Powerfleet Q2 2023 Earnings Call Transcript

Quartr
Provided by Quartr
August 8, 2023

There are 5 speakers on the call.

Operator

Good morning. Welcome to PowerFleet's Second Quarter 2023 Conference Call. Joining us for today's presentation is the company's CEO, Steve Toh and CFO, David Wilson. 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.

Operator

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 2023 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.

Operator

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 select 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 Toh.

Operator

Sir, please proceed.

Speaker 1

Good morning, and thank you for joining us today. It's a pleasure to share our second quarter performance with you. We've executed extremely well in Q2 and the first half of twenty twenty three with dramatic transformation across the business, and we remain ahead of schedule in our strategic plan. The first half of twenty twenty three has been focused on aggressively implementing the changes required to give the company the foundations for high scale profitable SaaS growth. Our overriding priority is clear: to build a superior value business centered on high quality sticky recurring SaaS revenue.

Speaker 1

And while we are still relatively early in our journey, strong proof points are now evident in the shape of our P and L, our mix of revenue and associated service growth rates of 12% for the quarter and 15% for the half on a constant currency basis. Our core go forward business is currently focused in North America and Israel, which generates 83% of total services revenue, with Europe identified as the key additive market for geographical expansion in 2024. Double clicking into these markets, Service revenue in our North America business grew by an impressive 16% in the first half of twenty twenty three, while our Israeli business grew by 10% on a constant currency basis. The recurring services gross margin in our core go forward business in Q2 was an impressive 71%. These metrics in combination with a strong pipeline coupled with early strategic customer wins since the commercial release of our Unity data intelligent platform strategy highly encouraging.

Speaker 1

Switching gears to macro trends, we continue to see a slowdown in the logistics market segment as some customers continue to recalibrate their post pandemic asset needs, while Israel continues to be buffeted by geopolitical events resulting in tempered new product demand and foreign currency headwinds. Despite the macro headwinds, we're confident in our growth prospects, particularly with our Unity data platform, our safety led industrial solutions and connected car offerings. We've extensively cleaned low and reduced hardware only business revenue significantly compared to the prior year. Our strategy is to focus on high quality and high margin recurring software sales deals, a brave and challenging exercise we're undertaking to prioritize mission SaaS opportunities. While transitioning to SaaS sales, especially with new logo customers, revenue realization may take slightly longer.

Speaker 1

However, we have largely achieved our goal of shifting towards higher quality revenue, leading us to anticipate sequential top line growth in the second half. Recent sales wins with esteemed companies like Pride Group Enterprises, DB Schenker, Moderna, United National Foods, Wirth Industries North America and Bridgestone Mexico have boosted our confidence for the second half of this year and 2024. Our total gross margin is showing good progress on both the quarterly and half yearly basis versus last year, particularly supported by the impressive 71% gross margin of service revenues in our core go forward territories that I mentioned earlier. We delivered a $2,000,000 improvement in gross profit for the half year despite the impact of our control pivot strategy from hardware centric revenues to SaaS revenues. This is a highly encouraging vector for our future value creation thesis.

Speaker 1

In terms of transformation, the vast majority of the soft decisioning and highly challenging activities are now complete, and we look forward in the second half of twenty twenty three to tuning the growth engine and putting our foot on the accelerator as we move towards 2024. The integration of Moving Nuts is running ahead of schedule on both the cost and operations side. From a cost standpoint, we have transitioned out to senior leadership and have ruthlessly executed on the necessary cost reduction initiatives across our broader business to meet our commitment ensuring the Moving Dots acquisition is adjusted EBITDA neutral on a run rate basis exiting the 3rd quarter. Outside of our core business, we have good traction with our initiative to find the right home for our low margin, low growth and subscale business units in Argentina, Brazil and South Africa. We expect to share a favorable resolution of this initiative on our Q3 call.

Speaker 1

Before I dive deeper into our operational progress and outlook, I'll turn the call over to David to walk through our numbers in more detail. David?

Speaker 2

Thanks, Steve, and good morning, everyone. To begin with, I will provide an update on the key strategic priorities that I called out on our prior call,

Speaker 3

who will provide helpful context to digest our 2nd quarter financial performance.

