Seeking Alpha
We cover over 5K calls/quarter
Profile| Send Message| ()  

Executives

Lasse Glassen – IR

Michael Burdiek – President and CEO

Rick Vitelle – VP-Finance, CFO and Secretary

Analysts

Mike Walkley – Canaccord Genuity

Howard Smith – First Analysis

Mike Crawford – B Riley & Company

Travis Hook – Craig Hallum

Mike Latimore – Northwind Capital

Shai Dardashti Mike – DCM

CalAmp Corporation (CAMP) F4Q13 Earnings Call April 25, 2013 4:30 PM ET

Operator

Greetings and welcome to the CalAmp Fourth Quarter and Full-Year Fiscal 2013 Results Conference Call. At this time all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation.

(Operator instructions) As a reminder, this conference is being recorded. It is now my pleasure to introduce your host Lasse Glassen of Addo Communications. Thank you. Mr. Glassen, you may begin.

Lasse Glassen

Thank you and good afternoon everyone. Welcome to CalAmp’s fiscal 2013 fourth quarter and full-year results conference call. With us today are CalAmp’s President and Chief Executive Officer, Michael Burdiek; and Chief Financial Officer, Rick Vitelle. Before I turn the call over to management, please remember that our prepared remarks and responses to questions may contain forward-looking statements. Words such as "may, will, expect, intend, plan, believe, seek, could, estimate, judgment, targeting, should, anticipate, goal," and variations of these words and similar expressions are intended to identify forward-looking statements. Actual results could differ materially from those implied by such forward-looking statements due to a variety of factors including product demand, competitive pressures and pricing declines in the Company’s satellite and wireless markets, the timing of customer approvals of new product designs, intellectual property infringement claims, interruption or failure of our Internet-based systems used to wirelessly configure and communicate with the tracking and monitoring devices that we sell, integration issues that may arise in connection with the Wireless Matrix acquisition, customer response to this acquisition, and other risk and uncertainties that are described in the Company’s annual report on Form 10-K for fiscal 2013 as filed today with the securities and exchange commission.

Although the Company believes the expectations reflected in such forward-looking statements are based upon reasonable assumptions, it can give no assurance that its expectations will be attained. The Company undertakes no obligation to update any forward looking statement whether as a result of new information, future events or otherwise. With that, it’s now my pleasure to turn the call over CalAmp’s President and CEO, Michael Burdiek.

Michael Burdiek

Thank you, Lasse. Good afternoon and thank you for joining us today to discuss CalAmp’s fiscal 2013 fourth quarter and full year. I will begin today’s call with a review of our financial and operational highlights. Rick Vitelle will provide additional details about our financial results and I will wrap up with our business outlook and guidance for the fiscal 2014 first quarter. This will be followed by a question-and-answer session.

Fiscal 2013 was a transformative year for CalAmp, highlighted by consolidated revenue growth of 30% and significantly improved profitability. At the top line, our performance was driven by a 41% year-over-year revenue increase in our Wireless Datacom segment due to strong continued demand for our Mobile Resource Management or MRM products and growing contributions from our energy, rail, and public safety verticals. The strong revenue growth along with improving gross margin boosted our profitability in fiscal 2013 with non-GAAP earnings per share doubling compared to the prior year.

During fiscal 2013, we made significant progress on key strategic initiatives that we believe will further expand our addressable market, improve our gross margins, and strengthen our competitive position. Our investment in R&D increased almost $3 million over the prior year to $14.3 million, which resulted in the introduction of more than two dozen new products and seven patent applications. We believe that our strategic roadmap and our focused effort in R&D will continue to drive product innovation and organic growth going forward.

Our ongoing focus on international expansion resulted in sales outside the U.S. growing to 18% of consolidated revenues for fiscal 2013, up from 11% in fiscal 2012. Within our MRM business, international sales accounted for 30% of total revenues, up from 14% in the prior year. We believe that our current products are competitively positioned to drive further international revenue growth as we develop additional channel partners and increase our global footprint.

In a strategic move to expand our addressable market and move further up the MRM value chain, we completed the acquisition of Wireless Matrix in early March. We believe this acquisition is a foundational component of our long-term growth strategy positioning CalAmp as a leading provider of integrated hardware and software solutions within our core verticals. We also believe that this acquisition will enable us to address new applications with major global enterprise customers.

Looking at our fourth quarter results, consolidated revenue was $48.4 million, up 29% year-over-year with Wireless Datacom revenue up 45% to a record $37.3 million. Satellite revenue in the quarter $11.1 million which wasn’t [ph] in line with our expectations. At the bottom line, we generated GAAP-based earnings per diluted share of $0.11 excluding the effects of a $29.2 million tax benefit that Rick will describe in a few minutes.

Non-GAAP EPS was $0.16, which excludes the impact of intangible amortization, stock-based compensation, and acquisition-related expenses. In the quarter, we generated cash flow from operating activities of $5.8 million and $16.6 million for the full year. We also successfully completed a common stock offering in February that generated net proceeds of $44.8 million which were used to fund the acquisition of Wireless Matrix. The offering was significantly over-subscribed and is indicative of the strong confidence that investors have in CalAmp and our growth opportunities.

