mike Walkley, Analyst

Understood. I know it's tough in this environment with the pulled guidance, can you just maybe give us some high-level color. How are some visibility and conversations maybe here in mid-May versus April, when everything's shutdown? Are there signs of things starting to come back with Israel and different states opening up or is it just too early still? Is everybody's still kind of just figuring things out?

Chris Wolfe, CEO

Yes, this is actually a testament to like our team in Israel, actually in our analytics team here in the States. They took all of our data from all over the world and because we're on the dock—whether it's warehousing or manufacturing—and we're also over-the-road, whether it's in cars or trucks, and we did activity indexes on every country. And you could actually see the fall off in every country when it happened, chronologically starting at the beginning of the year. And we actually saw what countries have hit the trough. What I'd say is the canyon—and then we've actually seen recoveries, which is great, and by the way, getting to Israel, they're probably—I’d say they're like three weeks ahead of us, that's kind of the way it’s been tracking. And we're seeing an uptick in business there already. Pent-up car demand is coming back online, which is good to hear. And also in the States, inbound inquiries, as I mentioned before, are picking up activities and programs, I mentioned that logistics company that's starting to contact us about beginning their site deployment. So I'd say right now—the United States is kind of variable because every state is opening up at different levels. So we have seen it; like what I’d say is, it hit the canyon here in the states, it's just probably going to be a little bit more jerky here than it is in some other countries.

Mike Walkley, Analyst

Great, thanks. Last question, and I'll pass the line. Ned, just on some of the cost savings initiatives lowering consultants and headcount reductions and shorter work weeks. Can you help us just quantify how we should think about maybe the spread of those costs where they hit the P&L and what you're thinking about, maybe for a run rate of OpEx—maybe this quarter and then where it could go exiting the year?

Ned Mavrommatis, CFO

Yes, so thanks Mike. The savings amount to approximately $2 million per quarter. So we should see the operating expenses, starting in Q2 to be reduced by approximately $2 million. The majority of it is in SG&A with a few hundred thousand in R&D. Right now, we have additional plans in place. So we definitely have more levers to pull if things take a little bit longer. But the goal is to keep expenses at this level. We're also managing the company on a cash flow basis and managing working capital very efficiently. So as you can see, from the first quarter, we generated about $2.7 million in cash flow from operations. So our cash position also remains very strong.

Operator, Operator

Our next question comes from Scott Searle with ROTH Capital. You may proceed with your question.

Scott Searle, Analyst

I'm glad to hear you guys and your families and teams are safe. Maybe just to dig in a little bit more on Mike's question on OpEx. You talked about some permanently fixed and optimized cost structures as well as some variable like comp structures that would come back. Could you kind of give us an idea about how that breaks down? And also Ned, in terms of depreciation, amortization in the quarter, could you give us a quick breakout of what the Pointer Telocation amortization was related to the deal and then I had a couple of follow-ups?

Ned Mavrommatis, CFO

Sure, thanks Scott. So the cost savings, it's approximately $2 million per quarter. We're going to start seeing that immediately in Q2. The majority of it is in SG&A with a few hundred thousand in R&D. When you look at depreciation/amortization out of the $1.7 million in depreciation/amortization included in OpEx, $1.1 million relates to the amortization of the Pointer acquisition related to the intangibles.

Scott Searle, Analyst

And just to follow-up on that $2 million cost reduction. Will we see the full benefit of that in the second quarter, or will that be the full benefit of that in the third quarter? And it sounds like there are some permanent reductions there as well as some variable that would come back compensation or otherwise, could you give us an idea what that looks like provided the outlook and we start to see a little bit of inflection in the second half?

Ned Mavrommatis, CFO

Yes, so we have started seeing that immediately in the second quarter. We took action in late March. So the costs were implemented at the beginning of April. So we’re going to see the full benefit of those savings in the second quarter. And when I look at, although you're right, some of them are fixed and some of the variable, we don't intend to increase any of those expenses until we start to see a significant pickup in revenue.