Speaker 2

Priority number 1 is to accelerate our strategic transformation while staying within the limits of our current balance sheet. The acquisition and integration of Moving Dots is the primary project that's consuming a significant portion of execution bandwidth the second and third quarters of 2023. As a reminder, the acquisition provided multiple benefits, including $8,700,000 in liquidity, 8 talented engineering team for Uniti, complementary high performance technology and an expanded presence in the EMEA region. On our last call, we committed to mitigating the impact of Moving Dot's business by driving down the EBITDA impacts to breakeven before the end of Q3. We have successfully executed our $3,000,000 OpEx challenge, complemented by an extra $1,000,000 in cost reductions.

Speaker 2

I am pleased to announce that we have taken all necessary steps to achieve the upside target of $4,000,000 in savings with these costs scheduled to be eliminated from run rate expense by mid September. As expected, the acquisition was the source of significant headwinds in Q2 with an EBITDA burn of $1,200,000 plus an additional $450,000 in transaction and restructuring costs. Priority number 2 is to improve the underlying operating leverage Our business by implementing a common and scalable ERP platform across all geographies. As I noted on the Q1 call, Rolling out NetSuite across our core businesses is a cornerstone in meeting the expectation that we expect an additional $10,000,000 in run rate cost savings through the course of 2024. I am pleased to report the ERP project is proceeding according to plan with the rollout in Mexico scheduled for this month and the U.

Speaker 2

S. Expected to follow swiftly. Success in this project relies on creating tools for repeatable migration processes, with the successful U. S. Rollout serving as a precursor for migrating Israel to NetSuite by year end.

Speaker 2

More details will be shared on our Q3 call. Now on to our financial performance for the quarter, which reflects the aggressive steps we have proactively taken to transform the business and the EBITDA investments necessary to integrate MovingDox. Total revenue for the quarter ended June 30, 23 was $32,100,000 compared to 34,600,000 last year with robust growth in service revenue from our strategically important core markets offset by a planned decline in hardware product revenue. Our high value services revenues totaled $21,000,000 up 6% and 12% on an absolute and constant currency basis, respectively. Revenue mix continues to improve with service revenue standing at 66% of total revenue, up from 57% in the prior year.

Speaker 2

The decline in product revenue reflects our strategic shift towards becoming a SaaS software business, focusing on higher margin and strategic ventures. This transition contributed to a gross margin expansion to 50% in Q2, 23% from 47% in the prior year, driven by increased high margin service revenue. Our operating expenses increased by $1,300,000 to $19,200,000 compared to $17,800,000 in the same year ago period with the increase solely attributable to the acquisition of MovinDox. Net loss attributable to common stockholders totaled $4,300,000 or $0.12 per basic share. Adjusted EBITDA with $647,000 pro form a for EBITDA loss from moving dots of $1,200,000 adjusted EBITDA was $1,800,000 up $400,000 or 31 percent sequentially.

Speaker 2

Now turning to our results for the 1st 6 months of 2023. Total revenue was $64,900,000 compared to $67,800,000 last year with continued robust growth in service revenue from a strategically important core market, again offset by a planned decline in hardwood product revenue. Our high value services revenue totaled $41,500,000 up 8% and 15% on an absolute and constant currency basis, respectively, with continued improvement in mix with service revenue accounting for 64% of total revenues, up from 57% in the prior year. Gross profit margin expanded to 50.3% 45.2% in the prior year period, driven by an improved mix of high margin services revenue versus product revenue. Our operating expenses increased slightly to $37,700,000 compared to $36,000,000 in the same year ago period, with the increase attributable to the acquisition of Moving Dots, which added $2,000,000 of incremental OpEx for the first half of twenty twenty three.

Speaker 2

Net loss attributable to common stockholders inclusive of a $7,500,000 gain on budget purchased from Moving Dots totaled $780,000 or $0.04 per basic and diluted share compared to net loss attributable to common stockholders of $5,500,000 or $0.15 per basic and diluted share in the same year ago period. Adjusted EBITDA was $2,000,000 compared to $2,700,000 in the same period last year. Cash flow from operations for the half year was a positive $1,300,000 a $4,000,000 improvement from the same period last year. During the quarter, we recommenced paying the AbbVie preferred dividend in cash versus PIK and our balance sheet remains strong at quarter end with $22,000,000 of cash, cash equivalents and working capital position of $38,300,000 One final item to cover, we understand the impact the AbbVie preferred instrument has on our current trading performance. We are focused on proactively addressing this issue and are making good progress on finding options to successfully resolve it by year end.

