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

CalAmp Corp. (NASDAQ:CAMP)

Q1 2015 Results Earnings Conference Call

July 1, 2014, 04:30 PM ET

Executives

Lasse Glassen - IR, Addo Communications

Michael Burdiek - President and CEO

Rick Vitelle - EVP and CFO

Analysts

Sid Sinha - Canaccord Genuity

Tim Quillin - Stephens

Mike Latimore - Northland Capital Markets

Josh Nichols - B. Riley & Co.

Rajesh Ghai - Macquarie Capital

Scott Thompson - FBR Capital Markets

Anthony Stoss - Craig Hallum

Greg Burns - Sidoti & Company

Operator

Greetings and welcome to the CalAmp First Quarter Fiscal 2015 Results. 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.

I would now like to turn the conference4 over to your host, Lasse Glassen of Addo Communications. Thank you, sir. Please begin.

Lasse Glassen

Thank you, operator. Good afternoon and welcome to CalAmp’s fiscal 2015 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 in 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 the tracking and monitoring devices that we sell, and other risks and uncertainties that are described in the company’s annual report on Form 10-K for fiscal 2014 as filed on April 24, 2014, 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.

Michael Burdiek will begin today's call with a review of the company's financial and operational highlights. Rick Vitelle will then provide additional details on the company's financial results, and Mike will wrap up with the company's business outlook and guidance for fiscal 2015 second quarter and full year. This will be followed by a question-and-answer session.

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. Overall I am pleased with the solid first quarter performance across our enterprise. Demand for our Mobile Resource Management or MRM products drove a 17% year-over-year increase in Wireless Datacom segment first quarter revenues, which in turn contributed to growth in non-GAAP earnings of 23%.

And I am particularly encouraged by continued growth in the first quarter from auto insurance telematics revenue and return to growth in fleet management, which more than offset a temporary decline in energy revenues and continued weakness in Latin America.

In our Satellite segment, shipments made late in the quarter, coupled with some demand for high margin legacy product resulted in meaningful contributions from this segment in our operating cash flow and bottom line profitability.

Looking at our first quarter results, consolidated revenue was $59 million, up 10% year-over-year with Wireless Datacom revenue up 17% to $47.8 million. Satellite revenue in the quarter was $11.1 million, down 14% year-over-year.

At the bottom line, we achieved GAAP basis earnings of $0.07 per diluted share in the first quarter with non-GAAP earnings of $0.19 per diluted share, along with strong cash flow from operating activities of $7.3 million. This helped push our cash, cash equivalents and marketable securities balance to $34.2 million with zero bank debt.

Now I would like to review our operational highlights for the quarter. Our Wireless Datacom segment posted another strong quarter as we continue to experience healthy demand for our products and services within many of our core verticals along with traction from some of our newer strategic initiative.

In the emerging auto insurance telematics market, our first quarter revenue climbed to above $4 million as key customers in this segment continue to ramp their programs. Our pipeline of opportunities is growing and we believe we are well positioned to participate in the long term growth expected from this vertical.

In the heavy equipment market, I am pleased to announce that our key initiative with Caterpillar to supply specialized telematics products is on track to drive meaningful revenues for us beginning in our third quarter.

Based on commitments received from Caterpillar, we now expect revenue from this customer during the second half of our current fiscal year will be closer to the upper end of our earlier $5 million to $10 million estimate. We're very optimistic that this and other opportunities within the heavy equipment industry could become a significant growth driver for CalAmp over the coming years.

Within our core verticals and applications, product revenue from fleet management customers rebounded in the first quarter after a slow winter season with bookings activity in line with industry growth rates. And although revenue for our MRM products in Latin America remained weak during the first quarter, we're making good progress in bringing new customers online in Brazil that should begin to contribute to growth in the region by the second half of our current fiscal year.

Looking at other verticals, first quarter revenues increased in the transportation vertical in both the sequential quarter and year-over-year basis due to a significant uptick in revenue from Positive Train Control or PTC radio shipments.

Demand in this market is expected to fluctuate from quarter to quarter and accordingly we expect PTC revenue to decline sharply in the second quarter, so the outlook for the full year is better than last fiscal year.