Now, I would like to review our operational highlights for the fourth quarter. The Wireless Datacom segment posted record revenue in the fourth quarter as momentum continued across a number of our key verticals. MRM products accounted for approximately 60% of total Wireless Datacom revenue with wireless networks applications and recurring revenues accounting for the remaining 40%.

We continue to experience solid demand for our MRM products in the fleet management, asset tracking, stolen-vehicle recovery, and vehicle finance verticals. We are also seeing strong demand for our MRM products internationally and we are particularly encouraged by this ramp up by launch [ph] customer in the EMEA region as well as continued growth in Latin America.

At the end of our fourth quarter, we had over 2.1 million MRM devices in service with customers around the globe. Looking ahead, we are increasingly encouraged with the traction we are seeing in the usage-based insurance vertical which we believe has the opportunity to generate meaningful revenue in the second half fiscal 2014. Our products are competitively positioned both domestically and in Europe and we are actively supporting key customers who are in the early stages of launching their telematics-based insurance initiatives.

Turning to our wireless networks business, fourth quarter performance was solid driven by strength across all of our major verticals. In the vehicle finance and remote start markets, the number of unique subscribers for our bundled service offerings grew to 329,000 at the end of the fourth quarter, up from 305,000 subscribers at the end of the third quarter. This subscriber base provides an ongoing recurring revenue stream for our Wireless Datacom segment.

In the energy sector, we have seen a significant uptick in activity. During the quarter we announced that CalAmp had been chosen to supply the New Hampshire Electric Cooperative with wireless communications hardware for its wide area smart meter advanced metering infrastructure providing critical data back haul and distribution automation capabilities.

We also announced a new contract with Pepco Holdings, one of the Mid-Atlantic regions largest energy delivery companies to supply expanded bandwidth wireless data communication devises as part of their wide area network. We are on track with our development activities to support this project and expect to ramp shipments in the third fiscal quarter. In support of market expansion in the energy vertical we recently announced CalAmp’s Energy Management and Control which is a comprehensive, scalable, low-control analytical solution for monitoring and managing demand response for smart grid applications.

We believe that our continued R&D investments in product innovation such as this will continue to fuel organic growth in the energy sector in the months and years ahead. During the quarter, we completed shipments on our previously announced award to supply wireless communication devices for interoperable Positive Train Control or PTC for Southern California’s Metrolink commuter rail network.

Looking ahead, we expect revenues from rail transportation will be lower during the first half of fiscal 2014 due to a lull in activity between last year’s completed development projects and follow-on production orders that are not expected to begin ramping until the second half of fiscal 2014.

Also during the fourth quarter, we announced a development agreement with Caterpillar to provide the world’s leading heavy equipment manufacturer with ruggedized wireless routers that will enable vital data communications for equipment deployed around the globe. Due to upfront development in integration requirements, we expect that meaningful revenue from the project will likely not be seen until the fourth quarter of this fiscal year at the earliest.

Now, moving on to our Wireless Matrix acquisition, the transaction closed during the first week of March. The integration process is proceeding according to plan and operationally the business is performing in line with our expectations. We are more bullish than ever with the prospects of leveraging Wireless Matrix robust mobile workforce management and asset tracking applications to build upon our current product offerings and existing markets. We believe this acquisition accelerates our development roadmap enabling CalAmp to offer higher margin turnkey solutions for new and existing customers and increases our relevance with mobile network operators and key channel partners in the global M2M marketplace.

Turning to our Satellite segment, revenue in the fourth quarter was $11.1 million, an increase of 38% sequentially but down 7% year over year. Fourth quarter gross margin of 16.5% was consistent with our expectations. We expect that our Satellite business will continue to generate gross margins in the mid-to-high teens and contribute meaningfully to our profitability going forward.

With that, I will not turn the call over Rick Vitelle, our Chief Financial Officer, for a closer look at our fourth quarter and full-year financial details.

Rick Vitelle

Thank you, Michael. I will provide a summary of our gross profit performance, income tax position, working capital management and cash flow results for the fiscal 2013 fourth quarter. Consolidated gross profit for the fiscal 2013 fourth quarter was $15.1 million, an increase of $4.5 million over the same quarter last year predominantly as a result of higher revenues in the Wireless Datacom business. Consolidated gross margin was 31.1% in the latest quarter compared to 28.2% in the fourth quarter of last year. The increase in the consolidated gross margin percentage reflects the higher proportion of total revenues represented by the Wireless Datacom segment in fiscal 2013 versus the prior year. Looking more closely at gross profit performance by reporting segment, Wireless Datacom gross profit was $13.2 million in the fourth quarter with a gross margin of 35.4%. Year over year, the Wireless Datacom gross profit was up by $4.1 million while gross margin held steady.

Our Satellite business had a gross profit of $1.8 million in the fourth quarter with a gross margin 16.5%. This compares to gross profit of $1.5 million and gross margin of 12.1% in the fourth quarter of last year.

