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CalAmp Corp. (NASDAQ:CAMP)

F1Q14 Earnings Conference Call

June 27, 2013 4:30 pm ET

Executives

Lasse Glassen – Senior Vice President, Financial Relations Board

Michael Burdiek – President and Chief Executive Officer

Rick Vitelle – Executive Vice President, Chief Financial Officer and Secretary

Analysts

Michael Walkley – Canaccord Genuity

Mike Crawford – B.Riley & Co.

Mike Latimore – Northland Capital Markets

Jason Smith – Craig-Hallum Capital

Raymond Joseph Rund – Shaker Investments

Shai Dardashti – DCM

Operator

Greetings and welcome to the CalAmp First Quarter Fiscal 2014 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. Thank you sir, you may begin.

Lasse Glassen

Thank you, operator. Good afternoon and welcome to CalAmp’s fiscal 2014 first quarter 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 on the Company's wireless and satellite 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 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 risks and uncertainties that are described in the Company's Annual Report on Form 10-K for fiscal 2013 as filed on April 25, 2013 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 statements, whether as a result of new information, future events or otherwise.

With that it’s now my pleasure to turn the call over to 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 2014 first quarter results. 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, I will wrap up with our business outlook and guidance for the fiscal 2014 second quarter. This will be followed by a question-and-answer session.

Overall, we’re off to a strong start in fiscal 2014. In the first quarter, our Wireless Datacom segment revenue increased 29% year-over-year driven by continued momentum from our Mobile Resource Management or MRM products business and contribution from our Wireless Matrix acquisition that was completed in the first week of the quarter.

In fact, MRM product revenues were at an all time high for a single quarter and MRM product bookings during the quarter were that strongest in history. As a result revenue growth in these areas more than offset the low that we experienced in rail shipments along with slow government sales.

Our Wireless Datacom segment gross margin improved to 39.1% due mainly to higher margin application subscription revenue from the Wireless Matrix acquisition. And rapid progress on the integration front during the first quarter resulted in lower than expected operating expenses from the acquired operations of Wireless Matrix.

In our Satellite segment, we saw improving margins along with some growth resulting in a meaningful impact to the bottom line results.

On a consolidated basis, revenue for the first quarter was $53.7 million, up 22.5% compared to the first quarter of last year with Wireless Datacom revenue increasing 29% to $40.9 million, and Satellite revenue up 6% to $12.9 million.

At the bottom line, we are in $0.05 per diluted share on a GAAP basis at $0.16 per diluted share on a non-GAAP basis just above or non-GAAP guidance range for the quarter. Cash flow provided by operating activities was $5.8 million and we ended the quarter with the cash balance of $24.5 million.

Now I’d like to review our operational highlights for the quarter. The Wireless Datacom segment posted record revenue results in the first quarter with MRM products accounting for approximately 55% of total Wireless Datacom revenue and Wireless Networks products and services which included contribution from the Wireless Matrix acquisition accounting for the remaining 45%.

Consistent with what we’ve seen in recent quarters, we are continuing to experience very strong customer demand for our MRM products in the fleet management, asset tracking, stolen vehicle recovery, and vehicle finance verticals. Notably, the investments we have made to grow our international presence continue to bear fruit. We are now seeing meaningful growth with key customers in Latin America, Europe and South Africa, as well as significant recent orders for stolen vehicle recovery products in Brazil that should drive growth in our second quarter.

On the usage-based insurance front, we continue to actively support a handful of customers who are in the early stages of launching their insurance telematics offerings. We believe our products are competitively positioned both in terms of functionality and price, and we now expect meaningful revenue from insurance carriers in the second half of the year. As we mature our technology and as our customers validate to business models, revenue from insurance-based applications could become a significant growth driver for CalAmp well into the future.

We continue to focus our investments on unique technologies to give CalAmp sources of competitive advantage into developing M2M space. We are increasing our R&D investments in such areas as usage-based insurance to maintain technology leadership and are protecting our innovations through patents when possible.

As an example, this month we were awarded a patent involving a wireless detection of ignition status to enable a simpler device installations and invention that is applicability across a range in mobile telematics applications. This is one of many technology innovations that CalAmp has developed and will roll out in various MRM products in the coming quarters.

