PowerFleet, Inc. (AIOT) Earnings

Management highlights

### Commercial & Customer Growth - Achieved 14% sequential growth in new customer logo wins, with high-value deals over $100K annual recurring revenue (ARR) closed across 11 diverse verticals - AI video bookings grew 52% quarter-over-quarter, and overall pipeline with major North American channel partners improved 28% sequentially - Secured several high-profile strategic enterprise wins, including Six Rental Mexico, Foley, and global building materials firm Holcim, which delivered an 83% reduction in critical safety events after rolling out the Unity platform across its 9,000-vehicle global fleet - Announced a new force multiplier strategic partnership with MTM Business, a global network provider serving 300 million customers across 16 countries: MTM will embed PowerFleet's Unity platform as the foundation for its enterprise data intelligence offerings via a white-label, fully integrated go-to-market strategy, opening a large new addressable market in underpenetrated regions ### Strategic Transformation & Cost Efficiency - Achieved $11 million in annualized cost savings in Q1, putting the firm on track to hit its full-year FY26 target of $18 million in total annualized savings - Completed the initial phase of global sales CRM harmonization as part of the broader company-wide systems harmonization program, with further regional platform rollout in detailed planning - $7 million of Q1 savings came from a leaner global operating structure implemented April 1, which streamlined decision-making and improved accountability; the remaining $4 million came from vendor spend reduction, redundant application elimination, facilities consolidation, and operating policy standardization - Reduced general administrative costs to 26% of revenue (down year-over-year) via synergy realization, while deliberately increasing sales and marketing spend to 17% of revenue to support go-to-market acceleration, and R&D spend to 8% of gross revenue (5% net of capitalized software) to prioritize AI and platform innovation ### Product & Innovation Highlights - Received external industry recognition: PowerFleet was named one of ABI Research's seven most innovative global technology companies for Unity's enterprise modularity, AI innovation, hardware-agnostic architecture, and scalable ROI delivery - Launched the new AI Risk Intervention Module for the Unity platform, which automatically analyzes driver fatigue, distraction, and unsafe behavior to deliver real-time alerts and coaching, reducing manual video review hours by over 80% and reducing incident and insurance claim costs; the module is already live and has been a differentiator in multiple new deals - Will host a dedicated investor innovation session in November 2026 to showcase the Unity platform, AI use cases, and monetization roadmap ### Financial Strength - Total Q1 revenue hit $104 million, up 38% year-over-year and ~$1 million above consensus estimates - Adjusted EBITDA reached $21.6 million, up 58% year-over-year and over $1 million above consensus, with adjusted EBITDA margins expanding 300 basis points year-over-year to 21% - Ended Q1 with a net debt-to-EBITDA ratio of 2.97x, down from 3.2x at the end of FY25, on track to hit the year-end target of under 2.25x

Guidance

- **Full-Year FY26 Cost Savings**: Maintains the existing target of $18 million in total annualized EBITDA savings for FY26, with $11 million already achieved in Q1 - **Revenue Mix & Growth**: Expects double-digit (10%) organic services growth by Q4 FY26. Services mix hit an unusually high 83% in Q1 due to unexpectedly low product revenue; management expects some product revenue recovery as tariff uncertainty eases, with a long-term ambition of 85%+ services revenue mix - **Margins**: Expects product margins to remain in the mid-20% range in the near term, with long-term targets of 80%+ gross margins for the overall services segment and 90% to 95% margins for pure SaaS offerings - **Expense Allocation**: Expects sales and marketing spend to run at approximately 18% of revenue in the upcoming quarter to support channel and go-to-market investment - **Leverage & Net Debt**: Maintains guidance for a net debt-to-EBITDA ratio below 2.25x by the end of FY26. Expects a $30 million net debt improvement in the second half of FY26, driven by top-line growth, reduced CapEx intensity, and improved working capital performance; the timing of synergy savings is slightly ahead of schedule, enabling faster reinvestment into go-to-market initiatives if performance holds - **New Partner Launch Timing**: New unannounced North American and European channel partners are on track to launch in Q4 FY26, with their primary revenue contribution expected in FY27

Segment performance

PowerFleet reports two core revenue segments: services (SaaS and recurring solutions) and product (hardware and capital-intensive offerings): - **Services Segment**: Q1 FY26 revenue of $86.5 million, representing 53% year-over-year growth and 6% sequential growth. Services accounted for 83% of total company revenue, up from 79% sequentially and 75% year-over-year. Service adjusted EBITDA gross margins reached 76%. - **Product Segment**: Q1 FY26 total company revenue was $104 million, so product revenue came to $17.5 million, accounting for 17% of total revenue. Product gross margins were 25%, negatively impacted by ongoing tariff pressures and extended customer sales cycles for capital-intensive warehouse solutions.

Risks & headwinds

- Persistent macroeconomic uncertainty has led to elongated sales cycles for capital-intensive product and warehouse solutions, and customer caution around large CapEx commitments - Tariff frameworks have created material cost headwinds for the product segment, pressuring product margins and reducing near-term product revenue - Large new channel partnerships require upfront investment and time to build pipeline and generate meaningful revenue, with uncertain near-term contribution

Analyst Q&A

• Q: What is the size of the opportunity from the MTM partnership, when will implementation start, and are there updates on other prospective telco/channel partners in Europe and North America?

  A: MTM's partnership is a very large opportunity across multiple countries, with all pre-development work completed and go-to-market launch planned for the second half of 2026. AI video booking growth this quarter came predominantly from channel partners like AT&T and TELUS, which are performing well. Unannounced new partners in North America and Europe are still in internal processes, with ongoing work and no immediate launch timeline set.

• Q: How quickly is the number of products purchased per customer increasing, and where do you expect services mix and gross margins to be a year from now?

  A: Cross-sell and upsell activity is growing, with an increasing share of new business coming from multi-product sales to existing customers, as expected post the FleetComplete acquisition. While Q1's 83% services mix was an outlier driven by unusually weak product demand, long-term management targets 85%+ services mix, 80%+ overall gross margins for services, and 90% to 95% margins for pure SaaS offerings as the business scales.

• Q: Is there potential to exceed the full-year $18 million cost synergy target, given strong Q1 progress? How is the SaaS shift changing the product vs SaaS mix for new sales?

  A: Management remains focused on hitting the stated $18 million target for full-year FY26, and will need time to embed recent organizational changes before committing to a higher target. The shift to modular, device-agnostic Unity software means PowerFleet increasingly sells SaaS applications without requiring customers to also purchase new hardware, accelerating the mix shift away from capital-intensive product sales.

• Q: Given stronger than expected Q1 services momentum, will you accelerate planned go-to-market investment? How does management see the opportunity for AI scaling across Unity?

  A: Management has already released additional investment for large indirect channel opportunities, with stronger conviction to accelerate further frontline investment after the half-year if performance continues. All AI innovation is focused on delivering tangible customer value rather than innovation for innovation's sake, with more AI use cases to be showcased at the November investor innovation session.