In the government sector, we are quite pleased with the year-over-year growth that was primarily due to contributions from the RSI business acquired late last year. Overall we're seeing good traction for our fleet management SaaS offerings with municipal government customers.

As an example, during the quarter we were awarded two sizable contracts from customers that rank among the top 50 metropolitan regions in the U.S., which we expect will contribute to SaaS subscriber growth in the coming quarters.

Partially offsetting the year-over-year growth in our Wireless Datacom segment was lower first quarter energy revenues primarily related to our OEM customer in the commercial solar power industry. Due to the project based nature of the demand with the solar OEM, we anticipate business with this customer will be somewhat lumpy with revenues expected to pick up strongly in the second quarter.

Recurring revenues from our fleet management automotive aftermarket vehicle finance applications and satellite communication services comprise 16% of consolidated revenue for our first quarter. At the end of our first quarter, we had over 475,000 unique software application subscribers, up from 460,000 subscribers at the end of the previous quarter.

In addition to our focus on near term execution, we continue to invest significant resources and new initiatives that we believe will bolster our competitive position and drive sustained revenue and earnings growth over the coming years.

On our last call, I highlighted one of those initiatives, our new Android-based mobile data terminal supported by CalAmp's private app store. The MDT-7 is ideally suited for commercial and mobile workforce management applications and is a natural complement to our range of fleet management telematics devices targeted at the same fleet management service provider customer base.

We are seeing broad demand for the MDT-7 and are hopeful that this new product line will drive incremental demand over the coming quarters. More importantly, we are optimistic that the launch of the app store later this year will enable us to layer on additional value elements resulting in higher margins than our traditional fleet management hardware products.

Now turning to our Satellite segment, revenue in the first quarter was $11.1 million, lower on a year-over-year basis, but moderately better than we originally expected due high volume of shipments made late in the quarter.

In addition, Satellite gross margin in the first quarter was 26.1%, reflecting an improvement of 6.5 points year-over-year that was attributable primarily to demand in the quarter for our high margin legacy product. Going forward, we expect the performance of the Satellite segment to be more in line with the normal operating range for gross margins.

With that, I'll 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 2015 first quarter.

Consolidated gross profit for the fiscal 2015 first quarter was $20.2 million, an increase of $1.7 million over the same quarter last year, primarily as a result of higher revenue in the Wireless Datacom segment. Consolidated gross margin was essentially unchanged at 34.3% in the latest quarter, compared to 34.4% in the first quarter last year.

Looking more closely at gross profit performance by reporting segment, Wireless Datacom gross profit was $17.3 million in the first quarter with a gross margin of 36.2%. Year-over-year Wireless Datacom gross profit was up by $1.4 million, while gross margin declined by three points, primarily due to a revenue mix shift favoring a larger proportion of MRM products that carry lower gross margins.

On a sequential quarter basis, Wireless Datacom gross margin was down one point from the fiscal 2014 fourth quarter.

Our satellite business had a gross profit of $2.9 million in the first quarter with a gross margin of 26.1%. This compares to gross profit of $2.5 million and a gross margin of 19.6% in the first quarter of last year. The year-over-year gross margin improvement in our satellite business is primarily due to temporary demand in the quarter for a high-margin legacy product as Michael noted a minute ago.

GAAP net income for the fiscal 2015 first quarter was $2.7 million or $0.07 per diluted share, compared to net income of $1.7 million or $0.05 per diluted share in the first quarter of last year.

While the company's GAAP basis effective tax rate approximates the combined U.S. federal and state statutory tax rate, the company's pretax income is still largely sheltered from taxation by NOL and research and development tax credit carry forwards and is expected to remain so for the next several years.

Our non-GAAP net income for the fiscal 2015 first quarter was $6.9 million or $0.19 per diluted share, compared to non-GAAP net income of $5.6 million or $0.16 per diluted share for the same quarter last year.

Non-GAAP earnings excludes the impact of intangible asset amortization, stock-based compensation expense and acquisition related expenses and includes an income tax provision for cash taxes paid or payable for the period.

For a reconciliation of the GAAP and non-GAAP financial results, please see our first quarter earnings press release that was issued today, which is available on our website.

