Powerfleet, Inc. 10-K

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations. The following discussion is intended to assist you in understanding our financial condition and results of operations and should be read in conjunction with the financial statements and related notes included elsewhere in this Annual Report on Form 10-K. Many of the amounts and percentages in this section have been rounded for convenience of presentation, but actual recorded amounts have been used in computations. Accordingly, some information may appear not to compute accurately. Overview PowerFleet, Inc. (together with its subsidiaries, “Powerfleet,” the “Company,” “we,” “our” or “us”) is a global leader of Internet-of-Things (IOT) solutions providing valuable business intelligence for managing high-value enterprise assets that improve operational efficiencies. We are headquartered in Woodcliff Lake, New Jersey, with offices located around the globe. Our PowerFleet for Industrial solutions are designed to provide on-premise or in-facility asset and operator management, monitoring, and visibility for industrial trucks such as forklifts, man-lifts, tuggers and ground support equipment at airports. These solutions utilize a variety of communications capabilities such as Bluetooth ® , WiFi, and proprietary radio frequency. Our PowerFleet for Logistics solutions are designed to provide bumper-to-bumper asset management, monitoring, and visibility for over-the-road based assets such as heavy trucks, dry-van trailers, refrigerated trailers and shipping containers and their associated cargo. These systems provide mobile-asset tracking and condition-monitoring solutions to meet the transportation market’s desire for greater visibility, safety, security, and productivity throughout global supply chains. Our PowerFleet for Vehicles solutions are designed both to enhance the vehicle fleet management process, whether it’s a rental car, a private fleet, or automotive original equipment manufacturer (OEM) partners. We achieve this by providing critical information that can be used to increase revenues, reduce costs and improve customer service. Our patented technologies address the needs of organizations to monitor and analyze their assets to improve safety, increase efficiency and productivity, reduce costs, and improve profitability. Our offerings are sold under the global brands Powerfleet, Pointer and Cellocator. We deliver advanced mobility solutions that connect assets to increase visibility operational efficiency and profitability. Across our vertical markets we differentiate ourselves by being OEM agnostic and helping mixed fleets view and manage their assets similarly. All of our solutions are paired with software as a service (SaaS) analytics platforms to provide an even deeper layer of insights. These insights include a full set of operational Key Performance Indicators (KPIs) to drive operational and strategic decisions. These KPIs leverage industry comparisons to show how a company is performing versus their peers. The more data the system collects, the more accurate a client’s understanding becomes. The analytics platform, which is integrated into our customers’ management systems, is designed to provide a single, integrated view of asset and operator activity across multiple locations that provides enterprise-wide benchmarks and peer-industry comparisons. We look for analytics, as well as the data contained therein, to differentiate us from our competitors, make a growing contribution to revenue, add value to our solutions, and help keep us at the forefront of the wireless asset management markets we serve. We sell our wireless mobility solutions to both corporate-level executives, division heads and site-level management within the enterprise. We also utilize channel partners such as independent dealers and OEMs who may opt for us to white label our product. Typically, our initial system deployment serves as a basis for potential expansion across the customer’s organization. We work closely with customers to help maximize the utilization and benefits of our system and demonstrate the value of enterprise-wide deployments. Post-implementation, we consult with our customers to further extend and customize the benefits to the enterprise by delivering enhanced analytics capabilities. We market and sell our solutions to a wide range of customers in the commercial and government sectors. Our customers operate in diverse markets, such as automotive manufacturing, heavy industry, retail food and grocery distribution, logistics, wholesale distribution, transportation, aviation, manufacturing, aerospace and defense, homeland security and vehicle rental. We incurred net losses of approximately $13.6 million, $18.1 million, and $11.9 million for the years ended December 31, 2020, 2021 and 2022, respectively, and have incurred additional net losses since inception. As of December 31, 2022, we