Next, looking at bottom line results, GAAP basis net income for the fiscal 2013 fourth quarter was $32.6 million or $1.09 per diluted share. During the fourth quarter of fiscal 2013 the Company recognized an income tax benefit of $29.2 million as a result of eliminating the deferred tax asset valuation allowance associated with net operating loss and tax credit carry forwards that are expected to be utilized in future years. Excluding this income tax benefit, GAAP basis net income in the fourth quarter was $3.4 million or $0.11 per diluted share compared to net income of $1.7 million or $0.06 per diluted share in the fourth quarter of last year.

Our non-GAAP net income for the fiscal 2013 fourth quarter was $4.8 million or $0.16 per diluted share compared to non-GAAP net income of $2.6 million or $0.09 per diluted share for the same quarter last year. Non-GAAP earnings excludes the impact of intangibles, amortization, stock-based compensation and acquisition-related expenses of approximately $300,000 for the fourth quarter and includes an income tax provision for cash, taxes paid [ph] payable for the period. For a reconciliation of the GAAP and non-GAAP financial results, please see our fourth quarter earnings press release that was issued today which is available on our website.

Beginning in fiscal 2014, we expect our GAAP basis effective income tax rate will revert to a more typical level of around 40% based on full US Federal and state statutory tax rates even though on a tax-return basis, our income will still be largely sheltered from taxation by our NOL and tax credit carryforwards.

Our non-GAAP earnings method recognizes as a tax expense only the taxes paid or currently payable in cash and for this reason our non-GAAP earnings will not affected by the year-over-year comparability issues arising from the elimination of the differed tax asset valuation allowance.

So we encourage our analysts and investors to pay particular attention to the non-GAAP results going forward. Now, moving on to the balance sheet, at the end of fiscal 2013, the Company had cash and equivalence of $63.1 million which included net proceeds of $44.8 million raised from a public stock offering in the fourth quarter and total bank debt of $1.8 million.

Shortly after the end of the fiscal 2013 CalAmp completed the previously announced acquisition of Wireless Matrix for a cash payments of approximately $47 million netted cash acquired and also entered into a new bank term loan for $5 million.

Given the pro forma effect to these two transactions as if they have both occurred at the end of fiscal 2013, the year-end balances of cash and bank debt would have been $19.6 million and $5 million respectively.

A pro forma net cash balance, that is cash less bank debt of $14.6 million at the end of fiscal 2013 represents an increase of $12 million over the net cash balance of $2.6 million at the end of fiscal 2012.

Our totally outstanding debt at the end of the fourth quarter was $4.7 million comprised of $1.8 million under our bank term loan and the $2.9 million carrying value of a non-interest baring note payable issued in May 2012 as part of the purchase consideration for the Navman Wireless asset purchase.

The Navman note payable which had an original phase amount of $4 million is payable in the form of sales price rebates as sales for reaching that band under the five-year $25 million supply agreement.

Our total inventory at the end of the fourth quarter was $13.5 million represented annualized inventory turns of approximately 10 times. At the end of the immediately preceding quarter, inventory was $13.2 million which represented annualized inventory turns of nine times.

The consolidated accounts receivable balance was $19.1 million at the end of the fourth quarter. This represents an average collection period of 38 days which is slightly better than our receivables collection rate during the previous quarter. With that, I’ll now turn the call back over to Michael for our guidance and for final comments.

Michael Burdiek

Thank you, Rick. Now, let’s turn to our financial guidance. Based on our latest projections, we expect fiscal 2014 first quarter consolidated revenue in the range of $50 million to $54 million. We anticipate Wireless Datacom revenue in the first quarter will be significantly higher on both the year over year in a sequential quarter basis.

The revenue contribution of the Wireless Matrix business is expected to more than fully offset a projected role in shipments of positive train control radius in the first quarter. Satellite revenue in the first quarter is expected to be up on a sequential quarter and relatively flat on the year-over-year basis.

At the bottom line, we expect first quarter GAAP net income in the range of $0.01 to $0.05 per diluted share and non-GAAP basis net income in the range of $0.11 to $0.15 per diluted share.

We expect that our first quarter GAAP basis operating results will be impacted by transaction and integration expenses associated with Wireless Matrix acquisition of approximately $600,000.

Based on our latest projections, we expect the second half of fiscal 2014 to be stronger than the first half as some of the recently announced opportunities begin ramping and operating expenses revert to a more normalized level as a result of synergies and expense reductions associated with the Wireless Matrix integration.

In closing, I’d like to recap some key points drawn from our recent developments. First, our Wireless Datacom segment posted impressive revenue growth to the first fourth quarter as well as the full year driven by strength across all of our core verticals with particular momentum in our MRM products business.

Second, our unique hardware, software and services portfolio as supported by established channel partnerships with global reach has given us the leverage and scale to pursue increasingly larger opportunities.

And finally, we believe the Wireless Matrix acquisition will accelerate our growth prospects, strengthen our competitive position within key verticals and increase our subscription in fast-based revenues.

Overall, our competitive position continues to improve as we pursue opportunities for integrated hardware and software solutions for larger global enterprise customers. We have established a solid foundation and expect to continue to drive profitable growth in the months and years ahead.

