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 and Part II, Item 7 of our Form 10-KT. In the following discussions, most percentages and dollar amounts have been rounded to aid presentation, and, accordingly, all amounts are approximations. 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 MiX Combination and the FC Acquisition; the possibility that we may not be able to integrate successfully the businesses, operations and employees of MiX Telematics and Fleet Complete; 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”). 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 We are a global leader of Artificial Intelligence-of-Things (“AIoT”) solutions providing valuable business intelligence for managing high-value enterprise and mid-market assets that improve operational efficiencies. We are headquartered in Woodcliff Lake, New Jersey, with offices located around the globe. Our Unity data highway and AIoT ecosystem is the centerpiece of our strategy. Unity has the capability to ingest data from multiple data sources, harmonizing and transforming the dataset, and delivering simply understood insights through a unified Software-as-a-Service (“SaaS”) platform. 40 Unity provides mission-critical solutions from warehouse to trailer to vehicle, allowing customers to consolidate suppliers and gain end-to-end in a single pane of glass. Unity enables customers to consume their data in multiple ways, from data-powered applications to unified operations integrations, which provide the ability to improve performance of the asset, the individual in charge of the asset and the business process, continuously improving our customers’ business performance. Within the Unity ecosystem, our Powerfleet for Warehouse AIoT solutions are designed to provide on-premise or in-facility asset and operator management, monitoring, and visibility for warehouse and factory 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. Additionally, within the Unity ecosystem, our Powerfleet for On-Road AIoT solutions are designed to provide bumper-to-bumper AIoT 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 AIoT solutions 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 On-Road AIoT solutions extend to all mobile assets, whether it is 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, enhance safety and sustainability, deliver compliance, and improve customer service. Our patented technologies are proven solutions 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, MiX by Powerfleet and Fleet Complete. We have an established history of Internet-of-Things (“IOT”) device development, AI and data science expertise, and innovation creating devices that can withstand harsh and rugged environments. With 51 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. Because we are data source and OEM agnostic, we help organizations view and manage their mixed assets homogeneously. All of our solutions are paired with 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 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 AI and 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 for additional integrations and development to boost other enterprise management systems and third-party applications. We market and sell our Unity ecosystem and our connected AIoT 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 multiple vendors, as well as 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, increasingly consolidating their suppliers. 41 Recent Developments 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- and nine-month periods ended December 31, 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 (Unaudited)” for additional information. No operating results for MiX Telematics are included in the comparative period for the three- and nine-month periods ended December 31, 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 aligning the fiscal year with the close of the MiX Combination for investors and aligning the timing of audit work with the winter months in South Africa to help attract and retain accounting talent. On October 1, 2024, we consummated the FC Acquisition, pursuant to which we acquired Fleet Complete. Fleet Complete is a leading provider of essential fleet, asset, and mobile workforce management solutions across North America, Australia, and Europe. A majority of Fleet Complete’s revenue is generated through strong distribution partnerships with major international telecommunications providers and market-leading original equipment manufacturer (“OEM”) partners. The consolidated financial statements as of and for the three- and nine-month periods ended December 31, 2024 include the financial results of Fleet Complete and its subsidiaries from the closing date of the FC Acquisition. See Note 3, “Acquisition” in Part I, Item 1, “Financial Statements (Unaudited)” for additional information. No operating results for Fleet Complete are included in the comparative period for the three- and nine-month periods ended December 31, 2023. 