Powerfleet, Inc. 10-Q

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations The following discussion and analysis of the consolidated financial condition and results of operations of Powerfleet, Inc. and its subsidiaries (“Powerfleet,” the “Company,” “we,” “our” or “us”) should be read in conjunction with the condensed consolidated financial statements and notes thereto appearing in Part I, Item 1 of this report. In the following discussions, most percentages and dollar amounts have been rounded to aid presentation, and, accordingly, all amounts are approximations. Amounts throughout this discussion and analysis for our unaudited interim condensed consolidated statements for the three months ended June 30, 2023 have been restated to reflect the impact of the restatement as described in our Annual Report on Form 10-K for the fiscal year ended December 31, 2023 (“2023 Annual Report”). In connection with the preparation of the Company’s audited consolidated financial statements for the year ended December 31, 2023, the Company determined that the accounting for the redemption premium associated with its Series A convertible preferred stock (“Series A Preferred Stock”) was understated resulting in an understatement of “net loss attributable to common stockholders” and “net loss per share attributable to common stockholders” for each period, an understatement of the value of the convertible redeemable preferred stock as of each balance sheet date, and an overstatement of the additional paid-in capital as of each balance sheet date. The required adjustments to correct the redemption value of the calculation of the Series A Preferred Stock and the related accretion of the value of the preferred stock in the consolidated statement of operations included the recording of a non-cash accretion which resulted in an increase in the net loss attributable to common stockholders, an increase in the “convertible redeemable preferred stock”, and a decrease of “additional paid-in capital” for the fiscal years ended December 31, 2021 and 2022 and each of the interim periods during the 2022 and 2023 fiscal years. The correction of the error resulted in reporting the value of the convertible preferred stock including the accretion to the redemption value from the date of original issuance through each balance sheet date applying the interest method. The Company had determined that it was appropriate to restate the financial statements for the fiscal years ended December 31, 2021 and 2022 and each of the interim periods during the 2022 and 2023 fiscal years included in the 2023 Annual Report. In addition, the Company also corrected other unrelated immaterial errors that were previously either unrecorded or recorded as out-of-period adjustments. For additional information refer to Note 2 to the financial statements included in the 2023 Annual Report. Cautionary Note Regarding Forward-Looking Statements This report contains “forward-looking statements” (within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”)), which may include information concerning our beliefs, plans, objectives, goals, expectations, strategies, anticipations, assumptions, estimates, intentions, future events, future revenues or performance, capital expenditures and other information that is not historical information. Forward-looking statements involve known and unknown risks, uncertainties and other factors, which may be beyond our control, and which may cause our actual results, performance or achievements to be materially different from future results, performance or achievements expressed or implied by such forward-looking statements. When used in this report, the words “seek,” “estimate,” “expect,” “anticipate,” “project,” “plan,” “contemplate,” “plan,” “continue,” “intend,” “believe” and variations of such words or similar expressions are intended to identify forward-looking statements. All forward-looking statements are based upon our current expectations and various assumptions. We believe there is a reasonable basis for its expectations and beliefs, but there can be no assurance that we will realize our expectations or that our beliefs will prove to be correct. There are a number of risks and uncertainties that could cause our actual results to differ materially from the forward-looking statements contained in this report. Important factors that could cause our actual results to differ materially from those expressed as forward-looking statements herein include, but are not limited, to: the ability to recognize the anticipated benefit of the acquisition of MiX Telematics; the possibility that we may not be able to integrate successfully the business, operations and employees of MiX Telematics; the ability of our supply chain to deliver certain key components; changes in technology or products, which may be more difficult or costly, or less effective, than anticipated; our ability to secure our information technology systems against breaches; the effects of competition from a wide variety of local, regional, national and other providers of wireless solutions; our ability to navigate the international political, economic and geographic landscape; future economic and business conditions, including the conflict between Israel and Hamas; the failure of the markets for our products to continue to develop; our inability to adequately protect our intellectual property; changes in laws and regulations or changes in generally accepted accounting policies, rules and practices; and other risks detailed from time to time in our filings with the Securities and Exchange Commission (the “SEC”), including our Transition Report on Form 10-KT for the period ended March 31, 2024 (the “Form 10-KT”). 