That concludes our prepared remarks. Thank you for your attention and at this time, I’d like to open up the call for questions. Operator?

Operator

Thank you. We’ll now be conducting our question-and-answer session. (Operator instruction) Our first question is coming from the line of Mr. Mike Walkley with Canaccord Genuity. Your line is now open. You may proceed with your question.

Question-and-Answer Session

Mike Walkley – Canaccord Genuity

Great, thank you very much. Congratulations on the strong results.

Michael Burdiek

Thank you.

Mike Walkley – Canaccord Genuity

Mike, maybe just on a high level, I realized you just closed the Wireless Matrix acquisition. Can you discuss some customer feedback and synergies you believe you might be able to capitalize on and maybe just any commentary on the potential new deals given your new capabilities and scope?

Michael Burdiek

Sure. Well there are sort of two parts to the story. There’s the Legacy Wireless Matrix customers obviously and there are our existing CalAmp or perspective CalAmp customers.

I’d say on both fronts, the response has been very positive. Obviously Wireless Matrix being married up to CalAmp really, really [inaudible] us I think in many ways. Their channel initiatives, obviously CalAmp is a pretty solid and secure financial platform to operate from certainly much more so than that the Wireless Matrix employees and channel partners were able to operate from before.

So that’s very positive.

So there’ll be probably opportunities in the Wireless Matrix pipeline that are more secure today than they were before we announced the acquisition. In terms of CalAmp customers, again, there are kind of two parts to that story. Their existing customers through MRM products like Wireless Matrix was before and of course there are key customers and channel partners our wireless networks business in the energy, rail, government market segments which view the ability for CalAmp to provide a mobile workforce management solution is highly complementary to the types of products and services we were offering before.

On the MRM product side, obviously a little bit of concern given Wireless Matrix competed with some of our key customers, but I think in general, our customer base there is accepting of our overall growth strategy and acknowledges that we’re focused on specific verticals not necessarily across all verticals where some of our traditional MRM products customers are focused.

Mike Walkley – Canaccord Genuity

Okay good, thanks. And just for modeling purposes, can you guys help us with the first quarter Wireless Matrix just the pro forma or OpEx levels for the Company within consolidated and maybe where you think that pro forma OpEx run rated as it plays out you could do consolidate some costs?

Michael Burdiek

Sure. When we announced the acquisition back in December, there was obviously some public information available for Wireless Matrix existing operations. At that time, and again I’m going from memory here, their OpEx was around $25 million per year.

As we talked about in our last earnings call, our classification to some of that OpEx would be a little bit different than the accounting approach taken by Wireless Matrix prior to us integrating the operations.

So some of that OpEx would have naturally been folded up into cost of sales in terms of service delivery initiatives and efforts, so on a normalized basis, we would have classified some of that OpEx into cost of sales.

And so the OpEx was probably from a CalAmp perspective somewhere in the $22 million to $23 million range on an annual basis. Obviously we set out some objectives when we announced the acquisition and we went through the equity raise back earlier this year.

And we had suggested that we expected to take out certainly more than $2 million, potentially more than $3 million of that OpEx in terms of headcount reductions and other synergies.

We all see also obviously eliminated the public company expenses. And so on a normalized basis, once all of these transitory or transitional expenses are moved out as we move in to Q2, we would expect a pro forma OpEx in support of Wireless Matrix to be less than $20 million a year.

In the first quarter, obviously we’re baring pretty much the full brunt of that pre-existing OpEx. And so the first quarter is more like a quarter of the $22 million or $23 million in terms of incremental OpEx over what would have be a normalized CalAmp OpEx run rate in Q1 without Wireless Matrix.

Mike Walkley – Canaccord Genuity

Okay, great. That’s helpful. I just want to dig in a little bit more to some of your commentary about the stronger second half of the year with some of your new announced customers. How do you think about sizing a couple of these bigger opportunities, maybe a Caterpillar or the Pepco just in terms of when you think it hits in a longer-term opportunity with those types of customers?

Michael Burdiek

Well there are at least four, potentially five initiatives that could contribute in the second half of this fiscal year that won’t in any way impact the results for the first half of the year.

Number one, it’s the Insurance Telematics opportunities that are very much moving through our pipeline. We believe that that could contribute meaningfully to revenues in the second half of the year. It’s unlikely that will impact Q2, but it certainly could impact Q3 and Q4.

We’re involved in a couple of controlled launch initiatives with a couple of key insurance opportunities. And so we’re becoming more confident that that will contribute in the second half of the year.

In terms of size, I hate to speculate, but it’s probably in the few millions of dollars of opportunity, incremental opportunity in the second half of the year. Another key project that we’re involved in is the Pepco Holdings Smart Grid Project.

We had some revenue from Pepco Holdings in Q4, but that was for standard product in our existing portfolio. We’re currently working on a brand new radio design that’s a broader band, narrow band. I hate to use two contrasting references but a broader band product that will offer them significantly improved throughput for their existing spectrum holdings.