Speaker 3

That concludes my remarks. Steve?

Speaker 1

Thanks, David. As we articulated on our last call, Our 2023 operating plan focuses on 4 key strategic objectives we are laser focused on delivering. Objective number 1 is optimizing our OpEx base and operating structure to enhance profitability. As discussed through rigorous cost reduction management, we successfully reduced operating expense an additional $4,000,000 annually in the last 5 months, allowing us to onboard Moving Dot's engineering capacity. While it may be easy to say executing this brave change is a challenging task, I'm immensely proud of the team's exceptional skills and unwavering commitment, which enabled us to swiftly bring onboard the MovingDoc's industry leading capabilities for the insurance, safety and sustainability solution markets.

Speaker 1

Additionally, we have rapidly expanded our talent pool in critical areas such as data science, AI, cloud architecture and data integration services. This initiative has also positively impacted our underlying EBITDA performance in Q2, and we expect it to support further EBITDA expansion as we drive growth in the second half of the year. Additionally, our mid term seismic shift projects, which include hardware rationalization, an integrated global supply chain, a common ERP and shared service centers are progressing well and on schedule. These strategic initiatives are expected to result in an incremental $10,000,000 of annualized EBITDA with tangible results beginning in early 2024. Objective number 2 is centered around driving robust organic growth in key regions, fueling high quality recurring revenue expansion.

Speaker 1

As compelling proof of our efforts, we've achieved strong SaaS sales momentum in the U. S. And Mexico. Our SaaS recurring revenue for North America grew by an impressive 16% in the first half of twenty twenty three compared to the same period last year. Our industrial vertical remains very strong We have some great news to share in terms of new logo wins in the vertical in Q2, driven by our collision avoidance advanced pedestrian safety solution.

Speaker 1

PowerFleet has secured the following significant partnerships in Q2. DB Schenker, a global transportation and logistics provider, of South PowerFleet Safety Solutions replacing a key competitor. United National Foods, a leading health and specialty food distributor, selected PowerFleet for Safety and Compliance Solutions. Worth Industries North America, a leader in industrial distribution, Optiv for PowerFleet's applications to address access control and compliance needs. Owens Corning, a material and products manufacturer, chose PowerFleet's pedestrian proximity detection for safety improvement.

Speaker 1

Moderna, a prominent pharmaceutical company, selected PowerFleet for its strong IT security and comprehensive capabilities to address access control and compliance challenges. In Q2, we also secured notable Unity platform focused sales deals in the U. S. And Mexico. These deals not only validate our strategy and mission critical technology platform, but highlight our improved SaaS sales execution.

Speaker 1

Pride Group Enterprises, PGE, is a prime example of the holistic value unit it delivers. PG operates across various industries with 35,000 vehicles and trailers. Initially signing up for 5,000 Unity subscriptions in June, PG showcases Unity's power and value through 4 key points. 1st, land and expand. PGE has already utilized Uniti to manage risk in their leasing and rental division with plans to expand the capability to other parts of their fleet.

Speaker 1

Secondly, device agnostic ingestion. Uniti's capability allows integration with 3rd party devices and OEMs, enabling complete visibility and harmonized data across all vehicles. Thirdly, integrated data hub. Unity serves as an intelligent enterprise SaaS solution, integrating PGE's operations into maintenance and analytics platforms to a single pane of glass. And finally, white label fleet management.

Speaker 1

PGE is collaborating with PowerFleet extremely important to clearly demonstrate the power of the software platform that we've built and the unique value proposition it provides to the market. Other examples of new Unity partnerships include Ring Power, a leading Caterpillar dealer in the U. S, which expanded their relationship with PowerFleet to improve Equipment Maintenance and Customer Service and Bridgestone Mexico, a subsidiary of the world's largest tire and rubber manufacturer, which also expanded their relationship with PowerFleet to to monitor all of their 3rd party transportation suppliers utilizing the Unity platform to enhance visibility and productivity capabilities. We're experiencing a notable increase in inbound interest in the U. S, in fact, doubling over the past 6 months for our safety solutions, contribution to a stronger pipeline for H2 2023.