Now moving on to the balance sheet, at the end of the fiscal 2015 first quarter, the company had total cash, cash equivalents and marketable securities of $34.2 million with no bank debt outstanding. The consolidated accounts receivable balance was $34.8 million at the end of the first quarter. This represents an average collection period of 46 days, compared to the receivables collection period of 53 days at the end of the preceding quarter.

Our total inventory at the end of the first quarter was $15 million representing annualized inventory turns of approximately 10 times. The inventory balance and turns are essentially unchanged from the preceding quarter end.

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 outlook, including our financial guidance for the second quarter and year as a whole.

In the fiscal 2015 second quarter, we expect consolidated revenue in the range of $57 million to $61 million. We anticipate Wireless Datacom revenue in the second quarter will be higher on both a sequential quarter and year-over-year basis due primarily to the resumption of shipments to our key OEM customer in the solar power industry and healthy customer demand for our products and services within most of our core verticals, offset by a sharp decline in PTC revenues and only modest contribution from MRM product sales in Latin America.

Satellite revenue in the second quarter is expected to be down on a sequential quarter basis to the lower end of its normal quarterly operating range. At the bottom line, we expect second quarter GAAP basis net income in the range of $0.05 to $0.09 per diluted share and non-GAAP net income in the range of $0.17 to $0.21 per diluted share.

For the full year and fiscal 2015, we expect consolidated revenues to gain momentum as the year progresses. As a result, we anticipate that the second half of fiscal 2015 will be significantly stronger than the first half of the year with Wireless Datacom revenue growth expected to accelerate as we move through the last two quarters of the year driven by emerging auto insurance telematics and heavy equipment markets.

However, this momentum is expected to be partially offset by the full year outlook for our Satellite business, which is now anticipated to be below earlier projections.

In closing, I would like to recap some key points. First, I am pleased with the progress of our key strategic initiatives for fiscal 2015. We're gaining traction in the insurance telematics marketplace and are gearing up to start volume production for Caterpillar.

Second, we're encouraged by our growing pipeline of software as a service and platform as a service opportunities as well as the traction we're experiencing for our solutions with municipal and energy enterprise customers.

And finally, we firmly believe our unique hardware, software and service solution supported by established channel partnerships with global reach give us the leverage to win a disproportionate share of opportunities and drive broader adoption of emerging M2M applications.

We're working to take CalAmp to new heights by continuing to focus on short term execution, while strategically positioning the company to benefit over the longer term from emerging M2M trends.

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

Question-and-Answer Session

Operator

Thank you. We'll now be conducting a question-and-answer session. (Operator Instructions) Thank you. Our first question comes from the line of Mike Walkley with Canaccord Genuity. Please proceed with your question.

Sid Sinha - Canaccord Genuity

Hi, this is Sid on for Mike Walkley. Thanks for taking my questions. A quick housekeeping question and then a couple on the MRM side. Michael, could you provide a breakdown for the Wireless Datacom revenues in terms of the MRM and the wireless network pieces?

Michael Burdiek

Sure. Hi Sid, how are you?

Sid Sinha - Canaccord Genuity

Pretty good.

Michael Burdiek

Good. The percentage of MRM revenue as relates to the Wireless Datacom revenues in total was about 65% in Q1.

Sid Sinha - Canaccord Genuity

Okay. Great. Thanks. And then just a couple on the MRM side, on the core fleet management side, given your dominant position in the U.S. and expectations to grow at market rates, what are you expectations for the overall fleet management business in fiscal 2015 taking into account the softness in Latin America in Q1 and then modest growth in Q2? Are you still looking at international opportunities to grow at a faster rate versus U.S. and how does international deal pipeline look basically?

Michael Burdiek

As it relates to fleet products, yes, we do expect higher rates of growth and penetration outside the U.S. than rates of growth in the U.S. during fiscal 2015. Just as a note, we mentioned in our remarks that we grew at roughly industry rates of growth in Q1. I think our year-over-year fleet product revenues growth in total was about 20% versus Q1 last year, so was pretty strong.

The delta between what would be termed industry rate of growth in the U.S. versus what we experienced in terms of 20% overall fleet product revenue growth could be accounted for by additional progress made with anchor customers in Brazil, Europe and South Africa where we made good progress with some of the leading service providers in those markets and integrating our products and really displacing what had previously been internally sourced product. So we think that's very, very encouraging in terms of incremental growth in future quarters.

