PowerFleet(PWFL) - 2022 Q2 - Quarterly Report

PART I - FINANCIAL INFORMATION Item 1. Financial Statements The unaudited statements detail the company's financial position and performance for the periods ended June 30, 2022 Condensed Consolidated Balance Sheets Total assets and equity decreased from year-end 2021, driven by a reduction in cash and cash equivalents Condensed Consolidated Balance Sheet Highlights (in thousands) | Balance Sheet Item | December 31, 2021 | June 30, 2022 (Unaudited) | | :--- | :--- | :--- | | Assets | | | | Cash and cash equivalents | $26,452 | $17,703 | | Inventory, net | $18,243 | $23,540 | | Total current assets | $87,910 | $85,378 | | Total assets | $229,867 | $222,751 | | Liabilities & Equity | | | | Total current liabilities | $44,288 | $46,852 | | Long-term debt, less current maturities | $18,110 | $13,408 | | Total liabilities | $85,007 | $80,492 | | Total equity | $92,197 | $87,185 | Condensed Consolidated Statements of Operations Revenues grew for the three and six-month periods, but operating losses widened while net loss per share improved Statement of Operations Summary (in thousands, except per share data) | Metric | Three Months Ended June 30, 2021 | Three Months Ended June 30, 2022 | Six Months Ended June 30, 2021 | Six Months Ended June 30, 2022 | | :--- | :--- | :--- | :--- | :--- | | Total revenues | $33,548 | $34,594 | $62,539 | $67,755 | | Gross profit | $16,045 | $16,230 | $30,515 | $30,629 | | Loss from operations | $(155) | $(1,588) | $(2,038) | $(5,330) | | Net loss | $(1,437) | $(118) | $(3,224) | $(3,046) | | Net loss attributable to common stockholders | $(2,633) | $(1,334) | $(5,616) | $(5,458) | | Net loss per share - basic and diluted | $(0.08) | $(0.04) | $(0.16) | $(0.15) | Condensed Consolidated Statements of Comprehensive Loss Comprehensive loss widened significantly due to a substantial negative foreign currency translation adjustment Comprehensive Loss Summary (in thousands) | Metric | Three Months Ended June 30, 2021 | Three Months Ended June 30, 2022 | Six Months Ended June 30, 2021 | Six Months Ended June 30, 2022 | | :--- | :--- | :--- | :--- | :--- | | Net loss attributable to common stockholders | $(2,633) | $(1,334) | $(5,616) | $(5,458) | | Foreign currency translation adjustment | $1,003 | $(1,706) | $(331) | $(1,453) | | Comprehensive loss | $(1,630) | $(3,040) | $(5,947) | $(6,911) | Condensed Consolidated Statement of Changes in Stockholders' Equity Total stockholders' equity declined in H1 2022, primarily due to net loss and currency translation adjustments - Total stockholders' equity decreased by $5.0 million during the first six months of 2022, from $92.2 million to $87.2 million[21] Condensed Consolidated Statements of Cash Flows The company shifted from cash generation to cash usage in operations during the first half of 2022 Cash Flow Summary (in thousands) | Cash Flow Activity | Six Months Ended June 30, 2021 | Six Months Ended June 30, 2022 | | :--- | :--- | :--- | | Net cash provided by (used in) operating activities | $3,203 | $(2,700) | | Net cash (used in) investing activities | $(1,454) | $(2,013) | | Net cash provided by (used in) financing activities | $22,013 | $(753) | | Net (decrease) increase in cash | $21,734 | $(8,748) | Notes to Unaudited Condensed Consolidated Financial Statements The notes detail the business, supply chain impacts, liquidity, revenue policies, debt, and legal matters - The company is a global leader in Internet-of-Things (IoT) solutions for managing high-value enterprise assets to improve operational efficiencies[28] - The company has experienced significant supply chain disruptions, leading to increased inventory, higher raw material costs, and lower gross margins during the first half of 2022[31] - Management believes that available working capital, future revenues, cash flows, and available borrowings will be sufficient to cover capital requirements through at least August 9, 2023[40] - The company is involved in two tax-related legal matters in Brazil but believes the chance of loss is not probable and has not made any provision[110][111] Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses financial performance, highlighting revenue growth but margin pressure from supply chain issues Overview PowerFleet is a global leader in IoT solutions for managing high-value enterprise assets under several brands - The company's core business is providing IoT solutions for managing high-value enterprise assets to improve operational efficiencies[119] - Offerings are sold under the global brands PowerFleet, Pointer, and Cellocator[120] Our Solutions The company's solutions leverage SaaS applications and IoT devices to provide actionable business intelligence - Core applications of the company's IoT solutions include: - End-to-end Visibility - Regulatory Compliance - Improve Safety - Drive Operational Efficiency & Productivity - Increase Security - Reduce Costs[127][128][129] Results of Operations Revenue grew in Q2 and H1 2022, driven by services, while gross margins declined due to higher costs Q2 2022 vs. Q2 2021 Performance | Metric | Q2 2022 | Q2 2021 | Change | | :--- | :--- | :--- | :--- | | Total Revenues | $34.5M | $33.5M | +3.1% | | Product Revenues | $14.8M | $15.5M | -4.2% | | Service Revenues | $19.8M | $18.1M | +9.4% | | Gross Profit % | 46.9% | 47.8% | -0.9 p.p. | H1 2022 vs. H1 2021 Performance | Metric | H1 2022 | H1 2021 | Change | | :--- | :--- | :--- | :--- | | Total Revenues | $67.8M | $62.5M | +8.3% | | Gross Profit % | 45.2% | 48.8% | -3.6 p.p. | Liquidity and Capital Resources The company used cash in operations in H1 2022 but believes its available capital is sufficient for the next year - As of June 30, 2022, the company had cash and cash equivalents of $18.0 million and working capital of $38.5 million[178] - Net cash used in operating activities was $2.7 million for the first six months of 2022, compared to net cash provided by operating activities of $3.2 million for the same period in 2021[189] - Management believes available working capital and credit facilities will provide sufficient funds to cover capital requirements through at least August 9, 2023[187] Quantitative and Qualitative Disclosures About Market Risk The company has indicated that this section is not applicable for this reporting period - The company states this item is not applicable[198] Controls and Procedures A material weakness in internal control over financial reporting related to its Israel component remains unremediated - A material weakness in internal control over financial reporting was identified as of December 31, 2021, related to the company's Israel component[201] - The material weakness was not remediated as of June 30, 2022, though remediation efforts are underway[200][203] PART II - OTHER INFORMATION Legal Proceedings The company refers to its financial statement notes regarding pending legal proceedings, mainly in Brazil - For details on material legal proceedings, the company refers to Note 20 of the financial statements[206] Risk Factors The company directs investors to its most recent Annual Report on Form 10-K for a discussion of risk factors - The company refers to its Annual Report on Form 10-K for the year ended December 31, 2021, for a full discussion of risk factors[207] Unregistered Sales of Equity Securities and Use of Proceeds Shares were withheld during the quarter to satisfy tax obligations related to vested employee restricted stock - In June 2022, 3,000 shares of common stock were withheld at an average price of $2.31 per share to satisfy tax obligations on vested restricted stock[209] Other Information The company appointed Joaquin Fong as its new Principal Financial Officer and Principal Accounting Officer - Effective August 4, 2022, Joaquin Fong was appointed to serve as the Principal Financial Officer and Principal Accounting Officer of the Company[211] Exhibits This section lists the exhibits filed with the report, including officer certifications and XBRL data - The exhibits filed with the report include officer certifications pursuant to Sections 302 and 906 of the Sarbanes-Oxley Act of 2002[213]