Speaker 1

For instance, a strategic contract with a leading U. S. Soda bottler is close to finalization with an impressive total contract value of nearly $5,000,000 Advanced negotiations are underway with a major U. And the U. S.

Speaker 1

Manufacturer of agricultural machinery aiming to introduce our 2nd generation pedestrian proximity detection solution valued as a TCV of $2,000,000 As I alluded to on the last call, we have now secured a geographical expansion deal in the connected car space with a leading customer, Deploying PowerFleet solution across 7,500 vehicles in Q4, amounting to a substantial $6,000,000 TCV contract. In the FMCG market in Mexico, we continue to make significant process also, expecting 3 major wins in half two twenty 23 for our Unity platform and related products. Our first strategic objective this year is delivering highly advanced enterprise software modules to market all built on the Unity platform. We launched our 2nd advanced enterprise application, Sustainability, at the end of June. This module empowers businesses worldwide to drive green initiatives by modernizing and aligning their fleets with corporate environmental, social and governance goals.

Speaker 1

As an integral part of our Uniti Fleet Intelligent platform, the sustainability module offers a range of capabilities designed to minimize carbon footprint, enhanced maintenance and fuel efficiency, comply with government mandates and reduce operational costs while accelerating growth. Key capabilities of the sustainability data powered application include visibility into the tons of CO2 emissions produced and saved by our customers' fleet, real time identification of high and low emissions vehicles, enabling customers to reduce CO2 Through timely maintenance or transition to electric vehicles. Eco scoring and tracking emissions increasing behaviors such as idling for each driver, providing insights to improve driving efficiency and incentivize positive behaviors budgeting and planning, Leveraging historical data on vehicle efficiency and eco scoring to predict fuel and energy usage. In response to government initiatives, Rising fuel costs and consumer expectations, more companies are prioritizing ESG and transitioning to EVs. We see this trend reflected in our existing customer base as well as our prospects.

Speaker 1

With sustainability, we continue to support our customers in their journey towards A Greener and More Efficient Future. Objective number 4 is expanding our channels and routes to market to drive new growth opportunities. Following our acquisition of Moving Dots, we are building a center of gravity in Europe and have recently appointed Heinz Herman Thieben as our SVP Sales for Europe. Heinz has a wealth of experience and an impressive track record of SaaS sales growth delivery, which I personally witnessed across 2 businesses we worked in together in the European telemetry space. Our initial emphasis for the European market will be on leveraging our global accounts and our unique capabilities in industrial vertical.

Speaker 1

Secondly, building on the success of our industrial business in the U. S, We are expanding our distribution channel for industrial solutions in Mexico, both directly and indirectly through a dealer channel. We anticipate a robust performance in the second half in Mexico from this new channel. Furthermore, We are looking forward to announcing a major white label agreement in Q3 with 1 of North America's largest material handling equipment and solution providers. This agreement will enable us to offer our safety, productivity and optimization technologies to their extensive customer base.

Speaker 1

In summary, Our core SaaS and profitability indicators for our go forward business are increasingly positive, providing confidence in achieving our long term strategic value creation objectives. Q2 marked a significant milestone as we completed the heavy lift on several transformation activities, allowing us to focus on tuning our SaaS growth engine in the upcoming quarters. We believe that all the heavy lifting items we have now completed Are the foundation for greater earnings potential, a more compelling business model and a lower cost of capital for our shareholders. In addition, we are confident that these trends will continue to drive greater investor interest in PowerFleet and support financing initiatives. That concludes our prepared remarks.

Speaker 1

Now I'll turn it back over to the operator for Q and A. Operator?

Operator

Your first question for today is coming from Jaeson Schmidt at Lake Street Capital Markets.

Speaker 3

Hey, guys. This is Max on for Jason. I saw the subscriber count up 9% year over year. I was wondering if you guys could break that out between existing customers and new customers. Thank you.

