Edited Transcript of CalAmp Q2 2015 Earnings Conference Call…
Company: CalAmp Corp. (CAMP)
Event Name: Q2 2015 Results Earnings Conference Call
Date: October 6, 2014 4:30 PM ET
CalAmp Q2 2015 Results Earnings Call – Webcast audio
Operator: Greetings and welcome to the CalAmp fiscal 2015 second quarter results conference call. At this time, all participants are in a listen-only mode. A 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 conference over to Mr. Lasse Glassen of Addo Communications. Thank you, Mr. Glassen. You may now begin.
Lasse Glassen – IR, Addo Communications
Thank you, operator. Good afternoon and welcome to CalAmp’s fiscal 2015 second 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, 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 datacom and satellite segments, delays in the expected ramp up in product shipments to a key OEM customer in the heavy equipment industry, 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, 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 that 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 about the company’s financial results and Mike will then wrap up with the company’s business outlook and guidance for fiscal 2015 third 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 – President, CEO
Thank you, Lasse. Our solid performance in the second quarter was driven by ongoing strength in our wireless datacom segment, which generated record revenues and led to an 11% year-over-year growth in non-GAAP earnings.
During the quarter, we experienced strong growth in energy revenues with renewed shipments to our solar power customer, coupled with robust demand for our mobile resource management or MRM products from fleet management NASA tracking customers.
In our satellite segment, despite the anticipated sequential quarter drop in revenues, a favorable product mix drove higher gross margins and a strong contribution to our overall operating cash flow and profitability.
Looking at our second quarter results in more detail. Consolidated revenue was $59.2 million, up slightly year over year with wireless datacom revenue up 6% to $50.2 million, an all-time record for a single quarter.
Satellite revenue in the quarter was $9 million, down 22% year-over-year, and as I mentioned earlier, in line with our expectations. At the bottom line, we achieved GAAP basis earnings of $0.09 per diluted share in the second quarter with non-GAAP earnings of $0.21 per diluted share. Strong cash flow from operating activities of $8.5 million helped push our cash, cash equivalents and marketable securities balance to $36.8 million with zero bank debt.
Now I would like to review our operational highlights for the second quarter.
Within the wireless datacom segment, demand for MRM products from fleet management customers rebounded strongly in the second quarter after a slow winter season. In addition, we saw some nice uptick in demand for asset tracking products both domestically and with key customers outside the U.S. These gains were offset by tapered demand for our insurance telematics products in the second quarter, as our larger insurance customers refined their technology deployments in their business processes.
We believe, for the most part, the customer onboarding challenges which slowed demand in Q2 have been addressed and that hardware demand will pick up again in Q3 and through the balance of the year for the existing programs as well as through expanding basis of business with customers from all around the world.
We remain highly confident that UBI can be a major growth driver for the company, in particular, as we look at our various options to add value beyond hardware devices. To that point, we are refining our range what we believe are viable strategies to drive growth in this nascent market. More than ever we believe that we are extraordinarily well positioned to play a larger, more direct role in the market evolution by leveraging our unique combination of hardware, software and service assets as well as our global channels and partnerships. We hope to share additional details on our plans in the coming quarters.
Masternaut supply agreement
In other developments, during the second quarter we announced an enhanced supply agreement with Masternaut, Europe’s leading MRM services company. Under the agreement, CalAmp will supply Masternaut with hardware devices to enable tracking and monitoring of mobile assets, heavy equipment and industrial machinery with Masternaut’s Connect telematics software platform, its next-generation asset tracking and vehicle management solution.
Overall, our MRM products business has a very healthy and growing pipeline of opportunities both in the U.S. and in key international markets that we expect will help contribute to our growth trajectory in the second half of the year.
In our wireless networks business, energy revenues rebounded sharply in the second quarter, primarily due to our solar power OEM customer. We anticipate solid contributions from this customer throughout the remainder of fiscal 2015, albeit at a somewhat lower rate than the exceptional level we experienced in the second quarter.
In the heavy equipment market, I am pleased to announce that in September, we began volume shipments of our specialized telematics products to Caterpillar and are now in the process of ramping up production. Based on commitments received from Caterpillar, we now expect revenue from this customer during the second half of our current fiscal year will exceed $10 million and be ahead of our earlier expectations. We are very optimistic that this and other opportunities within the heavy equipment industry could become significant growth drivers for CalAmp over the coming quarters and years.
On the international front, we saw steady revenue growth in Latin America and South Africa during the second quarter as key customers in these regions drove, what we believe, will be sustained demand for our fleet management and stolen vehicle recovery products. International revenues climbed to 23.2% of consolidated revenues in the second quarter, up from 21.6% in the first quarter.
Recurring revenues from our fleet management, automotive aftermarket, vehicle finance applications and communication services comprised 16% of consolidated revenue for our second quarter. At the end of the latest quarter, we had approximately 485,000 unique software application subscribers, up from approximately 475,000 subscribers at the end of the previous quarter.
In addition to subscriber growth from our core applications, during the second quarter we launched Platform-as-a-Service initiatives with new key enterprise customers supplying bundled hardware, network connectivity and cloud-based subscriber management services, which we expect will begin to contribute to recurring revenues in the coming quarters.
In addition to our focus on near term execution, we continue to invest significant resources in new strategic initiatives that we believe will bolster our competitive position, expand gross margins and drive sustained revenue and earnings growth over the coming years. One such key initiative is our new Android-based mobile data terminal supported by CalAmp’s private Appstore.
In the latest quarter, we began commercial shipments of our MDT-7 data terminal for mobile workforce management applications to some of our key fleet management customers. We are seeing broad demand for the MDT-7 and are hopeful that this new product line will drive incremental product demand over the coming quarters. More importantly, we are optimistic that the launch of our Appstore and embedded core applications will enable us to layer on additional value elements resulting in higher margins than our traditional fleet management hardware products.
Moving on to our satellite segment. Revenue in the second quarter was $9 million, which was within our expected range but lower on both a year-over-year and sequential quarter basis. Importantly, satellite gross margin in the second quarter was 27.2% reflecting an improvement of 7.5 points year over year attributable to a product mix favoring higher margin home networking products. Going forward, we expect satellite segment gross margins to revert to more normal levels driven by a more balanced product mix.