Turning to our Wireless Networks business; first quarter revenues were at an all-time high based on contribution from a Wireless Matrix acquisition. Recurring revenues represented close to 18% of consolidated revenues, and at the end of our first quarter we had 395,000 unique software application subscribers that provide an ongoing recurring revenue stream for our Wireless Datacom segment.

The integration of our Wireless Matrix acquisition has been progressing ahead of plan resulting in better than expected first quarter bottom line contribution. We’re on track to hit our accretion in incremental EBITDA targets for this acquisition and continue to believe it will accelerate our growth prospects and strengthen our competitive position within key verticals in the coming quarters and years.

In our energy vertical, we started to execute against our contract win with Pepco Holdings one of the mid-Atlantic regions largest energy delivery companies. In addition, during the quarter we generated initial revenues with new OEM customer in the commercial solar power industry that represents an alternative energy market expansion opportunity for our Wireless Networks business.

In our rail vertical we experienced the expected low and demand for Positive Train Control or PTC radios. Also revenues in our government vertical were weaker then expected due to some lingering uncertainty around the FirstNet LTE deployment rule-making and interoperability compliance processes. That said, we continue to believe that the longer term opportunities for both PTC and our public safety products are unchanged that we are well positioned with our offerings in these verticals when the market develops.

In the heavy equipment sector, we continue to make progress on our development agreement with Caterpillar, the world's largest heavy equipment manufacturer with cellular-based and satellite-based mobile telematics devices. We continue to believe it is important customer could drive meaningful revenue growth in the coming years, although the timing of any production ramp is unclear.

The heavy equipment sector represents a tremendous market expansion opportunity for CalAmp in a sector that we are better prepared to pursue as we further integrated and leverage the asset tracking and fleet management application expertise that we acquired with the Wireless Matrix. We are investing in business develop that initiatives both directly and through carrier partnerships to identify future growth opportunities in this important market segment.

Overall, we are pleased with the strategic direction of our Wireless Networks business and its potential for growth with multinational enterprise customers where we can leverage CalAmp's unique portfolio of hardware, software and service content.

Turning to our Satellite segment, revenue in the first quarter was $12.9 million up 9% sequentially and nearly 6% year-over-year. The first quarter gross margin of 19.6% reflects the 370 basis points improvement year-over-year primarily due to a product mix favoring higher margin home networking equipment. 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 now turn the call over to Rick Vitelle, our Chief Financial Officer for a closer look at our first-quarter financial results.

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 2014 first quarter.

Consolidated gross profit for the fiscal 2014 first quarter was $18.5 million an increase of $4.8 million over the same quarter last year, predominantly as a result of higher revenue in the Wireless Datacom segment. Consolidated gross margin was 34.4% in the latest quarter, compared to 31.2% in the first quarter of last year. The increase in the consolidated gross margin percentage primarily reflects the higher proportion of total revenues represented by the Wireless Datacom segment in fiscal 2013, versus the prior year, including the contributions from our Wireless Matrix acquisition.

Looking more closely at gross profit performance by reporting segment, Wireless Datacom gross profit was $16.0 million in the first quarter with a gross margin of the 39.1%. Year-over-year Wireless Datacom gross profit was up by $4.2 million, while gross margin improved by approximately two percentage points, primarily due to the shift in revenue mix toward higher margin subscription-based revenues associated with the Wireless Matrix acquisition.

Our Satellite business had a gross profit of $2.5 million in the first quarter, with a gross margin of 19.6%. This compares to gross profit of $1.9 million and gross margin of 15.8% in the first quarter of last year. These year-over-year profitability improvements in our Satellite business are primarily due to a shift in product mix.

Next looking at bottom line results; GAAP basis net income for the fiscal 2014 first quarter was $1.7 million or $0.05 per diluted share compared to net income of $4.2 million or $0.14 per diluted share in the first quarter last year. The lower GAAP net income is due in part to the elimination of substantially all of the companies deferred income tax asset valuation allowance at the end of fiscal 2013, which caused GAAP basis income tax expense to revert to a level that reflects full statuary tax rates beginning in the first quarter of fiscal 2014. Despite this on a cash basis the Company's pretax income is still largely sheltered from taxation by net operating loss carry forwards and as expected to remain so for the next few years.

