SUBSEQUENT EVENTS

3 Months Ended

Mar. 31, 2024

Subsequent Events [Abstract]

SUBSEQUENT EVENTS

NOTE 19 – SUBSEQUENT EVENTS

Business Combination

On April 2, 2024, the MiX Combination was consummated, and MiX Telematics became an indirect, wholly owned subsidiary of the Company.

The acquisition of MiX Telematics and its business will, among other things:

	●	create a mobile asset IoT SaaS organization with significant scale, serving all mobile asset types. The increased scale is expected to enable the combined entity to more efficiently serve its customers and create advantages to compete in an industry characterized by the need for high pace of development and innovation;
	●	enable the Company to maximize significant cross-sell and upsell opportunities within its large joint customer base due to the joint entity’s combined geographical footprint, deep vertical expertise and expanded software solution sets coupled with its extensive direct and indirect sales channel capabilities; and
	●	enable the combined organization to accelerate the delivery of top-class solutions with improved competitive advantage by integrating Powerfleet’s and MiX Telematics’ world-class engineering and technology teams.

The Company evaluated the guidance in ASC 805-10-55-11 through 55-15 in making the determination of accounting acquirer. Based on the evaluation of the criteria, the Company concluded that Powerfleet is the accounting acquiror.

The preliminary estimated fair value of the consideration transferred for MiX Telematics was $362 million as of the acquisition date, which consisted of the following:

(in thousands, except for share price and exchange ratio)		April 2, 2024
Number of MiX Telematics ordinary shares outstanding			554,021
Exchange ratio			0.1276
Shares of Powerfleet common stock to be issued for MiX ordinary shares outstanding			70,704
Powerfleet stock price*		$	5.12
Fair value of Powerfleet common stock transferred to MiX Telematics shareholders		$	362,005
Replacement of acquiree’s equity awards by the acquirer**			7,818
Total fair value of preliminary consideration		$	369,823

*

Powerfleet’s closing share price on April 2, 2024

**

The portion of the fair-value-based measure of the replacement award that is part of the consideration transferred in exchange for the acquiree equals the portion of the acquiree award that is attributable to pre-combination vesting.

Preliminary allocation of purchase price

The MiX Combination met the criteria for a business combination to be accounted for using the acquisition method under ASC 805, Business Combinations (“ASC 805”), with the Company identified as the legal and the accounting acquirer. The purchase price was allocated to the assets acquired and liabilities assumed based on the estimated fair values at the date of acquisition. The excess of the purchase price over the fair value of the net assets acquired was allocated to goodwill. Goodwill is primarily attributed to the assembled workforce, expected synergies from future expected economic benefits, including enhanced revenue growth from expanded products and capabilities, as well as substantial cost savings from duplicative overheads, streamlined operations and enhanced efficiency. The Company is in progress of completing the expected synergies analyses and such estimates used in the preliminary purchase accounting remains provisional pending finalization. Goodwill is not deductible for tax purposes. Goodwill associated with the acquisition has not yet been assigned to the Company’s reportable segments pending finalization of the purchase accounting.

The preliminary allocation of purchase price was as follows (in thousands):

Assets acquired:			April 2, 2024
Assets acquired:			April 2, 2024
Cash and cash equivalents		$	26,737
Restricted cash			794
Accounts receivable			24,675
Inventory			4,142
Prepaid expenses and other current assets			8,886
Fixed assets			35,587
Intangible assets			153,000
Right of use asset			3,794
Deferred tax assets			1,093
Other assets			973
Total assets acquired		$	259,681

Liabilities assumed:
Short-term bank debt and current maturities of long-term debt			20,158
Accounts payable and accrued expenses			26,400
Deferred revenue - current			6,394
Lease liability - current			859
Income taxes payable			355
Lease liability - less current portion			2,852
Deferred tax liability			48,725
Other long-term liabilities			484
Total liabilities assumed		$	106,227

Total identifiable net assets acquired		$	153,454
Non-controlling interest			(5	)
Goodwill			216,374
Purchase price consideration		$	369,823

The above fair values of assets acquired and liabilities assumed are preliminary and are based on the information that was available as of the reporting date. The Company’s allocation of the preliminary purchase price to certain assets acquired and liabilities assumed is provisional and the Company will continue to adjust those estimates as additional information pertaining to events or circumstances present at April 2, 2024 becomes available and final valuation and analysis are completed. In addition, the Company is still in the process of identifying acquired assets and assumed liabilities, which may also result in adjustments of the provisional amounts recorded. The fair values of the assets acquired and liabilities assumed, including the identifiable assets acquired, have been preliminarily determined using the income and cost approach, and are partially based on inputs that are unobservable. The Company used discounted cash flow (“DCF”) analyses, which represent Level 3 fair value measurements, to assess certain components of its purchase price allocation as a result of the acquisition. The fair value of the customer relationships was determined using the multi-period excess earnings method. The fair value of the tradename and developed technology was determined using an income approach based on the relief from royalty method.