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 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; 42 • 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 $193.3 million as of December 31, 2024. Management believes our cash and cash equivalents and restricted cash of $38.6 million as of December 31, 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 (February 10, 2025) 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- and nine-month periods ended December 31, 2024, there were no significant changes to our critical accounting policies as identified in the Form 10-KT. 43 Results of Operations The following table sets forth, for the periods indicated, certain operating information expressed as a percentage of revenue: Three Months Ended December 31, Nine Months Ended December 31, 2023 2024 2023 2024 Revenues: Products 37.4 % 23.2 % 36.9 % 24.6 % Services 62.6 % 76.8 % 63.1 % 75.4 % Total revenues 100.0 % 100.0 % 100.0 % 100.0 % Cost of revenues: Cost of products 29.0 % 16.1 % 27.2 % 16.9 % Cost of services 20.7 % 28.7 % 22.8 % 29.1 % Total cost of revenues 49.7 % 44.8 % 49.9 % 46.0 % Gross profit 50.3 % 55.2 % 50.1 % 54.0 % Operating expenses: Selling, general and administrative expenses 56.0 % 52.1 % 53.8 % 57.0 % Research and development expenses 5.8 % 4.3 % 6.6 % 4.3 % Total operating expenses 61.8 % 56.4 % 60.4 % 61.3 % Loss from operations (11.5) % (1.2) % (10.4) % (7.3) % Interest income 0.1 % 0.3 % 0.1 % 0.3 % Interest expense (3.3) % (7.5) % (1.5) % (5.7) % Bargain purchase - Movingdots 4.4 % — % 1.8 % — % Other expense, net — % (1.9) % — % (0.4) % Net loss before income taxes (10.3) % (10.2) % (10.0) % (13.0) % Income tax benefit/(expense) 0.3 % (3.3) % (0.2) % (1.9) % Net loss before non-controlling interest (10.0) % (13.5) % (10.2) % (14.9) % Non-controlling interest (0.1) % — % — % — % Net loss (10.1) % (13.5) % (10.2) % (14.9) % Accretion of preferred stock (5.4) % — % (5.4) % — % Preferred stock dividend (3.3) % — % (3.4) % (0.0)% Net loss attributable to common stockholders (18.8) % (13.5) % (19.0) % (14.9) % 44 Three Months Ended December 31, 2024 Compared to Three Months Ended December 31, 2023 REVENUES. Revenues increased by $71.9 million, or 208.0%, to $106.4 million in the three months ended December 31, 2024, from $34.6 million in the same period in 2023. Revenues from products increased by $11.8 million, or 91.1%, to $24.7 million in the three months ended December 31, 2024, from $12.9 million in the same period in 2023. The increase in product revenues was primarily due to the MiX Telematics business acquired which contributed $7.9 million , and the Fleet Complete business acquired which contributed $4.9 million i n product revenues for the three months ended December 31, 2024. Revenues from services increased by $60.1 million, or 277.8%, to $81.7 million in the three months ended December 31, 2024 from $21.6 million in the same period in 2023. The increase in services revenues was principally due to the MiX Telematics business acquired which contributed $35.0 million, and the Fleet Complete business acquired which contributed $24.8 million in service revenues for the three months ended December 31, 2024. COST OF REVENUES. Cost of revenues increased by $30.5 million, or 177.5%, to $47.6 million in the three months ended December 31, 2024, from $17.2 million for the same period in 2023. The MiX Telematics business acquired contributed $17.3 million to cost of revenues, and the Fleet Complete business acquired contributed $9.2 million for the three months ended December 31, 2024. The remaining increase was mainly due to the amortization of MiX Telematics and Fleet Complete acquisition-related intangibles. Gross profit was $58.8 million in the three months ended December 31, 2024, compared to $17.4 million for the same period in 2023. As a percentage of revenues, gross profit increased to 55.2% in the three months ended December 31, 2024 from 50.3% in the same period in 2023. Cost of products increased by $7.1 million, or 71.1%, to $17.1 million in the three months ended December 31, 2024, from $10.0 million in the same period in 2023. Gross profit for products was $7.6 million in the three months ended December 31, 2024, compared to $2.9 million in the same period in 2023. As a percentage of product revenues, gross profit increased to 30.6% in the three months ended December 31, 2024 from 22.5% 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 $23.4 million, or 326.1%, to $30.5 million in the three months ended December 31, 2024, from $7.2 million in the same period in 2023. The MiX Telematics business acquired contributed $11.7 million, the Fleet Complete business acquired contributed $5.6 million, and the amortization of MiX Telematics and Fleet Complete acquisition-related intangibles contributed $5.4 million to cost of services for the three months ended December 31, 2024. Gross profit for services was $51.2 million in the three months ended December 31, 2024, compared to $14.5 million in the same period in 2023. As