had cash (including restricted cash) and cash equivalents of $18.0 million, working capital of $35.5 million, and an accumulated deficit of $141.4 million. Our primary sources of cash are cash flows from operating activities, our holdings of cash, cash equivalents and investments from the sale of our capital stock and borrowings under our credit facility. To date, we have not generated sufficient cash flow solely from operating activities to fund our operations. Critical Accounting Estimates We have adopted various accounting policies that govern the application of accounting principles generally accepted in the United States in the preparation of our financial statements. Our significant accounting policies are described in Note 2 to our consolidated financial statements included in this Annual Report on Form 10-K. Certain accounting policies involve significant judgments and assumptions by our management that can have a material impact on the carrying value of certain assets and liabilities. We consider such accounting policies to be our critical accounting policies. The judgments and assumptions used by our management in these critical accounting policies are based on historical experience and other factors that our management believes to be reasonable under the circumstances. Because of the nature of these judgments and assumptions, actual results could differ significantly from these judgments and estimates, which could have a material impact on the carrying values of our assets and liabilities and our results of operations. Our critical accounting policies are described below. 35 Revenue Recognition We generate revenue from sales of systems and products and from customer SaaS and hosting infrastructure fees. Revenue is measured as the amount of consideration the Company expects to receive in exchange for transferring goods or providing services. Revenue is recognized when performance obligations under the terms of a contract with our customer are satisfied. Product sales are recognized at a point in time when title transfers, when the products are shipped, or when control of the system is transferred to the customer, which usually is upon delivery of the system and when contractual performance obligations have been satisfied. For products which do not have standalone value to the customer separate from the SaaS services provided, the Company considers both hardware and SaaS services a bundled performance obligation. Under the applicable accounting guidance, all of the Company’s billings for equipment and the related cost for these systems are deferred, recorded, and classified as a current and long-term liability and a current and long-term asset, respectively. The deferred revenue and cost are recognized over the service contract life, ranging from one to five years, beginning at the time that a customer acknowledges acceptance of the equipment and service. Our contracts with customers may include multiple performance obligations. For such arrangements, the Company allocates revenue to each performance obligation based on its relative standalone selling price. The Company generally determines standalone selling prices based on observable prices charged to customers or adjusted market assessment or using expected cost-plus margin when one is available. Adjusted market assessment price is determined based on overall pricing objectives taking into consideration market conditions and entity specific factors. We recognize an asset for the incremental costs of obtaining the contract arising from the sales commissions to employees because the Company expects to recover those costs through future fees from the customers. The Company amortizes the asset over one to five years because the asset relates to the services transferred to the customer during the contract term of one to five years. Goodwill and Intangibles Goodwill represents costs in excess of fair values assigned to the underlying net assets of acquired businesses. Goodwill and intangible assets deemed to have indefinite lives are not amortized and are tested for impairment on an annual basis and between annual tests whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. Intangible assets other than goodwill are amortized over their useful lives unless the lives are determined to be indefinite. Intangible assets are carried at cost, less accumulated amortization. Intangible assets consist of trademarks and trade names, patents, customer relationships and other intangible assets. Goodwill is tested at the reporting unit level, which is defined as an operating segment or one level below the operating segment. The Company operates in one reportable segment which is its only reporting unit. The Company operates in one operating segment which is its only reporting unit. The Company tests its goodwill for impairment annually which is the first day of the Company’s fourth quarter or when an indicator of impairment