Our non-GAAP net income for the fiscal 2014 first quarter was $5.6 million or $0.16 per diluted share compared to non-GAAP net income of $5.3 million or $0.18 per diluted share for the same period last year. Non-GAAP earnings excludes the impact of intangibles amortization, stock-based compensation expense, as well as acquisition related expenses of $640,000 for the first quarter, and includes in the income tax provision of $32,000 for cash taxes paid for the first quarter. For a reconciliation of GAAP and non-GAAP financial results, please see our first quarter earnings release that was issued today which is available on our website.

Now moving on to the balance sheet; at the end of the fiscal 2014 first quarter the company had cash and equivalents of $24.5 million. Operating cash flow was strong in the latest quarter at $5.8 million.

Our total outstanding debt at the end of the first quarter was $7.5 million comprised of $4.8 million under our bank term loan and the $2.7 million carrying value of the non-interest bearing 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 face amount of $4 million is payable in the form of sales price rebates and sales are made to Navman under the five year $25 million supply agreement.

Our total inventory at the end of the first quarter was $12.4 million representing annualized inventory turns of approximately 11 times. At the end of the immediately preceding quarter, inventory was $13.5 million, which represented annualized inventory turns of 10 times. The consolidated accounts receivable balance was $25.5 million at the end of the first quarter this represents an average collection period of 42 days, which compares to our receivables collection rate of 38 days during the previous quarter.

With that I’ll now turn the call back over to Michael for our guidance and some final comments.

Michael Burdiek

Thank you, Rick. Now let’s turn to our financial guidance. Based on our latest projections we expect fiscal 2014 second quarter consolidated revenue in the range of $53 million to $57 million. We anticipate Wireless Datacom revenue in the second quarter will be up moderately on a sequential quarter basis and up significantly year-over-year.

We expect Satellite second quarter revenues to be down slightly on a sequential basis, but up year-over-year. At the bottom line, we expect second quarter GAAP basis net income in the range of $0.04 to $0.08 per diluted share and non-GAAP net income in the range of $0.14 to $0.18 per diluted share.

We continue to expect that the second half of fiscal 2014 will be stronger than the first half of the year at several previously announced opportunities began ramping and expense reduction associated with Wireless Matrix integration take hold.

In closing, I'd like to the recap some key points. First, our MRM products business is showing continued strength with the potential for accelerated growth based on recent bookings activity. We are pleased with the progress we are making on the international front and are now keenly focused on successful deployments of our usage-based insurance products through the rest of the year.

Second, the execution of our Wireless Matrix integration has been ahead of plan resulting in better than expected first quarter bottom line contribution. With most of the integration risk behind us our focused to shifting towards growing the opportunity pipeline and setting the stage for revenue growth in fiscal 2015.

Third, emerging opportunities for our products in the energy usage-based insurance and heavy equipment sectors, as well as expansion of our international footprint position CalAmp for solid revenue and earnings growth in the second half of fiscal 2014.

And finally, we believe our unique hardware, software and service portfolio supported by established channel partnerships with global reach has given us the leverage to win an increasing share of the M2M market opportunities as they emerge.

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

Question-and-Answer Session

Operator

Thank you. We will now be conducting a question-and-answer session. (Operator Instructions) And one moment, please, while we poll for questions. Thank you. Our first question comes from the line of Michael Walkley with Canaccord Genuity. Please proceed with your question.

Michael Walkley – Canaccord Genuity

Great, thank you. Michael congratulations to your team on the Wireless Matrix integration and cost reduction ahead of plan. But then, my question to focus on is just on the strong bookings and the second half of visibility, can you walk through some of the areas that you are seeing the strong visibility. And how do you feel the usage-based insurance market given its potentially a large consumer market, is that an area you’ve seen the strong bookings already or should we think about that opportunity in particular?

Michael Burdiek

Thanks Mike. Well, we’ve seen very strong bookings over the last quarter and over the last few weeks in fact for MRM products in Latin America, generally in Brazil specifically. So I think in terms of near-term impact on revenues, certainly that bookings activity is probably going to have more effect on driving revenues into the second quarter and let’s say insurance would. However, we have built a little bit insurance telematics backlog and we expect to see some insurance related revenue, mostly from Europe, sometime later in the second quarter, but probably building through the second half of the year.

I mentioned Brazil being strong in the second quarter, the prospects in Brazil are actually quite good also for the balance of the year, but we expect that insurance in the second half of the year were probably be the stronger driver growth in our MRM products business.