Sid Sinha - Canaccord Genuity

Okay. Thanks. And then on the usage-based insurance side, there's been a lot of consolidation lately in the service provider space with Himex and Octo and Wunelli and Cobra being acquired by the carriers, there are system integrators, other players, just wanted your take on the opportunities these activities have on your UBI hardware business as these players scale up and with these larger partners and perhaps expand their offerings and scope and reach basically?

Michael Burdiek

Sure, well, as you point out most of the consolidation if not all the consolidation has sort of been at the application service layer. To the best of our knowledge, there hasn’t really been any consolidation in terms of the hardware elements that are part of some of those solutions.

So in that sense it doesn’t -- I don't think that in anyways change the outlook in terms of product opportunities. However, we are optimistic that over time we'll be able to do more than just sell the type of hardware products we're selling today. And hopefully add additional value either through embedded applications potentially through the monetization of data that are associated with some of our subscriber activities.

Potentially down the line and I would say this would be well down the line, even the opportunity to in some way participate in the service provision layer, but in the short term, we don't see any disruption or limitation of opportunities due to the consolidation that you outlined.

Sid Sinha - Canaccord Genuity

Okay. Great. Thanks. And just one last one for me and I’ll pass the line. On the Satellite side of the business, I think you made a remark that you now anticipate lower sales and lower outlook than your original projections, I think the range was about $32 million to $48 million in the last quarter, normalize that $10 million a quarter, could you perhaps quantify this lower expectations and just what is happening in that segment?

Michael Burdiek

Sure, yes. The outlook is somewhat softer than our earlier projections and at this point in time, it appears that at least the current outlook is that the Satellite business will run roughly between $8 million and $9 million a quarter from Q2 through Q4 of this fiscal year.

Sid Sinha - Canaccord Genuity

Okay. Thanks for taking my questions.

Michael Burdiek

You're welcome.

Operator

Thank you. Our next question comes from the line of Tim Quillin with Stephens. Please proceed with your question.

Tim Quillin - Stephens

Hey, good afternoon.

Michael Burdiek

Hello Tim.

Tim Quillin - Stephens

I guess there aren’t any soccer fans that set the conference call time.

Michael Burdiek

We'll give brief answers.

Tim Quillin - Stephens

It's half time. We're all good. But can you talk about just the mechanics of the deployment for Caterpillar? Does it start with a single model and build up from there or is there a switch flipped when all heavy equipment will begin shipping with the asset tracking hardware?

Michael Burdiek

I would say it's probably more along the lines of the former than the latter. We expect the products to be adopted almost on a product by product basis across a range of different product lines that Caterpillar anticipates integrating these sets of products into.

Tim Quillin - Stephens

And the increased confidence you have that you could end up more like $10 million versus $5 million, is that based on the specific commitments that you are getting from Caterpillar, in other words, is that a relatively certain order flow or is it still dependent on how they roll it out to different models?

Michael Burdiek

We have commitments that could account for most of that outlook.

Tim Quillin - Stephens

And does Caterpillar, are they buying to inventory or would that type of buying reflect more what they expect to ship in terms of heavy equipments with the asset tracking hardware?

Michael Burdiek

Caterpillar is very efficient operationally. So we would expect to be delivering very much on adjusted time basis.

Tim Quillin - Stephens

Okay. Okay. And then on the UBI business, the usage-based insurance, how impactful do you expect the growth to be this fiscal year? So I understand that it sounds like you're seeing some nice year-over-year improvements and maybe you expect some acceleration in that, but if we expect for instance 15% topline growth or so, it would be something like $25 million in revenue growth that you would expect this year? Would 10% of that year-over-year increase come from UBI or kind of rough order magnitude, what are you expecting in terms of improvement?

Michael Burdiek

So for the full year last year, we had about $8 million of UBI product related revenue. We had a little over $4 million in Q1. We don't expect a material decline from that $4 million run rate. Hopefully some increase as we work our way through the year both in terms of existing programs that were integrated into as well as potentially the addition of one or maybe even two additional programs coming online later this fiscal year.

Tim Quillin - Stephens

And how dependent is the guidance -- the full year guidance, I think the full year expectation had been and anything still is in the Wireless Datacom business to be kind of at or above industry growth rate of around 15%, but how dependent would that be on additional increases in the UBI business or new customers or whatever it might be?