a percentage of service revenues, gross profit decreased to 62.7% in the three months ended December 31, 2024 from 66.9% in the same period in 2023, as a result of the commencement of amortization of MiX Telematics and Fleet Complete acquisition-related intangibles. SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and administrative (“SG&A”) expenses increased by $36.1 million, or 186.5%, to $55.4 million in the three months ended December 31, 2024, compared to $19.3 million in the same period in 2023, principally due to the MiX Telematics business acquired which contributed $19.8 million, and the Fleet Complete business acquired which contributed $30.7 million, $15.6 million of which was one-time costs, of SG&A expenses for the three months ended December 31, 2024. SG&A expenses included $5.3 million in acquisition-related expenses, $0.5 million in integration related expenses and $0.8 million in restructuring costs for the three months ended December 31, 2024. As a percentage of revenues, SG&A expenses, excluding $6.7 in a cquisition-related expenses costs and restructuring costs, decreased to 45.8% in the three months ended December 31, 2024, from 56.0% in the same period in 2023. RESEARCH AND DEVELOPMENT EXPENSES. Research and development (“R&D”) expenses increased by $2.6 million, or 129.9%, to $4.6 million in the three months ended December 31, 2024, compared to $2.0 million in the same period in 2023, principally due to $1.4 million incurred by the MiX Telematics business post-transaction, and $1.2 million incurred by the Fleet Complete business post-transaction. As a percentage of revenues, R&D expenses decreased to 4.3% in the three months ended December 31, 2024, from 5.8% in the same period in 2023. NET LOSS ATTRIBUTABLE TO COMMON STOCKHOLDERS. Net loss attributable to common stockholders was $14.3 million, or $(0.11) per basic and diluted share, for the three months ended December 31, 2024, as compared to net loss of $6.5 million, or $(0.18) per basic and diluted share, for the same period in 2023. The net loss was primarily the result of $5.3 million in a cquisition-related expenses , $0.5 million in integration-related costs , $0.8 million in restructuring costs, $5.4 million 45 from the commencement of amortization of MiX Telematics and Fleet Complete acquisition-related intangibles, and $1.7 million loss from the derivative mark-to-market adjustment . Nine Months Ended December 31, 2024 Compared to Nine Months Ended December 31, 2023 REVENUES. Revenues increased by $158.0 million, or 156.6%, to $258.9 million in the nine months ended December 31, 2024, from $100.9 million in the same period in 2023. Revenues from products increased by $26.5 million, or 71.1%, to $63.7 million in the nine months ended December 31, 2024, from $37.2 million in the same period in 2023. The increase in product revenues was primarily due to the MiX Telematics business acquired which contributed $25.6 million, and the Fleet Complete business acquired which contributed $4.9 million in product revenues for the nine months ended December 31, 2024, offset by lower demand from logistics customers in North America. Revenues from services increased by $131.5 million, or 206.6%, to $195.2 million in the nine months ended December 31, 2024, from $63.7 million in the same period in 2023. The increase in services revenues was principally due to the MiX Telematics business acquired which contributed $104.8 million, and the Fleet Complete business acquired which contributed $24.8 million in service revenues for the nine months ended December 31, 2024. COST OF REVENUES. Cost of revenues increased by $68.7 million, or 136.4%, to $119.1 million in the nine months ended December 31, 2024, from $50.4 million for the same period in 2023. The MiX Telematics acquired business contributed $54.2 million, and the Fleet Complete business acquired contributed $9.2 million to cost of revenues for the nine months ended December 31, 2024. Gross profit was $139.8 million in the nine months ended December 31, 2024, compared to $50.5 million for the same period in 2023. As a percentage of revenues, gross profit increased to 54.0% in the nine months ended December 31, 2024 from 50.1% in the same period in 2023. Cost of products increased by $16.4 million, or 59.9%, to $43.8 million in the nine months ended December 31, 2024, from $27.4 million in the same period in 2023. Gross profit for products was $19.9 million in the nine months ended December 31, 2024, compared to $9.8 million in the same period in 2023. As a percentage of product revenues, gross profit increased to 31.2% in the nine months ended December 31, 2024 from 26.4% 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 $52.3 million, or 227.7%, to $75.3 million in the nine months ended December 31, 2024, from $23.0 million in the same period in 2023. The MiX Telematics acquired business contributed $36.6 million, the Fleet Complete business acquired contributed $5.6 million, and the amortization of MiX Telematics and