Outside of that it’s the same stated growth initiatives that we expect to have some impact in the second half and more importantly in the coming year and that relates to the Pepco Holdings, Smart Grid project obviously that will build some PTC backlog and actually see some PTC revenue in the second half of the year. And also CAT maybe not so much this fiscal year, but certainly next fiscal year could be a strong driver of growth.

In terms of backlog there is very little on the CAT front yet outside of what we’re doing on the development project, we have booked a little bit of additional project business with Pepco this last quarter, and we expect that to contribute in the second half. And we have built a little bit of PTC backlog about $2.5 million that we expect to ship in the second half of the years. So those are some of the highlights.

Mike Walkley – Canaccord Genuity

Okay, great. And then just in terms of say a Caterpillar deal that’s one that’s more into the fiscal 2014 timeframe is that right, just trying to categorize the growth opportunities?

Michael Burdiek

You mean fiscal 2015?

Mike Walkley – Canaccord Genuity

Yeah calendar 2014 or fiscal, yeah thanks for the clarification.

Michael Burdiek

Yes, fiscal 2015 we would expect that to be more of an impactful event it will be at any point during this fiscal year.

Mike Walkley – Canaccord Genuity

Great. And then just on the Brazil strength, just to understand is that, that’s just overall MRM your current solutions or is this usage-based insurance the backlog there?

Michael Burdiek

That backlog is mostly stolen vehicle recovery related similar to these other businesses we’ve had across Latin America, over the last year or so. About a year ago, we made some direct sales and marketing investments in Brazil, and we expect that to be a long-term project, but it appears to be bearing fruit sooner than we expected it to, and obviously Brazil is the big economy, and safety and security are big issues in that economy, and amongst the growing middle class population, and so there appears to be a significant amount of demand for aftermarket products telematics products and a stolen vehicle recovery solutions in particular.

Mike Walkley – Canaccord Genuity

Okay great. Have you seen any kind of the regulatory environment requiring some of these emerging economies to have more of a stolen vehicle recovery type thing in their cars that seems to be another potential driver in some of these emerging economies at [aftermarket]?

Michael Burdiek

Yes in Brazil there has been some legislation that’s been debated and bantered about over the last few years and that appears that it maybe coming closer to becoming an actual regulation in that country, but I don’t believe that’s necessarily driving our near-term demand there. I think that could sustain demand over the longer term, but for the moment that’s not a big influencing factor.

Mike Walkley – Canaccord Genuity

Okay great. Just maybe a question for Rick or, on the gross margin by your two divisions, should we expect those type of trends to be stable or Satellite just an unusual mix this quarter and that’s why it was above kind of that very high end of your range, and for the large division is that 39% kind of what you expect now the Wireless Matrix incorporate or how could that go up or down going forward?

Rick Vitelle

Hi Mike, yeah, we think both of those gross margin results in the way this quarter are fairly representative of our outlook or the next few quarters at least. I think we’ve stated for awhile now that we expect to get back up to around the 40% level on the addition of the Wireless Matrix business and we got fairly close in the latest quarter.

Michael Burdiek

In the Wireless Datacom segment?

Rick Vitelle

Yes.

Mike Walkley – Canaccord Genuity

Right. Yeah it makes sense, okay. One last question from me and then I’ll pass it on. As you look at just your overall, some of these different growth opportunities in PTC, was that down this quarter from last quarter but you’re starting to see some bookings so that first it will go again in the second half of the year, is that how we should think about that?

Michael Burdiek

Oh it was definitely down as compared to Q4, by almost $3 million. In fact our PTC revenue in Q1 was about $0.5 million. When we talked on the last earnings call, I think we projected, we would be in the few hundred thousand dollars of revenue in Q1 and that looked to be similar to our Q2. That has, that outlook hasn’t changed.

Mike Walkley – Canaccord Genuity

Okay.

Michael Burdiek

So existing PTC backlog we think we’ll ship mostly in the second half of the year and obviously we’re hopeful that we can book some additional business. But I think it’s important to remember that PTC production business at least in the early days is fairly low margin, in fact in the lower end, lowest end of the margin range for all of our Wireless Datacom businesses.

Mike Walkley – Canaccord Genuity

And just as a reminder, what was the kind of quarterly run rates in the businesses conclude that its peak in the trial stage?