33 There may be other factors of which we are currently unaware or which we currently deem immaterial that may cause our actual results to differ materially from the forward-looking statements. All forward-looking statements attributable to us or persons acting on our behalf apply only as of the date they are made and are expressly qualified in their entirety by the cautionary statements included in this report. Except as may be required by law, we undertake no obligation to publicly update or revise any forward-looking statement to reflect events or circumstances occurring after the date they were made or to reflect the occurrence of unanticipated events, or otherwise. Overview Powerfleet 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. On April 2, 2024, we consummated the MiX Combination, pursuant to which MiX Telematics became our indirect, wholly owned subsidiary. MiX Telematics is a leading global provider of fleet and mobile asset management solutions delivered as SaaS to over one million global subscribers spanning more than 120 countries. MiX Telematics’ products and services provide enterprise fleets, small fleets, and consumers with efficiency, safety, compliance, and security solutions. The acquisition is expected to provide us with operational synergies and access to a broader base of customers. The consolidated financial statements as of and for the three months ended June 30, 2024 include the financial results of MiX Telematics and its subsidiaries from the closing date of the MiX Combination. See Note 3, “Acquisition” in Part I, Item 1, “Financial Statements” for additional information. No operating results for MiX Telematics are included in the comparative period for the three months ended June 30, 2023. On May 8, 2024, our Board of Directors approved a change in our fiscal year end from December 31 to March 31 in order to better align our reporting calendar with the April 2, 2024 close of the MiX Combination and MiX Telematics’ historical March 31 fiscal year end. This decision was already being considered by Powerfleet executives before the MiX Combination, as part of a broader finance transformation initiative, which includes shifting and outsourcing back-office functions (including central corporate accounting) from the United States to a more cost-effective solution in South Africa. The decision was also driven by align the fiscal year with the close of the MiX Combination for investors and align the timing of audit work with the winter months in South Africa to help attract and retain accounting talent. Our Powerfleet for Warehouse 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 are a proven solution for organizations that must monitor and analyze their assets to improve safety, increase efficiency, reduce costs, and drive profitability. Our offerings are sold under the global brands Powerfleet, Pointer, Cellocator, and MiX by Powerfleet. We have an established history of IoT device development and innovation creating devices that can withstand harsh and rugged environments. With 49 patents and patent applications and over 25 years’ experience, we believe we are well positioned to evolve our offerings for even greater value to customers through our cloud-based applications for unified operations. We deliver advanced data solutions that connect mobile assets to increase visibility, operational efficiency and profitability. Across our spectrum of vertical markets, we differentiate ourselves by developing mobility platforms that collect data from unique sensors. Further, because we are OEM agnostic, we help organizations view and manage their 34 mixed assets homogeneously. All of our solutions are paired with software as a service (“SaaS”) and analytics platforms to provide an even deeper level of insights and understanding of how assets are utilized and how drivers and operators operate those assets. These insights include a full set of key performance indicators (“KPIs”) to drive operational and strategic decisions. Our customers typically get a return on their investment in less than 12 months from deployment. Our enterprise software applications have machine learning capabilities and are built to integrate with our customers’ management systems to provide a single, integrated view of asset and operator activity across multiple locations while providing real-time enterprise-wide benchmarks and peer-industry comparisons. We look for analytics, as well as the data contained therein, to differentiate us from our competitors, adding significant value to customers’ business operations, and helping to contribute to their bottom line. Our solutions also feature open application programming interfaces (“APIs”) for additional integrations and development to boost other enterprise management systems and third-party applications. We market and sell our connected IoT data solutions to a wide range of customers in the commercial and government sectors. Our customers operate in diverse markets, such as manufacturing, automotive manufacturing, wholesale and retail, food and grocery distribution, pharmaceutical and medical distribution, construction, mining, utilities, aerospace, vehicle rental, as well as logistics, shipping, transportation, energy and field services. Traditionally, these businesses have relied on manual, often paper-based, processes or on-premise legacy software to operate their high-value assets, manage workforce resources, and distributed sites; and face environmental, safety, and other regulatory requirements. In today’s landscape, it is crucial for these businesses to invest in solutions that enable easy analysis and sharing of real-time information. Our Solutions We provide critical actionable information that powers unified operations throughout organizations. We are solving the challenge of inefficient data collection, real-time visibility, and analysis that leads to transformative business operations. Our SaaS cloud-based applications take data from our IoT devices and ecosystem of third-party and partner applications to present actionable information for customers to increase efficiencies, improve safety and security, and increase their profitability in easy-to-understand reports, dashboards, and real-time alerts. Key Applications of our IoT Solutions We provide real-time intelligence for organizations with high-value assets allowing them to make informed decisions and ultimately improve their operations, safety, and bottom line. Our applications enable organizations to capture IoT data from various types of assets with devices and sensors creating a holistic view for analysis and action. The core applications that our IoT solutions address include: End-to-end Visibility: Organizations with expensive assets such as vehicles, machinery, or equipment need to keep track of where the assets are located, monitor for misuse, and understand how and when assets are being used. By having complete visibility of their assets, customers can improve security, utilization and customer service. In addition, our visibility solutions help with personnel workflows and resource management, freight visibility through load status, equipment availability status, dwell and idle time, geofencing, two-way temperature control and management, multizone temperature monitoring, arrival and departure times, and supply chain allocation. Regulatory Compliance: Businesses must comply with government regulations and provide proof of compliance, which is commonly an onerous process to enforce and maintain. Our solutions provide critical data points and reports to