Fleet Complete acquisition-related intangibles contributed $9.6 million to cost of services for the nine months ended December 31, 2024. Gross profit for services was $119.9 million in the nine months ended December 31, 2024, compared to $40.7 million in the same period in 2023. As a percentage of service revenues, gross profit decreased to 61.4% in the nine months ended December 31, 2024 from 63.9% 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 and Fleet Complete acquisition-related intangibles. SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. SG&A expenses increased by $93.2 million, or 171.6%, to $147.5 million in the nine months ended December 31, 2024, compared to $54.3 million in the same period in 2023, principally due to the MiX Telematics business acquired which contributed $63.8 million, $8.6 million of which was one-time costs , and the Fleet Complete business acquired which contributed $30.7 million, $15.6 million of which was one-time costs, of SG&A expenses, $20.9 million in acquisition-related expenses, $4.7 million in accelerated stock-based compensation costs and $3.1 million in restructuring costs for the nine months ended December 31, 2024. As a percentage of revenues, SG&A expenses, excluding $30.9 million in acquisition-related, restructuring and accelerated stock-based compensation costs, decreased to 45.0% in the nine months ended December 31, 2024, from 53.8% in the same period in 2023. RESEARCH AND DEVELOPMENT EXPENSES. R&D expenses increased by $4.5 million, or 67.6%, to $11.2 million in the nine months ended December 31, 2024, compared to $6.7 million in the same period in 2023, principally due to $4.3 million incurred by the MiX Telematics, and $1.2 million incurred by the Fleet Complete business post-transaction. As a percentage of revenues, R&D expenses decreased to 4.3% in the nine months ended December 31, 2024, from 6.6% in the same period in 2023. NET LOSS ATTRIBUTABLE TO COMMON STOCKHOLDERS. Net loss attributable to common stockholders was $38.6 million, or $(0.33) per basic and diluted share, for the nine months ended December 31, 2024, as compared to net loss of 46 $19.2 million, or $(0.54) per basic and diluted share, for the same period in 2023. The net loss was primarily the result of $20.9 million in a cquisition-related expenses , $2.3 million in integration-related costs , $3.1 million in restructuring costs, $4.7 million in accelerated stock-based compensation costs and $9.6 million from the commencement of amortization of MiX Telematics and Fleet Complete acquisition-related intangibles, partially offset by $0.5 million gain in other income from the derivative mark-to-market adjustment . 47 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 losses/gains, restructuring-related expenses, gain on bargain purchase (Movingdots), derivative mark-to market adjustment, recognition of pre-October 1, 2024 contract assets (Fleet Complete), acquisition-related expenses and integration-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. Because our method for calculating adjusted EBITDA may differ from other companies’ methods, the non-GAAP measures may not be comparable to similarly titled measures reported by other companies. 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 December 31, Nine Months Ended December 31, 2023 2024 2023 2024 (In thousands) Net loss attributable to common stockholders $ (6,510) $ (14,349) $ (19,190) $ (38,573) Non-controlling interest 32 (1) 38 17 Preferred stock dividend and accretion 3,007 — 8,870 25 Interest expense, net 798 7,583 1,386 13,844 Income tax (benefit)/expense (92) 3,513 197 4,821 Depreciation and amortization 2,348 13,643 7,155 33,042 Stock-based compensation 1,123 1,138 3,076 8,438 Foreign currency losses/(gains) 152 543 (259) 1,288 Restructuring-related expenses 144 841 711 3,108 Gain on bargain purchase - Movingdots (1,517) — (1,800) — Derivative mark-to-market adjustment — 1,722 — (475) Recognition of pre-October 1, 2024 contract assets (Fleet Complete) — 2,041 — 2,041 Acquisition-related expenses 3,685 5,301 5,140 20,872 Integration-related expenses — 520 — 2,259 Adjusted EBITDA $ 3,170 $ 22,495 $ 5,324 $ 50,707 48 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. 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. 49 Liquidity and Capital Resources 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. As of December 31, 2024, Powerfleet Israel had utilized approximately $14.2 million under the Hapoalim Revolving Facilities. 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 December 31, 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. 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 50 Borrowers have also paid certain upfront fees and other fees and expenses to Hapoalim in connection with the A&R Credit Agreement. On December 30, 2024, the Borrowers entered into an amendment (the “Amendment”) to the A&R Credit Agreement. The Amendment increases the principal amount available under Hapoalim Facility D from $10 million to $20 million and provides that the total principal amount of Hapoalim Facility D may be distributed to us or any of our subsidiaries by no later than December 31, 2025, subject to certain terms and conditions of the A&R Credit Agreement. 