Scott Searle, Analyst

Okay. And Chris, maybe just a follow-up you highlighted a lot of your customers that are in more essential industries such as grocery. Is there a number that you could put around that in terms of what they represent across the different product lines, to give us an idea by end market about what that looks like? And if you could as well, things certainly started to slow in the March quarter, but could you give us some linearity in terms of how things progressed on a monthly basis through the first quarter and into April? Can you give us an idea about where things are kind of troughing to be able to model going forward?

Chris Wolfe, CEO

Yes, so just off the top of my head—we don't usually break it out by food and grocery and distribution and put it into an aggregate number, like across all geographies. But in the U.S., it probably represents about 25% of our business as far as users and services. And I would say like in Mexico, it varies; it's probably like 30% because they have a huge business going on with Coca-Cola, which is not necessarily an essential service, but obviously, it's in food and grocery distribution. So again, it varies by geography, but I'd say it's around the 25% to 30% range of total users in service. Looking at the geographies—Mexico again, it's really hard to understand where they are in the COVID-19 situation because I don't think they report their numbers quite as accurately as other countries. But that being said, we’re seeing a lot of pickup and activity in Mexico. We mentioned that one tender that we won, surprisingly enough, South Africa, I mean, it's had a pretty bad economy for a while. But winning a 3,000-unit tender down there basically changes our business in South Africa overnight. And we are seeing that—we basically hit the bottom and we're coming out. Argentina has just been steady; even with a shutdown, the business there has been pretty good. Israel is the one where, again, it's a preponderance, it's a large part of our, it's almost equal to the states and the same size as revenue. And that's the one we're seeing a lot of pickup activity starting. We're seeing it actually in the data, right. And the same in the U.S., we've actually started to see pockets in certain areas, like industrial truck is starting to pick up and then certain parts of logistics kind of flat-lined, but now they're starting to pick up. So it's great.

Scott Searle, Analyst

Okay, yes, very helpful. And Chris lastly, if I could just, you gave a lot of qualitative examples and data points related to inbound and customers. Is there a way to quantify the backlog or the pipeline in terms of what you're seeing? And it sounds like, really, the trick here in the near term is the ability to get in and install and close some of these contracts? What's going to be the real milestone or catalyst? It sounds like it's going to vary region-by-region, even state-by-state, but what should we really be paying attention to when we're starting to get back into full swing, your ability to get into a warehouse, to get into an enterprise, to be able to install against that backlog? Thanks.

Chris Wolfe, CEO

Okay. So I would say right now—like the one logistics company in the—I don't want to keep relying on them because it was a huge deal that we signed in Q1. We're rolling out in Q2 and throughout 2020. We're going to see; so that backlog—we've only, I think, installed 100 units. So we have 900 units to go there. Jungheinrich, by the way, is well ahead of plan, and Jungheinrich brought us into their U.S. affiliate and they're the ones that brought us into the world's largest online retailer. So implementing those sites in Q2. So again, keep in mind that the online retailer, those sites are brand new sites, they're brand new warehouses. So it's really easy to get into something like that versus somewhere where there's lots of people and they're trying to keep external influences out. They tried it; there's no reason to have COVID contact tracing and have other vendors walking into your property. That we do see lessening up, matter of fact, our field installers for the first time, that's probably an interesting data point—our field installers right now are booked all the way through July. They're fully booked. Now again, we contract out a lot of field installing, but I think that's pretty telling. So the sales backlog is good—deals that are signed and units that we need to ship—these huge prospects that we're working on. Again, those were—that's where the big opportunity is for us. And again, the deals haven't stopped; I mentioned that U.S. government agency won 5,000 units might not sound like a big account, but it's literally almost a $19 million opportunity because it includes a lot of software engineering and a lot of software implementation. Hopefully that helps.

Operator, Operator

Our next question comes from Jaeson Schmidt with Lake Street. You may proceed with your question.