help customers stay within compliance, avoid fines for non-compliance, and automate the reporting process. We deliver real-time position reports, hours-of-service, temperature monitoring and control, electronic safety checklists, workflow management, controlling vehicle access to only authorized operators, inspection reports, and history logs of use. Improve Safety: Our applications are designed to provide asset and operator management, monitoring, and visibility for safer environments. Our solutions allow our customers to monitor their fleet of vehicles on various parameters, including but not limited to, vehicle location, speed, engine fault codes, driver behavior, eco-driving, and ancillary sensors and can receive reports and alerts, either automatically or upon request wirelessly via the internet, email, mobile phone or an SMS. In addition, our dash camera provides critical video capture that can be used to help exonerate drivers when in accidents or help bolster training and coaching programs of employees. We also offer preventative solutions such as safety warning products to alert vehicle operators of objects or pedestrians in their pathway to prevent accidents, injuries, and damage. 35 Our analytics platform features dashboards with KPIs and can help managers identify patterns, trends and outliers that can be used as flags for interventions. Drive Operational Efficiency & Productivity: To increase utilization of mobile assets, our solutions enable the identification of a change in status, real-time location, geo-fencing alerts when an asset is approaching or leaving its destination, cargo status, and on-board intelligence utilizing a motion sensor and proprietary logic that identifies the beginning of a drive and the end of a drive. Having this information enables customers to increase capacity, speed of service, right-size their fleets, and improve communication internally and with customers. In addition, customers can increase revenue per mile, reduce claims and claims processing times, and reduce the number of assets needed. This is achieved through proving such things as two-way integrated workflows for drivers, control assignments and work change, Electronic Driver Logging and automated record keeping for regulatory compliance, monitoring of asset pools and geofence violations, and various reporting insights that flag under-utilized assets, the closest assets, and alerts on dwell time and exceeding the allotted time for loading and unloading. We help customers to automate processes and increase productivity of their employees. Our applications enable customers to determine where operators are assigned and can temporarily reassign them based on peak needs, evaluate any disparity in the amount employees are paid compared to the time they actually spend operating a vehicle. Our applications help answer the question of why does it take some employees longer than others to do specific tasks, where to focus labor resources, and how to forecast vehicles and operators needed for future workflow. In addition, for our rental car vertical, our applications automatically upload vehicle identification number, mileage and fuel data as a vehicle enters and exits the rental lot, which can significantly expedite the rental and return processes for travelers, and provide the rental company with more timely inventory status, more accurate billing data that can generate higher fuel-related revenue, and an opportunity to utilize customer service personnel for more productive activities, such as inspecting vehicles for damage and helping customers with luggage. Our solution for “car sharing” permits a rental car company to remotely control, track and monitor their rental vehicles wherever they are parked. Whether for traditional “pod-based” rental or for the emerging rent-anywhere model, the system, through APIs integrated into any rental company’s fleet management system, (i) manages member reservations by smart phone or Internet, and (ii) charges members for vehicle use by the hour. For our customers with a variety of make-model-years in their fleet, we have developed an unmatched library of certified vehicle code interfaces through our second-generation On-Board Diagnostics, industry standard. Our patented fleet management system helps fleet owners improve asset utilization, reduce capital costs, and cut operating expenses, such as vehicle maintenance or service and support. Increase Security: Our solutions allow our customers to reduce theft and improve inventory management. Customers can lockdown their assets with automated e-mail or text message alerts, emergency tracking of assets (higher frequency of reports) if theft is expected, geo-fencing alerts when an asset enters a prohibited geography or location, and near real-time sensors that alert based on changes in temperature and shock, among other things. We also provide stolen vehicle retrieval (“SVR”) services in Israel and South Africa. In Israel most of the SVR products used to provide our SVR services are mainly sold to (i) local car dealers and importers that in turn sell the products equipped in the vehicle to the end users who purchase the SVR services directly from us, or (ii) leasing companies which purchase our SVR services in order to secure their own vehicles. In South Africa our distribution partners include automobile dealers, aftermarket automotive parts and service suppliers, automobile insurers and retailers. Reduce Costs We enable our customers to improve asset utilization, reduce capital costs, and cut operating expenses, such as vehicle maintenance or service and support. Our solutions provide engine performance, machine diagnostics, fuel consumption, and battery life to improve preventative maintenance scheduling, increase uptime, and gain a longer service life of equipment. Through our software applications, customers can optimize capacity, analyze resource allocation, and improve utilization of assets to reduce capital expenses such as purchasing new or leasing additional equipment. Our applications provide root cause analysis for any cargo claims and helps with exoneration of drivers in accidents via dash camera visibility. 