Speaker 2

Yes, obviously, there's significant growth from new more so than there has been historically. But in terms of providing that level of transparency, that's not something we'll be doing at this point.

Speaker 3

Okay. And then Looking out at the North American segment in Israel, you guys gave first half growth rates of 16% 10%. I was wondering if you could share that growth for Q2 near your expectations going into 2023?

Speaker 2

Yes. So the 16% was for North America, the 10% was for Israel on a constant currency basis. We did see an acceleration in growth in Q2. So in terms of actually breaking it out, we're not breaking it out, but to give you a sense in terms of just how that is trending. That should give you good insight in terms of the trend.

Speaker 1

And I think our overall view is we expect those trends to continue. It's very solid growth. And I think both from our customer base and internally, we've really made the shift now that transition to SaaS. And we have very strong growth prospects through Q3 into Q4 and then into 2024.

Speaker 3

Okay. That's it for me. Thank you.

Speaker 2

Thank you.

Operator

Your next question is coming from Gary Prestopino at Barrington Research.

Speaker 3

Good morning, Steve and David. A lot to unpack here. First of all, as I read your press release and what you talked about, Moving Dots is still going to be a drag on EBITDA in Q3, but you should be EBITDA neutral for all of Q4. Is that correct?

Speaker 2

That's correct, Gary.

Speaker 1

And just to put some color on that, as we said on the last call, we were taking substantial actions in our business to cut to cover. Those actions have been completed. We actually went a little deeper from $3,000,000 to $4,000,000 annualized. And those savings will just take a little bit of time to flow through as we obviously take the costs out through Q2 and Q3. So Yes, you're right.

Speaker 1

From Q4 onwards, we'll be EBITDA in September, I believe.

Speaker 3

Okay. Thank you. So in terms of The Unity platform. You have 2 modules out right now. Is that correct?

Speaker 3

That one you discussed and one was in what was the one in Q1?

Speaker 1

That was the safety module. Obviously, you're hearing a lot In terms of our wins in the safety space, they're dominating our wins in terms of customer drivers to do so, so safety In the Q4 and sustainability in the Q2.

Speaker 3

Okay. And then what's the cadence for the rest of the year? Can you make that public?

Speaker 1

Yes. So first of all, we're getting a lot of traction with the device agnostic ingestion and also with the integration into 3rd party applications. So we've pivoted some resource and expense into We're kind of scaling those because of the level of demand on both. So that's our priority number 1, and that will be followed later in the year with more modularity around advanced fuel and also compliance.

Speaker 3

Okay. So as I look at what you reported here, which is nice that you've been able to break out everything. In terms of this core markets number, You still have not you still have these countries that you're in. You have not Sold them or jettisoned them yet, right? You're planning to do that in Q3 as I recall from Your narrative?

Speaker 1

That is correct. So we expect to give an update on the next call, a substantive update on the next call. If you look at our core margin sorry, our core territories, which is obviously North America, which is Mexico and the U. S, Plus Israel and then our 2024 kind of added segment is Europe. We are currently in terms of SaaS revenues of 16% growth year on year for North America, 10% for Israel on a constant currency basis.

Speaker 1

Our services gross margin for that core business is now at 71% and overall gross margins of 53%. So if you think about where we're going to center our efforts, investments and focus, then those are the kind of metrics that we should be looking at for the go forward business.

Speaker 3

Okay. So, and then in terms of integrating Moving Dots, you said you've gotten the senior management out. What are the things that you're doing there on the cost side in terms of integration That's going to help you get to EBITDA breakeven.

Speaker 1

Yes. So all the actions are complete and that was a realigning in terms of our development resources. We had a number of contractors around the globe and we're kind of exiting those guys out and using the Moving Dots resources for that. We've also put 3 Moving Dots resources into senior leadership positions and made some transitions there. And ultimately then, we've driven other efficiencies across the business in terms of how we were running our European organization previously where we've now got people in country, which has led us to the fact of now we've saved $4,000,000 annualized.

Speaker 1

Those things are Executed upon the cost obviously have to flow out and we need to realize that, but everything is being done in 5 months, which is where I referenced I'm extremely proud of the efforts and the skill of our team to be able to do that in such a short space of time.

