PowerFleet Inc Aktie

Greetings, welcome to the PowerFleet's First Quarter 2027 Earnings Call. [Operator Instructions] Please note, this conference is being recorded.

I will now turn the conference over to your host, David Wilson, CFO at PowerFleet. You may begin.

Thanks, operator. Good morning, everyone. This presentation contains forward-looking statements within the meaning of federal securities laws. Forward-looking statements include statements with respect to PowerFleet's beliefs, plans, goals, objectives, expectations, anticipations, assumptions, estimates, intentions and future performance. and may involve known and unknown risks, uncertainties and other factors, which may be beyond PowerFleet's control, which may cause its actual results, performance or achievements to be materially different from future results, performance or achievements expressed or implied by such forward-looking statements.

All statements other than statements of historical facts are statements that could be forward-looking statements. For example, forward-looking statements include statements regarding prospects for additional customers, potential contract values, market forecasts, projections of earnings, revenues, synergies, accretion or other financial information emerging new products and plans, strategies and objectives of management for future operations, including growing revenue, controlling operating costs, increasing production volumes and expanding business with core customers. The risks and uncertainties referred to above are not limited to risks detailed from time to time in PowerFleet's filings with the Securities and Exchange Commission, including PowerFleet's annual report on Form 10-K for the year ended March 31, 2026, and subsequent 10-Q filings.

These risks could also cause results to differ materially from those expressed in any forward-looking statements made by on behalf of PowerFleet unless otherwise required by applicable law. PowerFleet assumes no obligation to update the information contained in this presentation and expressly disclaims any obligation to do so, whether as a result of new information, future events or otherwise.

I'll now hand the call over to Steve. Steve?

Good morning, everyone, and thank you for joining us. The momentum we've been building over the last several quarters has accelerated. Our pipeline is strong and customer demand has exceeded our expectations. Next slide, please.

Let me start with the breadth and scale of new business. In Q1, we were selected as vendor of choice by a European headquartered construction leader operating across 26 countries to significantly expand its deployment with us into AI premium video, both on the road and in the Yard, a multimillion dollar ARR deal and a strong proof point of the land and expand model we've built. Our on-site business continues to gain traction with strong cross-sell expansion quarter-over-quarter as we drive adoption across our existing customer base. Predominantly in North America, we secured a $2 million expansion with the Fortune 500 manufacturing leader a $1.3 million deployment within National Transportation and Logistics Enterprise and a $1 million win with a National Automotive Technology leader. 12 Fortune 500 companies expanded their on-site footprint this quarter and 10 global Fortune 500 customers broaden their AI video adoption. AI video bookings increased 20% sequentially. 16 diverse industries delivered enterprise wins above $100,000 in total contract value this quarter. On to the next slide, please.

The major South African contract has seen material acceleration since the last time we spoke, a testament to the strength of our solution capabilities and strong execution of our sales efforts. We came into this contract expecting $20 million to $30 million in ARR to ramp over an 18- to 24-month period. We now have in excess of $27 million in ARR required for near-term activation with more pipeline building. On a 5-year basis, that puts the potential total contract value above the top end of our original expectations.

To put this in context, at this point in the year, we had originally anticipated 10,000 assets to be set for installation. As of today, we have over 70,000 vehicle installations to deploy in the near term, and we expect this to increase to between 80,000 to 90,000 assets over the next couple of quarters. That represents roughly 7 to 9x the deployment volume we originally expected to be addressing at this stage of the program. It's a substantial and exciting undertaking that requires focus to ensure smooth execution. This will also present choices. We, therefore, have taken the decision to forgo a portion of the current and projected revenue base predominantly in South Africa that we have deemed to be nonstrategic. It creates more capacity to deploy 90,000 vehicles at the pace this contract demands. It derisked delivery on our largest and most important customer relationships in the region, and it removes the operational complexity that would otherwise compete with this rollout for our team's focus. This targeted reprioritization from lines of business that are consuming operational capacity, working capital and management attention, maximizes our ability to deliver well. Sharp execution on the first 90,000 vehicles increases our art of winning more of the 150,000 total addressable fleet and gives us room to sell incremental services to this new base.

Turning to Q1. The underlying performance was solid and bookings were strong. Normalizing for the South Africa actions I just described, we delivered double-digit ARR growth. In addition, we expanded gross margin and adjusted EBITDA year-over-year. The reported numbers this quarter reflect 2 discrete items, either changes our underlying trajectory. Firstly, South African revenue was approximately $1.6 million lower as the company began the reprioritization I've just described. Secondly, Late in the quarter, we experienced a production constraint affecting a single product line related to a compatibility issue with a new component. This delayed approximately $3.2 million of product revenue in the quarter. We've identified the issue and the solution and production is being restored. Importantly, the underlying customer demand and orders remain intact and this issue does not impact the deployment of our major South African contract.

Given the timing of the recovery, the company anticipates that some associated Q2 revenue may shift into Q3 with the full amount expected to be fully captured within the fiscal year. David will shortly update you in detail on the in-year guidance amendment. Our revised guidance reflects a single item. Our deliberate decision to forgo some nonstrategic revenue ahead of the ARR ramp from the substantially larger new contract. Our updated guidance reflects that timing gap. We believe this decision strengthens the quality, scale and long-term economics of the revenue base we are building. We also expect the revenue CAGR from fiscal 2026 to fiscal 20208 to remain consistent with our prior expectations with stronger growth in fiscal 2028, fueled by the ramp of the South African projects. We anticipate annualized Q4 '27 revenue of approximately $495 million with adjusted EBITDA margins of approximately 27%. Overall, our land and expand strategy is compounding bigger deals, broader adoption and deeper wallet share with the customers we already have.

Our response to the acceleration in South Africa demonstrate the operating discipline we're bringing to the business. prioritizing resources towards the opportunities with the greater strategic and economic return. Our optimization programs are running to schedule with our focus remaining on cash flow and deleveraging. As we continue to compound the business, investing in talent is also a key component for future success. Next slide, please.

We continue to strengthen our executive team, and I'd like to share 2 important additions. Firstly, I'm delighted to announce that Paul Lalljie joins PowerFleet this week as our President and CFO. Paul brings 25 years experience in finance and technology, including as both CFO and CEO of 2U and CFO of NeuStar. Paul has acted as a strategic adviser to the business over the last few months. and I'm delighted that he's able to hit the ground running to help spearhead our future growth. As President and CFO, Paul will combine financial leadership with a broader mandate around operating execution capital allocation and the enablement of the next phase of profitable growth.

I want to sincerely thank David Wilson for his significant contribution and partnership through a period of extensive transformation for the company. David will serve in a consultancy role for the next few months to support Paul with a smooth transition. Secondly, I'm excited to announce that Vishal Vallabha has joined PowerFleet as Chief AI Officer. Rich has also been acting as a strategic adviser to the business in recent months on AI transformation, which brings over 20 years of experience as a senior technology and AI executive. He's held CTO and Chief Data & AI Officer roles at large global businesses, including Freeman Company, Lumen Technologies, and he has significant domain expertise from his time as CTO of [indiscernible] Telematics. He's led enterprise AI cloud and platform modernization programs tied directly to commercial growth and margin expansion.

Most recently, as founding partner and CTO of NextGen AI, he's led AI-enabled transformation engagements for major clients, including Microsoft and Bain Capital, which is going to be central to how we scale our AI First platform strategy. So as we execute on the plan, we're delighted to be able to attract this caliber of talent. Both Paul and Vish have already added significant value to the business, having worked closely with the team as trusted advisers over the last few months, and we're thrilled to now have onboard.

With that, I'll turn it over to David.

Thank you, Steve, and good morning, everyone. I'm glad to be with you today. I'll start with our first quarter highlights and then provide more details on revenue, margins, operating expenses, profitability and cash flow and close with our updated fiscal 2027 outlook and the bridge to that guidance. Next slide, please.

Total revenue for the first quarter was $110.8 million, up 6.4% year-over-year. Adjusted EBITDA was $21.5 million compared to $20.1 million a year ago at a margin of 19.4%. GAAP income from operations was $300,000 compared to an operating loss of $2 million in the prior year quarter. Net loss attributable to common stockholders was $8.4 million or $0.06 per share, an improvement from $0.08 a share a year ago. As Steve covered 2 discrete items affected first quarter revenue. First, South Africa revenue was approximately $1.6 million lower, reflecting the early impact of the reprioritization we described. Second, late in the quarter, we experienced a production constraint affecting a single product line related to a compatibility issue with a new component. This delayed approximately $3.2 million of product revenue. We identified the issue and the solution and production is being restored.

Importantly, the underlying customer demand and orders remain intact, and this issue does not impact the deployment of major South Africa contract. Given the timing of the recovery, the company anticipates that some associated Q2 revenue may shift into Q3 with the full amount expected to be recaptured within the fiscal year. Next slide, please. Services revenue increased 9.1% year-over-year to $94.3 million and represented approximately 85% of total revenue while services gross margin expanded nearly 1 percentage point to 61.1%. Adjusted EBITDA, services gross margin expanded by 40 basis points to 75.9%. The South African National Treasury contract is now ramping with bookings momentum building behind this recurring higher-margin revenue base.

Product revenue was $16.5 million, down 6.7% year-over-year, reflecting the production timing issue I just described. Product margin was 21.3%. The deferred shipments were concentrated in our higher-margin business, while the lower volume also limited fixed cost absorption. Total GAAP and adjusted EBITDA gross margins continue to expand despite the pressure on product margin, increasing approximately 1 percentage point year-over-year to 55.2% and 67.8%, respectively, reflecting the continued shift in revenue mix towards recurring services. Total operating expenses were $60.9 million or 55% of revenue, an improvement of roughly 1 percentage points year-over-year. SG&A was $56.5 million, up 5.3% against revenue growth of 6.4%. So we continue to generate leverage on that line. Research and development was $4.4 million or 3.9% of revenue.

GAAP income from operations was $300,000 compared with an operating loss of $2 million in the prior year quarter. Net interest expense was $6.7 million and accounted for most of the gap between operating income and our net loss. Free cash flow improved by more than $6.5 million year-over-year to negative $500,000 from negative $7.1 million in the prior year quarter. Net debt to adjusted EBITDA was 2.5x at quarter end, essentially unchanged from fiscal 2026 year-end. Next slide, please.

Now let me turn to our outlook for fiscal 2027. We're updating full year revenue guide to a range of $468 million to $473 million, and adjusted EBITDA guide to a range of $111 million to 114 million tons. From our prior ranges of $485 million to $490 million and $122 million to $125 million, respectively. Here's the bridge. The guidance update is driven by the South African reprioritization Steve described. Relative to the midpoint of our prior guidance, we are reducing projected fiscal 2027 revenue by approximately $17 million as we reallocate capacity to support over $27 million of committed demand. The associated impact on adjusted EBITDA is approximately $11 million, comprising approximately $6 million of flow-through from lower revenue and $5 million of onetime costs. This change in guidance is purely a timing GAAP rather than a change in our underlying trajectory. We expect the revenue CAGR from fiscal 2026 to fiscal 2028 remain consistent with our prior expectations with growth accelerating in fiscal 2028 with the South African National Treasury contract rent.

The near-term financial impact is reflected in the revised revenue and adjusted EBITDA guidance I just outlined. We anticipate annualized Q4 '27 revenue of approximately $495 million with adjusted EBITDA margins of approximately 27%. The updated adjusted EBITDA outlook also flows through to net loss and free cash flow. Net loss is expected to range from $6 million to $8 million compared with our prior range of net income of $4 million to $8 million. Free cash flow is expected to range from $20 million to $23 million compared with our prior range of $30 million to $35 million. Our capital allocation priorities remain unchanged, including our commitment to deleveraging. Next slide, please.

The bridge from adjusted EBITDA to free cash flow includes CapEx of approximately $52 million, cash interest of approximately $24 million, cash taxes of approximately $8 million and restructuring and other costs of approximately $8 million. Given the timing of variables associated with the South African National Treasury contract, we continue to present its balance sheet impact separately from free cash flow. Importantly, favorable payment terms and financing options are expected to substantially offset the upfront investment in [indiscernible] CapEx, resulting in approximately breakeven cash performance for the fiscal year. To wrap, services revenue remains the growth engine of the business, up 9% year-over-year. We expect to exit fiscal 2027 at a Q4 annualized revenue run rate of approximately $495 million with an adjusted EBITDA margin of approximately 27% and are well positioned for accelerating growth as we enter fiscal 2028.

I'll now turn the call back to Steve. Steve?

Thank you, David. So let me leave you with 3 things. Customers demand is strong and broadening across our platform. The South Africa opportunity is developing materially faster and at a greater scale than we originally anticipated, and we're deliberately reallocating and investing resources to capture it effectively. We remain confident in the underlying growth, margin expansion and cash generation trajectory of this business. The opportunity ahead of us continues to grow across geographies, verticals and the Unity suite. We have the team, the platform and the financial foundation to capture that opportunity and deliver sustainable, profitable growth.

Operator, let's open the line for questions.

[Operator Instructions] Your first question for today is from Scott Searle with ROTH Capital.

Dave, I want to wish you all the best in your future endeavors. It's been a pleasure working with you over the past couple of years. Maybe just to dive in, in terms of the cadence over the course of this year, could you just kind of take us through a little bit? It sounds like there might be some headwinds in the second quarter, but acceleration then into the third and fourth quarter. And I'm not sure if I heard our SaaS number in terms of growth for fiscal '27. I'd love to get your thoughts on that.

And then I just want to make sure to clarify a couple of numbers. I think you said $495 million is the exit rate in terms of fourth quarter revenue. But I think from a 27% EBITDA margin standpoint, that's looking at over $30 million in EBITDA, so an exit rate of north of $130 million. I want to make sure that's correct. And then SaaS growth into fiscal '28, it sounds like we're accelerating into double digits, low teens, mid-teens kind of number. I wonder if you could comment on some of those items.

Yes, sure, Scott. And keep [indiscernible] as you're working through the list. In terms of timing, think about the revenue growth sequential quarter, about 4% each quarter between now and Q4. So that would be the way to think about that. In terms of the services revenue, it will be sort of obviously higher than the growth imputed in terms of our annual guide. So sort of is single digits would be the way to think about that.

And then in terms of -- as we go into next year, it is going to accelerate. So in essence, there's a lot of National Treasury revenue that will be up and running. Obviously, we won't get a full year's benefit of that. But as we build that book up, we're going to get many months worth of revenue next year than we did this year. So do expect services revenue to be growing comfortably north of 10% as we go into fiscal 2028. So there will be the key points there. And just keeping honest in terms of your list. In terms of EBITDA, yes, it would be north of -- it will be north of [ $130 million ] in terms of where we would be exiting the year. So we'd be north of $130 million on a run rate basis.

Got you. And just to clarify, David, in terms of the South African contracts starting to kick in from a services standpoint, a lot of implementation this quarter. Do you get full contribution in the third quarter? Or is that ramping up into the fourth quarter?

Yes. So in terms of the current guide, the current guide holds that revenue pretty consistently with what we had in our initial guide. There is upside to that. For the moment, it really is a question about getting everything installed. So we're working on sort of opening up those capacity constraints, so we can do more. But in terms of where we'd be, it will start flowing through, it's too early to be sort of definitive now in terms of when it's all going to start flowing through. but we're working hard to get as much as possible. And obviously, that will be a boost both for this year as well as the jump-off point for next year.

Just have to frame it is the down spike of taking out and reprioritizing the revenue is quite sharp. The spike back up in terms of the new contract spokes harder and faster. So think about it, we'd originally planned to do at this point in time around 10,000 in stores in total. I think we talked last time about we were in dialogue around 60,000 at that point. We've actually converted to mandate 72,000. So these are big and highly complex contracts with government departments that take time, probably 6 to 9 months to kind of really ramp that all the way through, and it's really hard to predict the actual smoothness of the revenue incline because ultimately, you've got to go and these are tens of thousands of vehicles per government contract and work that through.

It's just a challenging period in order to get -- it's not a smooth kind of pure SaaS, you turn a button off and you turn the button on. We've taken the decision to reprioritize -- we're pushing everything we can towards the new revenue, and then that comes with a sharp incline. So what we're kind of saying is it's almost like shifting our previous expectations to the right by 1 quarter as we ramp through the remainder of 2027 and into 2028. I would also kind of just for -- there's a lot of focus on the South Africa contract. But at the start of the call, we talked about a number of contracts, predominantly in North America with big land and expand, big Fortune 500 expansion plus this other major contract, a vendor of choice to deploy both over the road and in the yard across 26 countries. So this is a result really of we're actually selling much better and there's phenomenal demand for our products and services and our strategy is resonating. The hard part with such a kind of big growth transformation is to make it linear, and that's kind of where we've taken these decisions. And once all this flows through, we'll be far more consistent.

Steve, maybe just quickly follow up on that and then I'll get back in the queue. But some of the other areas of development, you mentioned some of the Fortune 500, but you also have other strategic relationships in terms of MNO ramps, right, and getting those sales force is trained, and I think you were pursuing some M&O opportunities in other geographies as well as the Accenture relationship. I wonder if you could give us some quick thoughts on that in terms of how that ramps up. And just from a global perspective, in terms of where you guys think you sit from a share perspective because we've got some onetime items here that I think are obscuring the core growth capabilities, but win rates or kind of how you see your global share perspective.

Yes. So I mean, if we stand back from this, and we appreciate there's a lot of noise and ins and outs. And there's been a confluence of a couple of things all at one set. The reality is, so all these decisions we're making have in mind exactly what you just said. The expansion of the MNOs, both with our current and further MNOs the Accenture relationship that we talked about and moving that to a global basis, and that's getting some very nice traction. We're winning more business. We're winning bigger deals, as I said, and we're doing that on a global basis.

So it's kind of -- we put these 3 companies together. We scaled the organizations and then it was all about could we produce the products and services that resonate well with customers for us to improve our growth. We bought Jeff Lautenbach in kind of around about this time last year. We've been talking about talent. And I think Jeff is a great example where we've bought better talent, just bought better talent, better rigor bigger process from a sales perspective. And now we're really seeing those opportunities come to come to fruition. So our win rates are growing, as I said, our share is growing. We're growing in the geographies that we want to as well in terms of some of the high-quality geographies that have always been important to the company plus, obviously, we've got the substantial contract in South Africa, which is going to be an absolute diamond in terms of future growth as well into 2028.

So we're juggling all of that and that's why we're making some of these decisions. But I just want to reiterate and double down. This is actually because our gross trajectory is spiking.

Your next question is from Anthony Stoss with Craig-Hallum.

Steve, I wanted to follow up on the component shortages. Was this a new supplier to this component? Or you just got a bad batch? And then I had a couple of follow-ups.

It was purely, Tony. We had an end-of-life components for a WiFi chip. We put the new component in. We thought it was good. It wasn't. It's been pain and frustration for a few weeks as we've kind of -- we need to get the operability much better than it was. We've now solved the problem. We're starting production back. It was one product line, painful in the quarter, just got to ramp back up, but nothing else, nothing more substantial than that. So painful and frustrating in the short term, but we're through it now.

Then to follow up on Scott's question, what kind of incremental impact are you seeing from AT&T, [ Rogers ] and others, for instance, I mean, maybe this is a tough question to answer right now, but how much revenue do you think was attributable to those folks in the quarter? And then lastly, I'd love to hear kind of your traction still in your in-warehouse solutions.

Yes. So I think we talk a lot about the ag the road and warehouse stuff in terms of the wins that we've had. So again, the differentiated solutions are what are driving our growth. if we pro forma for the South Africa thing, we remained in double-digit growth from our services, and that is coming from and being helped and supported by those channels. And our North America growth is improving off the back of those channels as well. So doing what it said on the team lots more to come from those guys. If you look at the AI video bookings growth, that a good part of that can also be attributed to those channels.

Your next question for today is from Gary Prestopino with Barrington Research.

Just want to understand exactly what's going on here, Steve. I'm trying to write it down and keep up with you. You're seeing an acceleration in the South African business with the government contract. But you're walking away from some revenues in South Africa and deploying those resources towards the new contract. Is that how the best way to read this?

Yes. It's the demand that weighed our original expectation substantially. And with any company that's starting to really get green shoots of growth, and we bought 3 companies together with heritage sets of revenues in order to focus and be very disciplined in terms of capital allocation, resource allocation, focusing on business is going to bring us future growth because there is major growth still to obtain a lot more vehicles within the government contract. There's also a substantial opportunity to sell a lot more services to these bigger customers, so you have fewer customers.

So we've looked at our revenue base and said how best do we amplify that compared with -- when you bring 3 companies together, you can spread yourself thin in terms of your sources of revenue. So whether that's we've decided to take a throttle off growing some areas of that revenue in order to pivot to getting more from the South African contract, whether that's stopping some product lines, whether that's being able to remove ourselves from onerous contracts. All of that has built itself in to our ability to, a, make sure this goes really, really well with this phenomenal new demand; and b, then maximize that opportunity and use our capital globally to really kind of dial down where Scott and Tony have been in terms of our over the road and in warehouse solution capability in tandem in terms of our other channel opportunities in terms of our Accenture opportunity.

So as PowerFleet has transformed organizationally, we're now transforming really from a revenue perspective. And because we're seeing such positivity and confidence in demand for the products and services, we're taking what we think is smart and disciplined decisions to help grow the business in the best possible way. And from a consistency perspective and make sure that we get to a consistency of growth both on the ARR line and also less lumpiness in some of the business we do. We think this is a very fair move for us to do. bought on by the phenomenal demand and the execution of that demand by our sales team from, as I said, we started in our own internal expectations when we first won this mandate, we thought we'd be doing around 10,000 vehicles over the next few months, and we're doing 72,000. And that's a big undertaking. We want to do that super well.

Okay. It clears it up. So I guess the next question I would have is on this overall South Africa contract. You're going from initially planned 10,000 to 72,000 vehicles. What's the total TAM there? And do you have the ability to capture most of that TAM in this contract?

Yes. So total TAM is 180,000, relevant for us, we think, as 150,000 in terms of vehicle opportunity. And then one through in these accounts. And think about it, Gary, we can kind of chase smaller contracts and smaller customers. We've got captive for the next 5 years, some large customers who we can sell lots more of the portfolio to that have obviously by the fact that they've signed mandates to take our solutions so quickly in the cycle are excited about further opportunity with us, and that's really where we want to concentrate. So there's an expansion in terms of more vehicles. and there's a significant expansion opportunity in terms of more products and services to those customers that we've now captured.

[Operator Instructions] Your next question is from Dylan Becker with William Blair.

Steve, maybe for you, going from 10,000 to 72,000 in such short order, I guess, what's driving kind of the urgency or pull forward from the customer perspective? There. And then as you're thinking about deploying against those 72,000, maybe the importance for other customers around kind of proving out the scalability of that, right? Like driving traction across a broader enterprise space, I'm sure there's going to be a lot of eyeballs on the success of that deployment as well, too.

Yes. So I think, firstly, there's a big shift in the territory for safety and there's a big need for efficiency. So that bodes well. And I think some of these customers have had legacy solutions that they've looked at the Unity platform. They've looked at our capabilities and feel that there's a very big value add. And remember that this was previously a bunch of different contracts, and this is the first time it's been consolidated into one kind of umbrella. So I think those guys coming together, seeing the capabilities, looking at that can be used for different departments, I think, has also helped for that perspective. So I think this is something that the demand is there and we fit that demand very, very well. And I'm very proud of the team in South Africa who've been able to bring this to the table a lot faster than we expected. So that's why we want to do this really well.