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. The RMB General Facility is repayable on demand and has a term of 365 days from the Available Date (as defined therein). 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. As of December 31, 2024, $15,944 of the RMB General Facility was utilized. On September 27, 2024, we entered into the Facility Agreement with RMB, pursuant to which RMB agreed to provide us with the New RMB Term Facility in an aggregate principal amount of $125 million. On October 1, 2024, we drew down $125 million in cash under the New RMB Term Facility to pay a portion of the Purchase Price for the FC Acquisition. Interest is payable quarterly in arrears at an interest rate of 5% per annum plus the applicable term SOFR reference rate. The principal is repayable in one installment on October 31, 2029. 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 December 31, 2024, we had cash and cash equivalents (including restricted cash) of $38.6 million and working capital of $30.5 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. The FC Acquisition is a source of positive cash flow, together with the MiX Combination completed on April 2, 2024. To date, we have not generated sufficient cash flow solely from operating activities to fund our operations. 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. 51 Operating Activities During the nine months ended December 31, 2024, net cash used in operating activities was $16.9 million, compared to net cash provided by operating activities of $2.6 million for the same period in 2023. The net cash used in operating activities for the nine months ended December 31, 2024 primarily included non-cash charges of $8.4 million for stock-based compensation, $33.0 million for depreciation and amortization expense, $7.2 million for bad debts expense, $0.9 million for shares issued for transaction bonuses related to the MiX Combination, $1.6 million for inventory reserve, $0.7 million for other non-cash items, $4.3 million for ROU asset amortization, partially offset by $0.5 million for derivative mark-to-market adjustment . Changes in operating assets and liabilities included: • an increase in accounts receivables of $15.2 million; • a decrease in accounts payable of $15.7 million; • an increase in deferred costs of $5.1 million; • a decrease in lease liabilities of $4.1 million; • a decrease in net severance fund of $0.6 million; offset by • a decrease in prepaid expenses and other assets of $2.1 million; • a decrease in inventory, net of reserve of $2.6 million; and • an increase in deferred revenue of $1.0 million. Investing Activities Net cash used in investing activities for the nine months ended December 31, 2024 was $160.5 million, compared to net cash used in investing activities of $5.3 million for the same period in 2023 . The net cash used by investing activities was primarily due to $137.1 million in acquisitions, net of cash assumed from the MiX Combination and FC acquisition, $16.6 million for the purchase of fixed assets and $7.3 million for capitalized software development costs. The net cash used in investing activities of $5.3 million in the same period in 2023 was primarily for the purchase of fixed assets of $2.4 million and $2.9 million for capitalized software development costs. Financing Activities During the nine months ended December 31, 2024 , net cash provided by financing activities was $107.6 million, compared to $2.3 million net cash used in financing activities for the same period in 2023 . The cash provided by financing activities was primarily due to proceeds from long-term debt of $125.0 million, less payment of debt costs of $1.4 million, $66.5 million received from the P rivate Placement related to the FC Acquisition, less costs, $11.9 million received from s hort-term bank debt, and $0.9 million proceeds from exercise of stock options, partially offset by the repayment of Series A Preferred Stock of $90.3 million following the MiX Combination, purchase of treasury stock upon vesting of restricted stock of $2.8 million, and r epayment of long-term debt of $2.1 million. 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 United States 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. 52 On April 2, 2024, we consummated the MiX Combination, pursuant to which MiX Telematics became our indirect, wholly owned subsidiary. On October 1, 2024, we consummated the FC Acquisition, pursuant to which Fleet Complete became our wholly owned subsidiary. See Note 3, “Acquisition,” in Part I, Item 1, “Financial Statements (Unaudited)” for additional information. 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 incorporated herein by reference. 53 Item 3. Quantitative and Qualitative Disclosures About Market Risk Not applicable. 54