Speaker 3

Okay. And then just lastly, I mean, you had been reporting your total shares outstanding with the effect of the Arbry, I guess, convert. And this quarter, you haven't. Is there a reason for that? And what would be the shares outstanding with that convert exercise?

Speaker 2

Yes. Gary, let me get back to you on that. So I'm not so familiar with the history, just given my tenure with the company. But happy to connect with you on that offline.

Speaker 1

All I would say, Gary, there's nothing to read into it. So nothing has happened, which has led to any change in our philosophy or in our reporting.

Speaker 2

No, that's fine. Because we were paying the average dividend in PIK versus cash, I know that does have an impact in terms of EPS count. So I think we have been sort of $0.04 if we were PIK and we're $0.01 with the PIK. So we're paying in cash. So that may be the issue.

Speaker 2

And again, happy to connect with you offline.

Speaker 3

Yes, I think it's about 5,000,000 shares or something like that. And then lastly, is it possible, I mean, it was great that you gave subscriber counts for the quarter. Would it be possible to get what the subscriber counts were in Q1 and the year over year increase?

Speaker 1

Yes, we can get that to you, Gary. The year over year increase is 9%. The sequential is 3%. Well, we're not

Speaker 3

for Q1 on the subscriber counts. That's what because you want to start doing like an ARPU number and stuff like that and that's really helpful. So the subscriber number for Q1 plus the year over year increase would be much appreciated.

Speaker 1

Yes, we will fix that for you.

Speaker 2

Okay. Thank you. Thanks.

Operator

Your next question for today is coming from Scott Searle at ROTH MKM.

Speaker 4

Hey, good morning. Thanks for taking my questions. Nice to see the growth on the services side of the equation. Maybe to quickly just jump in on the cost side, a couple of clarifications. David, are there any one time charges that are in there, particularly on The cost of goods sold on the hardware front seemed a little depressed this quarter.

Speaker 4

I know it's not an area of focus necessarily going forward, But just what should that look like as it starts to normalize if in fact it does? And then as it relates to moving dots moving to breakeven In the Q4, just one clarification, is that really in reference to the cost cutting efforts that you have ongoing or Steve, are you making

Speaker 1

So I'll answer the last one first and then David can take the financial ones. So this is around the cost exercise. So ultimately, as you know, the couple of main drivers for us wasn't the revenue that came with moving dots, it was the talent To bring in 30 plus highly skilled engineers to drive unity and drive our insurance propositions, plus give us a beachhead in Europe. In order to accommodate that within our balance sheet, we've made those cut to cover and that's the $4,000,000 that we're referencing.

Speaker 2

Yes. And in terms of product margins, Scott, There's no one time. So one time isn't really the major driver here. But what we are seeing is we're seeing pressure in Israel. So we're in the sort of position whereby our BOM costs are in U.

Speaker 2

S. Dollars. So the bulk of the costs that go into products are in U. S. Dollars.

Speaker 2

Just given the political situation there, given the macro situation there, we're in a situation where to maintain market share, It is very challenging to pass those increased costs on to the end user. So we think the most important thing to do for long term value is to maintain share. So in essence, we're getting squeezed from a margin standpoint. And as I said, sequentially, the reduction in margins was concentrated in Israel.

Speaker 4

Got you. Very helpful. And if I could follow-up, the $10,000,000 in incremental cost savings sounds like largely focused around some of the ERP integrations that you have ongoing. It sounds like that's a little bit ahead of schedule. I wonder if you could provide a little bit of color on that relative to your last comments.

Speaker 2

Yes. So it is absolutely crucial. If you look at just the relative spend that we have, for example, on the G and A side of things, it is high and that is selective of, I would say, systems that work against us as opposed to for us. So we're absolutely driving that. In terms of the timeframe, I would say it's not inconsistent with what we shared on the last call.

Speaker 2

That said, it is aggressive, But we want to pride ourselves on doing the hard things well and doing them on time. So we're driving towards that. So the aim would be to finish across our Key markets by the end of this year, that's consistent with last time. There's a lot of work to be done, but we have the right people doing that work and the right level of focus. In terms of the $10,000,000 costs, the ERP specifically will start seeing the benefits during 2024.