36 Analytics and Machine Learning Our analytics platforms provide our customers with a holistic view of their asset activity across their enterprise. For example, our image machine learning system allows us to process images from our freight camera and other sources and identify key aspects of operations and geospatial information such as location, work being accomplished, type of cargo, how cargo is loaded and if there are any visible issues such as damage. Key Performance Indicators & Benchmarks Our cloud-based software applications provide a single, integrated view of asset activity across multiple locations, generating enterprise-wide benchmarks, peer-industry comparisons, and deeper insights into asset operations. In addition, our customers can set real-time alerts for exception-based reporting or critical activity that needs immediate attention. This enables management teams to make more informed, effective decisions, raise asset performance standards, increase productivity, reduce costs, and enhance safety. Specifically, our analytics platforms allow users to quantify best-practice enterprise benchmarks for asset utilization and safety, reveal variations and inefficiencies in asset activity across both sites and geographic regions, or identify opportunities to eliminate or reallocate assets, to reduce capital and operating costs. We provide an extensive set of decision-making tools and a variety of standard and customized reports to help businesses improve overall operations. We look for analytics and machine learning to make a growing contribution to drive platform and SaaS revenue, further differentiate our offerings and add value to our solutions. We also use our analytics platform for our own internal platform quality control. Services Hosting Services : We provide the use of our systems as a remotely hosted service, with the system server and application software residing in our colocation center or on a cloud platform provider’s infrastructure (e.g., Azure, AWS). This approach helps us reduce support costs and improve quality control. It separates the system from the restrictions of the customers’ local IT networks, which helps reduce their system support efforts and makes it easier for them to receive the benefits of system enhancements and upgrades. Our hosting services are typically offered with extended maintenance and support services over a multi-year term of service, with automatic renewals following the end of the initial term. Software as a Service: We provide system monitoring, help desk technical support, escalation procedure development, routine diagnostic data analysis and software updates services as part of the ongoing contract term. These services ensure deployed systems remain in optimal performance condition throughout the contract term and provide access to newly developed features and functions on an annual basis. Maintenance Services : We provide a warranty on the hardware components of our system. During the warranty period, we either replace or repair defective hardware. We also make extended maintenance contracts available to customers and offer ongoing maintenance and support on a time and materials basis. Customer Support and Consulting Services for Ease of Use, Adoption, and Added Value : We have developed a framework for the various phases of system training and support that offer our customers both structure and flexibility. Major training phases include hardware installation and troubleshooting, software installation and troubleshooting, “train-the-trainer” training on asset hardware operation, preliminary software user training, system administrator training, information technology issue training, ad hoc training during system launch and advanced software user training. Increasingly, training services are provided through scalable online interactive training tools. Support and consulting services are priced based on the extent of training that the customer requests. To help our customers derive the most benefit from our system, we supply a broad range of documentation and support including videos, interactive online tools, hardware user guides, software manuals, vehicle installation overviews, troubleshooting guides, and issue escalation procedures. We provide our consulting services both as a standalone service to study the potential benefits of implementing an IoT business intelligence solution and as part of the system implementation itself. In some instances, customers prepay us for 37 extended maintenance, support and consulting services. In those instances, the payment amount is recorded as deferred revenue and revenue is recognized over the service period. Growth Strategy Our objective is to become a leading global provider of IoT SaaS solutions for high-value enterprise assets to drive optimized operations and create safer environments. During the quarter ended March 31, 2023, we began to consolidate and augment many of our existing capabilities on a single customer software platform branded as “Unity.” We have designed our Unity platform to enable rapid and deep integration with IoT devices and third-party business systems to a highly scalable data pipeline that powers artificial intelligence-driven insights to help companies save lives, time, and money. Unity is an increasingly important initiative to meet our objective of becoming a leading global provider of IoT SaaS solutions for high-value enterprise assets to drive optimized operations and create safer environments. To achieve this goal, we intend to prove value, retain and grow business with existing customers and pursue opportunities with new customers by: • focusing our business solutions by vertical markets and go to market strategies to each market; • positioning ourselves as an innovative thought leader; • maintaining a world class sales and marketing team; • identifying, seizing, and managing revenue opportunities; • expanding our customer base, achieving wider market penetration and educating customers with mixed assets in their organization about our other applications, including new solutions available post the business combination with MiX Telematics; • implementing improved marketing, sales and support strategies; • shortening our initial sales cycles by helping our customers through: ◦ identifying and quantifying benefits expected from our solutions; ◦ accelerating transitions from implementation to roll-out; and ◦ building service revenue through long-term SaaS contracts; • differentiating our product offering through analytics, machine learning, unique sensors, and value-added services; • producing incremental revenue at a high profit margin; and • expanding our partnerships and integrations. We also plan to expand into new applications and markets by: • pursuing opportunities to integrate our system with computer hardware and software vendors, including: ◦ OEMs; ◦ transportation management systems; ◦ warehouse management systems; ◦ labor and timecard systems; ◦ enterprise resource planning; and ◦ yard management systems; • establishing relationships with global distributors; and • evaluating and pursuing