Michael Burdiek

Well on the, during the development project, the peak was actually Q1 last year where we were close to I think $4.6 million. Not only was that the peak in terms of revenue it was also by far the peak in terms of marginal gross profit contribution. That was very profitable business; the production business is considerably lower gross margin.

Mike Walkley – Canaccord Genuity

Yeah, and can you show type of quarterly levels once it goes commercial or rollout, is that something you could seen in long-term visibilities as a potential outcome?

Michael Burdiek

Well, things are developing slowly, we would hope to get to that level of quarterly revenue run rate in terms of PTC radio shipments, but we are nowhere close to that right now both in terms of backlog or in terms necessarily what we have in the play point.

Mike Walkley – Canaccord Genuity

Okay thanks. Well congrats on the strong results in the international growth such as Brazil and I’ll pass on the Q&A.

Michael Burdiek

Thank you.

Operator

Thank you. Our next question comes from the line of Mike Crawford with B.Riley & Company. Please proceed with your question.

Mike Crawford – B.Riley & Co.

Thank you. I think you gave the MRM units track, did you say 395,000, did you also give a post unit in service?

Michael Burdiek

No, we did not, but obviously an unofficial number, but approximately 2.3 million units installed and active with customers in various applications.

Mike Crawford – B.Riley & Co.

Okay, thanks Michael that’s been gone pretty consistently a couple of 100,000 a quarter.

Michael Burdiek

Yes, it has, but that could actually accelerate with some of these initiatives related to insurance and also what we have developing in Brazil.

Mike Crawford – B.Riley & Co.

Right. So with your new location monitoring unit that you were showing at CTIA that’s good for the telematics applications, I think at the time you indicated, you expected despite shipping to your insurance customers in July and you also, did I hear that you actually started booking some, taking some booking for UBI telematics for European customers already?

Michael Burdiek

Not only for European customers, but also for domestic customers. However, the European opportunity is likely to rap faster.

Mike Crawford – B.Riley & Co.

Okay and I think the attitude you described was meaningful in terms of insurance revenue for the second half of the year, so can you put any numbers closer to what meaningful means?

Michael Burdiek

Well on our last earnings call I believe I mentioned meaningful being sort of a few million dollars a quarter, in terms of incremental growth opportunity, I would think that’s-that’s achievable.

Mike Crawford – B.Riley & Co.

Okay great and then on the heavy equipment side, how would you describe the progress with Caterpillar. I think you said that you haven’t had a lot of booking yet with them and we know that’s something that’s probably going to kick in more next year, but what’s happening between now and the end of the years to get that business moving forward?

Michael Burdiek

Well basically we’re tracking along on the development contract, we’re in Phase II of that development program and as you might recall there are two products that we are designing. One is the cellular-based telematics product and another is a satellite communication space telematics product and these two products have applicability across a broad range of their various product platform. And Caterpillar has a very deliberate and very rigorous product qualification and development gate process. I'm pleased to say that we’re meeting the various product development milestones pretty much on schedule, and things are going according to plan. So in that sense things are going exceedingly well.

Mike Crawford – B.Riley & Co.

Okay, great. Thank you. And then final question is, on the Satellite side I believe that Caterpillar has chosen Iridium to be its satellite data provider, though for your own telematics application, I'm not sure if that network as enough of the data rate to support the type of traffic that you intend to carry convey back to your customers. Is Iridium something like Iridium good enough for your or what are you looking for in a satellite provider?

Michael Burdiek

Well first of all let me comment with the no comment on Caterpillar satellite service provider selection for future products.

Mike Crawford – B.Riley & Co.

Okay.

Michael Burdiek

But in terms of the various satellite service providers we work for, work with, it depends on the application, but we work with multiple different satellite service providers.

Mike Crawford – B.Riley & Co.

Okay.

Michael Burdiek

Including Iridium.

Mike Crawford – B.Riley & Co.

Okay. Great, thank you. And then final question is, I don’t think you give this, but do you give, I don't think, you talk about strong bookings and a nice backlog, but I don't think you give those actual numbers bookings and backlog numbers?

Michael Burdiek

No, we don’t.

Mike Crawford – B.Riley & Co.

Okay. And you don’t want to start new. Okay, thank you very much.

Michael Burdiek

You are welcome. Thank you.

