PowerFleet lifts growth outlook on landmark AI contract

PowerFleet’s third quarter of fiscal 2026 marked its first full year-over-year comparison that fully includes the MiX and Fleet Complete acquisitions. Total revenue rose 7% year over year, or 9% on an adjusted basis excluding approximately $2 million of accelerated product revenue recognized in the prior-year period under a US GAAP change.

Growth was driven by services, which management positions as the core of its strategy. Services revenue increased 11% year over year and now accounts for 80% of total revenue, up from 77% a year earlier, as the company continues to exit non-core streams and focus on high-margin recurring SaaS.

Adjusted EBITDA grew faster than sales, rising 20% year over year in one section of the call and 26% to $25.7 million in another, reflecting operating leverage and integration synergies. Adjusted EBITDA margins expanded by 4 percentage points to 23%, while adjusted gross margin held at 67% despite a stronger services mix and some prior-period benefits.

Net leverage also improved. PowerFleet ended the quarter with net debt to adjusted EBITDA of about 2.7x and now expects that ratio to decline to roughly 2.4x by year-end, versus a prior expectation of approximately 2.25x. The company attributes the revised leverage outlook to growth investments around a large public sector win and working capital dynamics.

A focal point of the quarter was a new, multi-year South African public sector contract to deploy AI video and visibility services across government fleets operating more than 100,000 assets. Management described it as a landmark win and the single largest deployment the company has undertaken at one time.

The agreement, awarded centrally by a national treasury department, is expected to generate meaningful recurring SaaS and services revenue at margins within the company’s typical bundled ARPU and margin range. While financial details were not disclosed, the contract spans an initial five-year term, and management noted that programs of this size often extend if performance is strong.

PowerFleet’s Unity platform will be deployed with advanced visibility and AI video capabilities to support safety, security and situational awareness across a large operational estate. A key differentiator cited in winning the contract was the company’s partnership with MTN, which contributes connectivity scale and platform support for deployments of this magnitude.

Enrollment by government departments into the new national program is described as ahead of internal expectations. Management views the award as a potential “force multiplier” for broader public sector opportunities in South Africa, for expansion with MTN across Africa, and for future tier-one government tenders globally.

Beyond the South African win, the quarter underscored growing demand for PowerFleet’s AI-based safety and compliance solutions. The company reported multiple enterprise contracts with total values ranging from $500,000 to more than $5 million across national services, logistics, infrastructure, manufacturing, and food and beverage customers.

Management highlighted its ability to deliver AI video intelligence both on-road and on-site through Unity as a key competitive advantage. AI video pipeline build increased 71% sequentially, supported by global demand for safety, compliance and visibility solutions. The company also recorded its third consecutive quarter of in-warehouse pipeline growth in North America and a 13% sequential increase in ARR pipeline.

PowerFleet’s “data highway” strategy centers on aggregating fragmented enterprise data, harmonizing it, and feeding it back into operational systems. Examples included integrating Unity with ERP, HR, training, maintenance and IoT platforms to automate operator access and compliance in warehouses, and unifying shipment planning, TMS execution and telematics for real-time logistics management.

Management cited a 14-year relationship with Origin Energy as an illustration of how customers expand over time from compliance to advanced AI video and predictive safety management. Across global accounts, Unity is increasingly embedded in day-to-day operations, with customers using it to manage tens of thousands of assets and billions of miles driven annually.

PowerFleet reiterated its goal of exiting fiscal 2026 with 10% total revenue growth and “north of” 10% recurring revenue growth on a run-rate basis, and it continues to target approximately 15% ARR growth in fiscal 2027. Management said the Q3 performance gives it confidence to “press the foot on the growth accelerator” in FY27.

The company previously targeted $18 million of annual cost synergies from integration and has largely achieved that level. Rather than pursuing deeper near-term cost reductions, it now plans to redeploy that capacity to support higher growth, citing the need to scale delivery for the South African program and other large opportunities.

Investments will span people, processes and systems, including on-the-ground deployment and support resources, expanded automation and optimization of business processes to handle greater scale. Management characterized incremental spending as modest relative to the anticipated long-term revenue from recent wins and as foundational for a more efficient operating model.

While maintaining that leverage should continue to trend lower, the company modestly reduced its adjusted EBITDA guidance to approximately 45% year-over-year growth for fiscal 2026 from a prior range of 45% to 50%. It cited ongoing operating expense investments tied to the tier-one public sector award as the key driver of the updated outlook.