And to your point, it's already starting to emerge other large-scale opportunities I mean we talked about some of the deals at the top of the call, which kind of are dwarfed by this, but these are still big deals for the company, including a lot of expansion with Fortune 500. And there's a lot of eyes on us doing this really well because we can see and we have pipeline towards doing more enterprise and pure enterprise deals, which is these companies have been fleet complete was a mid-market company, I would say, powerfully and mix were kind of small enterprise, but we're now getting more share and more confidence in the larger enterprises. So all of these decisions are based on that forward thinking and what we can see. And we've been very proud of the fact and throughout the time that we've been in the company, we always -- we will not sacrifice on quality. We will not sacrifice in terms of getting customers long-term outcomes. And we see the shift we're making is an important stage to regain sure we can do that on a much bigger scale.

And it's so exciting for us as a team. But we have trade-offs. We have to make some decisions to ensure that we don't put -- stretch ourselves too thin. You've heard me say many times when people said, what's the what's the challenge is to the success of the company. And I've always said you can spread yourself too thin. So this is operational discipline that we're taking these decisions that we've done.

Very helpful. And then just to kind of clarify one other piece, too, as a part of this, right, all of that reorganization is taking place purely around the South African operations side of the business. Because it does sound like, right, 20% quarter-over-quarter video safety bookings momentum. Everything kind of South Africa dynamic seems to be tracking quite well. Just kind of maybe a sense of resource prioritization there and broader kind of business momentum outside of this one segment.

Yes. So [indiscernible], I think, was it last call took you through some of the centralization pieces we're doing, which is the next or optimization, which will support this contract as well. But this has changed predominantly for our South Africa team and their focus. But what we're making sure that we do is we're bringing the best practice so we can repeat this [indiscernible] and we can get, as I say, we're kind of 2 years into that operational cadence and organizational change. So we're making sure that we do a lot of repeatability across the business, which not only supports the South Africa contract, but also as well these other large-scale contracts that we have going on in North America and Europe and elsewhere.

Your next question is from Alex Sklar with Raymond James.

Great. Steve, just following up on Gary and Dylan's question on South Africa. The $17 million of foregone revenue, can you just elaborate what exactly is that tied to existing revenue that's churning off? Is that projected bookings that you just can't sell anymore given the reprioritized go-to-market or implementation team. And then as we think about the kind of implied margins of that revenue you put on the slide, we're kind of accretive to the overall business. So maybe just a bit more color on your kind of internal deliberation on why that has to be foregone versus maybe staffing up a bit and trying to delay it.

Yes, let me take that one up. So in terms of the revenue, it is a combination. So part of it is walking away from certain books of business. Just the operation -- the OpEx overhead is so high that it sort of drags things down, and we need to free up that capacity, obviously, for the growth that's coming through. So that's a piece part of it.

To Steve's earlier point in terms of spreading ourselves too thinly, we do have to sort of refocus in terms of working through the backlog of the bookings that are coming through the National Treasury contract. So that does mean forgoing revenue that we plan to get elsewhere in the market. That's a piece part of it as well. And then in terms of the implied margin, obviously, there's significant operating leverage from an OpEx standpoint. So in terms of the margin, it's -- you're losing a lot of gross margin without necessarily a average recovery in terms of OpEx. So the implied margin would actually be high as it flows through that you would expect just looking at EBITDA margins by themselves. So that's why it's a relatively high number. I believe it at that point.

And just to add to that, sorry, Alex. It's about quality of revenue. It's around cash, right? So the South African contract comes with more opportunity to improve cash collection as well. So that also was in our minds as we look to make these deliberations. And you can stack it up and you can kind of think can you do both? But I think where we've got the weather die on what's going on in the rest of the world and the continued growth there. I mean, we're dominating this call on South Africa quite rightly, but we could also dominate this call on some of the other growth areas. So all of that is not just like an individual kind of balance sheet and P&L view for South Africa. This is a much broader set of deliberations that have brought us to this choice.

Okay. I appreciate that. Maybe let's talk about the rest of world then. So that 26-country European construction win. You're obviously in a strong competitive position. You've got the global footprint. It's pretty good differentiation. You have some enterprise customers already. Can you just talk about, did that deal start off looking for someone globally across 26 countries? Or was that the team really able to expand the decent size of the opportunity? And then you mentioned kind of vendor of choice. Is that a book deal? Or is that still coming in the next couple of quarters? Just those questions.

Yes. So it's in contract at the moment. It was a customer who had a smaller footprint with us. But what they wanted on a global basis was someone who can provide safety and visibility both in the yard and over the road. So obviously, that is the key differentiation, both nationally and internationally. So that's why it's been so exciting for us as a vendor of choice because we are the company who can, a, cover that footprint with our global footprint that we have.

And secondly, in terms of the unique proposition to give consistency, single visibility, single source of true through Unity, as I say, in the yard and of the road. And in a warehouse, that gives us that unique capacity.

Your next question for today is a follow-up question from Scott Searle.

Dave, just to follow up a little bit on the cost front. Gross margins on the product front down because of component availability and absorption issues. I think it was 21% versus 29% in the prior quarter. What's the recovery look like into the second half of this year and thinking about that 27% EBITDA margin exiting the year, what product gross margins look like at that point in time? And also on the OpEx front, a little bit higher this quarter, but you've been going through some integration and otherwise, it trying to optimize the cost structure. What is the non-GAAP OpEx that we should be thinking about exiting the year?

So in terms of the product margins, it will sort of come back in terms of the second half of the year. In terms of expectations, I think sort of 31%, 32% is the one expectation there, Scott, in terms of where we're at. In terms of OpEx, as we said on the last call, we are investing ahead of taking significant costs out. So we've got a target of $12 million of annual costs to come out in the second half. So in terms of what that means from a sort of a sales and marketing, SG&A standpoint, that will be 19 percentage points or so in terms of sales and marketing and then expect G&A expenses to come down to much closer to sort of 20% as we exit the year.

And Scott, if I can just be really, really clear on the product margin. So the only reason that it was down at that level was the lightness on the production thing. All of those orders are being fulfilled. They're all intact. It's just a timing thing that will recover either through this quarter or maybe a little bit into Q3 and it's very high-margin business. And we're actually seeing a lot of strength in our high-margin product line. So I just want absolute clarity there that, that was the only reason that was down. as production ramps back up as we're able to fill customers, it just brings back.

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

Thank you, operation. Just before we do, we do have Paul Lalljie on the call with us. So we're delighted to have Paul join us as our President and CFO. So Paul, you might just want to say a quick over to everybody.

Thank you, Steve, and good to meet everyone on the call. I'm genuinely excited to join PowerFleet as President and Chief Financial Officer. Over the past several months, I had the opportunity to work alongside Steve and the executive team as a strategic adviser. One example that set out for me was the South Africa opportunity, which grew from an initial estimate of roughly 10,000 vehicles to more than 70,000 in a matter of months. That kind of expansion don't happen by accident. It happens when a differentiated platform addresses a real customer need and when the team behind it knows how to execute. That experience helped make my decision straightforward.

I believe in what PowerFleet is building, and I want to help turn the momentum that we're seeing in the business today into durable and profitable growth. A little bit about me. I bring more than 25 years of experience leading finance and operations across technology companies, including more than a decade as a public company CFO, and most recently, as Steve pointed out CEO of a publicly traded company. I've led businesses through growth, acquisitions, capital raises and transformations and at times in markets that were anything but easy. Those experiences have shaped 3 commitments I bring to PowerFleet, clarity, discipline and delivery.

First clarity means communicating transparently with investors, with customers and with our teams and building trust through honest and consistent dialogue. Second, discipline. Discipline for us means making deliberate choices about where we invest, how we allocate capital and how we balance growth, profitability and risk. I believe finance could be an engine for better decisions, not simply a score keeper. And third, delivery. Delivery means converting strategy into measurable results. A compelling strategy creates the opportunity. consistent execution creates value. So what does this mean? You should expect me to be transparent about our progress rigorous about how we measure performance and accountable for the commitments that we make.

Thank you, Steve, David and the Board for your confidence and warm welcome. I'm excited to get started and help write PowerFleet's next chapter.

Thank you. Thank you, Paul, and we're delighted to have you on board full time. Paul made a big difference to us already. And both having him and Vish, we haven't respoke too much about Vish, but our AI capabilities of ones awards, they're resonating really well. And we think that Vish can help us amplify that on a much broader global stage, so excited about fish joining us as well, and you'll get to meet Vish next time around.

I want to thank the PowerFleet team for their continued execution, our customers for their trust and our shareholders for their confidence. We continue to execute with focus appreciating that this is sometimes a bit of an in and out story, and we look forward to getting to a place of consistency, and we're excited about what's ahead. Thanks, everyone, for your time. Bye-bye.

This concludes today's conference, and you may disconnect your lines at this time. Thank you for your participation.

Good day, everyone. Welcome to PowerFleet's Fourth Quarter and Full Year 2026 Earnings Call. [Operator Instructions]

It is now my pleasure to turn the floor over to your host, David Wilson, Chief Financial Officer. The floor is yours.

Thanks, operator. Good morning, everyone. This presentation contains forward-looking statements within the meaning of federal securities laws. Forward-looking statements include statements with respect to PowerFleet's beliefs, plans, goals, objectives, expectations, anticipations, assumptions, estimates, intentions and future performance and involve known and unknown risks, uncertainties and other factors, which may be beyond PowerFleet's control and which may cause its actual results, performance or achievements to be materially different from future results, performance or achievements expressed or implied by such forward-looking statements.

All statements other than statements of historical facts are statements that could be forward-looking statements. For example, forward-looking statements include statements regarding prospects of additional customers, potential contract values, market forecasts, projections of earnings, revenues, synergies, accretion or other financial information, emerging new products and plans, strategies and objectives of management for future operations, including growing revenue, controlling operation costs, increasing production volumes and expanding business with core customers. The risks and uncertainties referred to above are not limited to risks detailed from time to time in PowerFleet's filings with the SEC, including PowerFleet's annual report on Form 10-K for the year ended March 31, 2025.

These risks could cause results to differ materially from those expressed in any forward-looking statements made by or on behalf of PowerFleet, unless otherwise required by applicable law, PowerFleet assumes no obligation to update the information contained in this presentation and expressly disclaims any obligation to do so, whether a result of new information, future events or otherwise.

Now I'll turn the call over to PowerFleet's CEO, Steve Towe. Steve?

Good morning, everyone, and thank you for joining us today. I'm here with key members of the leadership team and we're excited to walk you through what has been a defining year for PowerFleet.

Before we get into the quarter, I want to take a few minutes to step back and talk about the journey because the context really matters, and it's helpful to orient investors to fully understand what this team has delivered and why we feel confident about where we go from here. 2 years ago, we set a very clear strategy for PowerFleet. We said we would use consolidation to build scale. We said we would invest that scale into technology differentiation. And we said we would run this business with the kind of financial discipline that compares value for shareholders over time. That was the thesis, and I'm pleased to stand and tell you we're delivering [ insight ] planning for.

Within 18 months, we restructured the global operating model, unified the product road map under Unity, centralized core functions and delivered more than $34 million in annualized cost synergies on time and info. And importantly, we didn't do that at the expense of growth. We did it while simultaneously accelerating organic revenue performance, expanding margins and winning at a level in the enterprise market that the heritage power fleet could simply never have achieved, and that was delivered. On technology differentiation, and this is where reading the future value of the company sits, Unity has become the system of work for some of the world's largest and most demanding enterprises. Independently, we received validation the differentiation we've built in AI video on-site safety, data highway ingestion and the unified operations layer is what makes us truly mission-critical for our customers.

And you can see that differentiation showing up directly in the commercial performance of the business. We've secured landmark enterprise wins, Fortune 500 accounts across energy, mining, food and beverage, logistics manufacturing. And we're now winning Tier 1 public sector contractor to scale that simply wasn't possible 2 years ago. Our AI video pipeline compounded through the year. Our onsite solutions saw rapid adoption, cross-sell revenue accelerated. Customers are leaning in because Unity solves everyday operational challenges, improving safety, enhancing visibility, boosting efficiency, all through one integrated platform.

Next slide. So let me frame the year through these 3 priorities we set ourselves and executed against. The first, durable revenue growth. We've proven that the combined business is delivering consistent, high-quality organic growth anchored in recurring cash revenue. The second, compounding EBITDA growth. We've demonstrated that as the top line scale, the operating model we've built is converting that growth into expanding margins and compounding profitability. And the third, driving towards sustainable free cash flow. We've proved the pivot showing that this business is moving from an investment and integration phase into a cash-generative model that strengthens the balance sheet and compare shareholder value. Let me take you through each one. Next slide, please.

Starting with revenue. Services revenue, which is really the engine of the business, grew to $360 million and now represents 81% of our total revenue, up from 76% in FY '25. That shift in mix is deliberate and is significant because every percentage point of that shift brings higher margins, greater predictability, and strong customer lifetime value. Total revenue increased to $444 million. And what is most encouraging is the growth acceleration we saw as the year progressed. In Q4, total revenue grew 11% year-over-year and service revenue grew 14%. That's the exit rate we've been taking to investors, and we've delivered it. The trajectory is clear. The quality of the growth is high and the durability of the recurring revenue base gives us real visibility and confidence heading into [ FY '26 ].

Next slide, please. On the customer side, we signed multimillion contracts with 2 of the world's largest brands, a top 3 global food and beverage company and a major global manufacturer, both choosing our differentiated on-site solutions. These are exactly the kind of large-scale enterprise wins that the heritage PowerFleet of 2 years ago could not have competed for letter alone one. And then, of course, there's the South African treasury contract, the single largest win in our company's history. We've anticipated 5-year total contract value of between $100 million to $120 million once fully implemented. This is being powered by Unity safety solution and our AI video capabilities in partnership with MTN. That is a transformational piece of business for powerfully. And I'll talk more about how that's progressing when we get to our FY '27 growth multipliers.

On the solutions side, our AI video bookings grew more than 50% in FY '26, meaning including outpacing market growth. Our onsite revenue grew 39% and powered by North America sales acceleration. These are the 2 highest ARPU, highest differentiation parts of our portfolio and the fact that they're driving such strong growth tells you the strategy is working where it matters most. And on retention, Q4 was our strongest retention quarter in the last 2 years, driven by Unity's differentiated solutions and the deeper, stickier customer relationships we're building. That's an important proof point as it speaks to the rarity of what we're delivering to our customers.

Next slide. Turning to EBITDA. Adjusted EBITDA for FY '26 grew 44% to $97 million, with margins expanding 330 basis points to 21.9%. And in Q4, adjusted EBITDA grew 42% year-over-year to $26.4 million, with margins hitting 23.1%, 5 percentage point increase year-over-year. The compounding effect was the result of disciplined synergy execution, a deliberate shift towards high-margin repair and services and an operating model that is built to generate expanding leverage as the top line scales. And what's particularly pleasing is that we've achieved this while simultaneously investing in growth in our go-to-market capabilities, in our channel partnerships and currently in the South African deployment. We've made a deliberate choice to be good steward of investment opportunity. And even with those investments, we still delivered meaningful adjusted EBITDA expansion. This is a solid indication of the inherent leverage in this model.

Next slide, please. And the third priority, free cash flow. This is where FY '26 represents a genuine inflection point for the business. We generated $4.1 million of free cash flow in the second half, a meaningful swing from the $13.7 million use of cash in the first half. Operating income reached $11 million, an $18 million improvement from FY '25 when we were in an operating loss position. And net leverage improved to 2.47x down from 3.39x. That's almost a full turn of deleveraging within the fiscal year. We've been very clear with investors throughout this year that as we move through the final stage of integration and stood up investments to support large-scale growth opportunities, there will be periods of elevated cash use. This was a temporary and necessary cost of building the business we have today. What the second half trajectory demonstrates is that the true underlying cash generation of this model is now coming through and will continue to strengthen as we scale into FY '27. Next slide, please.

So with that context, let me now turn to what lies ahead. We've delivered the FY '26 plan. We've proven the thesis. And we now have the scale of the differentiation, the operating model and the financial foundation to step forward confidently from here. FY '27 is about building further momentum. Next slide, please. This slide captures the strategic levers we've assembled to drive future shareholder value creation, and they frame why we are seeing such a compelling multiyear opportunity. First, our warehouse and on type solution to the category-defining wage. This is where we have true differentiation where win rates are highest and where we're opening doors into the largest enterprises in the world. We deliver a unique data set for the industry through AI-powered safety and compliance across the full operational environment, on-site and over the road in a single platform.

Second, we now have the high-impact channels to markets such as AT&T, [indiscernible] MTN with additional partnerships in development. These are force multipliers that can create meaningful growth expansion with our proportional increases in our cost base. The channel Flywheel is beginning to turn. Third, Unity capitalizes on a powerful industry tailwind. Enterprises are consolidating fragmented point solutions and data into unified operating platforms. That is exactly what the data highway was built to deliver. We're not fighting the market, we're navigating a successful path. Fourth, our proprietary operational data creates a defensible moat. As customers integrate more deeply into Unity, ingesting data from ERP, HR, safety, maintenance and IoT systems, the stickiness compounds. Our data highway helps us to become mission-critical embedded in our customers' workflows and making it increasingly difficult for us to be displaced.

And finally, the compounding EBITDA growth opportunity remains substantial. With services at 81% of revenue and growing, the cost optimization program still delivering and with scale benefits compounding as the top line accelerates, there is meaningful further margin expansion ahead. Next slide.

Our priorities for FY '27 are consistent and clear. Amplify revenue growth, continue to compare adjusted EBITDA growth and enhance the balance sheet. On revenue, we're doubling down on the 2 differentiators that are driving the most traction on site and AI video. These solutions now represent 65% of our pipeline, up from 50% entering FY '26. We're seeing these differentiators play out in real wins, with some of our largest customers expanding to adopt Unity's full solution stack. And we're going to replicate these top-tier deal successes through extended direct sales capacity, expanded go-to-market channels and the growing bank of referenceable customer outcomes.

On adjusted EBITDA, you'll hear more on this from Melissa shortly, but the key point is we see a clear path to further meaningful efficiency gains that support continued adjusted EBITDA expansion, while freeing capacity for reinvestment in growth. And on the balance sheet, we're doubling down on working capital improvement. We have a finance partner network in place for customer financing aligned with industry best practice. We're making a material shift towards annual and first quarter in advanced customer payment terms. And the operating leverage in this model means higher conversion of EBITDA to cash as the revenue growth compares. This creates a virtuous cycle, deleveraging, reduced cash interest costs and compounding returns for shareholders.

Next slide, please. Over and above core execution, we have significant growth multiplier entering FY '27. First, the South African treasury deal. 60,000 assets are now moving to the deployment planning phase. This meaningful new revenue contribution is expected to contribute in growth in late FY '27 and wholeheartedly in FY '28 and is a powerful validation of Unity's capabilities at Tier 1 core. Secondly, a new partnership with Accenture. Accenture has selected powerfully to a strategic safety solutions innovation partner and is now recommending our end-to-end Unity portfolio. This opens a significant new enterprise go-to-market channel that dramatically extends our reach into large-scale digital transformation programs globally.

And lastly, a story I'm particularly proud of FEMSA is the largest Coca-Cola franchise bottler in the world. They first came to PowerFleet for connected intelligence that would deliver efficiency and control across their on-road operations. subsequently adding AI video to drive elevated safety performance. The next step in that relationship is on time. FEMSA is now adding PowerFleet's onsite solutions to their deployment to manage the safety and compliance of their warehouse operations, which is our land and expand motion working exactly as intended. A customer that trusted us with their on-road operations is now trusting us with their end-to-end estates. That pattern replicated across our enterprise base is one of the most important growth opportunities we have. Each one of these is a high conviction, high-impact growth driver. Taken together, they give us real confidence in the acceleration opportunity ahead.

With that, I'll hand over to Melissa to walk through our optimization and efficiency progress.

Thanks, Steve. Turning now to our progress on optimization and efficiency, which continues to be a key area of focus and execution for the business.

Over the past 2 fiscal years, we've delivered $34 million in annualized synergies across the integration program, and that's a significant achievement on the entire team is proud of. In our November earnings call, I outlined our pivot from integration into optimization in order to efficiently drive profitability and growth. I shared that among our priorities, which you can see on this slide, we would continue to evolve our organizational model, optimize our resource mix, expand AI and automation and continue to unlock economies of scale in our vendor spend base. We're now 6 months into executing against that agenda, and I want to share where we're focused.

The first area of progress is simplification across the organization. We've continued to evolve our spans and layers within our organizational design, ensuring we have clear accountability and appropriate management breadth across the business. At the same time, we're further centralizing and streamlining core functions within G&A as well as our customer-facing units such as implementation, removing duplication and driving consistency within the operating model. The goal here is to ensure we're structured at scale and efficiency across the global company footprint. The second area is continued product line rationalization, where we're further consolidating partners and hardware SKUs across the business. Simplifying the portfolio reduces complexity and improves our margins. and the effects are cumulative, fewer supply chain variables, a more efficient cost base and a more focused go-to-market motion. And the third area is expanding our AI, automation and self-service capabilities to drive efficiency in our cost to serve.

We're working with a third-party partner to augment our support functions with AI and automated capabilities improving responsiveness and efficiency while freeing our teams to focus on higher-value customer interactions. Alongside these 3 areas, we continue to reduce the number of operating business systems we use across the company and to consolidate our vendor spend, both of which contribute directly to our efficiency target. Collectively, we expect these initiatives to deliver $12 million in annualized efficiency in FY '27. These moves will result in a small increase in operating costs in the first half of the year, to deliver the expected EBITDA efficiencies for full year FY '27 in the second half. This is the natural next chapter integration built the foundation and optimization is how we convert that foundation into sustained margin expansion and reinvestment capacity for growth.

I'll now turn the call over to David to cover the full financial results and look ahead to FY '27. David?

Thank you, Mel, and good morning, everyone. As you saw in our press release, we closed fiscal 2026 with a strong fourth quarter, demonstrating that our model is working and scaling.

For the full year, revenue grew 22% to $443.8 million and adjusted EBITDA grew 44% to $97 million. Just as importantly, we turned the corner on GAAP operating profitability, generating $19.6 million in operating income for the year, up from an operating loss a year ago. This is a strong indication of the business converting durable recurring revenue growth into compounding profitability. Of note, the third and fourth quarters of fiscal 2026 were the first periods that fully reflected the combined businesses on a like-for-like basis. Today, I'll start with our results for the quarter, adding full year context where it's useful, then I'll walk through the operating expense and profitability and then our balance sheet and cash flow, and I'll close with our outlook for fiscal 2027. Next slide.

Total revenue for the fourth quarter was $114.5 million, up 11% year-over-year and up 1% sequentially. This was high-quality growth led by our recurring services revenue. Services revenue totaled $92.9 million, up 14% year-over-year and now represents more than 81% of total revenue. This high-margin revenue stream is the true engine of the business. Product revenue for the quarter was $21.5 million, broadly stable on a year-over-year basis. Consistent with that strategy, product is increasingly a deployment vehicle for recurring services rather than [indiscernible] in itself. The contrast between these 2 lines is deliberate and is the key to our profitability story as the mix tilts towards recurring services every incremental dollar of revenue carries a higher margin and converts more efficiently to adjusted EBITDA. This dynamic is reflected in our revenue growth this quarter at 11%, translating into adjusted EBITDA growth of 42% because the growth came from the highest quality, highest margin part of the revenue base. The rest of remarks on profitability follow directly from this dynamic.

