Marvelous Microcaps

PowerFleet, Inc. (AIOT)

INTRO:

At Perritt Capital Management, we take focused positions in companies where we have a high conviction in their success; companies that are out of the mainstream of small cap investing. To highlight our process, we are pleased to present the newest installment in our ongoing series “Marvelous Microcaps – Big Ideas on Small Companies.”  This series profiles companies that we believe have a niche in their existing markets or are launching a product that could disrupt their marketplace.

THE COMPANY:

PowerFleet, Inc. (formerly PWFL) provides fleet management solutions for logistics, industrial, and vehicles. They are a leader in the artificial intelligence of things software-as-a-service mobile asset industry. Appropriately, as they joined the Russell 2000, they changed their symbol to AIOT. They unify business operations and help companies save lives, time, and money. PowerFleet serves 7500 customers worldwide with 1.9 million subscribers providing them with 75% of sales as recurring revenue. They recently merged with MiXT Telematics, making them capable of driving accelerated growth with a move towards a “Rule of 40” company based on sales growth and adjusted EBITDA margin expectations.

WHY WE OWN: THE PERRITT ADVANTAGE

PowerFleet adopted the Unity platform in 2022 as the lynchpin of their growth strategy. Unity is both a device and data agnostic. It enables rapid and deep integration with IoT devices and third-party business systems to a pipeline that powers AI-driven insights to help companies drive operational efficiencies. Unity has six applications: Safety & Security, Advanced Fuel Management, Maintenance and Performance, Regulatory Management and Compliance, Visibility and Resource Management, and Sustainability.

PowerFleet’s potential market is 236 million vehicles with a $100 billion connected vehicle total addressable market. Estimated sales growth is 15-20% from revenue synergies, geographic expansion, and expanded revenue streams. They have a pathway to 70% services gross margin and can double their adjusted EBITDA margin from 15% to 30% by 2026.

Management has a private equity pedigree and a core competency of extracting cost synergies while making acquisitions. A perfect example is the MiXT acquisition. MiXT has a clean balance sheet with $28 million cash and no debt. The combined company becomes the #5 or #6 global provider of Fleet Telematics services. The Unity platform will now be available to 4,000+ MiXT customers and the installed base is ripe for upselling opportunities.