exists, by comparing the fair value of the reporting unit to its carrying value. The Company performed a quantitative assessment whereby the fair value of the reporting unit is calculated using a market approach and a discounted cash flow method, as a form of the income approach. The market approach includes the use of comparative revenue and adjusted EBITDA multiples to complement discounted cash flow results. The discounted cash flow method is based on the present value of the projected cash flows and a terminal value. The terminal value represents the expected normalized future cash flows of the reporting unit beyond the cash flows from the discrete projection period. The fair value of the reporting unit is calculated based on the sum of the present value of the cash flows from the discrete period and the present value of the terminal value. The discount rate represented our estimate of the WACC, or expected return, that a marketplace participant would have required as of the valuation date. The application of our goodwill impairment test required key assumptions underlying our valuation model. The discounted cash flow analysis factored in assumptions on discount rates and terminal growth rates to reflect risk profiles, as well as revenue and cost growth relative to history and market trends and expectations. The market multiples approach incorporated judgment involved in the selection of comparable public company multiples and benchmarks. The selection of companies and multiples was influenced by differences in growth and profitability, and volatility in market prices of peer companies. These valuation inputs are inherently judgmental, and an adverse change in one or a combination of these inputs could trigger a goodwill impairment loss in the future. For the years ended December 31, 2020, 2021 and 2022, the Company did not incur an impairment charge. Income Taxes We use the asset and liability method of accounting for deferred income taxes. Deferred income taxes are measured by applying enacted statutory rates to net operating loss carryforwards and to the differences between the financial reporting and tax bases of assets and liabilities. Deferred tax assets are reduced, if necessary, by a valuation allowance if it is more likely than not that some portion or all of the deferred tax assets will not be realized. We recognize uncertainty in income taxes in the financial statements using a recognition threshold and measurement attribute of a tax position taken or expected to be taken in a tax return. We apply the “more-likely-than-not” recognition threshold to all tax positions. We have opted to classify interest and penalties that would accrue according to the provisions of relevant tax law as selling, general, and administrative expenses, in the consolidated statement of operations. For the years ended December 31, 2020, 2021 and 2022, interest and penalties were immaterial. 36 Results of Operations The following table sets forth certain items related to our statement of operations as a percentage of revenues for the periods indicated and should be read in conjunction with our consolidated financial statements and the related notes included elsewhere in this Annual Report on Form 10-K. A detailed discussion of the material changes in our operating results is set forth below. Year Ended December 31, 2020 2021 2022 Revenue: Products 40.2 % 42.0 % 41.7 % Services 59.8 % 58.0 % 58.3 % 100.0 % 100.0 % 100.0 % Cost of Revenue: Cost of products 26.6 % 31.2 % 31.5 % Cost of services 21.4 % 21.1 % 21.0 % 48.0 % 52.3 % 52.5 % Gross profit 52.0 % 47.7 % 47.5 % Operating expenses: Selling, general and administrative expenses 45.7 % 45.2 % 46.6 % Research and development expenses 9.3 % 8.8 % 6.7 % Total operating expenses 55.0 % 54.0 % 53.3 % Loss from operations -3.0 % -6.3 % -5.8 % Interest income 0.1 % 0.0 % 0.1 % Interest expense -3.9 % -2.2 % 0.7 % Other income (expenses) net, -0.1 % 0.0 % 0.0 % Net loss before income taxes -7.0 % -8.5 % -5.0 % Income tax benefit (expense) -0.9 % -2.0 % -0.2 % Net loss before non-controlling interest -7.9 % -10.5 % -5.2 % Non-controlling interest 0.0 % 0.0 % 0.0 % Net loss -7.9 % -10.5 % -5.2 % Accretion of preferred stock -0.6 % -0.5 % -0.5 % Preferred stock dividend -3.5 % -3.3 % -3.1 % Net loss attributable to common shareholders -11.9 % -14.3 % -8.8 % 37 Year Ended December 31, 2022 Compared to Year Ended December 31, 2021 REVENUES. Revenues increased by approximately $8.9 million, or 7.1%, to $135.2 million in 2022 from $126.2 million in 2021. Revenues from products increased by approximately $3.3 million, or 6.3%, to $56.3 million in 2022 from $53.0 million in 2021. The increase in product revenues is attributable to an increase in sales by our Powerfleet for Logistics and Powerfleet for Industrial products. Revenues from services increased by approximately $5.6 million, or 7.7%, to $78.8 million in 2022 from $73.2 million in 