We’re going through a product qualification phase right now with Pepco. And we expect that we’ll begin shipping those radios against our contract some time in Q3. Again, in terms of incremental opportunity, probably similar in scope or size and magnitude is what we see as the potential contributor on the insurance front.

And of course with PTC, we don’t expect much if any revenue from PTC this quarter potentially the same situation next quarter, but as the deadline becomes ever nearer, we believe that there’s a degree of pent up demand developing in the rail marketplace and that eventually that demand has to break loose. So we would expect that PTC will certainly contribute more in the second half of the year than it will in the first half.

In terms of Caterpillar, again we’ve announced a development contract. We have gone through one round of product design and validation. We’re going through a phase two in that development program, the first phase being targeted essentially Legacy or older types of heavy equipment and product platforms.

The second phase is all essentially upgrades to those base platforms that will address a broader portfolio of their products. And Caterpillar is very, very rigorous in terms of how they qualify products and qualify production processes. And so we’re deep into their program in terms of their standards and processes.

And all of that will take time to work through the normal system with Caterpillar. We may see some revenue from Caterpillar later this year, but I would expect most of the ramp and contribution which could be significant begin happening some time next calendar year.

And then the last thing which we haven’ really talked much about but it’s the introduction of a new satellite data telemetry platform to serve existing Wireless Matrix customers in the rail and utility markets.

Wireless Matrix had end of life [ph] to satellite communication product about two years ago. They had not been able to sell new hardware products and really initiate any new activation through satellite services for nearly 18 months.

We’re preparing to introduce a new satellite platform that will allow us to sell hardware and to begin to activate new data subscriptions once that satellite platform is introduced. We expect that to take place sometime over the coming months. And so there again, we would see some potential contribution in the latter half of this year from that initiative.

Mike Walkley – Canaccord Genuity

Great, thanks. I’ll ask one more and passed it on to the other analyst. But just in terms of [inaudible] in terms of your recurring revenue with Wireless Matrix, can you give us a recurring revenue for the Company, post the deal here, maybe what’s implied in your guidance and how you could see that trending longer term?

Michael Burdiek

Well when we announced the deal and we’ve talked about it in the last earnings call, we approximated recurring revenues whether they’re SaaS-based, data services or rare-time services to the various applications of being approximately 20% on a consolidated basis.

As we look at our guidance for Q1, it’s pretty close to that, maybe 1% or 2% lower than 20% of our consolidated guidance.

Mike Walkley – Canaccord Genuity

[Inaudible] some of these initiatives?

Michael Burdiek

Excuse me?

Mike Walkley – Canaccord Genuity

Would you expect that percent to grow overtime with some of the initiatives?

Michael Burdiek

I wouldn’t necessarily expect the percent to grow this fiscal year because we expect our other businesses to grow too.

Mike Walkley – Canaccord Genuity

Right.

Michael Burdiek

So we expect everything to grow. But we don’t expect the recurring revenues to grow any faster than our other products and offerings at our Wireless Datacom segment.

Mike Walkley – Canaccord Genuity

Okay, thank you. Well good luck executing on this year [ph].

Michael Burdiek

By the way, just to add to that. That could change overtime. Obviously we’re focused on growing recurring revenues and so we’re obviously focusing a lot of investment in that area.

Mike Walkley – Canaccord Genuity

Okay great. Well best of luck executing on all of the initiatives you have going on this year.

Michael Burdiek

I appreciate it. Thank you, Mike.

Mike Walkley – Canaccord Genuity

Thank you.

Operator

Thank you. Our next question is coming from the line of Mr. Howard Smith with First Analysis. Your line is now open. You maybe proceed with your question.

Howard Smith – First Analysis

Yes, thank you. Good afternoon, gentlemen and congratulations on a strong end to a solid year.

Michael Burdiek

Thank you.

Howard Smith – First Analysis

My question is in regards to Wireless Matrix. So you talked about in the last question session about the revenue side specifically and customer reaction. I’m just curious now that you’ve had that asset for about seven weeks. Is there anything positive, negative or otherwise just noteworthy that you’ve seen as being the operator of that asset?

Michael Burdiek

I’d say that probably the one of the bigger surprises but hope for outcomes was the reaction from some of our customers in the energy and public works markets. They’re highly engaged with us in terms of contemplating what we might be able to do from a mobile workforce management standpoint.

So I think we’re starting to see some real synergies from a channel perspective particularly in, again, the energy, public safety and public works markets.

Howard Smith – First Analysis

That’s interesting that reaction. More of a house-keeping question on the international side, you mentioned the part of the strength in this quarter was due to some new customers coming on board. Is there an initial stocking order to get them up and running and then maybe Q1 a little fall off from those customers or is this kind of the run rate with those customers going forward?

Michael Burdiek

No. Our customers generally aren’t stocking in nature. They don’t build up a warehouse and materials and then start feeding instillations from that. That’s not the dynamic of our MRM products business for sure.

And so in many cases, a lot of our international customers which contributed to revenue in Q4 will continue to ramp overtime just as our key customers have in the United States over the last three, or four, or five years.