strategically sound acquisitions of companies. Recent Developments Higher interest rates and inflation, fluctuations in currency values, supply chain disruptions and the conflicts between Russia and Ukraine, and between Israel and Hamas, have resulted in significant economic disruption and adversely 38 impacted the broader global economy, including our customers and suppliers. Given the dynamic and uncertain nature of the current macroeconomic environment, we cannot reasonably estimate the impact of such developments on our financial condition, results of operations or cash flows into the foreseeable future. The ultimate extent of the effects of these developments remain highly uncertain, and such effects could exist for an extended period of time. Risks to Our Business We expect that many customers who utilize our solutions will do so as part of a large-scale deployment of these solutions across multiple or all divisions of their organizations. A customer’s decision to deploy our solutions throughout its organization will involve a significant commitment of its resources. Accordingly, initial implementations may precede any decision to deploy our solutions enterprise-wide. Throughout this sales cycle, we may spend considerable time and expense educating and providing information to prospective customers about the benefits of our solutions, and there can be no assurance that our solutions will be deployed on a wider scale by the customer. The timing of the deployment of our solutions may vary widely and will depend on the specific deployment plan of each customer, the complexity of the customer’s organization and the difficulty of such deployment. Customers with substantial or complex organizations may deploy our solutions in large increments on a periodic basis. Accordingly, we may receive purchase orders for significant dollar amounts on an irregular and unpredictable basis. Long sales cycles, as well as our expectation that customers will tend to place large orders sporadically with short lead times, may cause our revenue and results of operations to vary significantly and unexpectedly from quarter to quarter. These variations could materially and adversely affect the market price of our common stock. Our ability to increase our revenues and generate net income will depend on a number of factors, including, for example, our ability to: • increase sales of products and services to our existing customers; • convert our initial programs into larger or enterprise-wide purchases by our customers; • increase market acceptance and penetration of our products; and • develop and commercialize new products and technologies. We have incurred recurring losses and negative cash flows from operations since inception and had an accumulated deficit of $177.1 million as of June 30, 2024. Management believes our cash and cash equivalents and restricted cash of $31.4 million as of June 30, 2024 in conjunction with the debt proceeds from our lenders, plus cash generated from the execution of our strategic plan over the next 12 months, are sufficient to fund the projected operations for at least the next 12 months from the issuance date of these condensed consolidated financial statements ( August 28, 2024 ) and service our outstanding obligations. Additional risks and uncertainties to which we are subject are described under the heading “Risk Factors” in Part II, Item 1A of this report and in the Form 10-KT. Critical Accounting Policies For the three-month period ended June 30, 2024, there were no significant changes to our critical accounting policies as identified in the Form 10-KT. 39 Results of Operations The following table sets forth, for the periods indicated, certain operating information expressed as a percentage of revenue: Three Months Ended June 30, 2023 (As Restated) 2024 Revenues: Products 34.5 % 24.8 % Services 65.5 % 75.2 % Total revenues 100.0 % 100.0 % Cost of revenues: Cost of products 26.6 % 16.9 % Cost of services 23.4 % 30.5 % Total cost of revenues 50.1 % 47.4 % Gross profit 49.9 % 52.6 % Operating expenses: Selling, general and administrative expenses 53.6 % 72.6 % Research and development expenses 6.9 % 4.1 % Total operating expenses 60.5 % 76.7 % Loss from operations (10.6) % (24.2) % Interest income 0.1 % 0.4 % Interest expense (0.5) % (3.6) % Bargain purchase - Movingdots 0.9 % — % Other income, net — % (0.8) % Net loss before income taxes (10.2) % (28.2) % Income tax benefit/(expense) — % (1.4) % Net loss before non-controlling interest (10.2) % (29.6) % Non-controlling interest — % — % Net loss (10.2) % (29.5) % Accretion of preferred stock (5.5) % — % Preferred stock dividend (3.5) % — % Net loss attributable to common stockholders (19.2) % (29.5) % 40 Three Months Ended June 30, 2024 Compared to Three Months Ended June 30, 2023 REVENUES. Revenues increased by $43.3 million, or 135.0%, to $75.4 million in the three months ended June 30, 2024, from $32.1 million in the same period in 2023. Revenues from products increased by $7.7 million, or 69.1%, to $18.7 million in the three months ended June 30, 2024 from $11.1 million in the same period in 2023. The increase in product revenues was primarily due to the MiX Telematics business acquired which contributed $8.8 million in product revenues for the three months ended June 30, 2024, offset by lower demand from logistics customers in North America. Revenues from services increased by $35.7 million, or 169.9%, to $56.7 million in the three months ended June 30, 2024 from $21.0 million in the same period in 2023. The increase in services revenues was principally due to the MiX Telematics business acquired which contributed $34.9 million in service revenues for the three months ended June 30, 2024. COST OF REVENUES. Cost of revenues increased by $19.7 million, or 122.6%, to $35.8 million in the three months ended June 30, 2024, from $16.1 million for the same period in 2023. T he MiX Telematics business acquired contributed $19.4 million to cost of revenues for the three months ended June 30, 2024. Gross profit was $39.6 million in the three months ended June 30, 2024, compared to $16.0 million for the same period in 2023. As a percentage of revenues, gross profit increased to 52.6% in the three months ended June 30, 2024 from 49.9% in the same period in 2023. Cost of products increased by $4.2 million, or 49.1%, to $12.8 million in the three months ended June 30, 2024, from $8.6 million in the same period in 2023. Gross profit for products was $6.0 million in the three months ended June 30, 2024, compared to $2.5 million in the same period in 2023. As a percentage of product revenues, gross profit