Michael Burdiek

Well, I mean obviously the year-over-year growth is going to be partly dependent on growth in the UBI product category. It's our expectation that we would more or less double if not do better that that revenues versus last fiscal year as it relates to UBI product sale.

Tim Quillin - Stephens

Okay. Okay. So not a big change from what you saw in the first quarter.

Michael Burdiek

No, because any new programs that come online will likely come online later this fiscal year could have an impact, but not a substantial impact. Not to the degree that the existing programs have had in terms of incremental product sales over the last year.

Tim Quillin - Stephens

Right. And so with the back half, the stronger back half they largely just reflect kind of normal quarter over quarter growth that you would see in all your business that are expected to see and the addition of the Caterpillar business, but nothing else unusual, is that fair?

Michael Burdiek

No, I think that's a fair assessment.

Tim Quillin - Stephens

Okay. And then just one last question and if you could characterize the acquisition pipeline and when you might expect to strike another deal, thank you?

Michael Burdiek

Oh my, that's an interesting question. I don't think we ever have any expectations as to when we're going to strike the next deal until it's very imminent. We're not seeing any significant change in terms of opportunity flow.

Most opportunities that we look at are -- fall into one or more categories either (NYSE:A) they're not well aligned with our strategy (NYSE:B) they're subscale (NYSE:C) value expectations are too high. In some cases, they're underperforming. In many cases, it's all of the above.

Tim Quillin - Stephens

Right. No, that's fair. Well thank you.

Michael Burdiek

You're welcome.

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

Yes, great. Good evening. Let's see, on the PTC, you mentioned PTC was I think strong in the first quarter, roughly how much revenue did that contribute?

Michael Burdiek

About $2.5 million.

Mike Latimore - Northland Capital Markets

Okay. And will solar help gross -- overall corporate gross margin or hurt it or be about in line?

Michael Burdiek

Solar gross margin will be slightly dilutive to our typical blended Wireless Datacom product margins.

Mike Latimore - Northland Capital Markets

Okay. Got it. And how about just fleet management. What is that as a percent of total product revenue I would say, the fleet management related product?

Michael Burdiek

Product revenue in Q1 was a little over 60%.

Mike Latimore - Northland Capital Markets

Fleet management, specifically.

Michael Burdiek

I am sorry, yes, fleet management.

Mike Latimore - Northland Capital Markets

Okay. Got it. And then how about international as a percent of total? Where did that end up in the quarter?

Michael Burdiek

A little over 21%.

Mike Latimore - Northland Capital Markets

21%, okay. All right. Got it. Great. Thank you.

Michael Burdiek

You're welcome.

Operator

Thank you. Our next question comes from the line of Josh Nichols of B. Riley & Co. Please proceed with your question.

Josh Nichols - B. Riley & Co.

Yes hi. Real quick just regarding some of the lower end modules that are sold to companies like IB Systems and what not, now used in like basic track and trace, I was wondering if you're seeing a lot of competition from low cost producers out of China that might be hurting margins and sales.

And then given the reduced guidance for the allied business, any broad strokes observations you are seeing about that market would be much appreciated as well.

Michael Burdiek

So your first question actually was multifaceted, you mentioned asset tracking product category, actually that's one of the least competitive product categories that we have.

We are quite unique and that we have such a broad portfolio of products, whether they are fleet, UBI, asset tracking, stolen vehicle recovery, so really broad portfolio.

That product portfolio is based upon a number of different core platforms and so we're able to leverage to platforms let's say maybe developed for a fleet application into an asset tracking category. And within asset tracking, we've a range of products there that vary from minimal backup battery capability to multiyear battery backup capability.

So it's really difficult for people to compete with us in terms of breadth and depth of product in the asset tracking category and we really don't have any experience competing with Asian suppliers anywhere in the world as it relates to those types of products.

Your second question again.

Josh Nichols - B. Riley & Co.

Your reduced guidance for the satellite segment, any broad strokes observations you could communicate about that.

Michael Burdiek

Not really other than it's not unprecedented. If you look back over a four-year period a time, the business is run from the upper 30s up to the upper 40s on an annual basis, but there's been a great deal of variability quarter to quarter, I think the range has been anywhere from $4.5 million to nearly $14 million.

