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Revisiting CalAmp

|About: CalAmp Corp. (CAMP)
Summary

Today, we revisit a small tech concerned called CalAmp which recently posted quarterly results.

The company is making good progress transitioning to being more of a SaaS provider which should improve margins significantly.

We update the investment thesis on CalAmp in the paragraphs below.

The cynics are right nine times out of ten." - H. L. Mencken

Today, we circle back on a small tech concern making the transition to more of a SaaS play named CalAmp Corp. (CAMP).  The stock has sold off a bit recently mostly in reaction to its latest quarterly results.  I have added a few shares to my core stake in this name as a result as I don't think most investors yet grasp its progress to being able to deliver higher margins and more consistent.  We update the investment case on this small cap concern in the paragraphs below.

Company Overview:

Image result for LoJack CalAmp Corp. is a California-based connected device vendor whose technology tracks vehicles and their contents for businesses and governments around the globe. CalAmp is most probably most known for its LoJack stolen vehicle technology it purchased several years ago. As mentioned above, the company is currently focused on transitioning its focus from connected telematics hardware offerings to a provider of SaaS subscription services.  The shares currently trade around $10 a piece and have an approximate market cap of $350 million.

Quarterly Results:

The company posted non-GAAP EPS of 15 cents, in line with estimates.  It should be noted that this was down from 25 cents a share in the same period a year ago.  In addition, adjusted EBITDA margin fell to 11% from 13% on a year-over-basis.   Operating cash flow was $3.7 million for the quarter, with adjusted EBITDA of $10.9 million.

Source: Company Presentation

Revenues came in at a record $96.6 million, a bit over the consensus.  This represents nine percent growth from the same period a year ago, and up four percent from the prior quarter.  

The SaaS Migration Continues:

In order to facilitate is migration to more of a SaaS provider, the company made three strategic acquisitions last year.  

CalAmp executed three acquisitions in the first half of calendar 2019. In late February of last year, the company closed on a $13.1 million buyout of LoJack licensee Tracker Network Limited. It immediately followed that small purchase in mid-March by buying the 87.5% of Car Track, S.A. de C.V. (LoJack Mexico) it did not already own for $14.3 million. LoJack Mexico was the exclusive licensee of LoJack in Mexico.

Source: Company Presentation

Then on April 12th, 2019, CalAmp acquired Synovia Solutions LLC, a North American provider of fleet safety and management for K-12 school bus and state and local government fleets for $49.8 million.

Those efforts are paying off.   Q3 software and subscriptions service revenue came in at $33.4 this quarter which was an increase of 68% from the same period a year ago.

This helped offset a decline of just over $5.5 million of lower margin telematic systems revenue on a year-over-year basis.  Notably, revenue from this division was up 2% sequentially from the previous quarter.

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Analyst Commentary & Balance Sheet:

Analysts were disappointed in the results announced in mid-December.  JP Morgan ($14 price target) maintained its Hold rating and First Analysis ($12 price target) downgraded the name to Neutral from Outperform.  Canaccord Genuity reiterated its Buy rating but slashed its price target to $17 from $24 previously.  Debt and cash on the balance are almost equal around the $275 million level. 

Verdict:

Source: Company Presentation

The company looks like it progressing nicely to a business model driven more by SaaS revenues which is advantageous to longer term growth and margins (see above).

Source: Company Presentation

Given this, I continue to take the long-term view on the investment case on CalAmp.  I added additional exposure to the stock on its recent dip using buy-write option orders and continue to be positive the company will continue to execute its strategic plan albeit with the occasional 'bump in the road'.

It is impossible to imagine the universe run by a wise, just and omnipotent God, but it is quite easy to imagine it run by a board of gods."- H. L. Mencken

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Thank You & Happy Hunting

Bret Jensen

Founder, The Biotech Forum, The Busted IPO Forum & The Insiders Forum

Disclosure: I am/we are long CAMP.