increased to 32.0% in the three months ended June 30, 2024 from 22.9% in the same period in 2023. The increase in gross profit as a percentage of product revenues was principally due to a larger proportion of sales being driven by higher margin product lines including in warehouse solutions. Cost of services increased by $15.5 million, or 206.1%, to $23.0 million in the three months ended June 30, 2024, from $7.5 million in the same period in 2023. Gross profit for services was $33.7 million in the three months ended June 30, 2024, compared to $13.5 million in the same period in 2023. As a percentage of service revenues, gross profit decreased to 59.4% in the three months ended June 30, 2024 from 64.2% in the same period in 2023. The decrease in gross profit as a percentage of revenues was mainly due to the commencement of amortization of MiX Telematics acquisition-related intangibles of $3.0 million, consisting of $2.1 million from customer relationships, $0.7 million from developed technology and $0.2 million from trade names. SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and administrative (“SG&A”) expenses increased by $37.6 million, or 218.5%, to $54.8 million in the three months ended June 30, 2024, compared to $17.2 million in the same period in 2023, principally due to the MiX Telematics business acquired which contributed $17.3 million of SG&A expenses (excluding one-time costs), $14.5 million in acquisition-related expenses, $4.7 million in accelerated stock-based compensation costs and a $0.8 million increase in restructuring costs for the three months ended June 30, 2024 . As a percentage of revenues, SG&A expenses, excluding $20.4 million in one-time transaction, restructuring and accelerated stock-based compensation costs, decreased to 45.6% in the three months ended June 30, 2024, from 53.6% in the same period in 2023. RESEARCH AND DEVELOPMENT EXPENSES. Research and development (“R&D”) expenses increased by $0.9 million, or 39.6%, to $3.1 million in the three months ended June 30, 2024, compared to $2.2 million in the same period in 2023, principally due to $1.4 million incurred by the MiX Telematics business post acquisition . As a percentage of revenues, R&D expenses decreased to 4.1% in the three months ended June 30, 2024, from 6.9% in the same period in 2023. NET LOSS ATTRIBUTABLE TO COMMON STOCKHOLDERS. Net loss attributable to common stockholders was $22.3 million, or $(0.21) per basic and diluted share, for the three months ended June 30, 2024, as compared to net loss of $6.2 million, or $(0.17) per basic and diluted share, for the same period in 2023. The net loss was primarily the result of the increased SG&A expenses, including $20.4 million in one-time transaction, restructuring and accelerated stock-based compensation costs. 41 Non-GAAP Financial Information We use certain measures to assess the financial performance of our business. Certain of these measures are termed “non-GAAP measures” because they exclude amounts that are included in, or include amounts that are excluded from, the most directly comparable measure calculated and presented in accordance with GAAP, or are calculated using financial measures that are not calculated in accordance with GAAP. These non-GAAP measures include adjusted EBITDA. An explanation of the relevance of the non-GAAP measure, a reconciliation of the non-GAAP measure to the most directly comparable measure calculated and presented in accordance with GAAP and a discussion of its limitations is set out below. We do not regard this non-GAAP measures as a substitute for, or superior to, the equivalent measure calculated and presented in accordance with GAAP or that calculated using financial measure that is calculated in accordance with GAAP. Adjusted EBITDA We define adjusted EBITDA as net loss attributable to common stockholders before non-controlling interest, preferred stock dividend and accretion, interest expense (net), income tax benefit/expense, depreciation and amortization, stock-based compensation, foreign currency gains/losses, restructuring-related expenses, gain on bargain purchase (Movingdots), acquisition-related expenses and severance-related expenses. We have included adjusted EBITDA in this Quarterly Report on Form 10-Q because it is a key measure that our management and board of directors use to understand and evaluate our core operating performance and trends, to prepare and approve our annual budget, and to develop short and long-term operational plans. In particular, the exclusion of certain expenses in calculating adjusted EBITDA can provide a useful measure for period-to-period comparisons of our core business. Accordingly, we believe that adjusted EBITDA provides useful information to investors and others in understanding and evaluating our operating results. A reconciliation of net loss attributable to common stockholders (the most directly comparable financial measure presented in accordance with GAAP) to adjusted EBITDA for the periods shown is presented below. Reconciliation of Net Loss Attributable to Common Stockholders to Adjusted EBITDA Three Months Ended June 30, 2023 (As Restated) 2024 (In thousands) Net loss attributable to common stockholders $ (6,170) $ (22,337) Non-controlling interest 6 13 Preferred stock dividend and accretion 2,901 25 Interest expense, net 457 2,916 Income tax (benefit)/expense (6) 1,053 Depreciation and amortization 2,322 10,335 Stock-based compensation 852 5,929 Foreign currency (gains)/losses (362) 109 Restructuring-related expenses 425 1,198 Gain on bargain purchase - Movingdots (283) — Acquisition-related expenses 223 14,494 Adjusted EBITDA $ 365 $ 13,735 Our use of adjusted EBITDA has limitations as analytical tools and should not be considered as performance measures in isolation from, or as a substitute for, analysis of our results as reported under GAAP. 42 Some of these limitations are: • although depreciation and amortization are non-cash charges, the assets being depreciated and amortized may have to be replaced in the future, and adjusted EBITDA does not reflect cash capital expenditure requirements for such replacements or for new capital expenditure requirements; • adjusted EBITDA does not reflect changes in, or cash requirements for, our working capital needs; • adjusted EBITDA does not consider the potentially dilutive impact of equity-based compensation; • adjusted EBITDA does not reflect tax payments that may represent a reduction in cash available to us; • other companies, including companies in our industry, may calculate adjusted EBITDA differently, which reduces its usefulness as a comparative measure; and • certain of the adjustments (such as restructuring costs) made in calculating adjusted EBITDA are those that management believes are not representative of our underlying operations and, therefore, are subjective in nature. Because of these limitations, adjusted EBITDA should be considered alongside other financial performance measures, including loss from operations, net loss and our other results. 