I think our outlook in terms of $8 million to $9 million Q2, Q3 and Q4 this year is I don't think necessarily indicative of any long term trend.

Josh Nichols - B. Riley & Co.

Okay. Great. Thank you very much.

Michael Burdiek

You're welcome.

Operator

Thank you. Our next question comes from the line of Rajesh Ghai with Macquarie. I am sorry. One moment. I'll join him through.

Rajesh Ghai - Macquarie Capital

Wanted to ask you about your outlook in terms of EPS growth in the full year given how you see the first half planning out? Do you still expect to grow EPS 30% in 2000 -- fiscal 2015?

Michael Burdiek

Yeah, when we gave the guidance back in April, the outlook for Satellite at that time was much more positive than it currently is and also we had probably a more positive outlook in terms of Latin American sales growth.

So to get to 30%, which we framed as an approximate year-over-year non-GAAP earnings growth rate, which obviously implies a range, will be -- it will be an uphill battle to get to 30% due to those two factors.

Rajesh Ghai - Macquarie Capital

Okay. Can you kind of give us an approximate number where you think you could end up this year?

Michael Burdiek

Well, sort of framing it from the conservative to the optimistic, I would say 20% to 30% year-over-year non-GAAP earnings growth. On the conservative end of the range, it would be framed in terms of no improvement in satellite outlook, only tepid growth in Latin America in the second half, CAT not being over $10 million and growth in core application is pretty much in line with what we've experienced recently.

The optimistic side of the range would be dependent on Satellite outlook improving probably, Caterpillar running north of $10 million in the second half of the year. Core applications and product sale is pretty much in line with what we've experienced recently.

So conservative to optimistic range of roughly 20% to 30%, but in either case we expect earnings growth to accelerate through the last two quarters of this fiscal year.

Rajesh Ghai - Macquarie Capital

That's very helpful and as far as CAT is concerned, the question that I keep getting from investors is around margins for the CAT business given that you have one big customer, is that going to -- are the margins for that business going to be higher than the current Wireless Datacom corporate average or do you expect that to be lower or how do you expect the trend over time?

Michael Burdiek

I think short term pretty much in line with current Wireless Datacom product margins. There is some potential for that to improve marginally over time as our production processes are up and running and we have the opportunity to build the supplier relationships and get optimum costing on the key components.

Rajesh Ghai - Macquarie Capital

And my last question is around mobile data terminal, is that an opportunity for you to potentially sell more software on the device and potentially increase your gross margins without even kind of looking at software as a service, platform as a service side of things.

Do you think that provides you an opportunity to potentially raise hardware gross margins and how meaningful do you think that could be this year and heading into next year?

Michael Burdiek

Yes on both counts. We think that the product margin even setting aside any opportunity for software sales will be higher margin than let's say the vast majority of our fleet management product and we do believe that there will be some opportunity to participate either just through a transaction of software applications or through an ongoing recurring revenue stream through the provision of software applications on to the MDT device.

Rajesh Ghai - Macquarie Capital

Great. Thanks and good luck.

Michael Burdiek

Thank you.

Operator

Thank you. [Operator instructions] Thank you. Our next question comes from the line of Scott Thompson with FBR Capital Markets. Please proceed with your question.

Scott Thompson - FBR Capital Markets

The international business particularly in Latin America, is there any reason why it's weak, can you extrapolate on that a little bit as it just you think you need to maybe diversify the customer set down there or is it something beyond that?

Michael Burdiek

We are diversifying the customer set. In the -- in fiscal 2014, we had approximately $14 million of product sales across all of Latin America, Mexico all the way south through South America.

Of that, about $4 million or maybe a little bit more than $4 million of revenue came from customers in Venezuela, since about Q3 of last year we've had minimal revenue from customers in Venezuela. So it's a huge headwind for us in terms of year-over-year comparisons.

In Brazil in Q2 of last year, we had a new customer come online who had somewhat of an innovative distribution strategy for stolen vehicle recovery services. They purchased a significant amount of product accounting for roughly $6 million of revenue in Q2 last year that tapered pretty dramatically in Q3. So that single customer accounted for nearly half of our Latin American revenues last year.