For the fair value estimates, the Company used (i) forecasted future cash flows, (ii) historical and projected financial information, (iii) synergies including cost savings, (iv) revenue growth rates, (v) customer attrition rates, (vi) royalty rates, and (vii) discount rates, as relevant, that market participants would consider when estimating fair values. These estimates require judgement and are subject to change. Differences between the preliminary estimates and final accounting may occur, and those could be material.

The Company believes that the information provides a reasonable basis for estimating the fair values of the acquired assets and assumed liabilities, but the potential for measurement period adjustments exists based on the Company’s continuing review of matters related to the acquisition. Adjustments to initial preliminary fair value of the assets acquired and assumed liabilities during the measurement period until April 2, 2025, will be recorded during the period in which the adjustments are determined, including the effect on earnings of any amounts we would have recorded in previous periods if the accounting had been completed (i.e. the historical reported financial statements will not be retrospectively adjusted).

The provisional amounts for assets acquired and liabilities assumed include:

	●	Identification of assets acquired;
	●	The fair value of accounts receivable and other receivables which may be subject to adjustment for reassessment of collectability as of the date of acquisition, collections and other adjustment subsequent to the acquisition;
	●	Property, and equipment, for which the preliminary estimates are subject to revision for finalization of preliminary appraisals;
	●	Determination of useful lives;
	●	Right of use assets and lease liabilities, which will be subject to adjustment upon completion of the review of the inputs, including sublease assumptions, for the calculations;
	●	Acquired inventory, which values are still being assessed on an individual basis;
	●	Prepaid expenses, accounts payable and accrued expenses, which will be subject to adjustment based upon completion of working capital clean up and assessment of other factors;
	●	The recognition and measurement of contract assets and contract liabilities acquired in accordance with ASC 606 will be subject to adjustment upon completion of assessment
	●	Acquired intangible assets will be subject to adjustment as additional assets are identified, estimates and forecasts are refined and disaggregated, useful lives are finalized, and other factors deemed relevant are considered;
	●	Deferred income taxes will be subject to adjustment based upon the completion of the review of the book and tax bases of assets acquired and liabilities assumed, applicable tax rates and the impact of the revisions of estimates for the items described above; and
	●	Goodwill will be subject to adjustment for the impact of the revisions of estimates for the items described above.

The Company expects to complete the purchase price allocation as soon as practicable, but no later than one year from the acquisition date.

Acquired Identifiable Intangible Assets

The following table sets forth preliminary estimated fair values of the components of the identifiable intangible assets acquired and their estimated useful lives:

(in thousands)		Fair value				Weighted Average Useful Lives
Trade name			10,000				14 years
Developed Technology			30,000				5 years
Customer relationships			113,000				13 years
		$	153,000

Acquisition-Related Expenses

The Company recognized approximately $3,500 of acquisition-related costs which were expensed in the consolidated statement of operations for the year ended December 31, 2023, and approximately $2,300 were expensed in the three-month period ending March 31, 2024.

Unaudited pro forma financial information

The following table represents the unaudited combined pro forma revenue and earnings for the three months ended March 31, 2024:


		Three Months Ended March 31, 2024
		Historical				Pro forma combined (unaudited)

Revenues		$	33,740			$	72,822
Operating loss		$	(7,647	)		$	(6,755	)

The following table represents the unaudited combined pro forma revenue and earnings for the year ended December 31, 2023:


		Year Ended December 31, 2023
		Historical				Pro forma combined (unaudited)

Revenues		$	133,736			$	286,320
Operating loss		$	(12,557	)		$	(18,150	)

Preferred Stock

Concurrently with the closing of the MiX Combination, the Company used the net proceeds received from RMB and from incremental borrowing capacity as a result of the refinancing of credit facilities with Hapoalim to redeem in full for $90.3 million for all of the outstanding shares of the Series A Preferred Stock.