Operator

Thank you. Our next question comes from the line of Mike Latimore with Northland Capital. Please proceed with your question.

Mike Latimore – Northland Capital Markets

Great, thank you. Nice quarter there.

Michael Burdiek

Thank you.

Mike Latimore – Northland Capital Markets

On the stolen vehicle recovery opportunity in Brazil, could you talk just a little bit more about that, what’s giving you confidence in that kind of near-term opportunity, are there multiple customers there through channel. Just a little more detail would be interesting.

Michael Burdiek

Number of questions, let me start with the channel question first, the answer is yes. We are working through channel partners to supply to multiple different application service providers targeting not only stolen vehicle recovery, but also fleet management, it just so happens that stolen vehicle recovery represents a, the bulk of our backlog, and b, probably the largest large serviceable market for us in Brazil. Fleet is still somewhat of a budding application opportunity for us there. In terms of confidence it’s as expressed in our backlog.

Mike Latimore – Northland Capital Markets

And what was the catalyst for this uptick in this particular area?

Michael Burdiek

Well, again those investments we made in sales and marketing resource in country, and also the channel partnerships that we’ve developed and they’ve been very, very fruitful.

Mike Latimore – Northland Capital Markets

Great. And then what percent of revenue was international during this past quarter?

Michael Burdiek

I don’t know the exact percentage, but it was down from Q4 and one main reason for to be down is percentage of revenues that Wireless Matrix obviously contributed to the revenue mix in Q1 and the bulk of their revenue is in the United States. Rick is indicating that we were in the mid-teens.

Mike Latimore – Northland Capital Markets

And on Pepco, does Pepco seem to be proceeding a little bit better than you were expecting at the start of the year or is it basically on track?

Michael Burdiek

On track.

Mike Latimore – Northland Capital Markets

On track okay. Got it, great, thank you.

Michael Burdiek

You’re welcome.

Operator

Thank you. Our next question comes from the line of Jason Smith with Craig-Hallum. Please proceed with your question.

Jason Smith – Craig-Hallum Capital

Hey guys, thanks for taking my questions, and congrats on the quarter and the guide. Most of my questions have been answered, but really quickly wondering if you wouldn’t mind giving the contribution to revenue from Wireless Matrix at this past quarter.

Michael Burdiek

We have mentioned that our expectation for the full year was around $25 million of revenue and we basically track to that sort of run rate in Q1.

Jason Smith – Craig-Hallum Capital

Okay. And then just a classification, the expectation for growth in the usage-based insurance, was that the second half of this calendar year or is that the second half of this fiscal year?

Michael Burdiek

Both.

Jason Smith – Craig-Hallum Capital

Both okay. And then finally, if we look out to physical 2014, fiscal 2015, what kind of revenue mix do you expect between the two segments, would you expect it to be fairly consistent with where it is now?

Michael Burdiek

You mean the two businesses within Wireless Datacom or the two reported segments?

Jason Smith – Craig-Hallum Capital

Wireless Datacom for instance Satellite.

Michael Burdiek

Oh okay. Well we’ve stated many, many times that we expect Satellite to essentially be a flat business, $10 million plus or minus a couple of million on the quarterly run rate. So that would suggest that is Wireless Datacom grows, Satellite will be a smaller percentage of the consolidated revenue.

Jason Smith – Craig-Hallum Capital

All right, thanks guys.

Operator

Thank you. Our next question comes from the line of Ray Rund with Shaker Investments. Please proceed with your question.

Raymond Joseph Rund – Shaker Investments

Thank you. Can you comment on what your operating model going forward will be? I’m curious as to how much expense in terms as a percent of sales your Wireless Matrix had and also how much amortization we should expect on an ongoing quarterly basis?

Michael Burdiek

Well, sales and mark, incremental sales and marketing expense from Wireless Matrix is a bit of a moving target, because we actually will have more on Q1 than we will probably have in any of the other quarters during the fiscal year as we continue to rationalize our OpEx structure there. But in terms of amortization Wireless Matrix is contributing about $1.2 million a quarter and I think our expectation is for total amortization expense to be around $1.5 million per quarter for the balance of the year.

Raymond Joseph Rund – Shaker Investments

Okay. Thank you very much.

Michael Burdiek

You are welcome.