So over sort of the last year or so, that we've had resources based in Brazil, we've been working diligently to bring new customers online and build a more sustainable base of business and I think we're seeing some very, very encouraging signs there, both in terms of end customer engagements, system integrator partners as well as carrier partnerships.

And most of the revenue in Q1 was across a diverse customer base and we expect that trend to continue and certainly pick up some pace in the second half of the fiscal year.

Scott Thompson - FBR Capital Markets

Okay. So you talked about the $6 million customer having an innovative strategy, is that something that may snap back in the second half of the year or is inventory that maybe in the channel for some time of the year.

Michael Burdiek

No, I don't think that the channel inventory is a headwind there. It is possible that they could come back, but I don't think as dramatically as they came online in Q2 last year.

Scott Thompson - FBR Capital Markets

Okay. Let's move to the fleet management business, it looks like fleet outlook is at least from your website and from checks that we've been doing, it's getting a decent amount of traction, wanted to get insights on when that business may scale some more meaningful revenues and any kind of update there.

Also from a customer perspective is there any overlap with that business and maybe some of your customers that you're supplying some of the Wireless Datacom devices to and might that create any issues moving forward through the second half?

Michael Burdiek

I'll start with the last part of the question first. We've been pretty open about the fact that in certain instances we do compete with some of our fleet management service provider product customers, but in reality it's mostly at the fringes.

Our focus in on specific vertical markets, transportation, energy, municipal government and most of our customers in the fleet management space are more horizontal. They may be more regional and they may be less enterprise focused than we are.

So although it can be or could be viewed as an issue in certain circumstances, I would say it's only at the margins.

In terms of the overall outlook for fleet management services, obviously we're focused on specific verticals and as we mentioned in our prepared remarks, we've had some good traction with municipal government customers recently and hope to -- hope to name some of those accounts as we get customer approvals going forward.

Scott Thompson - FBR Capital Markets

Okay. So as far has any revenue impact from those customers on the fringes, there really shouldn't be for the rest of the year as far as you can tell now?

Michael Burdiek

Not that we would be able to detect.

Scott Thompson - FBR Capital Markets

Okay. Sounds good. Thank you.

Michael Burdiek

Thank you.

Operator

Thank you. Our next question comes from the line of Anthony Stoss at Craig Hallum. Please proceed with your question.

Anthony Stoss - Craig Hallum

Michael, two part in terms of Caterpillar the -- your potentially $10 million in the second half of the year, what's your view on kind of the split between that potential $10 million? Is it 30-70 between Q3 and Q4? Could you have a 0-100, I would love to hear view on that.

And then secondly and maybe Gartner takes this one on gross margins, how do you -- what's the thought process in terms of how to continue to improve gross margins going forward? Thanks.

Michael Burdiek

I don't believe it's going to be 0-100 Q3 to Q4. We're confident that of the $10 million, maybe 30% to 40% will be captured in Q3 and obviously the balance of that in Q4.

And then you had a gross margin question. And by the way, how did you know Gartner was here? Could you be more specific about the gross margin question please?

Anthony Stoss - Craig Hallum

I am curious what you guys can do in terms of either redesign or what your through process is on continuing to improve gross margins on the hardware side?

Michael Burdiek

Well, you're fighting all the battles. Number one, working on the cost inputs and there are some key components that go into our portfolio devices that account for a large percentage of the build material. We're always in negotiations with those suppliers.

Fortunately there are multiple sources, so we can oftentimes play one off against the other to get the absolute best world price for some of those key components. So that's an ongoing operational initiative.

Obviously another key area of focus for us is on increasing software and service content, which hopefully will be accretive to gross margins as those service revenues become a larger part of consolidated revenues off into the future.

Anthony Stoss - Craig Hallum

Okay. All right. Thanks.

Michael Burdiek

Thank you.

Operator

Thank you. Our next question comes from the line of Greg Burns with Sidoti & Company. Please proceed with your question.

Greg Burns - Sidoti & Company

Good afternoon. Did you book all the revenue that was held up with the supplier in last quarter and this quarter?

Rick Vitelle

Not all. We were able to close out about two thirds of that backlog in Q1.