2021. The increase in services revenues is principally due to an increase in our install base that generates service revenue. COST OF REVENUES. Cost of revenues increased by approximately $5.0 million, or 7.5%, to $71.0 million in 2022 from $66.0 million in 2021. Gross profit was $64.2 million in 2022 compared to $60.2 million in 2021. As a percentage of revenues, gross profit decreased to 47.5% in 2022 from 47.7% in 2021. The decrease in gross profit as a percentage of revenues was principally due to increases in raw material costs as a result of global supply chain issues. Cost of products increased by approximately $3.2 million, or 8.1%, to $42.6 million in 2022 from $39.4 million in 2021. Gross profit for products was $13.7 million in 2022 compared to $13.5 million in 2021. As a percentage of product revenues, gross profit decreased to 24.3% in 2022 from 25.5% in 2021. The decrease in gross profit as a percentage of product revenues was impacted by product mix, higher costs associated with supply chain issues, electronic component shortages and inflation. Cost of services increased by approximately $1.8 million, or 6.7%, to $28.4 million in 2022 from $26.6 million in 2021. Gross profit for services was $50.5 million in 2022 compared to $46.6 million in 2021. As a percentage of service revenues, gross profit increased to 64.0% in 2022 from 63.7% in 2021. The increase in gross profit as a percentage of services revenues was principally due to an increase in our install base that generates service revenue. SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and administrative (“SG&A”) expenses increased by approximately $5.9 million, or 10.3%, to $63.0 million in 2022 compared to $57.1 million in 2021, inclusive of higher foreign currency losses of $0.7 million and higher severance costs of $0.7 million. Other drivers of the increase in expenses include increased salaries and related expenses, professional fees, and marketing and travel expenses. As a percentage of revenues, SG&A expenses increased to 46.6% in the year ended December 31, 2022, from 45.2% in the same period in 2021. RESEARCH AND DEVELOPMENT EXPENSES. Research and development (“R&D”) expenses decreased by approximately $2.1 million, or 18.9%, to $9.0 million in 2022 compared to $11.1 million in 2021, principally due to the capitalization of software development expenses for new product development, which increased by $2.2 million in 2022. As a percentage of revenues, R&D expenses decreased to 6.7% in the year ended December 31, 2022 from 8.8% in the same period in 2021. INTEREST EXPENSE. Interest expense decreased by $3.8 million, or 136.0%, to $(1.0) million in 2022 from $2.8 million in 2021, principally due to foreign currency translation gains from the Term Facilities. NET LOSS ATTRIBUTABLE TO COMMON STOCKHOLDERS. Net loss attributable to common stockholders was $11.9 million, or $(0.34) per basic and diluted share, for 2022 as compared to net loss of $18.1 million, or $(0.52) per basic and diluted share, for the same period in 2021. The decrease in the net loss was due primarily to the reasons described above. Year Ended December 31, 2021 Compared to Year Ended December 31, 2020 REVENUES. Revenues increased by approximately $12.6 million, or 11.1%, to $126.2 million in 2021 from $113.6 million in 2020. Revenues from products increased by approximately $7.3 million, or 16.1%, to $53.0 million in 2021 from $45.7 million in 2020. The increase in product revenue is attributable to an increase in sales by our Powerfleet for Logistics products. Revenues from services increased by approximately $5.3 million, or 7.8%, to $73.2 million in 2021 from $67.9 million in 2020. The increase in services revenue is principally due to an increase in our install base that generates service revenue. COST OF REVENUES. Cost of revenues increased by approximately $11.4 million, or 21.0%, to $66.0 million in 2021 from $54.6 million in 2020. Gross profit was $60.2 million in 2021 compared to $59.0 million in 2020. As a percentage of revenues, gross profit decreased to 47.7% in 2021 from 52.0% in 2020. The decrease in gross profit as a percentage of revenue was principally due to changes in product mix and higher costs for components as a result of the global supply chain issues. 