Howard Smith – First Analysis

Okay. So this kind of run rate is the start and you continue to build as those customers ramp with their growth of their business?

Michael Burdiek

We certainly hope so.

Howard Smith – First Analysis

All right, those are my questions. Thank you very much.

Michael Burdiek

You’re welcome.

Operator

Thank you. Our next question is coming from the line of Mr. Mike Crawford with B Riley & Co. Your line is now open. You may proceed with your question.

Mike Crawford – B Riley & Company

Thank you. Getting back to the insurance opportunity which is really, it sounds like pulling into the second half of the year, there’s a couple of big insurance here in the US, Progressive and Allstate that have their snapshot and driveways programs that are already up and running.

Is that something that you’re participating in already? I mean you did mention some early stage control blanches that you’re involved with, but what has changed in the insurance market in the last, say, three months.

Michael Burdiek

So in terms of the two insurance providers that you mentioned, we’re not involved in either one of those two initiatives. And in terms of the Progressive role, it’s marketly different than the kind of control launches that we’re involved in.

The earlier Progressive UBI program and the snapshot device is different in nature than what many of the insurance carriers are contemplating in terms of driver behavior, driver assessment, risk management types of initiatives.

The programs we’re involved in either in pilot or in control launch involve essentially ream-time telematics where a device is installed in a vehicle whether it’s commercial or consumer and it’s providing either a stream of data or data that some ways assessed and compressed and analyzed in real time at the device level and then set up to back in software and applications.

And so that type of process is different to what Progressive has been doing mostly up to this point in time. And so from a process standpoint, it’s quite different. In terms of what’s changed over the last three months, things have just progressed through the pipeline. And what were pilot programs at one point in time now look to be more like controlled launches.

Mike Crawford – B Riley & Company

Okay, thank you, Michael. And then back at Distributech [inaudible] you were demoing that energy management in control solutions for low [ph] control and then subsequently we have seen this company Silver Spring Networks go public, what seems to me a pretty similar solution, how would you contrast what you’re able to do regarding remote control systems and Silver Spring Networks what they can do?

Michael Burdiek

Well, how do I answer that question? Silver Spring has traditionally provided data communication solutions for smart metering and smart grid applications. That’s really their core business. To a certain extent that’s what we’ve been doing over the last several years within our wireless networks business.

As with Silver Spring obviously we’re looking to expand our offering with utility customers from just hardware and data communication solutions over into the application arena. I detect that Silver Spring is making similar moves.

In terms of where they are exactly in terms of SaaS-based or recurring revenue initiatives in the utility space, I can’t really say. I’m not sure they’re necessarily focused on demand response as much as we’re targeting response with our software and solution initiatives.

Mike Crawford – B Riley & Company

Okay. Thank you. And then also with Wireless Matrix you already I think at the IWCE were showing a workforce management solution for the public safety market. And clearly that’s something you have been working on before the acquisition was finalized.

How quickly can we roll out the fleet outlook like products for other verticals?

Michael Burdiek

Well we can roll them our immediately. I mean Wireless Matrix has sold the fleet outlook and their mobile workforce management platform into the utility market for example. They had good presence amongst the number of different municipalities for public works and public workforces.

So in many ways, we will just continue on with the march. Obviously our channels are much broader, probably deeper in many cases in the utility market and in the public safety and public works arena. And so it’s really leveraged our existing channels to further expand and grow the overall pipeline of opportunities.

And so that’s something that we’re pursuing today, Wireless Matrix was pursuing before. In terms of the specific demonstration at IWCE, what I think you saw there was a convert solution whereby CalAmp can offer a range of different applications including mobile workforce management applications through what we might term the CamAmp app store to serve a range of different applications whether the public safety, public works, utility, oil and gas customers. And that’s our concept and strategy going forward.

Mike Crawford – B Riley & Company

Okay, thank you. And then just final question on Caterpillar, so your radios are being qualified now and that’s the process you expect to take six to nine months. And then you talk about revenues more meaningful in the next fiscal year.

I was wondering if you could help size that opportunity in terms of units and/or dollars for the Company?

Michael Burdiek

I would love to give you a specific estimate, Mike. I can’t. In the Caterpillar even in its slow quarters and slow years build a lot of products. I don’t know the exact quantity in terms of unit shipments they make per year, but it’s certainly well more of a 100,000.

So if our telematics designs are integrated even narrowly in one or more of their factories on one or more of their product platforms, it represents pretty significant unit volumes for us.

Mike Crawford – B Riley & Company

Okay, thank you very much.

Operator

Thank you. Our next question is coming from the line of Mr. Travis Hook with Craig Hallum. Your line is now open.

Travis Hook – Craig Hallum

Hello?

Operator

Pardon me one second, we’re just having a brief technical issue. Mr. Hook, your line is now open. You may proceed with your question.

Travis Hook – Craig Hallum

Thanks and thanks for taking my call. You’ve been speaking a lot about several initiatives going on and it sounds like in a good way you certainly have a lot of irons in the fire here.