Greg Burns - Sidoti & Company

Okay. And you mentioned some international markets, some of the application service providers now moving more towards outsourcing their hardware, where is that in international markets kind of how far along is that trend maybe in relation to domestically and is it -- is that something that there is kind of a longer term tailwind for you as more and more look to outsource their equipment lo vendors like you?

Michael Burdiek

I think generalization would be that some of the more mature developed markets and some of the opportunities that were being integrated into look like opportunities we were being integrated into in the U.S. about five years ago.

So in that sense, about five years behind where the U.S. is today in terms of outsourcing being very, very common and in that sense, yeah, we think that's probably a good tailwind for us.

Greg Burns - Sidoti & Company

Okay. Thank you.

Operator

Thank you. Our next question comes from the line of Tim Quillin with Stephens. Please proceed with your question.

Tim Quillin - Stephens

Yes, I just have a couple of follow-up questions and then I'll get back to watching soccer, but one on the gross margins, I understand the mix was unfavorable in the first quarter, how do you expect that to trend over the course of the rest of the year?

Michael Burdiek

Potentially down a little bit in Q2, primarily due to the solar OEM opportunity coming back online and being a meaningful contributory to revenue in Q2, but from Q2 through the balance of the year, we would expect gross margin to begin to pick up again and I think our current outlook is that overall, the fiscal year will be a bit better than last fiscal year in terms of consolidated gross margin.

Tim Quillin - Stephens

Okay. And then the subscription business, just overall in aggregate, what kind of organic growth would you expect there?

Michael Burdiek

Good question. When we gave guidance on the last call, we projected that our recurring revenues would be roughly in line with what they were in FY'14 as a percentage of consolidated revenue. So in that sense we need our recurring revenue engine, which involve obviously application services in a couple of different categories as well as our satellite data communication service revenues to grow at roughly the rate of growth in other areas.

Tim Quillin - Stephens

Okay. Okay. And then kind of a same question for international, it sounds like there is different headwinds especially in South America, would you expect international to grow faster than domestic through for the full year and what geographies would you expect to drive that?

Michael Burdiek

That's sort of a region by region question. We would expect South America to grow faster because we're coming off a pretty small base. Europe growth has actually been quite impressive. In Q1, we had about $5 million of revenue in Europe, which is an all time record for us.

So in terms of international revenue mix, Europe was the key contributor. We're encouraged by what we see in other regions including South Africa and the Australia, New Zealand region, but we think Europe's important and we expect to see grow through this year.

Latin America is important, but we're coming off a very small base. And I think we're moderating product revenue growth in the U.S. into more normalized industry growth rate.

Tim Quillin - Stephens

Okay. Fair enough. Thank you.

Operator

Thank you. Our next question comes from the line of [Oliver] (ph) G2 Investment Partners. Please proceed with your question.

Unidentified Analyst

Hello, good afternoon and thank you for taking my question.

Michael Burdiek

No problem. How are you?

Unidentified Analyst

Great. Can you help me understand the sharp decline in Positive Train Control? Is this a one time or a long term issue?

Michael Burdiek

Well, it was up sharply in Q1 from Q4. It's a project based business in a sense. As we mentioned in our prepared remarks, we are optimistic that FY'15 for the full year will be better than last year and last year we had about $4 million of PTC revenue.

So what we experienced in Q1 was encouraging. It will be down simply because of the order flow in Q2. The pipeline is improving and again we're optimistic that this fiscal year revenues will be up over last fiscal year.

Unidentified Analyst

Okay. Great. And lastly, could you better help me with the second half strength in Wireless Datacom? Do you expect to be up over 10% year-over-year in the second half?

Michael Burdiek

In the second half? It would almost have to be in order to fall into that range of -- that somewhat broad range of non-GAAP earnings growth.

Unidentified Analyst

All right. Perfect. Thank you. That's all. Thank you for your time.

Michael Burdiek

You're welcome.

Operator

Thank you. We've no further questions in queue at this time. I would like to return the floor back over to Michael Burdiek for closing remarks.

Michael Burdiek

Thank you again for joining us today and we look forward to speaking with you again at the end of our second quarter.

Operator

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

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 (CAMP) CEO Michael Burdiek on Q1 2015 Results - Earnings Call Transcript
This Transcript
All Transcripts