38 Cost of products increased by approximately $9.2 million, or 30.5%, to $39.4 million in 2021 from $30.2 million in 2020. Gross profit for products was $13.5 million in 2021 compared to $15.4 million in 2020. As a percentage of product revenues, gross profit decreased to 25.5% in 2021 from 33.8% in 2020. The decrease in gross profit as a percentage of product revenues was primarily due to a $400,000 one-time expense related to an incentive program to expand business with an existing customer that is one of the largest chassis lessors in North America. Product gross profit was also impacted by product mix, higher costs associated with supply chain issues, electronic component shortages and inflation. Cost of services increased by approximately $2.2 million, or 9.1%, to $26.6 million in 2021 from $24.4 million in 2020. Gross profit for services was $46.6 million in 2021 compared to $43.6 million in 2020. As a percentage of service revenues, gross profit decreased to 63.7% in 2021 from 64.2% in 2020. SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. SG&A expenses increased by approximately $5.2 million, or 10.0%, to $57.1 million in 2021 compared to $51.9 million in 2020 principally due to increased salaries due to the reversal of temporary cost reduction initiatives implemented during the first quarter of 2020 in response to the impact and uncertainty caused by COVID-19. There was an additional $1.0 million increase in severance and recruiting related expenses. As a percentage of revenues, SG&A expenses decreased to 45.2% in the year ended December 31, 2021, from 45.7% in the same period in 2020. RESEARCH AND DEVELOPMENT EXPENSES. R&D expenses increased by approximately $0.5 million, or 4.4%, to $11.1 million in 2021 compared to $10.6 million in 2020 principally due to increased salaries due to the reversal of temporary cost reduction initiatives implemented during the first quarter of 2020 in response to the impact and uncertainty caused by COVID-19. As a percentage of revenues, R&D expenses decreased to 8.8% in the year ended December 31, 2021from 9.3% in the same period in 2020. INTEREST EXPENSE. Interest expense decreased by $1.7 million, or 38.1%, to $2.8 million in 2021 from $4.5 million in 2020, due to the continued paydown of principal on our credit facility with Hapoalim and the full pay down in 2020 of the convertible unsecured promissory notes in the aggregate principal amount of $5,000,000 (the “Notes”) that we issued to the Investors and a decrease in the foreign currency translation losses related to long-term debt included in interest expense. NET LOSS ATTRIBUTABLE TO COMMON STOCKHOLDERS. Net loss attributable to common stockholders was $18.1 million, or $(0.52) per basic and diluted share, for 2021 as compared to net loss of $13.6 million, or $(0.46) per basic and diluted share, for the same period in 2020. The decrease in the net loss was due primarily to the reasons described above. Liquidity and Capital Resources Historically, our capital requirements have been funded primarily from the net proceeds from the issuance of our securities, including any issuances of our common stock upon the exercise of options. As of December 31, 2022, we had cash (including restricted cash) and cash equivalents of $18.0 million and working capital of $35.5 million, compared to cash (including restricted cash) and cash equivalents of $26.8 million and working capital of $43.6 million as of December 31, 2021. 39 On October 3, 2019, in connection with the completion of the Transactions, we issued and sold 50,000 shares of the Series A Preferred Stock to the Investors pursuant to the terms of the Investment Agreement for an aggregate purchase price of $50.0 million. The proceeds received from such sale were used to finance a portion of the cash consideration payable in our acquisition of Pointer. Also, on October 3, 2019, we issued and sold the Notes to the Investors at the closing of the Transactions. We repaid in full the aggregate principal amount of $5.0 million and accrued interest under the Notes on October 1, 2020. In addition, our wholly owned subsidiaries, Powerfleet Israel and Pointer (collectively, the “Borrowers”) are party to the Credit Agreement with Hapoalim, pursuant to which Hapoalim agreed to provide Powerfleet Israel with two senior secured term loan facilities denominated in NIS in an initial aggregate principal amount of $30 million (comprised of the Term A Facility and the Term B Facility in the aggregate principal amount of $20 million and $10 million, respectively) and a five-year revolving credit facility to Pointer denominated in NIS in an initial aggregate principal amount of $10 million (the “Revolving Facility”). The outstanding amount under the term loan facilities was approximately NIS 55.3 million, or $15.9 million, as of December 31, 2022. The proceeds of the term loan facilities were used to finance a portion of the cash consideration payable in our acquisition of Pointer. The proceeds of the revolving credit facility may be used by Pointer for general corporate purposes. On August 23, 2021, the Borrowers entered into an amendment (the “Amendment”), effective as of August 1, 2021, to the Credit Agreement with Hapoalim. The Amendment memorializes the agreements between the Borrowers and Hapoalim regarding a reduction in the interest rates of the Term A Facility and the Term B Facility. Pursuant to the Amendment, commencing as of November 12, 2020, the interest rate with respect to the Term A Facility was reduced to a fixed rate of 3.65% per annum and the interest rate with