Next slide. Now into profitability and margins, where gross profit for the quarter was $64.7 million, a GAAP gross margin of 57%, up roughly 4 points from a year ago. The expansion is being driven by a richer mix of recurring services. Moving down the income statement. GAAP income from operations was $11 million and operating margin of approximately 10% compared to an operating loss in the prior year quarter. This swing of $18 million year-over-year is the clearest single proof point that operating leverage and cost synergy from integrations are now flowing through to the bottom line. GAAP net loss for the quarter narrowed to $2.7 million, a substantial improvement from a net loss of $12.4 million a year ago. For the full year, GAAP net loss improved by 60% and to $20.6 million, and full GAAP operating income was $19.6 million compared to an operating loss of $25.9 million in fiscal 2025. The remaining gap between our positive operating income and our net loss is almost entirely interest expense on our debt.

Adjusted EBITDA for the quarter was $26.4 million, up 42% year-over-year. with adjusted EBITDA margins expanding more than 5 points to 23%. For the full year, adjusted EBITDA was $97 million, up 44% at a margin of approximately 22%. The year-over-year improvement reflects organic revenue growth, the realization of cost synergies and disciplined operating expense management.

Next slide. Now let me turn to a few key efficiency measures centered on adjusted EBITDA to revenue ratios that we use to measure the health of the business. We are continuing to perform well on both the gross margin and expense to revenue ratios. On a total revenue basis, gross margin was a steady 67% when compared to last year. While the mix of revenue improved, Services gross margin was impacted by immaterial out-of-period adjustments in cost of sales. We expect gross margin for services on a total basis to continue to expand in fiscal 2027.

Moving to OpEx where our continued focus on cost management and operating efficiency is evident across each component. In sales and marketing, we're investing intentionally because this spend is closely tied to revenue growth. We are actively managing the ratio appropriately while continuing to support top line momentum. At the same time, remain focused on reducing overhead, which is reflected in the improving G&A ratio down 6 points year-over-year to 21%. As an innovative technology company, our R&D spend may fluctuate modestly, but we expect it to remain around the high single-digit range on a gross basis and approximately 4% on a net basis. Next slide.

Now to the balance sheet, where our progress on deleveraging is one of the year's most important achievements. Through a combination of adjusted EBITDA growth and disciplined cash management, we reduced our leverage ratio by roughly a full turn to 2.47x over the course of the year. A step change that materially strengthens our financial position and gives us increased flexibility to invest behind our growth priorities. Next slide. Free cash flow, which we define as operating cash flow less net capital expenditures and capitalized software development was negative $9.5 million for the full year, representing a $27.6 million improvement from a negative $37.1 million in fiscal 2025. Importantly, the full year result understates the momentum we built during the year. Free cash flow was negative $13.7 million in the first half before swinging to a positive $4.1 million in the second half, a $17.8 million improvement within the year.

Q3 and Q4 were both free cash flow positive, meaning the business is exiting the year with a firmly positive trailing run rate. As you can see, cash generation is not perfectly linear quarter-to-quarter. We do see seasonal working capital dynamics. And in the near term, we are deliberately funding investment and working capital ahead of the large South African agreement ramp. But the trajectory is clear as adjusted EBITDA compounds and integration-related costs roll off our free cash flow conversion improves and our leverage continues to decline.

Next slide. Now let me turn to our outlook for fiscal 2027. Our priorities for the year center on 3 objectives: accelerating recurring services growth, continue to expand margins and reducing leverage. For the full year, we expect revenue to be in the range of $485 million to $490 million, representing growth of approximately 10% at the midpoint and with services revenue exceeding $400 million. We expect adjusted EBITDA to be in the range of $122 million to $125 million, representing approximately 27% growth at the midpoint and continued margin expansion to roughly 25%. We expect positive free cash flow in the range of $30 million to $35 million. Next slide.

Now more detail on free cash flow generation, where we start with adjusted EBITDA of $123 million. Our core earnings panel before capital allocation decisions, such as deleveraging. From there, CapEx is the largest use of cash at $52 million, reflecting continued investment in the business to support growth. Interest expense takes another $24 million, a function of our current debt structure. Taxes account for another $8 million and restructuring and other costs, largely tied to the cost restructuring program that Mel covered earlier, had another $8 million as we work through synergy capture. Working capital is a modest $4 million source of cash. Given timing variables associated with the South Africa agreement we are presenting its balance sheet impact as a separate component of free cash flow for transparency.

Importantly, favorable payment terms are expected to help mitigate the upfront investment in-vehicle device CapEx. That brings us to operating free cash flow of $33 million, and the solid foundation is integration costs wind down and leverage decreases. Some additional context on our guidance. where financial performance is expected to build progressively throughout the year, driven by 2 factors. As covered earlier by Steve, the commencement of the South Africa National Treasury contract in the second quarter, with revenue and margin contribution accelerating sequentially through year-end and as covered by Mel the next wave of our productivity and cost optimization initiatives, which require upfront investment in the first half and are expected to yield meaningful savings beginning in the second half. Together, these dynamics are expected to drive sequential margin improvement in each quarter of fiscal 2027 as we exit the year generating GAAP net income. Next slide.

To conclude, fiscal 2026 was a year of integration and proving out the model. We brought the business together, delivered the cost synergies we committed to, grew revenue 22% and adjusted EBITDA of 44% and turn GAAP operating income positive and cut our leverage by roughly a full turn. We exit the year with clean comparables, accelerating recurring revenue and a line marked public sector win poised to ramp. Looking out over the next 3 years, our objective is straightforward. Sustainable revenue growth and profitable, cash-generative scaling that creates durable long-term shareholder value. The entire PowerFleet team is focused and motivated to execute against these goals.

Now back to Steve. Steve?

Thank you, David. We can say with confidence that FY '26 was the year we achieved our 2-year strategic milestones set out for the initial stages of the combination thesis. In FY '27, the opportunity in front of this business across geographies, verticals and the full modularity of the Unity Suite is the largest it has ever been. And we have the team, the platform and the financial foundation to go capture it responsibly and at scale.

I want to thank our colleagues around the world for their extraordinary effort this year. The depth and pace of change they've navigated while delivering these results is remarkable. I want to thank our customers for their continued trust and our shareholders for their confidence in what we're building. The best is very much ahead of us. Operator, let's open the line for questions.

[Operator Instructions] Your first question is coming from Scott Searle with ROTH Capital.

Nice to see that the work over the past couple of years is translating its way into the P&L and the outlook. I think maybe, Steve, just to hop in from a top line perspective, I'd love to see the guide this year. It implies about 11% growth in services for the year. But I think I've heard a couple of things such as South Africa ramping up in the back half of this year. But meanwhile, near term, the opportunity pipeline seems like it's being driven by warehouse and AI camera.

I'm wondering if you could provide a little bit more color in terms of the opportunity pipeline. I think you referenced that it's larger and higher quality, but how we should expect to see things ramping over the course of this year and what the key swing factors are in terms of AI camera, warehouse in South Africa kicking in?

Sure. Thanks, Scott. So I think you'll remember that we put forward that we were investing more in sales and marketing in the back half. So we're seeing improved productivity. We're seeing, as identified in the in the script in terms of increasing AI video and warehouse pipeline. So all of those vectors are super strong, and that's the future value of the business.

So that, combined with the productivity increases from the maturity of that sales investment, the continued ramp of our partnerships, which are amplifying through the quarters, you will see a sequential growth in revenue step-by-step quarter-by-quarter. There's opportunity for upside. Obviously, as we continue to improve our win rates, as we get better as an organization, then I think there's a lot more opportunity ahead. And then incremental to that, obviously, is the South African contract. So we're being conservative in terms of rollout time scales. We articulated that there was 60,000 vehicles plus and you'll remember originally, we talked about 100,000 being kind of the barometer in terms of vehicle deployments. So we've already got 60,000 in deployment planning. So that will start to click in and phasing. But naturally, we are a little bit cautious. These are very complex in terms of their implementations.

So that will hit the back half of 2027 and then wholeheartedly into 2028. So if we think about the core vectors of the business, the on-site business is growing substantially. It was our strongest every year, strongest ever pipeline, strongest ever win rates. We're outpacing the pipeline growth in terms of AI video. And then we have not only the South Africa contract but also the ability for some of these other partnerships to deliver more. So we also mentioned about Accenture, which is a great business development and opportunity in itself. So very strong indications. We're always conservative by nature. But all the proof points that I would want in terms of are those investments paying off, we're starting to see the green shoots.

Steve, maybe just to quickly follow up on that. I want to make sure that we're seeing sequential growth over the course of this year. And then it sounds like we've got some other opportunities that sort in the MNOs have been early, I think, in their training process. So it sounds like that kicks in over the course of this year, South Africa towards the end of the year. And then it sounds like Accenture as well as new. Does that start to contribute this year?

Scott, so before sort of Steve answers the specifics there, maybe let me just give you a quick high-level overview in terms of fiscal 2027, both from a top line in a second. So from a bottom line standpoint as well. So in essence, it's built around 3 things: first, the revenue expectations grounded in the playbook we've already proven. Adjusted EBITDA expectations reflect real operating leverage and intend repeat execution story.

In terms of what we delivered this year, obviously, we're incredibly proud of what we delivered this year in terms of the momentum, both from a top and a bottom line standpoint. So when we talk about fiscal '27, we're not asking investors believe in a theoretical plan. We've already shown that we can execute this type of transformation. That said, this is still a business in transformation, not a steady state one, the year will not move in a perfectly straight line quarter-to-quarter, and that is one of the reasons we provide annual guidance, not quarterly guidance. We believe annual guidance gives a more accurate view of how we run the business and how we -- how value is created.

Revenue adjusted EBITDA did not accrue evenly across quarters and managing to a quarterly number could distort the decisions we make. Our focus is on making the right decisions to create long-term shareholder value. We do ever want to give investors helpful context on expected timing and progression of our key financial measures across the first half and the second half of fiscal 2027. Our revenue expectations are built on a proven foundation. We expect the fiscal 2027 first half and second half revenue split to be broadly similar to the 48%, 52% split we delivered in fiscal 2026 with revenue building as the year progresses. More specifically, we expect first quarter fiscal '27 revenue to grow sequentially at a rate broadly in line with the average sequential growth rate we delivered during the second half of fiscal '26, with growth then accelerating from the second quarter onwards.

That progression is supported by increased go-to-market investments, expected pipeline conversion, the Accenture partnership and the South African rand. We've demonstrated that these investments can drive strong growth, and we expect the same playbook to support fiscal '27. On adjusted EBITDA, the progression will be less linear than revenue. Revenue growth should drive EBITDA expansion through operating leverage, but the quarterly cadence will also be shaped by the timing of our investments and cost actions. First, as Steve mentioned earlier, we are making incremental go-to-market investments early in the year to support stronger revenue growth as it progresses. There was a natural timing lag between these investments, the cost comes first, while the productivity and revenue contribution build over time a sales productivity ramps.

Second, as Melissa discussed, we are investing early in fiscal '27 to unlock meaningful efficiencies. Together, these investments create some near-term margin pressure with first quarter adjusted EBITDA margin expected to be about 1 percentage point lower than fourth quarter '26. We expect the returns to build later in the year as sales productivity improves, revenue ramps and cost savings begin to flow through. The timing of these cost savings is the key difference versus fiscal '26.

In fiscal '26, the majority of annualized cost savings were realized in the first 4 months of the year, which drove a meaningful adjusted EBITDA step-up in the second quarter. In fiscal '27, the majority of the savings are expected to begin flowing through from the start of the third quarter. That shifts more of the adjusted EBITDA benefit to the second half of the year. That timing is the primary reason we expect fiscal '27 first half to second half adjusted EBITDA build to be a couple of points more second half weighted than the 46%, 54% split we delivered in fiscal '26.

So the key message is simple. First, our revenue expectations are built on a proven foundation. Second, our adjusted EBITDA expectations reflect clear operating leverage even though the quarterly progression will not be linear and third, the strength of execution story is evident in the financial results. Fiscal '27 is designed to build on that playbook and further compound growth, margin expansion and cash generation. A couple of other final points that will be helpful in terms of key EBITDA revenue measures, we expect gross margin to be close to 70% for the year from an EBITDA standpoint. SG&A spend for the year to be close to 40% of revenue and expense R&D consistent at about 4% of revenue. And then from a GAAP income standpoint, we expect to be GAAP income positive in the second half. And then for cash flow, we expect cash flow to be approximately 90% of the guide coming in the second half of the year.

So I just wanted to share that, Scott. It's just helpful in terms of people thinking about the ramps that we discussed on the call and in the release. And now I'll hand it back to Steve for your specific questions.

Sure, David. So yes, in terms of Accenture, Scott, so it's a business development relationship just kicking off. It's a relationship where Accenture or looking to really cement themselves as an AI and digital transformation partner with some of the largest clients that you can imagine around the world. And as part of that stuff stable in that portfolio, they're wanting PowerFleet solutions to be part of that.

So it will take a while to ramp as these things do. We've just literally launched in the last kind of 4 to 6 weeks. So it's more kind of, again, a back-end loaded stroke FY '27 stroke '28 opportunity. but significant opportunity. I think another significant proof point where the quality of our data, the accuracy or data, the uniqueness of the data sets we have, particularly where we have both warehouse and over-the-road mobile resource data is important to some of the largest clients and integration partners in the world.

Great. Very helpful. And if I could, and then I'll get back in the queue. Dave, just to follow up on the free cash flow for the year. I think you just indicated that's very back-end loaded. I'm wondering if you could address just the CapEx timing of that as well, big CapEx number. I think that was related to South Africa, but you also mentioned some other financing alternatives on the front. I wonder if you could provide a little bit of color on that front. And then in terms of the potential use of cash, just think about debt reduction and further delevering or there some other things that you're thinking about?

Yes. Thanks, Scott. So in terms of the CapEx, we are presenting the balance sheet impact as a separate component of CapEx. For the year, it is very modest. But in terms of timing, there is a timing impact that is pretty significant. So in the first half of the year, we will be investing, as Steve referred to earlier, we've got a backlog of close to 60,000 vehicles to go implement, which is obviously fantastic.

The IVD, the [indiscernible] called investment will happen first. But in terms of payment terms, we're negotiating with these large public entities, we have line of sight to get paid on a unit advances. So there will be a significant cash outflow for the vehicle devices. But as and when they are implemented and installed, we do expect to see sort of significant cash coming in, in terms of annual advanced payments that will largely offset that. So that's a key reason why cash is lower in the first half than the second half. The other key driver is what Melissa covered earlier in terms of rationalizing the cost base, there's obviously a cost attached to doing that. That is going to be something we'll be executing in the first half and we'll get the returns in the second half. So that's a sort of a key driver that's happening there.

And then to your final point in terms of driving improved cash flow. It's as much about improved cash flow as it is about actually landing more deals. So particularly when you think about on-site in terms of that piece of our business, an ability for key customers to actually get access to vendor financing. I think, is going to improve our win rate and the size of the pipe we can generate. In terms of how that structure that will bring cash in more quickly. We'll also be doing that in terms of what other large players in the industry do in terms of on-road in terms of allowing customers to, in essence, find a way to pay us more quickly from an advance payment and advance standpoint. So important changes, important shifts will have a positive impact in terms of absolute cash generation in fiscal 2027.

And David, just cover the other part of Scott's question like uses of capital. Yes.

Yes. So in terms of usage, obviously, an obvious one is paying down the debt. So that's clearly line of sight there. We have a meaningful portion of the debt that is a revolver based. So that is an action we can take. There's also a lot of inbound questions from investors in terms of as you start to generate meaningful cash, just given where the stock is trading, are there more shareholder-friendly avenues available to you. So we're clearly sympathetic to that ultimately, a board decision, but this is a board that is focused on how do we maximize shareholder value, shareholder returns. So it's only something that the Board would want to think through in terms of potential stock repurchase programs, those types of things as things progress over time.

Your next question is coming from Anthony Stoss with Craig Hallum.

Congrats on the 14% recurring revenue growth especially. So Steve, on the South African contract, I'm curious, it sounds like you're starting at AI safety video, is there room for expansion within that contract? And if there is, how quickly do you think that would happen? And then the second part of my question is, why did Accenture choose you? Was it for the in-warehouse solutions? Or is it for Unity? I'd love to hear more on both those fronts.

Great questions, Tony. So in terms of the South Africa contract, we have the ability to sell more services. I think there was guardrails around the initial tender, there's a lot of opportunity both in one-off services and other future revenues. And we're already seeing requests for broader plays in terms of the data requirements that we've been able to have. That will take a while to kick in. Obviously, you're deploying major enterprises with large-scale deployments. So we have to get our feet with in terms of doing that. But we're very, very encouraged about potential amplification of those accounts once they are installed.

So it really is a stellar opportunity for us to sell broader concepts, more integrated data plays and more visibility to the end clients. So we couldn't be happier with that. And then in terms of Accenture I think a couple of things. So in terms of the uniqueness of the data sets that we have, particularly based around the warehouse. So the connected warehouse space is very, I think, key and ripe for digital transformation. I mean, you'll remember our [ Pepsi ] video that we put out in November where they were saying they were doing a lot with spreadsheets and pen and paper. So there's a big drive there. And I think in terms of AI transformation, People ask me about the defensibility of the company. And I think the likes of Accenture choosing us rather than trying to use AI to create those data sets themselves is key testament to the proprietary data that we keep. So I think the quality of that data.

And then thirdly, they're very excited by the integration possibilities and the automation possibilities of the data highway from a unit perspective. So all those things are key and apparent. And then the strategies that we've always had around you're able to -- once you get the data highway in, you're able to connect multiple devices, whether that's on the road, it's in the yard, it's wherever it is. to provide much deeper levels, much stronger levels of mission-critical data, and that was another key piece of that. So again, very proud of having the opportunity. We've now got to maximize that opportunity. but I think it's another key tenant in that, just the different level of capability that we now seem to have and the fact that we can stand side by side with some of these major organizations.

Next question is coming from Dylan Becker with William Blair.

This is [ Jackson Bogle ] on for Dylan Becker. I wanted to go back to the South African deal. I know we've talked about that a lot, but obviously, it's a very big deal for you guys. Could you maybe walk us through how the deployment derisks over the ramp period. And then on top of that, do you see this as a repeatable template for other public sector or large enterprise opportunities globally? Or do you see this more as like a unique implementation given the size and scale of the deal?

Great question. So first, in terms of the rollout. So the process that we went through was we had to be awarded which we got the award letter, which was what we discussed last time out. We then signed the overall contract, which is all of the kind of key consistent agreements with the National Treasury. And we're now in the process of getting to deployment phases with, as we've said, 60,000-plus vehicles, and we originally said 100,000 would be a good barometer. There's up to 200,000 in terms of the overall estate that we have the opportunity to work with.

So as this kind of matures and progresses, you start having conversations, you get into agreements with each different entity, that is the process that we're in. So once we get those confirmed, which we feel very confident about the original 100,000 and I think [indiscernible] that we'll be able to do over time. You're then into that true deployment phase, which takes a number of weeks or a number of months that's dependent on the size and complexity of the organization that you're in. This is recurring revenue. So I mean you're talking $20 million to $30 million of ARR that comes through. And then to the question that came earlier, we're then able to sell multiple one-off and incremental services to that contract.

So it's a minimum of 5 years. There is normally a long tail off the back of that. Previously, some of the contracts that we're now replacing were in process for more than 15 years. So it's a very strong and solid base for us to build on as we go through this phase. And then in terms of being able to replicate it, we absolutely see the opportunity in different territories. One of the great things about PowerFleet is its global nature, operating across 6 continents. I think from a credibility factor I mentioned in the prepared remarks that we would have struggled to be able to achieve such a contract previously, we've had our interest in -- with other opportunities and this kind of feeds on itself in terms of your track record and reputation and also the value that you drive. So we only see more of these to come. it is a phenomenally big contract. So we're not expecting lots of wins like that in short order. But I think it's a great proof point, and it gives us a lot of motivation for the future.

Great. That's super helpful. And then maybe on the Unity platform, the on-site safety, you've positioned that on-site safety segment as a key entry point into like the broader enterprise operations. How are you thinking about like the durability of that land and expand motion? And what gives you guys conviction that early on-site wins can convert into those larger multiproduct deals over time?

Yes. So think about what we're doing. So we're delivering safety, compliance, efficiency, maintenance and sustainability services for major enterprises. We talked about the 2, which were previously our largest contract wins ever in the company that also happened in fiscal year '26 with Fortune 500 companies.

And when you get into those organizations and you're providing those services and you are making real difference to safety and compliance requirements. The people that are responsible for that are ultimately the C-suite of the organization. And a lot of times, the people who are responsible on a day-to-day basis for that for safety and compliance. In particular, also have the same remit for their mobile resources. So we're already seeing customers who are wanting to bring in third-party data from some of our competitors of OEMs to provide that full holistic view. We call that on-site plus. And then we're also displacing some of those competitors because ultimately, we have the full suite to do it. So we've already proven that model. We're now getting more mature and how we handle that from a sales perspective. So that gives us good confidence that, that is durable because ultimately, we're selling to the safety guys, the C-suite and also to the CIOs in the business. So they have the full data charging problem and the integration automation challenge.

So we're getting to a different audiences versus the majority of our competitors. And ultimately, that single pane of glass is seemingly something that is mission critical to a lot of organizations that are struggling to make use of the data sets that they've got. So that's kind of that. And then even if you take the FEMSA opportunity, which is actually the other way, so we started with safety and compliance over the road. And you've heard there that FEMSA are now rolling out the warehouse solution for that exact same reason. So to get that single view across their whole enterprise both nationally and potentially internationally as well.

Your next question is coming from Gary Prestopino with Barrington.

Most of my questions have been answered, but a couple of things here. First of all, with this new contract, this is going to probably in South Africa, it's going to move your South African generated revenues up versus where they have been. Could you maybe talk about the composition of your business in South Africa is that with South African centric based companies, and what's the economic situation over there? And I'm only asking this because there was an article in the Wall Street Journal a couple of months back, where I said that international companies are pulling out of South Africa because of the instability over there with the government and what's going on. So maybe could you address that for us, please?

Yes, Gary, I can take that one up. So the Wall Street Journal article, I recall when it came out. We have a pretty good relationship to say the lease with RMB actually met with some of the leaders that week in terms of the substance behind that there's no real significant sort of shift out. So I think that was overblown to say the least. So just to kill that point. In terms of the business itself, it is primarily centered in South Africa. There's a portion of it, which is a phenomenal franchise business. So from a store and vehicle recovery standpoint, we have the highest recovery rates that is a high-margin, strong cash generation business. People buy based on the brand. So it's a great repeat business. So that is a meaningful portion of our South Africa business.

In terms of the remaining business, it's really a mix between sort of large successful enterprises within South Africa as well as global multinationals, both within South Africa and across Africa as a whole. So it's a healthy book of business. It's a strong cash trading book of business. And in terms of are we seeing any sort of significant headwinds, we're not seeing any significant headwinds.

And David, maybe just cover off our composition of revenue because although South Africa is a key part of it. There's a lot more to it. Yes.

Yes. So on a rough and ready basis, about 35% of it comes from North America and 25% of it is sort of the South Africa centric piece. 25% of it would be Europe and EMEA -- sorry, Europe and Middle East. And then in terms of the rest, about 10% of it comes from Australia, and then the 5% is the Rest of the World. So we have a good geographical spread. And clearly, it's -- we have the best footprint in terms of reach globally, with 350 resell partners, those types of things. So we have the best access to the global market than anyone else in our space.

Your next question is coming from Alex Sklar with Raymond James.

Steve or David, a couple of questions on the positive fourth quarter bookings commentary. Can you just provide a little bit more quantitative context on the magnitude of bookings increase exiting the year? Either on an ARR or new ACV perspective versus last year? And then just in terms of the indirect channel, how much did that channel contribute as a percent of the new business in Q4?

Yes. So in terms of 30% is indirect, 70% is direct. So we're seeing an increasing amount of indirect channel business. So that's good in terms of that. Just repeat your first question, if you would.