Speaker 2

So we'll be working towards that, but there's other sources of savings too, which I think Steve will walk you through.

Speaker 1

Yes. So just additive to that, one thing we didn't mention, we We've just completed Deals with Ionix and Flextronics to outsource our contract manufacturing to give us far more efficiency in the way we manufacture and distribute our goods around the world, and that is ahead of schedule. So we will see some of that start to come a little earlier. Plus, in terms of some of our shared service center work in Mexico, we've started aggressively moving, Particularly because we are getting some price pressure in certain geographies, and therefore, we've accelerated some of that as well.

Speaker 4

Okay, very helpful. And then maybe shifting to the pipeline and the opportunity, it sounds like there's a lot going on there in terms of building That TCV. I'm not sure if I heard a number. You gave a couple of examples, but was there a TCV number in the quarter And maybe a TCV pipeline number. I think last quarter you talked about it growing 47%.

Speaker 4

I wonder if there's an update on that front and if you could Kind of highlight for us as well some of the ARPUs where they're trending. Obviously, I think they're going up, but when you start talking about safety, sustainability, What is that doing to the blended mix of the ARPUs of new business that you're winning? And as we think about 2024, services grew 16% so far year to date. You're talking about accelerating as we go into 2024. How should we be thinking about services growth in 2024?

Speaker 4

Thanks.

Speaker 1

In terms of ARPUs then we are seeing as we're doing the Uniti deal that 15% to 20% uplift range that we've talked about before, Scott. And I think overall, once we get into we're totally focused on our core markets, then for 2024, that 15% range plus For overall services growth, it's something that we feel is highly achievable, plus we'll be layering in more growth from the European territory as well, which again, the way that we're attacking those markets is ultimately with higher value, higher quality hardware to software revenues, not the commoditized revenues that we've had within the hardware channels previously, which obviously allows us to tick up on the service side rather than on the hardware side. Ultimately, you can see a real shift in our services mix, which is all part of that SaaS strategy. If we layer on top of that, we're winning significant new logo business. We are bringing on the Unity platform with incremental fees in the different elements that we talked about, whether that's the device agnostic OEM integration side, whether that's the 3rd party application integration side, plus the modularity, which gives us the ability to have More advanced versions of the standard software.

Speaker 1

This is all ARPU expansion within our customer base. So we feel very, Very confident about that. The proof points are coming in across that strategy, and that's why we feel really satisfied with having done the transformation stuff early and fast and hard. We're now coming out of the phase that we talked about. We came and said on the call this 6 months would be A lot of ins and outs and a lot of transition and change.

Speaker 1

Now it's about tuning the engine. Now it's about really bringing to bear though the overall value that we create for our customers in our numbers and our shareholders.

Speaker 4

Great. Thanks so much. I'll get back in the queue.

Speaker 2

Thanks, Kyle.

Operator

Your next question is a follow-up question coming from Gary Prestopino.

Speaker 3

Yes, I just want to get back to the sales pipeline. You said you added $40,000,000 Is that sequentially or year over year?

Speaker 2

That is a sequential number. So net pipe grew by $40,000,000 in the quarter. On a TCV basis.

Speaker 3

You were at 125, so year to date it's about 165 net pipe?

Speaker 2

It will be more than that. Again, the number we referred to last time was the increase in pipe, so that was an increase in pipe number versus the total pipe number.

Speaker 1

Steve.

Operator

We have reached the end of the question and answer session. And I will now turn the call over to Steve for closing remarks.

Speaker 1

I'd just like to thank everybody for joining us today. I think we're making significant progress. We very much tried to have a very transparent view of the last 6 to 12 months, and we know that that is complex in trying to understand and unpack everything that we're doing. It's hard for you guys. It's even harder for us in terms of making sure we keep the business moving forward.

Speaker 1

And I'm very, very happy with the progress that we've made. Thank you for your attention. We look forward to speaking to you next time. Keep safe. Keep well.

Speaker 1

Have a great day. Thanks.

Operator

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

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Earnings Conference Call
Powerfleet Q2 2023
00:00 / 00:00