Operator

Thank you. (Operator Instructions). Our next question comes from the line of Shai Dardashti with DCM. Please proceed with your questions.

Shai Dardashti – DCM

Hi Michael I would like to please follow up on the March 21 press release announced in the LMU-3030 release. I'm curious what is appropriate to read into in terms of the timing or the scale of the insurance opportunity based on this public release?

Michael Burdiek

I'm sorry, I couldn't understand about the second half.

Shai Dardashti – DCM

I'm curious if this release suggest that the scale is now larger or the timing of more imminence?

Michael Burdiek

The scale, the outlook for scale is really no different, but I think that release is indicative of the timing of the opportunity.

Shai Dardashti – DCM

Okay. And then you mentioned there are 2.3 million devices on the MRM network, is it appropriate to assume that all of these devices are on the [cold] platform?

Michael Burdiek

No, no. So the application subscribers which we reported at the end of Q1 to be 395,000 those are the subscribers that we manage directly with our device bundled with network services and application software, those subscribers are on cold. The other, the 2.3 million devices in service with various customers are on their own back in software platforms, but they are supported by our poles platform, which is a device management system.

Shai Dardashti – DCM

There is two separate technologies, there is poles and there is cold, is that correct?

Michael Burdiek

That is correct.

Shai Dardashti – DCM

And if you describe CalAmp in 2011, and you described CalAmp in 2013, what is the current vision of the company and how that compares the vision of two years ago?

Michael Burdiek

Well, I think it’s safe to say that two years ago at least from the outside looking in CalAmp appeared to be purely a hardware company. Potentially on a path towards commoditization on a cycle that have been followed multiple times by the company in its history that obviously has not been the case. And as we’ve been saying for easily the last two years our objective is to continue to grow the company leveraging all of our core competency technical resources to build more value on top of our hardware platforms and a range of different applications MRM and M2M related for customers around the world. And so, we anticipate that going forward certainly there will be a software content layer, there will be platform service layers and device layers in terms of our solutions offered to various customers in our core vertical.

Shai Dardashti – DCM

And is there, as I’m trying to understand what colds becomes overtime, is that an operating system, is that an ecosystem, I’m trying to figure out network effects in various scale, various entries.

Michael Burdiek

Not an operating system ideally a core element in an ecosystem.

Shai Dardashti – DCM

Okay. And how many people or how many units are on this ecosystem then that would be below 2.3 obviously?

Michael Burdiek

Well below 2.3, 395,000 subscribers on our existing cold platform but also the fleet outlook platform which is being migrated over the cold over next few quarters.

Shai Dardashti – DCM

And the code architecture can handle much more scalability, is that correct?

Michael Burdiek

That is correct.

Shai Dardashti – DCM

Okay thank you very much.

Michael Burdiek

You’re welcome.

Operator

Thank you. Our next question is a follow-up from Michael Walkley with Canaccord Genuity. Please proceed with your questions.

Michael Walkley – Canaccord Genuity

Great thanks. Just a quick question on [modeling] with still taking out some cost in the Wireless Matrix side investing sort of growth, that is your guidance imply may be [fattish] OpEx is or has it come down sequentially again just off the current levels?

Michael Burdiek

It could come off modestly off the current quarter.

Michael Walkley – Canaccord Genuity

Okay. That’s helpful. I mean overall you start seeing leverage on OpEx as percentage of sales in the back half of the year, is that kind of the way to think about the business model?

Michael Burdiek

I think that’s a fair assessment.

Michael Walkley – Canaccord Genuity

Okay great. That’s it, there’s no follow-up question. Thank you.

Michael Burdiek

Great thanks Mike.

Operator

Thank you. There are no further questions at this time. I would like to turn the floor back over to management for closing comments.

Michael Burdiek

Well thank you everyone, thanks for joining us today. CalAmp will be holding its Annual Meeting of Shareholders next month on July 25 in Westlake Village, California. After that we will be on the road presenting at the Southern California Investor Conference on August 8 in Newport Beach, California in addition to that conference we will be presenting at the Oppenheimer Tech Conference on October 14, and the Canaccord Conference on August 15 both of which are in Boston. So we hope to see you at one of these venues and we also look forward to speaking to you in the next quarter.

Operator

Thank you. This concludes today’s teleconference. You may disconnect your lines at this time. And thank you for your participation.

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