Yes. There was just some really impressive TCV wins you spoke to, and I'm just curious on a kind of comparable basis adjusted for duration, anything on kind of ARR or ACV versus Q4 of last year FY '26 versus FY '25.

Yes. So I think the one stat that I will give you is that ARR grew 13% year-over-year.

Okay. Great. And David, maybe a follow-up for you. The nice step-up in services gross margin, I heard kind of you continue to expect that to continue into FY '27. Can you just talk about some of the puts and takes just driving that in terms of services mix, the recurring piece within services, device costs? How should those all play into FY '27?

Yes. So from a composite basis, services grows at a faster rate than total revenue. Obviously, we saw a nice increase year-over-year in terms of moving sort of 75% to 81% in terms of that breakout. So we do expect that to continue.

In terms of -- as you double-click into services in terms of the growth there, around about 95% of that line is recurring revenue. in terms of how that changes over time. There may be an increase in terms of nonrecurring in the short term just as we work through the South Africa ramp, but nothing material there. And so again, the mix will continue to improve. And then there is underlying operating leverage in the model. So around about 20%, 25% of the cost base you should assume is fixed. So as we scale up, it naturally drives operating leverage there.

And then the final point is what Mel discussed in her prepared remarks, there's still work we will be doing and can be done in terms of consolidating the underlying platforms. If you think about the ability to code at scale and speed with we've never had a richer set of opportunities to make a massive impact in terms of just that underlying cost base. So we do expect to see that sort of start to flow through as we work through fiscal 2027. So a long way of saying there's both current trajectory come momentum that works from a mix standpoint as well as there's incremental that as we can pull and will pull that will naturally amplify and extend larges over time, too.

Your next question is coming from Greg Gibas with Northland Securities.

Wondering if you could quantify the net impact on profitability the South African contract will have maybe as implied by your annual guidance. And maybe going back to your commentary around the timing of free cash flow or, I guess, the cadence first half, second half. I mean, I understand kind of rationalizing the cost base and associated costs there, CapEx timing and the South African deal. But as it relates to maybe the go-to-market investments, more of that being recognized probably in the back half as you discuss the pipeline conversion increases. But can you be a little bit more specific on kind of those investments there and timing as it relates to this?

Yes, sorry, sorry, repeat that first question again?

Yes. Quantification of the South African contract on profitability.

So yes, the South Africa contract in terms of margin profile, we've said in the past, it's similar gross margin profile to the typical business that we do. So no significant change there. If you think about it from an operating leverage standpoint, obviously, there's clear operating leverage there, so we get to sort of leverage our existing installed base. So it is accretive from a margin standpoint. And obviously, Steve's walked you through just the timing of the ramp, the quantum of the ramp from an ARR standpoint over time. So that will give you a sense on a go-forward basis.

In terms of the cash generation sort of first half to second half, again, there's investments upfront in terms of both the cost out as well as the South Africa business. There is gains happening in the second half. So pretty much consistent with what I shared earlier, Greg, in terms of just the timing of that stuff going through.

I think, David, it's fair to say decline in [indiscernible]. But I think it's fair to say it's patent recognition, right? So if you look at the way the '26 scale, top line and bottom line and cashing, you look the way that David's remarks, I think this is just a very similar trajectory and way of working, which in what is still a transformational business. Still business with lots more opportunity to grow, and we're flexing our muscles and some of that takes some investment in front to do so. But I think if you see the track record that we've now done over the last 2 years, expect the same kind of performance in FY '27.

That's fair. Appreciate it, guys. And I guess just lastly, could you remind us of your net leverage targets? And any rough expectations on when you reasonably can reach the target range?

Yes. So you can see obviously good trend line, great progression, great progress that we did in fiscal 2026. As you look to fiscal 2027, will be comfortably under 2x levered as we exit the year. And in essence, that's the sort of target range is somewhere between 1.5 -- less than -- so 1.5 to 1.75x I think, is a pretty good sweet spot to be shooting for.

There appear to be no further questions in queue at this time. I would now like to turn the floor back over to the CEO, Steve Towe, for closing remarks.

Thanks, everybody, for attending today. I appreciate it was a longer call, but I think there was a lot to actually get through, which was great. And look forward to speaking to you again in about 8 weeks' time from now. I think David, do you just want to say something?

Yes. Just a quick update before we close. So in terms of filing the 10-K, the 10-K, everything is lined up for it to be filed today in terms of material weaknesses, all the material weaknesses are cleared based on where we are today. So some good news as the 10-K comes out during the day today.

So thanks, everyone, and good day. We'll speak soon. Bye-bye.

Thank you. This does conclude today's conference call. You may disconnect your phone lines at this time, and have a wonderful day. Thank you for your participation.

Greetings. Welcome to PowerFleet's Third Quarter 2026 Earnings Call. [Operator Instructions].

Please note, this conference is being recorded.

I will now turn the conference over to your host, Carolyn Capaccio of Alliance Advisors IR. You may begin.

Thanks, operator. Good morning, everyone. This presentation contains forward-looking statements within the meaning of federal securities laws. Forward-looking statements include [indiscernible] with respect to PowerFleet's beliefs, plans, goals, objectives, expectations, anticipations, assumptions, estimates, intentions and future performance and involve known and unknown risks, uncertainties and other factors, which may be beyond PowerFleet's control, and which may cause its actual results, performance or achievements to be materially different from future results, performance or achievements expressed or implied by such forward-looking statements.

All statements other than statements of historical facts are statements that could be forward-looking statements. For example, forward-looking statements including statements regarding prospects for additional customers, potential contract values, market forecasts, projections of earnings, revenues, synergies, accretion or other financial information emerging new products in trends, strategies and objectives of management for future operations, including growing revenue, controlling operating costs, increasing production volumes and expanding business with core customers.

The risks and uncertainties referred to above are not limited to risks detailed from time to time in PowerFleet's filings with the securities and exchange commission, including PowerFleet's annual report on Form 10-K for year ended March 31, 2025.

These risks could also cause results to differ materially from those expressed in any forward-looking statements made by or on behalf of PowerFleet, unless otherwise required by applicable laws PowerFleet assumes no obligation to update the information contained in this presentation and expressly declaims any obligation to do so, whether a result of new information, future events or otherwise.

Now I'll turn the call over to PowerFleet's CEO, Steve Towe. Steve?

Good morning, everyone, and thank you for joining us today. From an execution standpoint, Q3 was another strong quarter, an important one in demonstrating the consistency of delivery we're now seeing across the total combined business. We continue to make progress in the areas that matter most, accelerating high-margin recurring revenue growth, expanding profitability and strengthening our balance sheet, all while maintaining disciplined execution. This quarter clearly shows the operating model we're building, focused, disciplined and designed to deliver profitable, accelerated growth at scale.

As we previously articulated, the heavy lifting of integration is fundamentally behind us. And we've been clear in recent earnings calls about the growth milestones we've set for ourselves. For some time, we've been signaling a Q4 exit run rate for FY '26 of 10% total revenue growth and north of 10% growth in recurring revenue. And based on our performance [ exit ] in Q3, we feel confident in achieving those milestones, which gives us the desired momentum [indiscernible] effort on the growth accelerator in FY '27.

Next slide, please. It's important to note that it's the first quarter in which our year-over-year results reflect the combined businesses. Stepping back and looking at the quarter, the key [ theme by ] increasing ARR growth, consistency and balance to our performance. Service revenue grew 11% year-over-year and now represents 80% of total revenue. Total revenue increased 7% year-over-year, reflecting solid underlying organic performance with the prior year comp benefiting from $2 million in accelerated product revenue as for the [ U.S. ] GAAP change communicated on the Q4 FY '25 earnings call.

This means [indiscernible] an apples-for-apples basis, total revenue growth was 9% year-over-year. At the same time, adjusted EBITDA increased [ 26% ] year-over-year driven by top line growth with adjusted EBITDA margins [ to ] expanding by 4% to 23%. Moving to the balance sheet, where net debt to adjusted EBITDA continues to strengthen as we exited the quarter at 2.7x. This combination of growth, margin expansion and balance sheet improvement reflects a business that is scaling responsibly and executing against clear priorities and it reinforces the strength of our Unity strategy and the scalability of our [ Unity ] platform, giving us clear line of sight to accelerating growth in FY '27.

Next slide. In Q3, we secured a truly landmark win for the business, a highly meaningful South African [indiscernible] contract to deliver AI video and visibility services to government fleets collectively operating more than 100,000 total assets. The agreement is anticipated to represent one of the largest deployments in our history and is expected to generate meaningful recurring [indiscernible] and services revenue with solid margins over a multiyear term following phased implementation.

Preliminary department enrollments are highly encouraging and ahead of our initial internal expectations. This award reflects the increasing scale at which government agencies are adopting [indiscernible] driven fleet technologies in partnership with Tier 1 providers. Programs [ of ] the scientifically anchor long duration customer relationships and create a foundation for additional software and analytics adoption over time. Under this program, we will deploy [ UT], including advanced visibility and AI video capabilities to enhance safety, security and situation awareness across a large-scale operational state.

A key differentiator in winning this contract with our partnership with [ MTN ] which provides the scale, connectivity and platform support required for deployment of this magnitude. This award underscores our ability to meet the demanding requirements of Tier 1 customers and highlights the strength of our partner ecosystem in delivering reliable, scalable solutions.

With that, I'll hand over to [ Jeff ] to walk through our commercial momentum and customer execution.

Thanks, Steve. Great to be here. Turning to customer momentum. What stands out most to me is the impetus we're building due to our key differentiators. We're seeing continued acceleration across closed wind, pipeline growth and our selection by some of the world's leading enterprise brands. This momentum is being driven by the unique end-to-end capabilities of the Unity platform and a much more focused enterprise sales motion. And I believe we're still in the early stages of what's coming next. .

During the quarter, we secured multiple enterprise wins with total contract values ranging from $500,000 to more than $5 million. These include statement wins with national services, logistics and infrastructure leaders as well as multimillion dollar contracts with Fortune 500 manufacturing and food and beverage companies. These are meaningful enterprise deployments, and they reinforce the great brands [ or choosing ] PowerFleet to solve real complex operational and safety challenges at scale.

Increasingly, customers are engaging with us around AI-based safety and compliance solutions, on-site with AI pedestrian proximity and on road with our advanced Safety-as-a-Service AI video portfolio. Our unique ability to offer connected AI video intelligence both on road and on-site through a single unified platform is a true differentiator and increasingly is winning us big deals. Customers are looking for enterprise grade outcomes across their enterprise end-to-end estates, and we're uniquely positioned to deliver safety and compliance across the full operational fire.

That momentum is also clearly shown up in our pipeline. Our AI video pipe build increased 71% sequentially, driven by strong demand for advanced safety, compliance and visibility solutions across global accounts. Recorded our third consecutive quarter of [ warehouse ] pipeline growth in North America, reflecting sustained demand for onsite safety and AI pedestrian protection use cases. In addition, our ARR pipeline increased 13% sequentially, which gives me even more confidence in the durability and quality of our subscription-led growth profile.

PowerFleet is exceptionally well positioned to capture this momentum and carry it forward into FY '27 and beyond. Next slide, please. This slide really captures the scale and quality of our global key account momentum. Today, Unity is deployed across a wide range of industries, including energy, mining, industrial, humanitarian, security and construction, supporting multinational multi-continental Fortune 500 organizations around the world.

These customers are operating some of the most complex and demanding on-site plus on-road environments anywhere and are using to [indiscernible] tens of thousands of assets and billions of miles driven annually across both on-road and on-site operations. What's most compelling to me is what we're seeing inside these global accounts. We're delivering measurable improvements in safety outcomes, operational efficiency and enterprise-wide standardization. And that success is driving deeper multiproduct adoption across region and use cases.

In particular, customers are increasingly expanding their use of our highly differentiated AI video SaaS solutions, leveraging our unique ability to deliver video intelligence on-road and on-site within a single platform. This is a core strength of PowerFleet. We are mission critical to some of the world's largest and most sophisticated enterprise as these customers expand globally and consolidate their vendors increasingly into Unity's ecosystem, we see a clear path to continued growth, deeper penetration and long-term strategic relationships.

Next slide, please. Before we dive into the specifics of this slide, I want to frame it in the context of our data highway strategy, ensure [indiscernible] some great examples of how that strategy is coming to life in the real world. At its core, the data highway is about connecting fragmented data across the enterprise, harmonizing it and then enabling it to be consumed, acted on and monetized in multiple ways. Our customers depend on us to deliver unified real-time connected intelligence that transforms data into operational decisions, safety outcomes and measurable business value.

Unity is that connective tissue. What you're seeing on this slide is how that connected intelligence is serviced through one of Unity's key consumption methods, unified operations, where people, assets, vehicles and business processes are brought together into a single connected operational layer across fleets, warehouses and end-to-end operational environments. Across Fortune 500 automotive retail logistics, mining, energy and construction customers, we are integrating [ Unity ] with core enterprise systems, ERP platforms like SAP and Oracle, HR systems, learning and trading platforms, maintenance systems and IoT infrastructure.

The objective is to automate compliance, improve asset utilization, enhance safety and fundamentally digitally transform how work gets done at scale. Let me give you a couple of examples of how this plays out. In one common use case, customers are focused on operator, safety and compliance in warehouse and industrial environments. [ Operator ] training and certification data typically lives in learning systems, employment status and role information sits in HR platforms, and physical access to equipment is enforced through badges, gateways and IoT-enabled machinery.

Historically, these systems operate independently creating manual processes, compliance gaps and real risk. Unity sits in the middle as the data highway. We ingest operator level data from HR and training systems, harmonize it into a single real-time compliance record and connected directly to the operational access point. Every access request becomes an automated policy-driven instant approval or denial based on verification status, role in location to complete audit trip. This result is safer operations, faster workflows and approvable compliance in real time.

In another example, customers are using Unity to unify mission-critical transportation and logistic processes. Shipment planning lives in ERP systems, execution lives in TMS platforms and safety and visibility data is scattered across telematics and IoT systems. Without a unifying layer, no single system has a complete view of the shipment life cycle or performance per job. Here again, Unity access the data highway. We ingest shipment demand from ERP, orchestrate execution through TMS integrations and layer in real-time vehicle driver and IoT data that [ unified ] data screen enables real-time shipment management, automated milestone events and direct correlation of safety and performance metrics to individual shipments and jobs, all in one connected operational workflow.

Unity is becoming embedded at the heartbeat of our customer operations across people, assets and processes. That makes us increasingly strategic for the customer highly sticky and difficult to displace. And as customers expand globally or add new use cases, the value of the data highway compounds. The unified operation capability is a key monetization engine for us by enabling multiple consumption paths safety, compliance, operations, sustainability, analytics into a suite of customer business systems for a wide array of C-suite and operational stakeholders, all from the same integrated data foundation.

We drive broader deployments, higher ARR per customer and long-term enterprise partnerships. This is a powerful example of how the data highway strategy translates into real operational outcomes and sustained growth.

Next slide, please. This slide illustrates a long-standing customer relationship with [ Origin Energy ], a 14-year customer, operating 2,000 vehicles. Through a phased [ multiproduct ] deployment from compliance through to advanced AI video, Origin has delivered consistent reductions in risky driving events and has enhanced in public reputation as a direct result of the safety improvements powerfully is [ proven ] for them. Today, the relationship has evolved into a unified data ecosystem, enabling more predictive and proactive safety management. This is a strong example of how Unity allows customers to expand value over time through a single platform.

As the [indiscernible] and look across the business, what gives me the most confidence is how all of these elements are coming together, accelerated customer momentum, deeper enterprise engagement and a data highway strategy that is translating into real operational outcomes and expanding monetization opportunities. We're seeing this play out across global accounts with Unity becoming increasingly embedded in the day-to-day operations of our customers. This is an exciting moment for PowerFleet. We're building on strong foundation, winning with great brands and landmark Tier 1 deals and position the company for sustained profitable growth.

With that, I'll turn it over to David to walk through the financials.

Thanks. Before I dive into the details for the quarter, a quick recap of the key pro forma adjustments, onetime expenses. This quarter's expenses include $2.3 million in onetime charges for restructuring, integration and transaction costs, excluding from adjusted EBITDA and EPS for ongoing run rates, amortization impact, resulting [indiscernible] $5.7 million in noncash amortization related to the [ Macan Fleet ] Complete acquisitions impacting Services gross margins by over 6%.

Next slide, please. Now on to the detailed results, where for the first time, prior year comparison numbers fully reflect the impact of the mix and fleet complete transactions. I'll start with services revenue. PowerFleet future is anchored in high-margin recurring SaaS revenue and services grew 11% year-over-year, even as we continue to intentionally exit noncore revenue streams in line with our strategic focus. This progress is evident in our revenue mix, with services now accounting for 80% of total revenue, up from 77% in the prior year.

Next slide. Turning to the full P&L. We continue to deliver strong top and bottom line momentum while headline total revenue grew 7% year-over-year. The prior year comparison included approximately $2 million [ accelerated ] product revenue from contract and bundling of [ Fleet Complete ], which ceased active April 1, 2025.

Normalizing for this, total revenue grew by 9% on an adjusted basis, underscoring solid underlying organic performance. Adjusted EBITDA increased 26% year-over-year to $25.7 million, driven by strong operating leverage and continued execution on integration and cost synergy initiatives. These results underscore the strategic rationale of M&A actions, supported by disciplined and consistent execution. Next slide. Adjusted EBITDA gross margins were stable at 67%, with a stronger services mix offset by higher services margin in the prior period. Product margins remained steady in the low 30% range.

Turning to operating expenses. Discipline remains a priority alongside continued investment to support growth. G&A as a percentage of revenue declined 4 percentage points, reflecting ongoing synergy realization and operating leverage. Sales and marketing expense increased as planned to support growth initiatives, while R&D remained stable at approximately 8% of revenue or 4% net of [ capital ] development costs, as investment continues in AI-enabled safety, compliance and analytics.

Looking at FY '26 as a whole, we expect the award of the large Tier 1 public sector tender that Steve discussed earlier, [indiscernible] have a material positive impact on future revenue growth over time. Accordingly, we are maintaining operating expense investments to support the continued build-out of the business, which results in updated adjusted EBITDA guidance of annual growth of approximately 45% versus our prior guidance of 45% to 50%.

Next slide. Closing on leverage. We exited Q3 with net debt to EBITDA of approximately [ 2.7x ]. Based on current trends, we now expect leverage to decline to around 2.4x by year-end compared to our prior expectation of approximately 2.25x, with investments to support the landmark Tier 1 public sector win and working capital dynamics, key drivers.

Last slide, please. To close, Q3 reinforces the progress PowerFleet is making as a focused, integrated IoT company that provides investors with a solid set of proof points that the accelerated growth trajectory planned for the business is coming into view. We are delivering consistent and improving high-value recurring revenue growth, expanding EBITDA margins, improving leverage and deepening relationships with large, sophisticated customers.

Importantly, we are doing so with discipline and operational consistency. Operator, please open the line for questions.

[Operator Instructions] Your first question for today is from Scott Searle with Roth Capital.

Nice job on the quarter. It's nice to continue to see that double-digit SaaS growth. Maybe to dive right in, could you provide a little bit more color in terms of the growth mix and contribution of new logos versus upsell and penetration of things like AI [indiscernible] and warehouse. You gave some metrics, I think, in terms of the pipeline, but could you give a little bit more color in terms of the mix of the revenue stream who's contributing.

Also as part of that, I don't know if I heard a number related to some of the MNO relationships, what that's contributing now? How that's progressing across some of the different geographies? And maybe early thoughts on fiscal '27 SaaS growth. I know the target is 15%, but kind of how are you seeing that now as we're going into or getting close to going into fiscal '27 particularly with this large contract win in South Africa? And then I had 1 follow-up.

Okay. Thanks, Scott. I'll try and work through those as we go. So in terms of mix, no kind of real change. So 65%, 70% of our business from existing customers, 30% from new. The new logo pipeline is developing nicely. I think Jeff showed you a lot of the wins that we've had from existing accounts, but we're bringing over some new accounts, obviously, most notably and the South African government, which I will talk about as we go. And if we talk about strength within the MNOs, then -- if you look at the profile of our revenue, and where we get strong recurring revenue growth, that is through those channels, there's a lot of that comes through those channels, which is super positive.

And in terms of that large win, then in partnership with MTN, the strength, the relationships that MTN has is really kind of, I think, given a lot of confidence to Tier 1 customers such as the South African government to look to place an absolute landmark landmark contract for the business in FY '27 and longer.

So overall, that's -- for FY '27. I think we've pegged kind of 15% ARR growth. And that's before we kind of think about this new contract and there's no opportunity that we have ahead of us. So we're very bullish. We're very excited both with the core business. I think you've heard Jeff talk about strong ARR growth, large enterprise expansions, global accounts.

You've heard a lot about the stickiness. So from a retention perspective, our ability to really fuel that top line. And I think what's most pleasing is we're doing that responsibly. That mid kind of double-digit teams growth is kind of where some of our larger competitors are picked today, but we're doing it in a far more responsible way in terms of the ability for us to drive EBITDA at the same time. So we're very encouraged by the business as a whole. And I think if you think about where we started this strategy for the business of expanding partnerships, expanding into large Tier 1s, expanding our account base through AI video and in warehouse solutions, which are those key drivers, I think it's undoubtedly that those drivers are now been seen in reality in the numbers that we're producing and our future opportunity.

Great. Very helpful. And Steve, if I could. Just on a high level, certainly, the narrative of AI and the impact on the world and what's that doing to the software environment. I'm wondering if at high level, you could address 2 things. In terms of AI's impact, in terms of the importance of fleet management Unity type platforms going forward, competitive [ threat or complementary ], [ obviously, since you're they're ] integrating it into the platform and the capabilities, but also things like autonomous vehicles, where they kind of fit into the equation and the long-term opportunity for PowerFleet and the industry?

Yes. So we see AI as an enabler for our industry. So I think one of the challenges within the industry is it's produced too much data. And then it's been hard for customers to kind of [ wade ] through all of that data in order to understand how it can make business change. The AI abilities we're bringing into platform allow us to do that provide very meaningful simple data to customers that they can access in real time, the accuracy of the data and being able to kind of look at the rest of data to understand key trends in the business. [indiscernible] only going to be helpful to what we do.

So -- and we're seeing that in terms of the business impact that we're able to provide for customers. So on the whole, we see it as a net add from that perspective. Then in terms of the world of autonomous vehicles and robotics and all of that stuff. Our place remains in -- people need to understand what those vehicles are doing, where they are, how they're performing, et cetera, et cetera. So it will be an evolution, just as technology is always an evolution for us. but we see that as one as a place where PowerFleet's place in the ecosystem will remain and potentially grow off the back of that.

Your next question is from Anthony Stoss with Craig-Hallum.

Steve, just from a bigger picture standpoint, is the business environment better, the same or worse now than it was 6 months ago? And then I have a couple of follow-ups.

For us, it's improving. So I think that's a number of things. I think PowerFleet is improving, number one. I think 6 months ago, we were -- or maybe a bit longer, we were still suffering from tariffs. And I think we've been able to find our place to fight in our place to win in the marketplace. So I think we've found [indiscernible] hold in terms of where our solutions can be really effective.

We're using our geographical spread in terms of being able to get growth across multiple verticals, multiple geographies, which I think is also helpful. And I think if you look at the compounding level of enterprise business we're doing, that's because we've been -- to our earlier point about can we create business change? Can we create impact on businesses? We're really doing that.

So that is helping them with repeat business, referenceability from our account. So that when you get tangible ROI when you get the results, I mean, you'll remember some of the videos we put out in November about the tangibility of what our large customers are receiving, in terms of benefit from our solutions, then that brings a lot of confidence, that brings confidence in our sales teams and we start to get that momentum. And that's really what we're seeing play out now is that momentum.