43 Liquidity and Capital Resources On October 3, 2019, in connection with the completion of the Pointer acquisition, we issued and sold 50,000 shares of the Series A Preferred Stock to ABRY Senior Equity V, L.P., ABRY Senior Equity Co-Investment Fund V, L.P and ABRY Investment Partnership, L.P. (the “Investors”) pursuant to the terms of an Investment and Transaction Agreement, dated as of March 13, 2019 (as amended, 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. On April 2, 2024, we consummated the MiX Combination, pursuant to which MiX Telematics became our indirect, wholly owned subsidiary. The Implementation Agreement required, as a condition to closing of the MiX Combination, that we obtain debt and/or equity financing in an amount sufficient to provide for the redemption in full of all outstanding shares of our Series A Preferred Stock. On April 2, 2024, concurrently with the closing of the MiX Combination, we used the net proceeds received from the RMB Facilities described above and incremental borrowing capacity as a result of the refinancing of Credit Facilities to redeem the full $90.3 million value of the outstanding shares of Series A Preferred Stock. In addition, our wholly owned subsidiaries, Powerfleet Israel and Pointer (collectively, the “Borrowers”) were party to the Prior 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 (composed of two facilities in the aggregate principal amounts 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 proceeds of the term loan facilities were used to finance a portion of the cash consideration payable in our acquisition of Pointer. On March 18, 2024, the Borrowers entered into the A&R Credit Agreement, which refinanced the facilities under, and amended and restated, the Prior Credit Agreement. The A&R Credit Agreement provides for (i) two senior secured term loan facilities denominated in NIS to Powerfleet Israel in an aggregate principal amount of $30 million (composed of Hapoalim Facility A and Hapoalim Facility B in the aggregate principal amounts of $20 million and $10 million, respectively) and (ii) two revolving credit facilities to Pointer in an aggregate principal amount of $20 million (composed of Hapoalim Facility C and Hapoalim Facility D in the aggregate principal amounts of $10 million and $10 million, respectively). The Hapoalim Term Facilities will mature on March 18, 2029. The Hapoalim Revolving Facilities are available for successive one-month periods until and including March 18, 2025, unless the Borrowers deliver prior notice to Hapoalim of their request not to renew the Hapoalim Revolving Facilities. On March 18, 2024, Powerfleet Israel drew down $30 million in cash under the Hapoalim Term Facilities and used the proceeds to prepay approximately $11.2 million, representing the remaining outstanding balance, of the term loans extended to Powerfleet Israel under the Prior Credit Agreement and distributed the remaining proceeds to us. The proceeds of the Hapoalim Revolving Facilities may be used by Pointer for general corporate purposes, including working capital and capital expenditures. The Hapoalim Credit Facilities continue to be secured by first ranking and exclusive fixed and floating charges, including by Powerfleet Israel over the entire share capital of Pointer and by Pointer over all of its assets, as well as cross guarantees between Powerfleet Israel and Pointer, except that the Borrowers’ holdings in Pointer do Brasil Comercial Ltda., Pointer Argentina and Pointer South Africa are excluded from such floating charges. No other assets of our company will serve as collateral under the Hapoalim Credit Facilities. The interest rates for borrowings under Hapoalim Facility A and Hapoalim Facility B are Hapoalim’s prime rate + 2.2% per annum, and Hapoalim’s prime rate + 2.3% per annum, respectively. Hapoalim’s prime rate at June 30, 2024 was 6%. Interest is payable quarterly on March 25, June 25, September 25, and December 25 over five years. The first interest period ended on June 25, 2024. Hapoalim Facility A amortizes in quarterly installments over its five-year term and will be payable in the following aggregate annual amounts: (i) 10% of the principal amount of Hapoalim Facility A from March 18, 2024 until March 18, 2025, (ii) 25% of the principal amount of Hapoalim Facility A from March 18, 2025 until March 18, 2026, (iii) 27.5% of the principal amount of Hapoalim Facility A from March 18, 2026 until March 18, 2027, (iv) 27.5% of the principal amount of Hapoalim Facility A from March 18, 2027 until March 18, 2028, and (v) 10% of the principal amount of Hapoalim Facility A from March 18, 2028 until March 18, 2029. Hapoalim Facility B does not amortize and will be payable in full on March 18, 2029. 44 The interest rate for borrowings under Hapoalim Facility C is, with respect to NIS-denominated loans, Hapoalim’s prime rate + 2.5%, and with respect to U.S. dollar-denominated loans, SOFR + 2.15%. Borrowings under Hapoalim Facility D will bear interest at the applicable interest rate set forth in the standard form documents entered into in connection with each utilization of Hapoalim Facility D. In addition, Pointer is required to pay a credit allocation fee in NIS, with respect to Hapoalim Facility C, and a non-utilization fee in U.S. dollars, with respect to Hapoalim Facility D, in each case, equal to 0.5% per annum on undrawn and uncancelled amounts of the revolving facilities during the period commencing on March 18, 2024 and ending on the last day of the applicable availability period of such revolving facilities. The Borrowers have also paid certain upfront fees and other fees and expenses to Hapoalim in connection with the A&R Credit Agreement. Pointer is required to pay a credit allocation fee in NIS, with respect to Hapoalim Facility C, and a non-utilization fee in U.S. dollars, with respect to Hapoalim Facility D, in each case, equal to 0.5% per annum on undrawn and uncancelled amounts of the Hapoalim Revolving Facilities during the period commencing on March 18, 2024 and ending on the last day of the applicable availability period of such Hapoalim Revolving Facilities. On March 7, 2024, we entered into the Facilities Agreement with RMB, pursuant to which RMB agreed to provide us