respect to the Term B Facility was reduced to a fixed rate of 4.5% per annum. The Amendment also provides, among other things, for (i) a reduction in the credit allocation fee on undrawn and uncancelled amounts of the Revolving Facility from 1% to 0.5% per annum, (ii) removal of the requirement that Powerfleet Israel maintain $3,000 on deposit in a separate reserve fund, and (iii) modifications to certain of the affirmative and negative covenants, including a financial covenant regarding the ratio of the Borrowers’ debt levels to Pointer’s EBITDA. On October 31, 2022, the Borrowers entered into a third amendment to the Credit Agreement (the “Third Amendment”) with Hapoalim. The Third Amendment provides for, among other things, the New Revolver. The New Revolver will be available for a period of one month, commencing on October 31, 2022, and will continue to be available for successive one-month periods until and including October 30, 2023, unless the Borrowers deliver a notice to Hapoalim of their request not to renew the New Revolver. As of December 31, 2022, the Company borrowed approximately NIS20.1 million, or $5.7 million, under the revolving credit facilities. The New Revolver will initially bear interest at the Secured Overnight Financing Rate plus 2.59%. Such interest is subject to monthly changes by Hapoalim, provided that Hapoalim gives Pointer advance notice regarding such change prior to the end of the applicable calendar month. The New Revolver is secured by a first ranking fixed pledge and assignment by Pointer over its new bank account, which was opened in connection with the New Revolver, and all of the rights relating thereunder as well as a cross guarantee by Powerfleet Israel. Pointer is required to pay a credit allocation fee equal to 0.5% per annum on undrawn and uncancelled amounts of the New Revolver. Pointer also has a one-year $1,000 revolving credit facility available for use with Discount Bank, which renews annually, subject to the bank’s approval. Pointer did not have any borrowings outstanding under the revolving credit facility with Discount Bank as of December 31, 2022. As a result of global supply chain disruptions, the conflict between Russia and Ukraine, rising interest rates, fluctuations in currency values, inflation and other cost increases, there remains uncertainty surrounding the potential impact of such events on our results of operations and cash flows. We are proactively taking steps to increase available cash on hand including, but not limited to, targeted reductions in discretionary operating expenses and capital expenditures and borrowing under the revolving credit facility. Capital Requirements As of December 31, 2022, we had cash (including restricted cash), cash equivalents and marketable securities of $18.0 million and working capital of $35.5 million. Our primary sources of cash are cash flows from operating activities, our holdings of cash, cash equivalents and investments from the sale of our capital stock and borrowings under our credit facility. To date, we have not generated sufficient cash flow solely from operating activities to fund our operations. We believe that our available working capital, anticipated level of future revenues and expected cash flows from operations will provide sufficient funds to cover capital requirements through at least March 31, 2024. Our capital requirements depend on a variety of factors, including, but not limited to, the length of the sales cycle, the rate of increase or decrease in our existing business base, the success, timing, and amount of investment required to bring new products to market, revenue growth or decline and potential acquisitions. Failure to generate positive cash flow from operations will have a material adverse effect on our business, financial condition and results of operations. 40 Operating Activities Net cash provided by operating activities was $0.8 million for the year ended December 31, 2022, compared to net cash used in operating activities of $5.0 million for the same period in 2021. The net cash provided by operating activities for the year ended December 31, 2022 reflects a net loss of $7.0 million and includes non-cash charges of $4.3 million for stock-based compensation, $8.3 million for depreciation and amortization expense and $2.8 million for right of use asset amortization. Changes in working capital items included: ● an increase in accounts receivable of $1.6 million; ● an increase in inventory of $4.5 million; ● a decrease in lease liabilities of $2.7 million; ● a decrease in accounts payable and accrued expenses of $0.5 million. Net cash used in operating activities was $5.0 million for the year ended December 31, 2021, compared to net cash provided by operating activities of $8.8 million for the same period in 2020. The net cash used in operating activities for the year ended December 31, 2021 reflects a net loss of $13.3 million and