Got it. And then my last two questions. Can you maybe just provide us an update on the AT&T reps if they're fully trained and productive on all of your products now? And once it's fully ramped, how much revenue annually will the South Africa contract bring in?

So I'll answer you a second one first. So we're not allowed at this point to provide any financial information. But what I was [indiscernible] to analysts and investors is, if you could bundle solutions, and you look at our ARPUs that we get, what I would say is this contract is within our sweet range in both to our ARPU and margin, and then you multiply that by the number of vehicles.

And we have an ability to do more than 100,000 vehicles, then I think the math speaks for itself in terms of what this will mean from a recurring ARR perspective for the business over the coming years. 5-year contracts start off and majority of these, if you do a good job continue. So it's super exciting for the business, and it's a material contract for the business.

In terms of AT&T, then I think we mentioned last time with the government shutdown, it was taken a little time in terms of some accreditations, of some video solutions. That will all be through and the sales force will have that extra part of the portfolio in their hands for the start of April.

Your next question for today is from Dylan Becker with William Blair.

Steve, maybe kind of doubling on the South African contract. You kind of just hinted at this as well, too. But can you give us -- you're starting at -- [indiscernible] out to 100,000 customers or vehicles assets over time. Can you give us sense kind of what that expansion opportunity could look like? Like how big of a slice or [ by ] at the initial Apple is this? And then maybe how should we think about kind of the broader public sector opportunity within South Africa, but also kind of expanding across geographies over time as well?

Yes. So I mean, this will be the single large deployment that this company has done in one go at scale. I think that's undoubtedly a fact for the company. Secondly, in terms of what we'll do both with further opportunity, whether that is broader within South Africa, whether that is broader with MTN across Africa or it's broader in terms of public sector business, these types of awards are Tier 1.

This has been centrally done by a treasury department because in the past, there's been some challenges within individual departments doing individual deployments with different competitors that maybe didn't have the scale or the capability to manage Tier 1 requirements. So this could be an absolutely important [ force ] multiplier for us a huge. I think, we call it a landmark win in terms of its ability to show the new power fleet, its scale, its partners. So highly encouraged about what this could mean to the broader business over time.

Perfect. And then maybe either for you or for David as well, too, just kind of an update on where we are on the synergy road map here? Obviously, we've kind of recognized a significant amount that's allowing us to reinvest. And I know Jeff called out some pretty impressive pipeline statistics that's the right trade-off. But maybe how much room kind of on the synergy front versus now deployed and scaled leverage that you would see? And maybe a way to think about kind of some of the trade-off dynamics you're thinking about as we maybe think about sustaining kind of that growth acceleration into 2027?

Yes, Dylan. So clearly, we've made great progress. So in terms of where we were, we're targeting $18 million for the year, there was a real opportunity, I think, to do more than that. And just based on the growth is flowing through, we've decided not to sort of rearrange the OpEx piece as aggressively as we otherwise would. So we have, in essence, a base to grow from. So that's been important.

But in terms of the '18 guide that we gave, pretty much there in terms of where we were exit the year. In terms of where we are, if you look at OpEx as percentage of revenue, in terms of SG&A, we guided to 40% or so for next year. We're pretty much at 40% for this quarter. So we're on track. And now it's really about how do we reengineer the cost base.

So we're taking more dollars out of G&A, so we can invest in sales and marketing, but good progress and real optionality in terms of how we grow the business. But for now, the focus is much more on how do we build a firm foundation for accelerated growth. And clearly, with the deals that we're landing, the size and the scale, very well positioned to do that.

[Operator Instructions] Your next question for today is from Gary Prestopino with Barrington Research.

Steve, could you maybe go into some of the expenses that you're going to be or some of the investments you're going to have to make for this South African government contract? Just so we can get an idea of the magnitude of what you're spending to build the business as we go into '27.

Yes. So if you think about a deployment of that scale, which, as I said, is a major deployment for the business and supporting those types of operations. And we're doing that in a relatively short period. So as I think we noted the enrollment has been strong, stronger than we maybe even imagined it was going to be. .

These things take time. We've got to get through a lot of work in terms of coordination, but you have to ramp up in terms of people, process and systems in order to take that extra weight into the business while at the same time, obviously, we're growing very nicely in the main [indiscernible] of the business. So there'll be a number of investments. These will be non-investments just around kind of this 1 project, but also very much looking at how we can optimize the business and how we can create the business model that can take this level of scale, and not just on this particular deployment, but on others that are in our pipeline as well.

So I think David's kind of aligned the fact that right now, we're not going to kind of operating expenses any further, and we'll talk in coming earnings calls in terms of that investment level. But it's not material in order for us to do, but important for us to do to make sure that we do this really, really well, and we can spin the place of growth that we have, plus this amazing contract ahead of us. So -- but what I like about it is, as I said, it's going to be investment, which is going to support the future operating the model for the business, the efficiency and that, the effectiveness of that. And we're just in the short term, need to obviously make some initial investments to make sure that goes super well, and we can match the demand and really do a nice job for the customer.

Well, I guess what I'm getting at, is it a lot of it personnel related? Is it tech platform related? Not to -- you lower your adjusted EBITDA guidance growth, and that's fine, given the contract. But I'm just -- we need to get an idea of where that investment is coming from? What do you need more -- a lot more people to do this contract? Is it a tech platform issue? Is it -- what is it?

Yes. So I'll just handle. So as I said, it's people, process and systems, internal systems. So it's the advancement of our automation capabilities. It's adding for people on the ground, whether that's from a deployment perspective, a support perspective, a relationship perspective. And it's also then looking at how we can optimize our business processes for efficiency. So all of that costs a little bit of money to do upfront.

If we look at the level of investment concern versus the return, it's miniscule in terms of that investment. But David, why don't you give your color on content?

Yes. I think an important point to understand is, really what we're trading is a reduction in costs. So would have been more aggressive in terms of taking more cash costs out of the business in the fourth quarter. We're now, in essence, going to repurpose that capacity. So as opposed to taking costs out, we have a great use for that cost base in terms of getting ready for faster growth than we previously guided to. So we need to think about it through that lens as opposed to a lot of incremental investment going back into the business.

There will be some, but the vast majority of this is just really taking the dollars we're spending today, because we now have a compelling use for them putting it to use. And as we said in the November call as well, if there is an opportunity to see accelerated growth. We're winning sort of sacrifice short-term EBITDA margin for accelerated growth because over time, if the accelerated growth that is the faster driver [ or ] shareholder returns.

No, that's good. That's a great explanation. And then, would it be safe to assume that this contract, once it's fully implemented will be one of your, if not your largest single contract?

Yes.

All right. And then just lastly, I saw the adjusted gross margin on the services side was down a little bit year-over-year. Was there any one-time benefits last year because as that services revenue starts to grow, we should get a pretty much a good continual expansion in the adjusted gross margin?

Yes. So a couple of points. In terms of bringing all these businesses together over time, there is some harmonization in terms of where all the costs [indiscernible]. So there's a degree of remapping that's happened, Gary, in terms of gross margin. In terms of year-over-year, there are -- if you think about some of the business we pulled out in terms of some of that rationalization, it was good margin business, but it was a massive drag in terms of edge case developments, which caused a lot of friction in terms of the road map.

So there's a degree of that that's gone on as well. But remapping is certainly a driver in terms of the year-over-year comps.

Your next question is from Alex Sklar with Raymond James.

I've got one more on the South Africa government contract. Just the mechanics of it. Can you just talk about, is it an opt-in basis by municipality or department? Or is this a full commitment over time of the [ 107 ] vehicles? Is video safety and telematics both included? And is it kind of a fixed price per vehicle? Or do you have to negotiate it by department or by municipalities?

So it is led by the national treasury in terms of commitment and cost and pricing and all that stuff. So that is all done. It is a directive and what people are doing now is enrolling into that, which is where we have that enrollment discussion that we had earlier. So it's not a mandate for everyone to have, it is an enrollment opportunity the enrollment so far has been super strong, and therefore, that's the level of business that we feel confident to talk about.

Okay. Perfect. And then we talked about some of the EBITDA cost from some of the higher growth investments. David, maybe just update us on free cash flow conversion of that EBITDA. Any other kind of cost that don't hit the EBITDA line that are kind of below the line, just a factor for standing up some of the government contract or some of the faster growth investments posture?

Yes, it shouldn't be anything significant, Alex, in terms of what we're doing. And so no major impact on that.

Your next question for today is from Greg Gibas with Northland Securities.

Congrats on the recurring service growth. I wanted to follow up on the South African Tier 1 win. If you could maybe speak to how competitive the contracting process was, considering many providers are in a position to deliver on that level of scale and maybe any other key differentiators that are worth calling how that led to that win?

Yes. So a number of suppliers bid for this contract. It came down to a few Tier 1 providers because, as I said, this was a previously kind of each individual departments were doing their own contracts. So this was the biggest single award, that had been done compared to the past. So that has to be organizations that had high levels of robustness, scale, product solution, ability to deploy.

And just from an overall, I think, not only relationship perspective but governance perspective, had the right capabilities to form at a very, very top level. I mean, across our industry, this is a major, major win for the company. So we're very proud. And as I said, our partnership with MTN was a key part of that. And to have that dual relationship, I think, was a strengthener. So this is something in terms of the Unity capabilities, our referenceability, our local market presence, domain knowledge our abilities to really kind of drive data harmonization and results and quality ultimately because if you think of some of these government departments that this will reach to, you have to have really, really strong quality in the data and services that you provide because a lot of them are mission-critical.

So all around, I think a true testament to the new PowerFleet that we've put together and its capabilities and its strategy in terms of working with Tier 1 providers with levels of uniqueness in our joint proposition since.

That's great. And to follow up on kind of the cost side of it. You called out the initial investments associated with the deployment of the contract, relating to people, processes, I think, internal systems, kind of saying, hey, trading down of a reduction of cost. But how much could you provide some color on how much is maybe recurring versus upfront that you expect those costs to be in Q4 versus recurring?

Yes. A lot of it is -- it's obviously a major, major contract. And in essence, we can now use that to build a highly efficient, scalable processes. So you have this opportunity to really build a template for the business as a whole. So that's what we're focused on doing. But a lot of it will leverage the existing systems that we have in place today. So it really is just reengineering how we do business. doing it even more optimal, more efficient, better way from both a cost standpoint, a customer experience standpoint. And having had that template built and baked, we can then use that template globally as well. So it's it's virtuous in many different ways in terms of driving incremental value for shareholders over time.

And I'll just add to that, that there's a lot more optimization that powerful can do is going to do across its operations. So we will continue over time to reduce costs across the business. It's just where our priority sits now. And we're actually, as I said, using this model and this deployment model to help scale that optimization across the business, it's just obviously, with this growth opportunity.

And the fact, I think, we should also recognize we're ahead of the curve of where we thought we'd been recurring revenue growth, right? So that's another vector. And now we're focusing very much as we should do on the South African contract. But 11% growth, which is the first time that we've put out organic growth with an apples-for-apples 9% growth. And at the start of the call, I reiterated the 10% total growth and north of 10% ARR growth for Q4.

So this is a business that is starting to flourish very nicely. And as we said all along, we need to make those really sound judgment calls of where to spend our time and where to put our dollars. And right now, with these kind of opportunities, we think it is a better value creation for shareholders to just throttle back a little bit on that true cost saving exercise as a trade-off for the growth opportunity that we have.

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

So thanks, everybody, for joining us again today. I'd like to thank our colleagues, our customers, our partners and our shareholders. We look very much forward to our next earnings call and repeated updates [ as ] to our progress. Thank you. Have a great day. .

This concludes today's conference, and you may disconnect your lines at this time. Thank you for your participation.

Hello, and welcome to the 2025 PowerFleet Innovation Event. [Operator Instructions] I'd now like to turn the call over to Carolyn Capaccio. Carolyn?

Thank you, operator. Good morning, everyone. Today's presentation contains forward-looking statements within the meaning of federal securities laws. Forward-looking statements include statements with respect to PowerFleet's beliefs, plans, goals, objectives, expectations, anticipations, assumptions, estimates, intentions and future performance and involve known and unknown risks, uncertainties and other factors, which may be beyond PowerFleet's control and which may cause actual results, performance or achievements to be materially different from future results, performance or achievements expressed or implied by such forward-looking statements.

All statements other than statements of historical facts are statements that could be forward-looking statements. For example, forward-looking statements include statements regarding prospects for additional customers, potential contract values, market forecasts, projections of earnings, revenues, synergies, accretion or other financial information, emerging new products and plans, strategies and objectives of management for future operations, including growing revenue, controlling operating costs, increasing production volumes and expanding business with core customers. The risks and uncertainties referred to above include, but are not limited to, risks detailed from time to time in PowerFleet's filings with the Securities and Exchange Commission, including PowerFleet's annual report on Form 10-K for the year ended March 31, 2025.

These risks could cause actual results to differ materially from those expressed in any forward-looking statements made by or on behalf of PowerFleet. Unless otherwise required by applicable law, PowerFleet assumes no obligation to update the information contained in this presentation and expressly disclaims any obligation to do so, whether a result of new information, future events or otherwise.

Now it's my pleasure to turn it over to PowerFleet's Chief Executive Officer, Steve Towe. Steve?

Good morning, everyone, and welcome. It's a real pleasure to have you with us for this special Unity innovation event. When I look at how far PowerFleet has evolved, I'm filled with an enormous sense of pride. It's been a seismic transformation in a short period of time. We now have truly differentiated solutions, driving expanded growth and solving mission-critical challenges for enterprises around the world. We've built an exceptional team that's creating true partnership with an impressive and rapidly expanding customer base. From the outset, we had a bold vision and strategy to unify people, assets and data through end-to-end connected intelligence and to do it in a way that helps customers make meaningful change to their organizations.

Today, you're going to see how that vision became a reality. You'll hear directly from our customers, our partners and our own teams about what makes Unity so powerful and so different. We'll help you understand how we help customers to grow in our solution, increasing stickiness, client value and wallet share. And you'll see why our fresh market approach is redefining what happens to operate safely, efficiently and compliantly in complex environments. To guide you through the event, we have 2 of our key leaders, Melissa Ingram, our Chief Corporate Development Officer; and Mike Powell, our Chief Innovation Officer. Mel, Mike, over to you.

Thank you, Steve. We're delighted you're with us for the Unity Innovation event. We're hoping by the end of this session, you'll truly appreciate firsthand the value we're delivering for our customers and the customer community of fans that we're fostering, how Unity's differentiation comes to life for our customers and that you'll see the depth and passion of our talented team executing the vision with amplified pace.

Here's what's coming over the next couple of hours. As you can see, today's session is packed with product differentiation, real customer stories and a look inside how Unity is digitally transforming customer operations with Unity's enterprise solutions. Then we'll finish with David Wilson, our CFO, providing perspective on our future financial trajectory, followed by Q&A.

You're going to see how Unity comes to life from turning raw data from any device, any sensor, any system into clear AI-driven insights. We'll show you what customers are achieving today and how our technology is helping them solve the biggest challenges in safety, compliance, efficiency and sustainability across diverse industries.

You'll go behind the scenes with our customers, our partners and our own teams. You'll see live demos, authentic stories and the innovation driving measurable change in the world of connected operations.

It's gonna move fast so buckle up.

To start, here's a glimpse into how Unity is transforming connected business operations around the world.

[Presentation]

That's the heartbeat of Unity, a wide variety of use cases, data and impact.

Now let's look at the broader market context, the challenges and opportunities our customers face. Across every industry, leaders are carrying major responsibilities, keeping people safe, staying compliant in an increasingly complex regulatory landscape and still driving performance. And all of that is happening while they're under pressure to do more with less.

Absolutely. Safety and compliance, along with sustainability and efficiency are the foundation of trust and performance. Yet for many organizations, the insights that can prevent incidents or simplify compliance are buried across disconnected systems or manual processes are holding them back from driving high performance. They need digital transformation to automate what should be driven by AI, freeing up people to do high value-add work. But despite this being the biggest priority for the C-suite, most organizations are struggling to get there because their data is fragmented in silos or they don't have the tools and people to connect their operations.

That's why we built Unity to bring that information together into one clear view. It connects a multitude of assets, operators, compliance records and data points then simplifies and refines that data into connected intelligence, so leaders can act before small risks become big problems. Ultimately, those high-quality data insights drive improved business performance.

And to dig into that intersection of safety, compliance and culture, we're joined by someone who's lived it. Brian Fielkow is a recognized North American safety and transformation leader and a former operator who spent his career helping companies create strong, accountable cultures where people and performance thrive together. We're delighted to have him with us. Here's what Brian had to say.

I'm Brian Fielkow. When most people think about safety, they think about rules, compliance manuals, checklists. But in today's environment, safety is so much more than that. Safety is an indicator of operational excellence of leadership quality. And the best organizations today don't treat safety as a department or a program or something that we just delegate to. Rather, they treat it as a nonnegotiable core value that's woven into the fabric of the organization. They understand that safety is at the foundation of operational excellence, profitability and reputation.

Today, I want to share with you how the best companies approach safety, not as a cost, but as one of the smartest investments they can make. So when it comes to the business case for safety, at the executive level, safety is -- it's a Board and C-level imperative. You see when you think about a Board and executive's primary mission, one of their primary missions is to manage enterprise risk.

Now let's think about the various components of enterprise risk, financial, legal, reputational, customer risks, employee risks and name one area of an ERM undertaking that safety does not impact. It impacts all of them. So safety has to be owned at the various highest levels in the organization. And when we think about investments in safety, I'll have people say, well, safety is expensive. It requires technology, people, et cetera. Well, my comeback would be, if you think that's expensive, consider the cost of continued unsafe practices. It dwarfs any safety investment that a company could make because really safety is the lowest cost, highest return investment an organization can make because strong safety can result in fewer claims, fewer injuries and fewer incidents. That spills right over to insurance underwriting. Underwriters appreciate and credit companies that have a commitment to running safely that comes right into your insurance calculations and your cost of risk. And we're also in an unforgiving litigation environment.

If a jury perceives that an organization has not invested in safety, watch out. That's when the verdicts really add up. So safety excellence generates a level of credibility and reputation that translates to opportunity. When I own my logistics company, we didn't just perform well on safety. We marketed it well, and we were able to attract value-aligned customers. So well, safety is such an important business proposition, how do we measure it? I heard this example once in a financial context and this. No CFO in the right mind would say, we didn't go bankrupt. So everything is well.

Bankrupt lack of bankruptcy is not a measure of financial success. And I think the same thing is true with safety. A lack of injuries, a lack of crashes and incidents. Well, that's great. Congratulations. But that doesn't define success because I don't know, are we good or are we lucky. Safety is measured not by the absence of incidents, but rather by the presence of processes and systems. Every which way technology has sped up how safety is executed, measured and managed. Technology wrapped into a proper service also can help companies tear down silos. Silos occur when companies operate in their own little segments, right?

The safety team is here, operations is here, finance is here, and nobody is looking at anything but what their own department or their own team is doing, you don't get a holistic view of the company. You lose the opportunity to see the big picture and make the improvements that need to happen. Well, same with technology. If we allow our systems to operate in silos, leadership may not see the full picture. As an example, companies need to address safety on the road and at their sites. And the safety challenges often appear in similar venues. So if you have maybe a telematics system, a compliance system, a shop maintenance system, operating system. If they're not talking to each other, you're only seeing part of the picture when yet the dots are probably all interconnected. And technology in an integrated fashion also helps companies identify their hidden risk.

Hidden risks in my mind, are at the root of many, many safety failures. There are things like deferred maintenance, shortcuts, lack of respect for process, poor communication, rushed hiring standards, inadequate or infrequent training. That's where you run into your problems and fragmented systems will hide that risk. On the other hand, unified systems expose the trends. They expose things that aren't always visible. They close those loops. So in the end, safety excellence is built through disciplined systems, unified data, the big picture, strong leadership and most importantly, I think, engaged employees. And the companies that invest in safety holistically today are building trust, resilience to growth and long-term value. Thank you.

Thank you, Brian, and insightful perspective. It's a reminder that safety and compliance are mission-critical drivers for the way enterprises run. There's nothing more important than sending people home safely, protecting reputations and building trust from the ground up. And that brings us to our next section, how Unity turns those principles into action with data that's unified, intelligent and ready to drive safer operations.

What Brian said hit home, safety and compliance are the foundations of how great companies operate. But even with strong cultures and committed teams, it's hard to keep up when your data lives everywhere and nowhere at once. That's where Unity changes the game. It brings every signal together from vehicles, sensors and sites into an intelligent platform that helps you see risks sooner, act faster and stay compliant with the right balance of AI and human intervention. And that's exactly what you'll see in the story we've got coming up now.

When you think about global scale, few companies embody it like PepsiCo. With operations spanning more than 200 countries and territories, PepsiCo's products reach millions of people every single day. Behind that reach is a complex and sophisticated supply chain with thousands of assets, multiple distribution centers, production sites and thousands of dedicated people working around the clock to keep the world refreshed. The objective is for the supply chain to perform seamlessly. Managing safety, performance and consistency at that level requires precision, discipline and data that drives the operation. That's where Unity comes in. Together, we're helping PepsiCo take safety and compliance to the next level. Let's take a look at PepsiCo before and after PowerFleet.

[Presentation]

Great to see PepsiCo now achieving unified insight, whether it's a driver event, a warehouse alert or a compliance check, Unity brings it all together to create one version of the truth. This is the story we hear regularly, the foundation of how Unity helps our customers. So let's take a closer look under the hood at the technology that makes this possible. Mike, walk us through Unity.

Okay. Let's step through how Unity brings safety, compliance and connected intelligence together in one seamless flow. Let's start on the left side of the Unity data highway. Every second, our customers generate millions of data points. A driver taps the brakes on a steep descent, a forklift enters a restricted zone. A pallet scan updates a shipment leaving port. A storm morning flashes across the delivery route. Even a driver's certification or an equipment inspection record gets updated. All of those moments matter.

But in most organizations, they live in isolation, buried in different systems, devices and spreadsheets. And that's when visibility breaks down and risk creeps in. Unity brings order to that chaos. We bring in data from anywhere, vehicles, forklifts, sensors, cameras, but also from shipping data feeds, weather services, energy and fuel data, all into one place. Now we move into harmonization. Here, Unity takes all those different streams of data with all their disparate formats and translates them into a single consistent language, the connective tissue. Now we can give customers a true single pane of glass, one view where safety alerts, compliance records and operational data align coherently across the whole organization.

Then comes simplification, and this is where data starts to take shape, reborn as connected intelligence. Think of it as a translation layer between raw data and real understanding. Unity's AI continuously processes every data point, learning patterns, identifying anomalies and filtering out the noise. So only the signals that truly matter rise to the surface. It's what turns billions of data points into a handful of powerful insights. If a vehicle's behavior changes, if a compliance threshold is about to be breached, Unity sees it, understands it and brings it forward instantly. AI simplification makes it effortless for safety teams, compliance officers and operators to focus on what's important without drowning in data.

Once data is harmonized and simplified, customers can consume their data however they want. And one of the key ways is through a suite of AI-powered modular applications, each designed to solve real problems that customers face every day. These are focused, purpose-built modules augmented with an AI agent that drive measurable impact in the areas that matter most, safety, compliance, sustainability and operational efficiency. Take safety, for example. It uses AI to identify patterns in driving and equipment behavior that signal potential risk before an incident happens. And we'll hear more about these apps shortly.