But between a pretty sizable acquisition and several large enterprise customers, are you on board with hopefully some more down the road? You sort of have a high class problem and that is execution as far as I was just wondering if you could speak to your priority as far as the next couple of quarters or how you plan to stay on focus and manage what it seemingly a lot of different initiatives going on and then a quick follow up.

Michael Burdiek

Well, that’s a great question. And based on our recent discussion in terms of providing specifics on these opportunities, you might have seen that there are fairly recent opportunities and maybe even recent product development initiatives. And that’s really not the case.

I mean if you look at, at the insurance market, we’ve been talking about that for two years. We introduced a product almost two years ago that today is involved in a number of various projects and is part of the couple of controlled launches I described.

So certainly whenever you began to deploy relatively immature technology and new market applications and when it involves significant unit quantities obviously encountered a number of different challenges there both in terms of engineering updates, as well as product support and field application engineering.

And as we’ve grown our business, we’ve grown, we’ve increased those resources. And so I think in generally we’re pretty well prepared to deal with these potential significant ramps in the insurance market. In the energy space, the product that by [ph] initially qualified and it’s actually taking some shipments of in the last quarter is a product that we introduced, again, almost two years ago.

We are adapting that product to this broader band application and the spectrum assets that are specific to Pepco Holdings. There’s engineering effort involved in that, but we’ve got the engineering resources we believe to support that.

On PTC, these are standard products. It’s really an operational challenge if a significant demand develops in the second half of the year. And I think, again, we’ve got scalable operations and a lot of flexibility from a manufacturing perspective, so I think we can support that.

Caterpillar, I think we’re going to have plenty of time to prepare. They have, again, a very, very rigorous product qualification and production process qualification and verification program. And Caterpillar in many ways would help us along if we ran into bumps in the road, from a production perspective whether it was capacity or quality.

So I feel reasonably comfortable that these initiatives can be managed in a very effective and efficient way.

Travis Hook – Craig Hallum

Great, thanks. As I said, it’s a high-class problem and you guys are well on your way to becoming a small cap conglomerate, so good work.

Michael Burdiek

I haven’t heard that reference.

Travis Hook – Craig Hallum

And then just a housekeeping question on margins you earlier spoke to some of the OpEx, but I was wondering back in the Wireless Matrix acquisition, you speculated that you might see naturally a pretty jump on margins due to the actually different margin profile of SaaS versus hardware.

And I was just wondering for housekeeping and modeling, could you – now that you’ve had it for a couple of weeks, could you speak to that a little bit more as far as in the next couple of quarters, gross margin wise as to what you’re looking for or hoping to achieve?

Michael Burdiek

Sure. For the Wireless Datacom segment which Wireless Matrix is being integrated in to, it represents approximately a 5% increase in gross margin as compared to where we’ve been in the last couple of quarters. And then of course on a consolidated basis, that have to be factored in a little bit roughly 4% on a consolidated basis.

Travis Hook – Craig Hallum

Great, thanks. I appreciate it.

Operator

Thank you. Our next question is coming from the line of Mr. Mike Latimore with Northwind Capital. Your line is now open. You may proceed with your question.

Mike Latimore – Northwind Capital

Thank you. Great year there.

Michael Burdiek

Thank you.

Mike Latimore – Northwind Capital

On the PTC railroad opportunities, when the spending does return in that category later this year, you see that level similar to what you just had, higher, lower, how do you think about that? And what’s the main factor causing the [inaudible] for these quarters?

Michael Burdiek

Sure. So if you look back on fiscal 2013 as a whole we had approximately $15 million of rail revenue. About half of that was specifically related to the product development program that we are involved in and did not in any way involve the shipment of production radios.

So about 7.5 was project revenue, another 2.5 or so was related to the driver list training project that we’re involved in for mining application in Australia. So that’s about $10 million out of the $15 million of rail revenue last year. And then we have about $5 million of actual PTC production radio revenue.

So obviously in Q1, we’re looking at a very light quarter, probably just in a range of a few $100,000. Q2 could be similar, but our goal and our hope is that we would exceed the $5 million of production revenue that we experienced last fiscal year.

Some ways what we had in terms of overall PTC revenue kind of distorts the picture. And in terms of the $5 million production revenue we did have last year, a lot of that was really dovetailed in somewhat related to the development program. I wouldn’t consider that to be normal demand in any way.

Mike Latimore – Northwind Capital

Great, fair enough. That’s helpful.

Michael Burdiek

Yes.

Mike Latimore – Northwind Capital

In terms of the number of CalAmp’s sales people that year end, what was that number and have you planned on adding any organically this year?

Michael Burdiek

Oh my, I don’t know what the exact number of sales people, what the head count was there. But definitely we’d expect that we’d be adding headcount in the sales and marketing area this fiscal year.

Mike Latimore – Northwind Capital

Okay. And then just kind of I guess housekeeping, what will be the intangible asset amortization cost recorded on this quarter [ph]?

Michael Burdiek

I’ll let Rick address that question.

Rick Vitelle

Will that might be the amount of amortization going forward?

Mike Latimore – Northwind Capital

Yes.