includes non-cash charges of $4.7 million for stock-based compensation, $8.6 million for depreciation and amortization expense and $2.9 million for right of use asset amortization. Changes in working capital items included: ● an increase in accounts receivable of $9.7 million; ● an increase in inventory of $6.1 million; and ● an increase in accounts payable and accrued expenses of $8.3 million. Investing Activities Net cash used in investing activities was $5.8 million for the year ended December 31, 2022, compared to net cash used in investing activities of $3.4 million for the same period in 2021. The cash used in investing activities for the years ended December 31, 2022 and 2021 was primarily for the purchase of fixed assets and capitalized software development. Net cash used in investing activities was $3.4 million for the year ended December 31, 2021, compared to net cash used in investing activities of $3.3 million for the same period in 2020. The cash used in investing activities for the years ended December 31, 2021 and 2020 was for the purchase of fixed assets and capitalized software development. Financing Activities Net cash used in financing activities was $0.3 million for the year ended December 31, 2022, compared to net cash provided by financing activities of $16.2 million for the same period in 2021. The 2021 period was represented by net proceeds from our stock offering of $26.9 million offset by the net repayment of long-term debt of $5.7 million and the payment of preferred stock dividends of $4.1 million. In 2022, dividends were not paid in cash and the net cash used in financing was primarily from the repayment of long-term debt, net of proceeds from debt. Net cash provided by financing activities was $16.2 million for the year ended December 31, 2021, compared to net cash used in financing activities of $3.9 million for the same period in 2020. The change from the same period in 2020 was primarily due to the net proceeds from our stock offering of $26.9 million offset by the repayment of long-term debt of $5.6 million and the payment of preferred stock dividends of $4.1 million. Inflation Rising inflation and other macroeconomic conditions in the U.S. have resulted in higher costs of raw materials, freight, and labor, which has impacted our operating costs. In addition, we operate in several emerging market economies that are particularly vulnerable to the impact of inflationary pressures that could materially and adversely impact our operations in the foreseeable future. 41 Business Acquisitions In addition to focusing on our core applications, we adapt our systems to meet our customers’ broader asset management needs and seek opportunities to expand our solution offerings through strategic acquisitions. On March 6, 2023, we entered into the SPA with Swiss Re to acquire all of the outstanding shares of Movingdots for consideration consisting of €1 and the issuance by us of a ten-year warrant to purchase 800,000 shares of our common stock at an exercise price of $7.00 per share. Under the SPA, Swiss Re is required to ensure that Movingdots has available cash and cash equivalents of at least €8,000,000 as of the closing date. The transaction closed on March 31, 2023. Off-Balance Sheet Arrangements We do not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that is material to investors. Recently Issued Accounting Pronouncements In December 2019, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2019-12, Simplifying the Accounting for Income Taxes which removes certain exceptions related to the approach for intraperiod tax allocation, the methodology for calculating income taxes in an interim period, the recognition of deferred tax liabilities for outside basis differences and clarifies the accounting for transactions that result in a step-up in the tax basis of goodwill. The guidance is generally effective as of January 1, 2021, with early adoption permitted. The adoption of this standard did not have a material impact on the Company’s consolidated financial statements. In June 2016, the FASB issued ASU No. 2016-13, “Financial Instruments - Credit Losses (Topic 326) Measurement of Credit Losses on Financial Instruments,” which amends the guidance on measuring credit losses on financial assets held at amortized cost. The amendment is intended to address the issue that the previous “incurred loss” methodology was restrictive for an entity’s ability to record credit losses based on not yet meeting the “probable” threshold. The new language will require these assets to be valued at amortized cost presented at the net amount expected to be collected with a valuation provision. This updated standard is effective for fiscal years beginning after December 15, 2022. The Company is currently evaluating the impact of this ASU on the consolidated financial statements. Item 7A. Quantitative and Qualitative Disclosures about Market Risks. Not applicable. 42