Each module is built on the same unified data layer, so they work seamlessly together. And because Unity is modular, organizations can start wherever they need most value, safety, compliance, sustainability and expand over time without disruption. These applications are how data becomes action and how insight becomes impact. Now let's talk about what happens when all that intelligence actually connects across the business. This is the unified operations layer where the wheels of an organization turn. Even with the best data, most organizations still face one big barrier. Their systems don't talk to each other. That fragmentation slows everything down from safety reporting to compliance checks to planning and forecasting. Unity's unified operations capability was built to change that.

Here, all those harmonized AI simplified insights flow directly into the systems our customers already use to run their vital business processes. They can look after their people and their assets from ERP to transport systems, warehouse management systems and HR systems across the organization. Unity gives those applications the real-world truth across the whole operation to really transform business performance. That means a compliance manager can see an alert the moment it happens. Maintenance systems can automatically trigger scheduling, Training systems can instantly kick off driver coaching. A finance or HR team can track the cost, time and workforce impact instantly and automatically, and leadership can make decisions based on one trusted view of the truth. Unified Operations unlocks the full value of the systems customers already have and to make organizations faster, safer and more connected than ever before.

Now let's take a closer look at what really powers Unity behind the scenes, our Agentic AI engine called Aura. Aura isn't a separate product or something you bolt on later. It's the intelligence that runs through Unity, quietly working in the background across every data stream, application and customer environment. Think of it as the brain and the heartbeat of Unity, always on, always learning and always helping organizations make faster, smarter and safer decisions.

And Mike, what's special about Aura is how naturally it works alongside people. From the operations manager on site to the compliance lead in the office to the driver on the road, Aura is the perfect companion.

Exactly. When a risk starts to build, Aura notices it before anyone else. When compliance data begins to drift Aura flags it early. It's insight in context in real time, exactly when and where people need it most.

And you're going to see Aura at work throughout today's demos, not as a separate AI showpiece, but as an intelligent partner woven into every layer of Unity. You'll notice it predicting outcomes, simplifying workflows, automating the routine and freeing teams to focus on what really matters.

Because that's the real power of Aura, people and AI working together. It helps companies protect their people, strengthen compliance and run more efficiently by turning constant information into connected intelligence. As you watch the demos ahead, keep an eye out for Aura. You'll see how it brings everything to life, how it connects the dots in the background and how it makes the complex suddenly simple. So when you pull it all together, pulling in data from any source horizontally across industries and asset types, harmonizing it, simplifying it with AI, turning it into business value through modular AI applications and unifying operations. That's the full power of Unity.

Back to you, Melissa.

Thanks, Mike. That's a great overview of the Unity ecosystem. And to get even more under the hood, I talked to one of our key people responsible for our AI and IoT engineering, Cas Cate. Let's hear what insights he had to offer.

Today, I'm joined by Cas Cate, Vice President of IoT Engineering. Cas is the person responsible for uniting all those data points that makes PowerFleet's technology so powerful. Cas, great to have you here. Tell us a little bit about what you're doing.

Thanks, Melissa. It's great to be here. We're connecting sensors in warehouses, devices on the road and an AI layer that turns it all into rich data intelligence that our customers can actually act on. It's engineering with a purpose. And that's what makes this work so meaningful.

You talked there about rich data intelligence. What does that mean in practice?

Well, it starts with unification. Every forklift, trailer and vehicle a customer owns feeds into 1 intelligent data layer. Once that data is harmonized, we can deliver powerful analytics, automation and predictive insights that give customers total visibility across their operations. That unified foundation is what every enterprise is trying to achieve, a single trusted source of truth that helps them run faster, safer and more efficiently.

And AI is a huge part of that story now. how are you applying it?

By combining IoT with AI, we turn raw data into real-time operational intelligence. Our AI models analyze performance, productivity and look for safety patterns that can automatically trigger actions that improve uptime, reduce waste and protect people. And because our AI is built on verified and high-quality data, customers trust the way we're helping them to automate their operations.

And Cas, why is this rich data intelligence, such a growth engine for PowerFleet?

Because it really sits at the center of every operational decision our customers make. When you can simplify and harmonize IoT data at scale, and then overlay machine learning and a genetic AI, you offer that rich data through multiple consumption channels and models to customers, and you create real business momentum.

Our customers connect everything they run from forklifts and trailers to vehicles and on-site systems through a single open platform. And when they expand or acquire new operations, they can integrate those assets instantly through Unity's architecture. That kind of flexibility turns what used to be a 6-month integration project into a same-day activation. And that's a huge differentiator for us. It keeps customers agile and future-proof and integrate it to our ecosystem.

From there, the high-value premium layers kick in, let's just like advanced analytics, automation and AI insights that turn operational data into measurable ROI. For our growth, that means a scalable model that grows as our customers grow. Every new connection, every new data stream, it strengthens our platform, it widens our moat to competition, and it drives recurring high-margin revenue.

And finally, Cas, what excites you most about what's next for PowerFleet?

I would say the scale of what we're delivering. We're already enabling real-time intelligence across warehouses, yards and highways. And everything we're doing further builds our ecosystem for the future. So customers can start anywhere, whether it's the warehouse or road and then bring everything together under 1 unified platform. That's when the real magic happens. We're creating the connected intelligent operations ecosystem that companies have been chasing, and so we make a real difference to our customers. Honestly, PowerFleet has the technology, the talent and the energy to make that vision real. I'm thrilled to be part of it.

Great insights there from Cas under the hood. What stood out to me was how he described that shift from reacting to problems to anticipating them. That's what happens when data stops living in silos and starts working together. And that's the role Unity plays. It takes complexity and makes it actionable across an entire business. Once Unity harmonizes data, the real advantage is flexibility. Clients can consume their data however it best fits their world through our AI-powered modular applications directly through their enterprise systems or through unified operations where everything connects into one coordinated view.

That flexibility matters. Every organization starts from a different place. Unity adapts to that reality, helping them to get value quickly without disrupting what already works. What we see consistently across industries is that Unity serves a remarkably broad range of stakeholders. You've got operators and safety teams focused on day-to-day execution, managers looking for visibility and control and leadership teams trying to connect performance to business outcomes.

Right. And the challenge most organizations face is that each of those groups is looking at a different picture of the same operation. Data sits in separate systems and people spend more time reconciling than acting. Unity changes that. It brings everyone from the field to the boardroom onto a shared platform where decisions are informed by the same real-time intelligence. That alignment is what drives safer operations, stronger compliance and better financial performance all at once. It's what turns connected data into connected decision-making. And that's when transformation really sticks, when every function is moving in the same direction.

Now let's get another perspective how this different approach is resonating externally outside of PowerFleet wars. We're now joined by someone who's an expert in discerning these industry shifts, Michael DeSalles, principal analyst at Frost & Sullivan. Michael has studied how technology is transforming North America operations, and he'll share his perspective on why the kind of unification we're talking about is so differentiated and valuable. Let's hear from him now.

Hello. I'm Michael DeSalles, Principal analyst with Frost & Sullivan. Traditionally, operations have relied on multiple disconnected systems, resulting in siloed data and limited insights. PowerFleet is transforming this with Unity, an AI-powered fully integrated data ecosystem that connects on-road, warehouse, yard and cargo operations. Enhanced by Aura AI intelligence, Unity delivers predictive insights, fast ROI and flexible integration to meet each customer's unique operational and budget needs. PowerFleet's customer-first approach, strong internal culture and commitment to innovation have fueled impressive growth across industries and regions. For its exceptional performance and leadership in the connected vehicle market, Frost & Sullivan is proud to recognize PowerFleet with the 2025 North America Product Leadership Award. Congratulations to the entire PowerFleet team.

Thank you so much, Michael. That was such a powerful perspective. It's always encouraging to hear an independent view on how critical unified intelligence has become and how it's now a real competitive moat. Shifting gears again now back into the execution of this strategy. Companies around the world are already seeing what happens when you break down silos, connect your data and that intelligence flow across your operations, working in a true single pane of glass. So let's take a look at how that works inside Unity and how this unified view is changing the way organizations see and manage their world.

[Presentation]

That's the power of the single pane of glass, total visibility across people, assets and operations. When every part of the business is finally connected, leaders can move from reacting to risk to prevent it.

And now let's hear from one of the companies benefiting using Unity to pull in and harmonize data to drive improved business perform.

[Presentation]

A great example of what Connect Intelligence can do at scale and what you saw there is only part of the story. Behind that kind of transformation is the single pane of glass that brings it all together, one view where data from every source becomes clear and actionable. It's what allows customers to move from isolated systems to a single intelligent operating picture. Let's move on to the next value proposition that we wanted to share with you today.

When we built Unity, one of our first priorities was to tackle safety. But traditionally, safety data has lived in silos. On-road tools help with safety transformation. On-site systems helped with safe forklift or heavy equipment operation. All of it is important, but all of it traditionally has been disconnected. So we asked one simple question. What if safety wasn't managed in parts, but as one unified platform across the entire operation. That's where Safety+ was born. Safety+ is the intelligence layer that brings safety together across the whole estate, whether you start on the road or on the warehouse floor. It connects vehicles, sites, people and assets into one cohesive framework powered by Unity's AI and real-time data harmonization. So a harsh braking event on the highway, a forklift collision alert in the yard or a PPE compliance check inside a facility, all of it flows into the same platform, the same view and the same decision-making fabric.

That sounds truly transformative, particularly as I think about how that helps in building a safety culture that really needs everyone and every process to be properly connected. And when everything is being managed altogether, leaders can move from reacting risk to preventing it.

Safety+ is the what and the why, the technology and the vision that unifies safety. On the flip side, comes from how we deliver it through what we call Safety as a Service. Now I want to share a powerful demo of Safety+ delivered through Safety as a Service in action from end to end.

[Presentation]

What you've just seen is Safety+ in action, how we unify safety across every corner of an operation. Safety+ connects the road, the site and everything in between. So safety isn't managed in silos anymore. It's managed as one living intelligent system.

And now we have some great examples of customers who have taken Unity and our Safety as a Service and embedded them deep into their cultures, driving safety excellence across their operations. Let's take a look.

[Presentation]

Such a powerful story. They've turned safety into a shared mindset. And we really wanted to be able to give you a perspective from the people who built this great solution to. So I talk to Aaron Friedman who's at the center of bringing our safety solutions to market.

I'm delighted to be here with Aaron, who leads our safety portfolio. Hi, Aaron, great to be talking with you. You've spent your career at the intersection of safety, technology and human performance. What brought you to PowerFleet?

Thanks, Melissa. It's great to be here. I came to PowerFleet to take safety to the next level. I have a background in video analytics and safety systems. And what drew me here was the chance to combine what we can do with the technology and data side of things with human insights to make a real difference for customers. By incorporating the human element, PowerFleet is approaching safety differently and more comprehensively than anyone else.

What makes PowerFleet's approach different?

Having worked for some of our competitors, I can see clearly how PowerFleet is differentiating. Most of the market is really in the video business, selling cameras with cloud dashboards and coaching workflows. Our safety as a service offering goes further. It's a 360-degree ecosystem powered by AI on the edge and in the cloud, and with human insights at its core. And our focus is delivering measurable safety outcomes, not just video clips or data for data's sake.

Can you walk us through how that works?

Sure. It starts with AI running on the edge to detect fatigue distraction, unsafe behaviors and driving conditions and then giving drivers real-time feedback in the cab. These insights are fed into our Unity platform where a specialized AI agent can assess real-time risk across millions of data points. When a rising risk level is detected, Unity automatically triggers real-time interventions and prevents incidents before they happen. Agents in our Unity operations center can then add human context, enriching data and addressing deeper patterns of risk. It's the best of both worlds. AI speed and human empathy working together to stop accidents before they happen.

That's impressive. How broad is PowerFleet reach when it comes to safety?

We deliver safety across every environment, on the road, in the yard and in the warehouse, all through 1 unified data layer. That's what makes us unique, 1 ecosystem that protects everything that moves.

And tell me why this is such a powerful growth driver right now?

Safety is vital to the enterprise customer. Even with technology, meeting ambitious safety goals is not a given. When efficiency, financial performance and the well-being of your workforce is on the line, a managed safety service like this can be worth its weight in gold. Unity's open device-agnostic design means that new customers can focus on their highest safety priorities, whether that be forklifts, yard trucks, trailers or long-haul vehicles. And as we start to achieve real results, we can expand into other operations. Customers can scale horizontally across the enterprise and grow on Unity without ever needing to migrate solutions or change out hardware.

Using this model, we deepen customer trust, build long-term relationships and compound our data advantage with every deployment.

Great perspective. Now let's move on to another topic. This is where everything connects from the first mile to the last from the warehouse floor to the boardroom. You can see risk, performance and opportunity, all in the same place and act on it instantly. The full PowerFleet experience, Unity's end-to-end solutions in action. Let's take a look.

[Presentation]

Product excellence is where PowerFleet's technology meets customer experience. At the center of that vision is Clara Severino, Senior Director of Product Management. Clara's team is shaping the PowerFleet platform into a seamless SaaS environment, 1 that delivers clarity, simplicity and measurable results for our customers around the world. Clara, tell us more.

My goal is to make complexity feel simple. PowerFleet's customers operate in fast-moving high-stakes environments across way more than even 10 verticals and where decisions matter. My team's job is to design products that give them control, confidence and insight through 1 connected platform. We translate an incredible amount of data into experiences that feel intuitive, immediate and human.

And Clara, what makes PowerFleet's product approach stand out in a crowded field?

It's the consistency of experience across everything we build whether you're managing forklifts in a warehouse running trailers on the road or analyzing safety metrics, it all happens inside 1 cohesive SaaS platform. Customers can start with a single module, say, safety or visibility and then seamlessly step into analytics, compliance or automation without ever-changing systems. The learning curve is flat, the data stays synchronized and every new feature adds value across the entire ecosystem.

How do you ensure the technology stays aligned with customer reality?

We build with our customers, not just for them. My team spends a lot of time in their environment, understanding workflows, challenges and what effortless control and predictability really means for them. That's how we design features that don't just display information but guide decision-making. When a product manager sits with a warehouse operator and see them solve a problem instantly using our interface, that's when you know you've nailed it.

What excites you most about where the platform is heading?

The intelligence layer, for sure. As more assets connect, the data gets richer and the insights get sharper. Our AI modules are starting to anticipate issues before they happen, recommending actions, optimizing efficiency and improving safety autonomously. It's SaaS evolving from a management tool into a proactive partner for our customers. That's an incredible lead.

And how does this translate into sustainable growth?

Great product experience drives trust, and trust drives loyalty. When customers find genuine simplicity and continuous value, they stay and they expand. Every subscription builds on the last every module adoption compounds engagement. That's how product design becomes a growth strategy by creating a platform people love to use every day.

Amazing, Clara. Thank you. I'm so excited about what your team are going to bring next to market.

The seamless orchestration that was touched on there, I want us to take a really deep dive on how that comes together when we truly unify our customers' operations. The real power of Unity doesn't stop at visibility. It's in what happens next. When data automatically drives scheduling, when a compliance flag instantly triggers maintenance, when a risk trend adjusts a route before anyone even has time to intervene. This is what excites me the most and digital transformation becomes real.

Unified operations is where Unity plugs into the systems that already run the enterprise from the likes of ERPs, warehouse management and maintenance systems, turning every one of them into a single intelligent rhythm. Unity becomes the heartbeat of the business, uniting people and systems around shared insight and shared outcomes. So customers get a truly connected and highly automated organization, optimizing the business performance of the asset, the individual in charge of that asset and the business process, all through fully connecting that intelligence into the systems that power customers' operations. Let's take a look at how unified operations comes to life inside our customers' worlds and how it's helping them work smarter, safer and faster together.

[Presentation]

Now we can dive in further from a customer's perspective.

[Presentation]

When you see all those pieces working together, you start to realize something bigger is happening. Unity is transforming how customers grow profitably and sustainably.

Yes, completely. Unity was never designed to be a closed system. It's built as a platform, open, scalable and ready to integrate with a whole universe of partners, sensors and technologies, all with the purpose of continuously improving customers' business performance. That means every time a new partner joins our ecosystem, every time a customer connects another data source, Unity becomes even more powerful. It's a living, evolving network that drives growth on both sides for PowerFleet and for the people we serve.

That's what we mean when we call Unity, our growth engine. It's expanding PowerFleet's footprint through amplifying value for our customers and partners, too. And speaking of growth and partnership, we're pleased to welcome Jeff, our Chief Revenue Officer, to walk us through the next segment.

Jeff, over to you.

Thanks, Melissa and Mike. It's great to be here and even greater to be part of the PowerFleet story. What drew me immediately was Unity, not just the platform, but the philosophy behind it. This idea that when you connect people, assets and data across your organization, you unlock new opportunities for growth. And that's exactly what we're seeing through our partner ecosystem. We're working side-by-side with some of the world's largest and most innovative companies to deliver rapid value at scale. Today, I'm excited to introduce some of these partners, leaders who are helping PowerFleet bring Unity to more customers and more markets around the world. In these conversations, I asked about how connected data intelligence is expanding what's possible across the global AIoT landscape and why these partnerships are essential to powering the next generation of growth for us and our partners. Let's jump in.

Hello, everybody. My name is Jeff Lautenbach. I'm Chief Revenue Officer of PowerFleet. And I'm here with Jodie Baxter from TELUS. And Jodie, why don't we start this way? Why don't I have you introduce yourself and talk about your job and TELUS generally?

I have one of the coolest jobs at TELUS, Jeff. So I'm Jodie Baxter. I'm the Vice President of our AI, IoT and wireless portfolio, which is a combination of many, many things that fit together really nicely. So if we think about how IoT is transforming the way that people do business, we've had a relationship with PowerFleet Fleet Complete fleet complete, they're actually one of our oldest IoT partners 20 years now.

That's awesome. And maybe I can go a little bit deeper on that because I think that's a good place to start as we discuss vision and strategy and what you're focused on and how we together work with customers.

Yes. I think when I think about kind of the last 20 years and I don't know if I should admit this or not, Jeff, but I've been with TELUS for longer than PowerFleet has been a partner of TELUS. But when I think about kind of just the evolution of things and what the potential holds, we're really excited when the Fleet Complete team joined the PowerFleet family. And what I would think is the one of the most immediate potential opportunities is the Unity platform.

The Unity platform that the PowerFleet team brings with them actually answers a lot of questions that our customers have been asking us. And so I'm really excited that it helps our customers kind of consolidate desperate data sets and devices into a single pane of glass. It's directly addressing the stress of too much information or TMI and operating across multiple applications. And one of the things that I think is going to be really powerful as we move forward is how do we take multiple applications across potentially multiple partner sets and bring that into the Unity platform. So it's doing what it's name sake is, which is unifying the data sets for our customers and giving them real information.

All of our customers, data sets are housed themselves in many different applications. No 2 piece of data look the same. So how do we help unify that experience for maybe we focus on specific sectors of the market. Manufacturing, warehousing, maybe that's where we focus first because PowerFleet [ RE ] has a strong relationship into that, and we've got strong relationships on the Fleet telematics side. So how do you bring that together where they have a real need and where I would say automation is starting to become the forefront of how they're doing business.

Yes, that's a great point. And you bring up something that we ought to touch on because there's been a bit of transformation. In addition to AI and all the technology that you're representing, our partnership is really built on on-road. Now it's moving to on-site. I'd like to get your perspective on how that transformation is going and how it's different in the way we were partnering and doing business together.

Yes. So PowerFleet didn't just bring Unity platform, you brought your warehousing solution as well. And one of the things that's been great about this partnership is how supportive the PowerFleet organization has been in helping bring the warehouse solution to the market. And what I see in this is it's a great opportunity for us to get from the asset on the road to the asset inside the warehouse. There's -- warehousing housing is a big business, whether it's actual manufacturing or warehousing, most fleet organizations that have some sort of fleet need also have a warehouse need. So I 100% understand why it was an attractive acquisition for the PowerFleet organization.

And then where I think that evolves to is -- so now you're keeping the workers safe in the warehouse. We can understand how the forklift is operating as well as how the fleet telematics is operating, forklift puts the item on the truck. The truck drives the item to wherever the organization requires it. It's also -- there's a massive safety mechanism in there. But then I think where this also evolves to is we start to get into the space of video. And I think we're going to see more and more of that video and AI component coming into the market, both inside the warehouse and inside the vehicle.

So you need less devices on the actual equipment, if you're able to leverage video and AI, right, in that workspace. And so it's been really good and the support from the PowerFleet team has been phenomenal. And just helping our sales organization speak about a different technology, right, to a different set of customers, which is a learning curve in itself. And that's probably why it's been a little bit slower than we initially wanted but we're starting to really see that funnel build and a lot of momentum and exciting build in the kit.

I'd like to maybe change it up a little bit. But what about the partnership and what we do together.

One of the things that I think is really awesome about the evolution of our PowerFleet partnership over the last 20 years and then going into the next 20 is if we look at the next 3- to 5-year time line, our strategic goal at TELUS is kind of to build those horizontal capabilities, right? So beyond your basic asset tracking. So when you think about things like video to telematics, I think video telematics is going to become very, very important. Any type of video, I think AI is going to become very, very important.

And we see the Unity platform as the data ingestion engine. So it's kind of becoming the foundation for the integrating of the intelligence that's directly from either the fleet management asset, the worker safety solution. And then you can kind of build on that even further. So -- and then the other area, which I think is probably even easier for us to think about mentally in our minds is agriculture. It's absolutely where we're doubling down.

Just so many possibilities from a virtualization perspective right now that we're already in together multiple industries and verticals. And hearing you talk about health care and agriculture and expansion there is very, very exciting. Are there other areas where you feel like PowerFleet could continue the partnership as you think about what we've done with safety as a service.

We've a whole TELUS digital organization that does a ton of AI applications that could possibly build in or feed into the Unity platform for our specific customer needs. When we think about one of the coolest things that I've seen is this AI agent where you're optimizing the work time of the fleet out in the field or the dispatch in the office through AI agents that are automating the workflows for those fleet people, but then tying back into the 3 telematics solution to say, we could optimize routes, we could optimize fuel consumption. We could optimize battery charging time. So those types of things, I think, are where we could differentiate from some of the competitors in the market and really have a powerful combined solution.

I think you're exactly right. And I really get excited when I start it here you talk about the democratization of data because at the end of the day, it's kind of like our joint data together is really going to be so powerful. But I think in this industry, unlike maybe other industries, there's real problems that you pointed out and identified. And if we could solve them today, AI would be a perfect solution. Customers are out there saying, please give us some more already versus having to think deeply about what problem are we really trying to solve. The problems are there for us to solve and the market opportunity is so great.

And I can't emphasize enough, like just how much we enjoy the challenge of solving our customers' complex problems with simplicity, ease of use and performance. And we really do enjoy the partnership approach that the PowerFleet team is taking. And if I think about kind of TELUS what future opportunities do I think there is for us to build, I spoke about the AI. And then the other one I would say is that we really wanted to grow our connectivity with our 5G solutions. We are a network company at the heart in the Canadian market. We understand that a number of the solutions that the PowerFleet team is bringing to the market require robust and reliable network connectivity. And so we think there's opportunity to things like how do we bring the network to the edge, how do we improve the reliability of that network solution.

So I would say that's the other component of my day job that gets me excited every day, and I think there's a ton of opportunity for us to really demonstrate how we're affecting improving the end customers' experience and showing them a return on investment.

And I do think that this is truly a partnership built on mutual value and provides customers solutions that are complementary that they see a massive value in many different markets, both vertical and upmarket downmarket. So thank you so much for your time. We look forward to extending the partnership and maybe getting you back on and doing another one of these over time, so we can continue the conversation. Thank you, Jodie. Take care.