Rick Vitelle

It’s the net effect of newly acquired identifiable, intangible coming on screen and some becoming fully amortized in the first half of the current fiscal year, but it’s going to average right around $1.5 million on a quarterly basis in FY ‘14.

Mike Latimore – Northwind Capital

Great. And then also would be the Navman contribution of course similar to last quarter?

Michael Burdiek

It was down a little bit. I believe in Q3 it was about $2.6 million and the latest quarter perhaps just a little under $2 million.

Mike Latimore – Northwind Capital

Good. Thanks a lot.

Operator

Thank you. Our next question is coming from the line of Shai Dardashti with DCM. Your line is now open. You may proceed with your question.

Shai Dardashti Mike – DCM

I mean first, an observation, what you have done over the past three years should be a Harvard case study. It’s absolutely spectacular and it’s much more than a quarter-over-quarter story what’s happening here. So thank you.

Michael Burdiek

We appreciate that, Shai, thank you.

Shai Dardashti Mike – DCM

And I’m noticing there’s an evolution in the competition in the 10-K. I’m curious over a 24-month perspective which companies do you expect to compete with more with overtime?

Michael Burdiek

We’ll work that into the case study. Well we talked a little bit about this I believe on the last call and maybe specifically to one of your question, Shai. I believe that increasingly we’ll be competing with larger types of companies and competitors.

If you look at the overall mobile resource management marketplace, there’s one large player and its name is Trimble. I would expect as we get deeper into some these construction equipment, heavy equipment markets, potentially [inaudible] markets that we would bump into, people more along the profiles of a Trimble, then perhaps some of the people we bump into in that past.

Also the competitive landscape may change marginally as we expand more internationally, but not significantly. We would expect the landscape of competitors drilling pretty much the same.

In terms of software and services, you see we expect to see a fair amount of consolidation and in that sense, again, we’ll probably be looking at larger competitors not smaller one on average from a software and services perspective as it involves mobile workforce management asset tracking solutions.

Shai Dardashti Mike – DCM

And if I could really nip tick, I’m seeing the order of the names of the companies, their 10-Ks are different year to year and it’s not alphabetical. What’s the sequence that’s being used in the 10-K of the companies?

Rick Vitelle

Yes. This is Rick, Shai. We’ve had some consolidation among our subsidiaries. So if you’re referring to our subsidiaries list or the reporting segments if you’re seeing–

Shai Dardashti Mike – DCM

I’m looking at there’s a list of – I’m sorry. I’m sorry.

Rick Vitelle

If you’re referring to the reporting segments, the Wireless Datacom versus Satellite, up until a couple of years ago, we typically list our Satellite segment first.

Michael Burdiek

I believe Shai’s question is related to the ordering of competitors as described in the 10-K.

Rick Vitelle

I don’t think there’s anything underlying the sequence with it, with those names are listed. It’s just a function of how they were updated with various individuals within the company.

Shai Dardashti Mike – DCM

Okay, thank you.

Operator

Thank you. At this time, there are no further questions. I would like to turn the call back over to management for any closing comments.

Michael Burdiek

Well thank you for joining us today and we look forward to speaking to you at the end of our first quarter.

Operator

Ladies and gentlemen, this does conclude today’s teleconference. You may disconnect your lines at this time. Thank you very much for your participation and have a wonderful evening.

Copyright policy: All transcripts on this site are the copyright of Seeking Alpha. However, we view them as an important resource for bloggers and journalists, and are excited to contribute to the democratization of financial information on the Internet. (Until now investors have had to pay thousands of dollars in subscription fees for transcripts.) So our reproduction policy is as follows: You may quote up to 400 words of any transcript on the condition that you attribute the transcript to Seeking Alpha and either link to the original transcript or to www.SeekingAlpha.com. All other use is prohibited.

THE INFORMATION CONTAINED HERE IS A TEXTUAL REPRESENTATION OF THE APPLICABLE COMPANY'S CONFERENCE CALL, CONFERENCE PRESENTATION OR OTHER AUDIO PRESENTATION, AND WHILE EFFORTS ARE MADE TO PROVIDE AN ACCURATE TRANSCRIPTION, THERE MAY BE MATERIAL ERRORS, OMISSIONS, OR INACCURACIES IN THE REPORTING OF THE SUBSTANCE OF THE AUDIO PRESENTATIONS. IN NO WAY DOES SEEKING ALPHA ASSUME ANY RESPONSIBILITY FOR ANY INVESTMENT OR OTHER DECISIONS MADE BASED UPON THE INFORMATION PROVIDED ON THIS WEB SITE OR IN ANY TRANSCRIPT. USERS ARE ADVISED TO REVIEW THE APPLICABLE COMPANY'S AUDIO PRESENTATION ITSELF AND THE APPLICABLE COMPANY'S SEC FILINGS BEFORE MAKING ANY INVESTMENT OR OTHER DECISIONS.

If you have any additional questions about our online transcripts, please contact us at: transcripts@seekingalpha.com. Thank you!

Source: CalAmp's CEO Discusses F4Q13 Results - Earnings Call Transcript
This Transcript
All Transcripts