Jaeson Schmidt, Analyst

Just curious if you're seeing any pushback on pricing from any of your business lines, just given the current environment?

Chris Wolfe, CEO

I'd say in the logistics side, more than in industrial—and obviously one part of our business, it's about—I’d say it's maybe 10% of our businesses, hardware-only sales because we sell to the rest of the world, our product where we don't actually run operations; that's been impacted. But I would say—I don't know; Ned, would you add onto that?

Ned Mavrommatis, CFO

Yes, I think on the logistics side, transportation, I think some of the competition out there is everyone is trying to close deals. So we are seeing some pricing pressure there. On the industrial side, we haven't seen any of that yet.

Jaeson Schmidt, Analyst

Okay, that's helpful. And then following up on the online retailer, should we expect a rollout in the U.S. to sort of follow the same trajectory you saw with this customer over Europe?

Chris Wolfe, CEO

The online retailer is actually putting units in—when I say units, let's say vehicles. So they're putting vehicles in their warehousing facilities. If they pick a vehicle that does not have a telemetry—like, in other words, the OEM doesn't provide their own telemetry unit—then we have a huge opportunity. And the partner with Jungheinrich here in the States, their affiliate here that got us in, they expect to get more warehouses, which would be great for us. But let's say if they pick an OEM like Raymond or if they pick Crown for a facility, we're probably not going to get that because Raymond or Crown have their own telemetry device. So it would be an OEM-supplied product that they can subsidize when they sell the forklift. Our claim is the same, and where we usually win 100% of the deals is in a mixed fleet environment, which that's the preponderance, by the way. So, but this online retailer likes—they did the forklift against each other and then they’ll take and go 100% Crown or 100% Raymond or 100% Toyota, so if it's Toyota or McBay or MC, then we will be in that site. But if it's the other guys, then we might not.

Jaeson Schmidt, Analyst

Okay. And then the final one from me, I know it's hard just given overall visibility. But do you have a sense if a lot of these delays are being pushed into the second half or are more being pushed out to 2021?

Chris Wolfe, CEO

No, I’d say the second half. I think right now we’re in a critical time, it's like the United States is just now opening. Israel's opening, and by the way, it's great to see the traction that's starting there as quickly as it is on the business side. Everyone needs to remember that we are a B2B player, right. So that kind of—it’s like the B2C space in some aspects unless you’re a telco and you're just providing data; that's pretty immune. Because everyone’s on their cell phone and everyone’s using, GoToMeeting and all that. But in the B2B space, we’ll be the first ones to get the benefit, I think, because I start lighting up factories as they start getting trucks back on the road. That’s when they’ll start moving faster with us. So I think what we've seen so far is very encouraging; I think in the States I don’t—the deals I’m talking about have not been pushed out into next year. Matter of fact, the United States government deal, their process is just slow. Anybody that’s ever worked with the government knows that, but we think they're fast-tracking this and we do expect to get, if we’re successful, we’ll get that deal in Q3, announced in Q3.

Operator, Operator

Our next question comes from Gary Prestopino with Barrington Research. You may proceed with your question.

Gary Prestopino, Analyst

Couple of questions, in terms of how your margins broke out between product and service in the quarter, obviously a big step down because of Pointer, but are those margins particularly on the product side? Are they going to vary considerably either way as we go forward here, or is that somewhere within that 28%, 29% range a good number to use?

Ned Mavrommatis, CFO

Gary, it’s Ned. That is a good number to use. We expected because of the fact now that we're vertically integrated, that we would see a slight improvement in those margins to get into the low 30s. However, as I mentioned before, we are seeing some pricing pressure, especially in the logistics business, as well as due to the fact that the product revenue is a lower amount due to the COVID-19 situation. So, I expect using that number for the next few quarters is a good way to look at it.

Chris Wolfe, CEO

And any slippage in revenue that we're going to see relative to our expectations would be on the product side, right? The services side you're basically contracted out to, so unless.