My pleasure.[Presentation]

These partnerships are proof of how Unity scales, how it extends our reach, amplifies our innovation and creates new value across industries and borders. Now to get an update on unlocking enterprise growth with AT&T and TELUS I'm speaking with Rob Williams, Head of Strategic Partnerships in North America.

Rob, great to have you here. You lead strategic partnerships and commercial alliances at PowerFleet, which sounds like a pretty exciting space right now. Tell us about your role.

Yes. Thanks, Melissa. I spent much of my career building growth partnerships between technology companies and large enterprise networks. My focus is turning our major alliances, specifically with AT&T and TELUS into high-velocity growth engines. These are strategic cornerstones of how we're expanding across both the enterprise and mid-market.

Let's talk about what that looks like right now. How are these partnerships working in practice?

Sure. We're in full execution mode. Our TELUS partnership is accelerating across North America, focused on AI-driven, warehouse and facility safety as well as AI video solutions. For example, together, we've launched Unity Warehouse suite under the TELUS brand, combining their powerful network reach with our deep technology. And with AT&T, we're embedding our Unity solutions with our enterprise sales teams expanding on our strong mid-market presence.

And what makes those relationships such strong growth levers?

AT&T and TELUS brings scale and trust. They're 2 quality brands, huge sales forces, established billing and support systems we bring the platform, add innovation and the outcomes. When you put those 2 together, each partnership becomes a force multiplier, opening doors in the telecom, logistics, utility space and more. Customers can start with 1 use case, say video safety, then expanding the visibility, analytics and automation through the same PowerFleet ecosystem. That layer growth potential is what makes these alliances so valuable.

It sounds like a great start and that there's a lot of future potential still to unlock. Where does it go from here?

We're building a future as we execute today. These partnerships allow us to co-create new solutions things like smart automated data infrastructure that combines connectivity, analytics and safety in 1 offer. Our Safety as a Service offering is ideal for those enterprise customers and is highly differentiated. Same with compliance. It's a win-win.

Our partners differentiate their core services, and we amplify growth through their enterprise base. We're scaling rapidly through AT&T and TELUS with a significant value and lock ahead that I'll capitalize on the foundation we've been laying. These partnerships embed powerful into the enterprise operating systems of today and tomorrow. Every day we're unleashing more of the full potential of our IoT portfolio, safety, compliance, visibility, warehouse, automation, all wrapped up in service excellence and powered by world-class connectivity. And really, the growth is just beginning.

At AT&T, we see an amazing opportunity in the connected intelligence where advanced video, IoT and data come together to transform how enterprises operate. That's why our partnership with PowerFleet is so exciting. Together, we've unlocked new growth across 2 of the fastest-growing segments in B2B IoT, AI video and connected sites. These are massive markets. AI [indiscernible] video alone is forecasted to reach $54 billion by 2030, growing at nearly 20% annually. The connected site market is also a differentiated multibillion-dollar space with few large players.

Both markets remain largely untapped and no one is offering a combined end-to-end value proposition like we are. Fewer than 15% of enterprises have fully connected safety and compliance solutions. That's where AT&T and PowerFleet are uniquely positioned to lead combining connectivity, intelligence and automation into one unified solution. PowerFleet's Unity platform is a differentiated growth vehicle. It unifies every asset, data source and video feed across road and facility operations.

Add to that, AT&T's nationwide 4G and 5G networks and FirstNet priority and you get an ecosystem that's open and incredibly powerful. From AI-driven video safety on the road to automated compliance and visibility inside the warehouse, we're delivering seamless end-to-end solutions for enterprises across every vertical. This is the best of both worlds, AT&T global network scale and trusted IoT infrastructure combined with PowerFleet's enterprise-grade AI analytics. It's a 1 plus 1 equals 3 opportunity, greater value for customers, strong growth for both companies and the power to reshape how industries connect and perform.

We're now going to share how our business momentum is translating into tangible results. I'm delighted to hand over to David, our Chief Financial Officer.

Thanks, Melissa, and great to reconnect with everyone today. Before diving into FY '27 expectations, I want to frame the discussion through a financial lens, running what we've covered today and how it translates into our performance and outlook.

Over the past 18 months, we've executed one of the most comprehensive transformations in our sector, bold M&A that expanded our technology footprint and customer reach, rapid integration that delivered over $30 million in annual cost synergies within 18 months, a business set to deliver a 45% compound annual growth rate in adjusted EBITDA from FY '24 through FY '27. These achievements established a solid foundation for profitable growth, but our advantage runs deeper. We've centered the company around getting Unity and its differentiators into customers' hands by doubling down on go-to-market execution through connected intelligence that turns fragmented data into operational foresight, a horizontal software-led portfolio, safety plus, compliance plus and unified operations, creating repeatable value across diverse industries, an open modular architecture that integrates seamlessly with customer systems, making us both mission-critical and deeply embedded.

Go-to-market force multipliers, greater enterprise sales investment and expanded indirect channels for reach and efficiency. Differentiation, customer value at the core, tangible impact in safety, compliance, efficiency and sustainability across the entire operation. This is the PowerFleet of today, focused, profitable and built for lasting differentiation. Now let's dive into the numbers. Our journey has required deliberate choices, taking short-term pain to unlock long-term value. We streamlined legacy operations, exited noncore revenue and concentrated investment on the Unity platform. Those actions reshaped the top line. As we shared earlier this week, we've moved beyond the transition phase and into sustained acceleration with organic growth of 9% overall and 12% in services. We're now operating as a SaaS-centric business, delivering faster growth and stronger margins.

Our growth is now service-driven. We expect FY '27 revenue in the region of $485 million, exiting the year at an annualized run rate approaching $0.5 billion. Within that, we anticipate service revenue in the region of $400 million, increasing its share of total revenue from the mid-70s to the low 80s within 2 years. That mix shift is a direct outcome of our Unity strategy, building recurring high-margin relationships supported by expanded sales capacity and scaled channel reach. We're delivering both growth and quality of earnings. Adjusted EBITDA is projected to rise about 50% in FY '26 to approximately $100 million and another 30% in FY '27 with EBITDA in the region of $130 million, an EBITDA CAGR of roughly 45% from FY '24 through FY '27. Adjusted EBITDA margin improving from approximately 23% in FY '26 to over 25% in FY '27, driven by operating leverage and a richer services mix.

Composite gross margins rising another 200 basis points to approximately 70%, with services margins in the high 70s and products in the low 30s. This is sustainable, profitable growth built on efficiency and recurring value. Looking deeper into OpEx efficiency, G&A is expected to decline roughly 200 basis points in FY '27 to 21%, with around half reinvested into sales and marketing to drive continued top line acceleration. R&D remains steady at 8% of revenue with about half capitalized, sustaining our innovation, velocity in AI, data harmonization and modular applications. That balance, disciplined expense management paired with targeted reinvestment underpins our confidence in expanding margins alongside growth.

Turning to cash. We expect to generate over $40 million of free cash flow in FY '27, starting from approximately $130 million of adjusted EBITDA. CapEx is projected at $55 million, primarily to expand Unity software stack and intelligent in-vehicle devices. Cash interest improves by about $5 million to $20 million annually, reflecting lower leverage and a stronger balance sheet. Deleveraging remains a major value driver. We expect net debt to adjusted EBITDA to fall from 3.4x at fiscal year-end 2025 to approximately 1.5x by the end of FY '27, close to a 2 turn improvement in just 2 years. Crossing below 2x represents a key milestone. It provides flexibility for reinvestment and underscores the financial resilience of the business.

Moving to our medium-term operating model, the framework that defines how we'll continue to perform beyond FY '27. Our target profile reflects a company that's scaled efficiently and built for balance, growth, profitability and cash generation working in unison. We expect to operate comfortably within the Rule of 40 at around 45%, combining ARR growth of roughly 15% and adjusted EBITDA margins of around 30%. We also have the flexibility to lean into growth, increasing ARR towards 20% through additional investment in go-to-market, which would bring EBITDA margins into the mid-20s. That's a trade we'll make deliberately in response to demand and return profiles. Gross margin expansion continues to approximately 75% with OpEx to revenue below 45% as we continue to redirect G&A efficiencies into customer-facing growth.

And importantly, unlevered cash conversion of around 50% keeps us funding innovation while expanding our profitability. This model demonstrates how we'll sustain disciplined performance and keep strengthening the business over time. To close, PowerFleet's investment case is compelling, built around 5 clear pillars. First, we're proven operators with a strong track record of execution. Through bold, well-integrated M&A, we've achieved global scale, adjusted EBITDA expansion and sustained organic growth. Second, we've built an award-winning software-first platform, delivering measurable business impact through Connected Intelligence.

Third, we have global reach across multiple sectors, supported by mature direct and indirect channels to capture demand efficiently. Fourth, our momentum is building, driven by a broad solution set, large addressable market and scalable, efficient operating model. All of this adds up to a compelling asymmetric investment opportunity, a clear path to accelerated ARR growth and profitability to unlock valuation multiple expansion with strong EBITDA and cash generation limiting downside risk. We're confident in our trajectory, our execution and our ability to keep compounding value for customers, partners and shareholders. Thanks again for joining us today.

And with that, I'll hand it back to Melissa.

Thank you, David. We've covered a lot of ground today from innovation and customer outcomes to partnership and performance. And before we wrap up, we wanted to take some time to answer your questions directly. So we're now moving to our Q&A session, which will be moderated by Jonathan Bates, our Chief Marketing Officer. We have a number of the executive group here to be able to answer your questions. Jonathan?

Thank you, Melissa. Welcome, everyone. As we move into Q&A, I will say upfront, we've received many questions, and I'm afraid there isn't sufficient time to cover them all, but let's begin. To start, we have a question on the current consensus numbers for Q3 of $111.8 million in revenue, implying a year-over-year growth rate of around 5%, lower than the 9% posted in Q2. David, could you address that one, please?

Thanks, Jonathan. To be clear, we expect year-over-year growth in services in Q3 to be close to 10% on total revenue, including Fleet Complete. As noted on Monday's earnings call, there has been some proactive reshaping of the Fleet Complete base post acquisition to better align with our long-term strategic direction. Any concern on the implied annual growth rate for Q3, therefore, centers on product revenue. A couple of points to call out here.

Firstly, as we shared on the Q4 '25 earnings call, we changed the underlying terms for legacy Fleet Complete sales to enable the rebundling of in-vehicle devices and services effective April 1 of this year. This change resulted in the cessation of accelerated revenue for in-vehicle devices, which reduced quarterly product revenue by close to $2.5 million. Adjusting for this year-over-year revenue growth for Q3 would be around about 8% versus the headline 5%. Also, Q3 '24 product revenue is also a tough comp as it benefited from the large initial Pepsi deal of close to $4 million in the quarter last year. Thanks, Jonathan.

Thank you, David. The next question, what is the ROI of using Unity today? And how does Safety as a Service impact ROI?

Great question. So our customers are receiving ROIs -- first of all, they're better than breakeven within the first 12 months of deployment. I think a solid ROI is 3:1. More traditionally, we're kind of in the 4 to 5:1 range over a 2- to 3-year period. But as we are amplifying the solutions, we're amplifying the value propositions. We've got major customers, some of those which you've seen today, getting to a 5 to 6x ROI. So it's -- the more that we increment in terms of the value propositions that we deliver, the better that the customers' return is becoming. And I think the tangibility of the solutions now will push that even higher.

Thank you, Steve. And the next question is a 3-part question. Did the Pepsi relationship start with FEMSA in Mexico? And how penetrated are you in Pepsi in North America and globally? And how -- and are more opportunities becoming global decisions rather than local?

So I think our expertise in the environments within which Pepsi work and our referenceability allowed us to get good strong ground within Pepsi. We're delighted to announce that we've agreed with Pepsi a further major expansion just this week. So the level of the solutions that we're delivering through North America is going to continue through 2026 and 2027 calendar. We still have a long way to go in terms of latitude of growth within Pepsi North America and also Pepsi Global. And it's interesting to see the traction that we've seen in the global entities of Pepsi following on from the success and the referenceability and the results that Pepsi North America are achieving.

Thank you. And the next question, what percentage of customers are addressable for warehouse solutions? And do competitors offer a viable solution?

So I think undoubtedly, we are the major aftermarket provider of warehouse solutions on a global basis. And there is a very large part of our customer base that has the ability to do that. We've recently done some research in our top 100 accounts, 75% of those customers has warehouse capabilities [ in them ]

Fantastic. Thank you. And the next question, the observation is that there are some impressive demos on the end-to-end value proposition of Unity. And the question is, how ready are stakeholders for this? And how are you going back to base to elevate the conversation to be more strategic with the top stakeholders within customers?

So it's been a big shift for us over, I think, the last 3-year period to be talking to a much broader stakeholder set across organizations. So if you think about the slide where we talked about from CIOs to CTOs to CFOs, COOs and even CEOs now that are engaged in the conversations that we're having with them. And when you ask the question about how ready are customers, I think they need to do this now rather than it's a choice. So whether that is the harmonization of the data, whether it is bringing AI into their environments, whether it is simplification, visibility or requirements from compliance or safety, this is becoming a mission-critical set of data applications and connected intelligence. So we've seen a strong reinforcement from the C-suite across our organizations that this is compelling, it's necessary and ultimately required.

Great. Thank you very much. The next question, what is a realistic target for customer penetration of AI video solutions?

I think that's -- I mean, I think we're kind of in the 20% range in terms of our solutions that have video. The video market itself is amplifying at pace. Again, just in terms of the same kind of question in regards to our warehouse solutions, more than 80% of our customer base is to take video solutions. So we see it as a compelling future. We're very much on a video-first strategy. And when we say video first, we mean video data. So that's not only the video solutions we sell, but also other video applications where the data harmonization with alongside our solutions adds incremental benefit to the customer.

And the next question, the observation is that Unity seems really impressive. And the question is, how does it compare to key competitors and specifically Samsara, for example?

I think Samsara has a great range of products. We think they're a wonderful flagship in our marketplace. We've attacked the market slightly differently. So our view is that we very much want to be open source in terms of the data inputs that we take into our platform. And we've very much made it on becoming a connected intelligence data insight company, which is similar to Samsara in some ways, but also offers a difference in terms of the level of integration that we do of those data sets and the broad sets of data sets that we have.

So we're attacking the market in a slightly different way. But I think there's more than enough room for both of us to be successful considering the fragmentation that exists in the marketplace. In terms of our solution is where we will focus, and I think the independent recognition that we're getting through rigorous, I think, views and opinions of credit all organizations, then we very much are proud of the solutions and the quality and depth of the solutions that we are providing to our customers.

Thank you. And we have time for 2 more questions. The first one, so on financials, already doing 12% organic services growth with a healthy pipeline and favorable business mix trends. How does this support conviction in FY '27 and midterm targets and also fuel conviction in accelerating go-to-market investments?

I think it's all very clear. We're in a terrific market. We have a highly differentiated set of solutions. We have a real ability to expand share of wallet, both in warehouse on the road as well as all the additional AI things that we covered on today's call. And we also have increasing reach through some of the channel relationships that were also covered. So we feel good about the momentum that we're building. We feel beyond comfortable with the numbers that are out there for next year. Our success is large within our hands. It's an execution story, and it's going to be nose down and execute. And so I think the numbers will speak for themselves quarter after quarter.

I think just to add to that, I think what we've shown today, hopefully, in a compelling fashion is the ability for improved wallet share, the ability to improve ARPUs within our customer base. I think if you look at the stickiness of our solutions and therefore, both gross retention and net retention, I think are all going to go in a positive trajectory. So -- and the modularization of our system allows the customer to grow. We've seen some simple use cases today. We've seen some very complex and integrated use cases, all which will drive recurring SaaS revenue growth. And I think we've given ourselves a very good shot for success over the next few years.

Thank you. And the final question, with integration complete now and services revenue increasing as a percentage of revenue mix, what's the major driver of services gross margin as we look forward into the next financial year?

Yes. So there's obviously scale benefits. If you think as well about which parts of the revenue that will grow the quickest, the fastest-growing parts are going to be things that are pure software that data, utilizing it in lots of different ways and monetizing it in multiple ways as well. So that's a key driver. In terms of the numbers shared on the presentation, there's obviously really good gross margin expansion going from sort of 70% to 75%. A key part of that is just simply services growing at a much faster rate than total revenue. So the mix continues to improve as well.

Thank you very much. So we've reached the end of our Q&A segment. And I'd now like to hand the call back to Melissa to close the event. Melissa?

Thank you. And a huge thank you as well to our customers, partners and team for sharing their perspectives today. What you've seen throughout this event is a culmination of a lot of focused work from teams all over PowerFleet, aligning behind a single platform, a single strategy and a single view of the unique way we're delivering connected intelligence and creating real customer value.

On behalf of the team at PowerFleet, we appreciate your time, your partnership and your belief in what we're building together. We look forward to sharing more progress updates with you soon.

Greetings. Welcome to PowerFleet's Second Quarter 2026 Earnings Call. [Operator Instructions] Please note, this conference is being recorded.

I will now turn the conference over to your host, Carolyn Capaccio of Alliance Advisors. You may begin.

Thanks, Holly. Good morning, everyone. This presentation contains forward-looking statements within the meaning of federal securities laws. Forward-looking statements include statements with respect to PowerFleet's beliefs, plans, goals, objectives, expectations, anticipations, assumptions, estimates, intentions and future performance, and involve known and unknown risks, uncertainties and other factors, which may be beyond PowerFleet's control, and which may cause its actual results, performance or achievements to be materially different from future results performance or achievements expressed or implied by such forward-looking statements. All statements other than the statements of historical fact are statements that could be forward-looking statements.

For example, forward-looking statements included statements regarding prospects for additional customers, potential contract values, market forecasts, projections of earnings, revenues, synergies, accretion or other financial information, emerging new products and plans, strategies and objectives of management for future operations, including growing revenue, controlling operating costs, increasing production volumes and expanding business with core customers. The risks and uncertainties referred to above are not limited to risks detailed from time to time in PowerFleet's filings with the Securities and Exchange Commission, including PowerFleet's annual report on Form 10-K for the year ended December 31, 2025. These risks could cause actual results to differ materially from those expressed in any forward-looking statements made by, or on behalf of, PowerFleet. Unless otherwise required by applicable law, PowerFleet assumes no obligation to update the information contained in this presentation and expressly disclaims any obligation to do so, whether a result of new information, future events or otherwise.

Now I'll turn the call over to PowerFleet's CEO, Steve Towe. Steve?

Good morning, everyone. It's great to be here this morning with key members of the leadership group to walk you through what's been a statement quarter for Power fleet. This set of results marks a transition point for the company. It signals the end of an integration period following the 2 major acquisitions we completed and the start of a new chapter, one focused squarely on accelerating sustainable growth.

Just 6 months into aligning into one global enterprise into an operating level we're clicking into gear, starting to deliver expanding revenue growth and healthy business momentum in our key operating metrics. In Q2, our top growth metric, annual services recurring revenue reached the double-digit growth milestone originally targeted for year-end ahead of schedule.

The true strength of growth is how you get there. For us, that means responsibly and efficiently. The extensive synergy programs we aggressively executed are already moving the dial meaningfully. And we're delighted to also post meaningful adjusted EBITDA expansion this quarter, both sequentially and year-over-year. This quarter clearly demonstrates the shape of the future of Power fleet. Integrated, efficient and built for profitable growth.

Next slide. When you step back and look at the quarter, you can see a clear pattern of balanced execution. Services and ARR are growing strongly. Margins are expanding both the total gross margin level and particularly encouragingly within the services line. This consistent improvement speaks to the strength of our SaaS led model and our operating discipline.

What's also particularly pleasing for this quarter is the return to growth in product revenue, inclusive of expanding margins. It underscores the durability of our business and the effectiveness of the actions we took to offset tariff pressures and broader macroeconomic challenges. Together, these results demonstrate a company that's accelerating profitable growth, scaling efficiently while maintaining quality and control.

Next slide, please. We felt it was the right time in our evolution to add a high-quality executive as Chief Revenue Officer, with a proven track record in driving SaaS growth at scale. Someone who's led multiple A-player teams and brings deep SaaS enterprise go-to-market experience. It's a crucial role with the major accelerated growth opportunity directly in front of us. It brings executive bandwidth and further high revenue expansion experience to the global team. I'm delighted to welcome Jeff [ Lautenbach ].

Jeff, over to you.

Thanks, Steve. Great to be here. Having spent time with the teams and customers, I've been able to see for myself momentum building across the business. One key element of our future success is North America and it's been encouraging to walk into a double-digit year-over-year revenue performance in that region, a clear sign of traction and developing brand strength.

One of the proof points of our scale strategy was that as PowerFleet grew, we see more invitations to large RFPs and greater visibility in the enterprise market. That's now happening with a 26% increase in new logo wins as more customers recognize us as a top-tier provider. Our core value proposition, safety, compliance, sustainability and efficiency continue to resonate strongly. We've seen a sharp rise in demand within our on-site and in-warehouse safety segment, where we're delivering real impact.

To give you a sense of the traction, one of our largest new deals this quarter came from a major engagement with a global industrial manufacturer, a multibillion-dollar enterprise recognized as one of the world's leading producers of heavy machinery and power systems serving construction, mining and energy markets worldwide. They're deploying Unity to modernize asset visibility, optimize equipment utilization and reinforce compliance standards across their international operations.

We also notably secured a major North American logistics and fleet management company, one of the world's largest providers of third-party logistics and supply chain services offering thousands of vehicles and hundreds of distribution facilities across the region. They've selected Unity to enhance operator safety, strengthen compliance and deliver deeper operational visibility across their nationwide logistics network. Both our multiyear strategic programs with significant expansion runway, indicators of the scale of opportunity ahead and the value our platform is delivering.

Next slide. Looking forward, we're seeing strong progress in our strategic partner channels, another key pillar of our growth plan. Global channel bookings increased meaningfully in Q2 from Q1, particularly with partners like AT&T and TELUS, where momentum in the North America channel continues to grow with a 32% sequential increase in quarterly pipeline build. More generally, our global cross-sell pipeline activity grew substantially. Notably, we are seeing solid traction with AI video upselling into our base and that's showing up with a healthy 23% expansion in the video pipeline this quarter. These are encouraging proof points, evidence that our commercial engine is working as designed and that we're building a flywheel capable of sustaining double-digit growth into FY '27.

With that, I'll hand it over to David to walk through the financials.

Thanks, Jeff. Before running through our regular financial reviews, I'll begin with the [ headline ]. Service revenue, excluding legacy fleet complete book of business grew 12% organically year-over-year. Even as we've continued deliberately exiting noncore revenue streams in the quarters following our combination with mix in April 2024. High-margin recurring SaaS revenue is the cornerstone of our future and that progress is clearly visible in our sales mix, with service revenue now representing 80% of total revenue, up from 74% last year.

Next slide. Now on to our regular financial review, starting with a quick recap of the key pro forma adjustments, as well as a change in our prime methodology for calculating adjusted EBITDA. Onetime expenses. This quarter expenses includes $2.1 million in onetime charges for restructuring, integration and transaction costs excluded from adjusted EBITDA and EPS for ongoing run rates.

Amortization impact. Results include $5.8 million in noncash amortization related to the mix [ and complete ] acquisitions impacting services gross margins by over 5%. Change the calculation of adjusted EBITDA. Following consultation with the SEC, including a detailed review of Question [ 100.04 ] of the compliance and disclosure interpretations on non-GAAP financial measures, we concluded our presentation of adjusted EBITDA will no longer include an EBITDA adjustment for recognition of pre-October 1, 2024, contracted assets fleet complete. These amounts reflect certain in-vehicle devices delivered by Fleet Complete prior to the acquisition that invoiced and collected thereafter. This treatment was applicable for a finite transition period and reflects cash received for hardware that will never be recognized as revenue by [ patent ]. The adjustment was intended to align reporting results more closely with operating cash flows, and the change has no impact on underlying economics or cash generation.