with the RMB Facilities in an aggregate principal amount of $85 million, composed of RMB Facility A and RMB Facility B, each having a principal amount of $42.5 million. We drew down $85 million in cash under the RMB Facilities on March 13, 2024. The interest rates of RMB Facility A and RMB Facility B are 8.699% per annum and 8.979% per annum, respectively. Interest is payable quarterly in arrears. The principal under RMB Facility A and RMB Facility B is repayable in one installment on March 31, 2027 and March 31, 2029, respectively. Following the signing of the Facilities Agreement with RMB and MiX Telematics entered into the Credit Agreement on March 14, 2024, for the RMB General Facility. The Credit Agreement and the rights and obligations of the parties are subject to the terms and conditions of the Facilities Agreement entered into on March 7, 2024, which is described in more detail below. The RMB General Facility is repayable on demand and has a term of 365 days from the available date. Repayment of the RMB General Facility, including capitalized interest, is due by the earlier of (a) the available date or (b) April 2, 2025, unless extended by agreement between MiX Telematics and RMB. Interest rate for the RMB General Facility is calculated at South African prime rate minus 0.75% per annum and will be calculated on the daily outstanding balance, compounded monthly in arrears and repaid quarterly. A s of June 30, 2024, MiX Telematics had not borrowed anything under the RMB General Facility . The RMB General Facility was utilized in August 2024 to settle the Committed Facility MiX Telematics also has the CFC Overdraft Facility with Standard Bank. The CFC Overdraft Facility entitles MiX Telematics to utilize a maximum amount of R70.0 million (the equivalent of $3.8 million as of June 30, 2024). The CFC Overdraft Facility bears interest at the South African prime interest rate less 1.2% per annum. As of June 30, 2024, $0.6 million of the CFC Overdraft Facility was utilized. There is a suretyship agreement entered into with Standard Bank providing that MiX Telematics and only one subsidiary being MiX Telematics International (Pty) Ltd , binds themselves as surety(ies) and co-principal debtor(s) for the payment, when due, of all the present and future debts of any kind of M iX Telematics and MiX Telematics International to Standard Bank . As a result of global supply chain disruptions, the conflicts between Russia and Ukraine and between Israel and Hamas, 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 the available cash on hand including, but not limited to, targeted reductions in discretionary operating expenses and capital expenditures and borrowing under our revolving credit facility. Capital Requirements As of June 30, 2024, we had cash and cash equivalents (including restricted cash) of $31.4 million and working capital of $25.0 million compared to cash and cash equivalents (including restricted cash) of $109.7 million and working capital of $126.2 million as of March 31, 2024. Our primary sources of cash are cash flows from sales of products and services, our holdings of cash, cash equivalents and proceeds from the sale of our capital stock and borrowings under our credit facilities. $85 million in borrowings from RMB that was held in restricted cash at March 31, 2024 was used as the primary source of funds to redeem all outstanding shares of the Series A Preferred Stock on the April 2, 2024 close date of the MiX Combination. The MiX Combination is also expected to be a source of positive cash flow. To date, we have not generated sufficient cash flow solely from operating activities to fund our operations. 45 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. Operating Activities During the three months ended June 30, 2024, net cash used in operating activities was $7.6 million, compared to net cash used in operating activities of $0.5 million for the same period in 2023. The net cash used in operating activities for the three-months ended June 30, 2024 primarily included non-cash charges of $5.9 million for stock-based compensation, $10.3 million for depreciation and amortization expense, $2.0 million for bad debts expense, $0.9 million for shares issued for transaction bonuses related to the MiX Combination and $0.8 million for ROU asset amortization. Changes in operating assets and liabilities included: • an increase in inventory, net of reserve of $0.6 million; • an increase in accounts receivables of $7.0 million; • an increase in prepaid expenses and other assets of $1.5 million; and • a decrease in lease liabilities of $0.9 million; offset by • an increase in accounts payable of $5.0 million. Investing Activities Net cash provided by investing activities for the three months ended June 30, 2024 was $19.6 million, compared to net cash used in investing activities of $2.0 million for the same period in 2023 . The net cash provided by investing activities was primarily due to $27.5 million in net cash assumed from the MiX Combination, partially offset by $5.6 million for the purchase of fixed assets and $2.3 million for capitalized software development costs. In contrast, the net cash used in investing activities of $2.0 million in the same period in 2023 was primarily for the purchase of fixed assets of $1.0 million and $1.0 million for capitalized software development costs. Financing Activities During the three months ended June 30, 2024 , net cash used in financing activities was $89.5 million, compared to $0.3 million from financing activities for the same period in 2023 . The increase in net cash used in financing activities was primarily due to the repayment of Series A Preferred Stock of $90.3 million following the MiX Combination. 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, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources. Inflation 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. 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 April 2, 2024, we consummated the MiX Combination, pursuant to which MiX Telematics became our indirect, wholly owned subsidiary. See Note 3, “Acquisition,” in Part I, Item 1, “Financial Statements” for additional information. 46 Impact of Recently Issued Accounting Pronouncements The Company is subject to recently issued accounting standards, accounting guidance and disclosure requirements. For a description of these new accounting standards, see Note 23 to our consolidated financial statements contained in Item 1 of Part I of this Quarterly Report on Form 10-Q, which is included herein. 47 Item 3. Quantitative and Qualitative Disclosures About Market Risk Not applicable. 48