Gary Prestopino, Analyst

That is correct. Okay, good; and then?

Ned Mavrommatis, CFO

I’m sorry.

Gary Prestopino, Analyst

No, go ahead; go ahead, Ned?

Ned Mavrommatis, CFO

As Chris mentioned, to date our service revenue has been very resilient. We continue to invoice and collect on a monthly basis. We are going to see a slight decline due to some deferrals. But on an overall basis, we feel comfortable with the service revenue.

Gary Prestopino, Analyst

Okay, and then can you kind of possibly if at all just frame this out for us? If this—how much did this COVID impact hit you for in the latter half of March? Have you guys gone through that exercise in terms of revenues?

Chris Wolfe, CEO

Yes, this is Chris and I would probably say it was probably about a $2 million worth of revenue that we would have had because again, everyone should—this is the way it works. Product revenue is always, it's usually at the end of the year because people have to or at the end of their fiscal year because they want to spend their budget as money. And number two, it's usually at the end of a quarter when our deals usually come in. So it's kind of—I’d say it was probably in the $2 million range that we would have; that just got pushed out and it's, you know again—the some of the deals are—all the deals are still in play. It's just customers just said, hey—because we got to remember this first—this last two weeks of March, literally everybody just shutdown and it was almost overnight. And they started rising on their own stuff, right, they had to focus on their own COVID-19 actions. So that's a good number to use or to think about.

Gary Prestopino, Analyst

Okay. And then I would assume that you’re saying your pipeline is still pretty strong and all that, but your sales force is actively out doing outbound calls here, talking to your counterparts in the industry. I mean obviously, nobody is doing face-to-face meetings. But I mean, just to get an idea of just how well you are operating, are your people able to get potentials on the line on the other end?

Chris Wolfe, CEO

Yes, that’s a very good question. And for a while, the answer was no because basically every one—our customers and prospects we’re all trying to work from home, etc. That’s eased up. By the way, our dealer network, go-to-market strategy—they always did it over the phone so which is great. So it’s like they rarely went to dealers and to the end customer because it was through a channel. That's the same with Jungheinrich. So those were not impacted. On the logistics side where it’s more direct, our inside sales team has always been working over the phone. So that's actually—matter of fact we've gotten some really good leads just recently because I think people have more time to pick up the phone too, which is interesting, but on the closing the deals, we’re closing deals in the logistics side as well which is great, but it’s a little—it’s a little bit more difficult. There’s a lot of—sometimes you just got to look at somebody in the face and you can do it on Zoom too, but we're doing it. And it’s—I think everyone’s kind of getting accustomed to it.

Gary Prestopino, Analyst

Okay. And then lastly, Chris, this government contract that you're bidding on, did I hear you right—that this is a $19 million contract on an annual basis, or is there just some upfront consulting that's done there and then it annualizes on a certain number?

Chris Wolfe, CEO

Yes, it annualizes at a certain number. I don’t usually know what that was like but I don't have the latest numbers in front of me because they asked for two different models, by the way. Right. So that being said—there's the hardware part of that—it's 5,000 units. And roughly think about that; that's our high-end product—everyone needs to remember an industrial product sells for over $1,000. So it's not like selling a trailer device, which is like a couple hundred dollars.

Gary Prestopino, Analyst

Okay.

Chris Wolfe, CEO

So but there is a recurring on that, which will kick in once the unit's go online.

Operator, Operator

Thank you. And I'm not showing any further questions at this time. I would now like to turn the call back over to Mr. Wolfe for any further remarks.

Chris Wolfe, CEO

Thank you for joining us today. Ned and I are presenting at the 15th Annual Needham Virtual Technology & Media Conference next Tuesday, May 19, at 11:30 a.m. Eastern Time. The presentation will be webcast and available in the Investor Relations Section of our website. Thanks again for everyone's attendance and participation today. Please stay safe and we look forward to hopefully talking to you and keeping you updated in the months ahead. Thank you.

Operator, Operator

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