Now on to Q2, which was a banner period delivering record top and bottom line performance. Total revenue increased 45% year-over-year to $111.7 million, including strong organic growth of 9% overall and 12% in strategically important services. Turning to adjusted EBITDA, which rose more than 70% to $24.8 million. Alongside this strong performance, we also invoiced $1.3 million in Fleet Complete [ IVD ] recoveries, which historically were included in adjusted EBITDA and will continue to flow through operating cash as collected. These results validate the strategic rationale for our M&A program and highlight the powerful market opportunities emerging through our Unity product strategy.

Next slide. Turning to margins, we continue to deliver strong year-over-year improvement. A stronger mix and 77% service gross margins drove a 400 basis point increase in adjusted EBITDA gross margins to 68%. Product margins also improved by 640 basis points sequentially to 31.5%, supported by a rebound in higher-margin on-site demand following Q1 tariff headwinds.

On operating expenses, we are driving G&A efficiencies, investing go-to-market and maintaining gross R&D at 8% of revenue. G&A declined to 25% of revenue, 3 points lower than last year, reflecting synergy capture and operating leverage. We expect G&A as a percent of revenue to continue stepping down by roughly 1 point per quarter in the second half. Sales and marketing represented 18% of revenue, as we continue to invest in enablement and capacity to support momentum. R&D remains [ steady ] at 8% of revenue, or 4% net of capitalized software, as we advance innovation in AI, safety and compliance. Overall, we're very pleased with our continued P&L progression, expanding margins, disciplined reinvestment and strong execution across the organization.

Next slide, please. Closing on leverage, where previously reported leverage ratios have been amended to exclude the previously discussed fleet complete EBITDA add-back. We exited Q2 with a net debt-to-EBITDA ratio of 2.9x, an improvement of half a turn from 3.4x at the end of FY '25. Looking ahead, we now expect to close the year at approximately 2.25x compared to our prior guidance of below [ 2.5x ]. Net debt at quarter end was $243 million, compared to adjusted net debt of $229 million at the end of fiscal '25. This represents a $14 million increase, or $6 million better than our initial guidance of a $20 million increase in the first half.

For the year, we are maintaining expectations to exit the year with net debt of approximately $220 million, representing a reduction of $20 million in the second month. Finally, and as discussed in last week's 8-K, we extended the maturity date of our initial term loan A with [ RMB ] by 1 year to March 31, 2028.

With that, I'll hand over to Melissa to walk through our adjusted EBITDA optimization progress. Melissa?

Thanks, David. I want to pause to recognize what we've achieved as a company. After 18 months of complex work, the integration is complete, with more than $30 million in annualized synergies realized, and that's a real milestone worth noting. To have maintained a level of top line performance we have while executing a multi-business integration is no small task. Now with integration behind us, we will move decisively into the next phase, optimization and efficiency.

We'll evolve our organizational model to ensure we're structured for long-term efficiency with clear accountability across functions and regions, and we'll continue to optimize our resource mix ensuring the right capabilities are in the right places, balancing internal expertise with flexible external partnerships to stay agile. We're embedding automation and AI more deeply to simplify how we work and enhance our customer experience.

Across support, service and operations, we're advancing further the tools that reduce manual effort, improve response time and free our people to focus on higher-value activities. We will refine how we serve subscale segments to improve strategic fit and margin contribution, ensuring every part of the business is aligned to sustainable, profitable growth. In parallel, will centralize core operating functions further, strengthening our organizational centers of gravity and embedding best practices globally.

Another area of focus is vendor and partner consolidation. We've made real progress here, capturing economies of scale and ensuring we're working with strategic partners who can grow with us. On the technology front, we'll complete our core systems rollout and streamline our technical architecture and hosting to enhance speed, reliability and cost efficiency. All of these initiatives share one goal, to further expand adjusted EBITDA margins and create capacity for reinvestment in sustainable growth.

Next slide, please. Looking ahead, I'm very excited about our upcoming Unity [ AIoT ] innovation showcase later this week. It's a great opportunity to highlight why PowerFleet is being recognized as a leader in our space. We'll be exploring 3 lenses. One, the product and solution innovation behind Unity. Two, the customer outcomes we're enabling the measurable impact on safety, performance and transformation. And three, the people driving it all, a highly integrated front foot team delivering its scale. It's a chance for investors and partners to see the strength and momentum of the PowerFleet platform at close.

Back to you, Steve.

Finally, I'm also pleased to share that PowerFleet has received another [ coveted ] industry recognition. We've been awarded the [ Frost & Sullivan's ] 2025 North America Product Leadership Award. For context, Frost & Sullivan is a highly respected global research and consulting firm, and this award is their highest recognition based on rigorous independent evaluation of innovation, market impact and customer satisfaction. It's an objective endorsement of the differentiation we've built through Unity and the consistency of our customer experience. We're honored to receive it and proud of the team whose work made it possible.

Before we open for questions, I want to close by reflecting a little further on what this set of results signals to investors for the future. It marks a fundamental shift. The moment where the power of the combinations we have undertaken, the dramatic 18-month integration we undertook and the operational discipline we've bravely driven into the organization is clearly visible in our results. This quarter gives clear evidence that our unique solution strategy and market thesis is resonating strongly, delivering growth that's sustainable, margins that are expanding, and execution that's consistent across the board. My thanks to all our employees, our customers and our investors for their continued partnership and confidence.

[Operator Instructions] Your first question for today is from Scott Searle with ROTH Capital.

Congrats on the quarter. Great job in seeing the organic SaaS growth breakthrough that 10% barrier to 12%. Maybe to dive in on that front, Steve and Dave, looking at the guidance for this year, I'm wondering if you could provide a little bit of color about how you're thinking about services and organic SaaS growth into the third and fourth quarter of this year?

Also as part of that, it sounds like Fleet Complete has got some revenue recognition transition issues going on. So how you're thinking about that, particularly as we start to go into '27? And I think Jeff indicated sustainable double-digit growth as we get into fiscal '27? I'm wondering if you could give us some early thoughts on that front. And then I had a follow-up.

So Scott, let me just start with the guidance. So we were pretty clear from the get-go that we expect to be growing sort of 10% organically for Q4. So no change in terms of expectations there. Obviously, we've done a nice job increasing the midpoint of the range over time. So you can see that coming through. But again, things have gone well. Things are going well. We're building up momentum.

But this is not a steady-state business. So the trajectory is very clear up and to the right, but it's not as if it's just a smooth road all the way. But we feel good about where we are. Obviously, it's very clear in the numbers in terms of what we're posting. And again, you'll see that 10% organic growth in Q4 as expected.

And yes, sorry -- apologies. No, I just going to say on the outlook then in terms of how you're thinking about fleet complete kind of being blended into that organic number, and early thoughts on '27, particularly given the build of the opportunity pipeline, it sounds like across the board, both from a carrier partner standpoint, AI video standpoint and warehouse, seems like everything is on the upswing?

I'll [indiscernible] that one. So look, Scott. I think we are ahead of schedule, which is great. Momentum is building. If you look at our internal dashboard from our growth perspective, we're ahead of where we wanted to be. And now it's about that consistency, that rhythm and driving opportunity that's ahead of us. We've got absolute stellar momentum. We brought Jeff in a team to help with that execution. And so the flywheel will continue to turn. So we're very optimistic about what we've put out in terms of 2027 previously. You'll hear at the end of the week, some more granularity around that.

But in general, from a market perspective, from a solution set resonating perspective from an ARPU expansion perspective, from a wallet share perspective, then we're in a very, very good spot. I think you can hear the pride that the team has in terms of the numbers.

In terms of Fleet Complete, there's no kind of revenue recognition [indiscernible]. I'll ask David to kind of walk through his note on Fleet Complete again. But Fleet Complete has brought those channels with us the likes of AT&T and TELUS. So we now don't -- as we get into 2022, we now don't think about free Fleet Complete [indiscernible] parts of the business. It's all one and the message remains the same. So strong, durable, profitable double-digit both SaaS growth and top line growth in [indiscernible].

Yes, Scott, in terms of the fleet compete, that's an EBITDA adjustment. So this is basically invoicing that happens, cash that's collected post the close of the Fleet Complete transaction. It's not stuff we recognize historically as revenue. We will never recognize it as revenue. But it does generate significant cash. So the thought was to include that as part of the EBITDA adjustments, just to mirror operating cash flow. Obviously, it's a huge economic positive. But that was the EBITDA adjustment for Fleet Complete, which based on consultation with the SEC, we will no longer be included.

Great. And as a quick follow-up, just wondering if you could provide some more high-level thoughts in terms of North America. Obviously, it's a pretty dynamic environment from a supply chain perspective. I'm wondering how you're seeing sales cycles, the ability to close deals? It certainly seems like the pipeline is building on that front.

And Dave, also, just kind of in this current environment, how you guys are thinking about hedging policy for some of the international markets?

Yes. So I'll take the first one. So look, I mean, as Jeff alluded to, he's walking to a double-digit growth rate for North America. We believe everything being equal now that customers are buying again. So where we saw kind of some of that product softness with the tariff decisions. The strong rebound, both in the top line growth, but also in the margin as well is testament to the work that we've done.

And what we are seeing is a strong demand and need for efficiency and for safety and compliance. So where customers are needing more optimization, they're needing to be more efficient to what they do, and they need stronger visibility because of these changing times, our solutions are really resonating. So I think there a couple of large wins that Jeff alluded to, too, are strategic wins that because of the power of the combination, we are now winning that business at larger enterprise scale. So we feel really good about the future there.

From our hedging strategy. So from an FX standpoint, we do have a portion of our debt in both [indiscernible] which has been traditionally a powerful cash generator for us. So we have just south of $30 million of [ shekel-denominated ] debt. And then for South Africa, we have around about $20 million of [ ZAR ] denominated revolver debt. So we do have the balance sheet sort of hedging from an FX standpoint.

Your next question for today is from Anthony Stoss with Craig-Hallum.

My congrats on strong execution. A couple of questions. The up 67% in your warehouse solutions. Steve, do you attribute that to -- or what do you attribute that to? Is it mainly one big customer? Or is it across the board? And then also perhaps an update on all your channel partners, AT&T, TELUS and the European Giant, where do they stand training and launch wise?

Yes. So it's across the board. So I think we are doing a better job in terms of sales execution, number one. I think the combination of solutions now where customers can get through visibility of what's going on, on their site or in their warehouse, but also combine that with what's going on over the road, which is our unique proposition. That's a real game changer for our customers. And I think that's kind of resonating through.

And then the evolution really is kind of more advanced video technology to stabilize in the warehouse. Again, I would encourage everyone to tune in on Friday, where you'll hear from our customers talking about what those solutions are doing for them and how it's changing the world. So that's really, I think, positive trend generally.

And that's -- we've done a lot of that in the U.S., but we're now getting real traction in other markets as well and through those channel partners. So I think we talked about the pipeline growth in terms of the channel partners we talked about the bookings improvement globally. That's all from those partnerships that we've talked about, whether that's AT&T, TELUS, MTN. And we're still gearing up with a couple of other partners that we talked about earlier in the year for 2027. So that just brings real strength and diversity to our opportunity base. And we've got some exciting future conversations going on with those channel partners about how we get more integrated into their solutions to how they can take the best of Unity and offer broader new solutions and more innovation to their customers as well. And again, you'll hear some of that if you tune in on Friday.

Your next question for today is from Gary Prestopino with Barrington Research.

Steve, in terms of great new business awards and all that, but could you maybe tell us how this is starting to shake out in terms of -- are the majority of the new business awards coming from Unity? Or is it products with services attached?

Everything that we sell is within the Unity ecosystem and platform. So there isn't something that's kind of separate. I think the differentiators really are adding in the single pane of glass, so the ability for customers to look at multiple different devices, or sensors, or data streams coming into the platform. Being able to integrate our data into their other third-party systems. Again, we've got some good visibility for investors and partners at the event later this week, and you'll see some demos of that.

But it's really, I think, about expanding from being a [indiscernible] supplier to mission-critical partners. So people are looking for connected intelligence. The day of telematics and boxes and hardware, software is really moving now is to you can be a high-grade partnering, providing connected intelligence that allows us to make real-time decision. It can give us visibility, with [ your AI ] capabilities, you're able to shortcut where we need to go to make the changes that we need to. And that is done in a seamless integrated way. And I think all of that together is what is ultimately we're now being seen at a different level in terms of the opportunity we can provide to medium, large customers.

And I think that's where we've seen this real shift, I think, in both who we talk to in the organization. What people are willing to pay for our solutions because of the level of benefit that we provide. And ultimately, we're now seen as an integrated partner and because of the increased scale that we've got, the credibility of our offerings have connect potentially in terms of where we're now seen with medium to large enterprises. So it's not one single thing, Gary. I think it's a play out of the thesis and the strategy, which is resonating well. And what's really exciting is we're only scratching the surface at the moment.

So if you think about the solutions coming together from the 3 companies, we're only kind of 6 months into that, and you're already seeing the traction and the strength of the results and the durability is of those results coming through. So again, we've got a lot to do. There's a lot we can do better. We are still a work in progress. But ultimately, we're very, very confident about the future.

Yes. I guess what I was just trying to get at, Steve, is your Unity is device agnostic. So I guess, is the traction pretty good with entities that are not using your products?

It absolutely is. So -- and as we said before, a lot of customers have multi-source for this stuff -- and it's also -- it's not just kind of the sensors that you would traditionally think about with PowerFleet. These are other [ IoT ] sensors that they have in their state. There are other data streams that they have in their state. So people now say, look -- and when we go and talk to CIOs and CTOs and they say, look, we've just got this data miss. Can you simplify this for me? Can you allow us to see the wood for the trees? And then once you're able to do that, can you make sure that it's usable, it's simple, and we can action it?

And that's where I think the power of Unity's unique capabilities really make swift business change. And sometimes when we've deployed these solutions and our competitors deploy these solutions, it can take you a decent amount of time to actually start to get the value back, whereas I think we are now ahead of breakeven within the first 12 months of deployment. We're making meaningful change. We're seeing it customers who we expected to kind of do second phase rollout over maybe a 12-, 18-month period, kind of shortcutting that to a 6- to 12-month period net, because they've got the rhythm and because we've been able to simplify the spaghetti mess that they had in their organization.

And then just one last quick question. I mean, in feedback from your customers, I think you had 6 modules for Unity as you initially rolled out. Are you developing any further? And what -- with any feedback from your clients, what do you feel like you're missing in that Unity platform with the modules, if anything?

Yes. So it's more about enhancing the modules to the next level. So it sounds like I'm [ plugging ] Friday, [ I don't mean to ]. But ultimately, you will see how the strength of our AI capabilities, the data that we can pull, our real-time interventions that we make with our customers. A topic of safety is a very broad topic. And you'll see just how we're really kind of doubling down on the granularity of what we're able to achieve with that customer.

So I wouldn't say we're expanding kind of horizontally into more different set of modularity, but the strength of those modules -- and I'll come back to this from the question we had earlier. To have true visibility of your safety environment across all your employees, whether that's on a site, or whether it's over the road, is transformational for customers in a number of ways. So really doubling down on the advancement of the data [indiscernible] because we can provide the speed and accuracy of those is where we're spending the majority of our time at the moment.

Your next question is from Dylan Becker with William Blair.

Maybe, Steve, starting with you, the 12% organic services, obviously, ahead of plan is quite impressive. I wonder if given kind of the pipeline strength that you guys are seeing that's affording you the ability to kind of unlock some of that held back spend around go-to-market? And maybe if that kind of shifts how you think about the model going forward, given the vast opportunity here, kind of reinvesting maybe some of that incremental EBITDA growth, or EBITDA upside that you would see traditionally back into go-to-market and product development initiatives? Because it feels like the market is really kind of resonating relative to the solutions you're able to provide at this point?

Yes. So we talked about -- we held back on a $4 million investment as the tariff challenges here. We have pressed the button on that, that's in the sales channels in kind of customer and account engagement, plus some more resources into the channel opportunity. And over time, we will be good stewards in terms of ensuring that we feel confident about the growth, and we can stand behind any more investment. But we have the ability to flex the model dependent on that growth rate and on our confidence levels. And we will flex in the model through '27 and '28 appropriately. Because as you say, as this flywheel starts to turn as we kind of open up more opportunities and we just get more, I think, exposure into the global markets that we're now attacking, then we will maintain flexibility and optionality to double down on go-to-market investment.

Okay. Very helpful. And maybe following up again with you here, Steve, or maybe this is for Jeff as well, too. Encouraging to see some of the new logo momentum in the business. But if I look at it to low single-digit millions for a Fortune 500 entity, it feels like you're kind of just scratching the surface relative to that opportunity. So maybe if you could kind of help reconcile obviously getting more shots on goal, getting a foot in the door, but maybe also how that kind of breeds conviction in the opportunity to significantly expand within several of those accounts? Maybe better line of sight, now that you have built and established that relationship kind of the opportunity from a cross-selling perspective as well, too?

Jeff, why don't take that [indiscernible] follow up.

Yes. So there is great opportunity with new logo moving forward. We -- as we talked about, we made a pivot, right, from a selling perspective to on-site and vision. And the sales organization that's resonating really well with the opportunity. You heard about the pipeline increases. We can do so much better moving forward and there's so much opportunity out there in these markets that are untapped for us. And I feel like we're just getting our sea legs underneath us, relative to the opportunity statement, and enabling the field on the new value propositions as we move into these different market segments, but leveraging the installed base that we already have.

So the customers are there for us to expand. And then from a new logo perspective, it's attacking the verticals, too. And that opportunity is there as well. So I'm really optimistic about the opportunity around new logo, especially as we continue to gain skills and progress skills in those areas.

Yes. Thanks, Jeff. And just to respond around we're scratching the surface on those accounts. You're absolutely right, there's a [ 5, 10x ] opportunity in those accounts, both nationally and internationally as well. So we're strengthening our global accounts model. You will, again, hear from some of the customers that we alluded to earlier in the year about some large-scale deployments and how they're feeling about expansion opportunities with us as well. So what's exciting is it's multidimensional. And it's -- if you look around the modularity of the solution, to Gary's point, people can grow in the solution. Whether that's in terms of do more of the same with us on a global basis, expanding sites, expanding the volume of vehicles that they have with us, or growing different divisions or territories. So we're really, I think, infused by the space we're creating for ourselves, particularly in that kind of large enterprise market.

Your next question for today is from Alex Sklar with Raymond James.

Great. Steve or David, maybe I just want to follow up on Dylan's question there on the enterprise momentum and just asked it a little bit differently. But if you go back 1 to 2 years in time, can you just help put some context behind how incremental these enterprise opportunities have become for PowerFleet in terms of pipeline mix today? And then with that and kind of overall brand awareness, how much more room do you have to go on the brand awareness and marketing side?

Yes. So I think it's night and day. Our exposure, our win rates, our ability to be successful in those large enterprise arenas. Heritage PowerFleet of 18, 24 months ago is unrecognizable from the opportunity and the credibility and the trust, frankly, in terms of being a mission-critical provider and partner to those enterprise markets.

I think we're building brand momentum. So the innovation awards that we get we're getting, I think, recognized now as very much a top-tier provider, one of the top 3 in the world that's really leading in terms of its innovation and profitable growth. So ensuring that we are being good stewards of the company's capital and making sure that we are doing things responsibly. I think is a very good sign in these times is having a partner that does that. And I think that's always been our mantra, and we continue to excel there.

So there's always more work to do. And there are market -- there are markets that we are attacking where we have less brand presence than others in the marketplace, but that offers great opportunity for us. So -- but overall, I think we're in a different paradigm and in a different sphere to where we were 2 years ago. And I think the upside opportunity there remains fairly immense.

Okay. Great. And then, David, maybe one for you on the back-to-base motion. I know we're working through some final system integration to get precise NRR, but can you help frame directionally what you're seeing from the installed base through maybe end of second quarter, October? Where across kind of retention upsell, cross-sell? Have you seen the biggest level of improvement? Where are you still kind of pushing hardest to get to kind of some of the aspirational goals?

So clearly, if you look at just the acceleration in growth, a huge part of that is NRR in terms of selling more to our existing customers. And to everyone's point, that we're early there in terms of the potential, both in terms of the customer demand, as well as positions being in the market. So it is moving positively.

If you look back in the last couple of quarters, obviously, we were clear in terms of our prepared remarks for mix, for example. This time last year, we were still actively shedding revenue in terms of getting the right base and getting rid of distractions from a product delivery standpoint and a market focused standpoint. So that's working well.

As you look at the sort of second half of this year, from a fleet complete standpoint, there was a similar exercise in terms of shedding some revenue as well. So what I would say is when you look at just the traditional PowerFleet business, excluding fleet complete, which is the 12% organic growth from an ARR standpoint, a major part of that is positive net revenue retention. So everything you'd expect to see happening in terms of firstly, cleaning the book of business. Secondly, the complementary nature of our products. Thirdly, that sort of the pent demand within customers is clearly coming through in terms of the growth that we're posting.

What I would say is for the second half of this fiscal year, you're going to have a bit of a headwind in terms of the Fleet Complete because we did the same thing with Fleet Complete that happened with mix in terms of getting the right revenue base in place that's aligned with our future, as opposed to holding things -- falling on to things that are a sort of a distraction and create friction in terms of where we need to go. So very, very positive and things are playing out as expected.

Your next question for today is from Greg Gibas with Northland Securities.

Congrats on the results. Really nice to see that 23% increase in the cross-sell pipeline. Wondering if you could maybe provide some color on where you're seeing success or solid traction with your cross-sell efforts?

Yes. So it's in warehouse to over the road and vice versa. So this -- there is a lot of traction in video, and that is multiple different video solutions that are based around safety and compliance. But really kind of expanding our reach in terms of the breadth of the organizations, whether that's from an insurance perspective, or that's, as I said, compliance. Whether it's getting true safety visibility, or just operational efficiency for the end-to-end supply chain? So it's really that kind of where we've had strength in one either the over-the-road or the in-warehouse section, it's really kind of transferring those either way.

And because we have that uniqueness, because we're talking to the right people in the organization who care about the objectives of both of those different parts of the business, that's resonating super strongly.

Great to hear. And if I could -- can you maybe characterize the greater demand environment? And I guess demand trends as it relates to what you're hearing on [indiscernible] on purchasing? Like would you say that, that headwind has fully subsided at this point?

I think people are still cautious, right? I mean there's still dynamics in the macroeconomic conditions that cause people to be very, I think, thinking through just how much capital they're going to spend, and when they're going to spend it. But obviously, if you look at the rebound we've had from the product perspective, then we are seeing people making those decisions. And so that's really positive. And on top of that, we've been able to improved price and improve margin as we go.

So I think there's always a watch tower on these things, and we continue to be cautious in our approach towards things. But we've seen -- I think there's a real shift and a need for change in organizations, transformation, efficiency optimization and visibility. And it's kind of where do we sit in the food chain of decisions. And in terms of being kind of mission-critical to businesses, I think that's only improving.

Great. And I guess one last one, if I could. As it relates to the accounting adjustment, you mentioned the $4 million impact on '25. How much are you guys taking out of '26 that was baked in?

Yes. The number for this quarter was about $1.3 million. So it's probably a percentage point just over of EBITDA margin. That would be the way to think about it, Greg.

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

Thanks, everyone, for joining us today and your continued support. We look forward to updating you on our progress next quarter. Have a great day, and we look forward to our innovation event on Friday. Thank you. Bye-bye.

This concludes today's conference, and you may disconnect your lines at this time. Thank you for your participation.