CalAmp Q2 2015 Results Earnings Call Transcript

With that, I will now turn the call over to Rick Vitelle, our Chief Financial Officer for a closer look at our second quarter financial results.

Rick Vitelle – CFO

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 second quarter.

Consolidated gross profit for the fiscal 2015 second quarter was $20.5 million, an increase of $0.7 million over the same quarter last year, primarily as a result of higher revenue in the wireless datacom segment.

Consolidated gross margin was almost one percentage point higher at 34.6% in the latest quarter, compared to 33.7% in the second quarter last year.

Looking more closely at gross profit performance by reporting segment. Wireless datacom gross profit was $18.0 million in the second quarter with a gross margin of 35.9%. Year-over-year wireless datacom gross profit was up by $0.5 million while gross margin declined by 1.3 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 in the second quarter was down slightly compared to the previous quarter.

Our satellite business had a gross profit of $2.5 million in the second quarter with a gross margin of 27.2%. This compares to gross profit of $2.3 million and a gross margin of 19.7% in the second quarter of last year. The year-over-year gross margin percentage improvement in our satellite business is primarily due to a shift in product mix in the latest quarter that reflected a greater proportion of the higher margin home networking product, as Michael noted during his comments.

GAAP basis net income for the fiscal 2015 second quarter was $3.3 million or $0.09 per diluted share, compared to net income of $2.8 million or $0.08 per diluted share in the second 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 net operating loss carryforwards and research and development tax credit carryforwards and is expected to remain so for the next several years.

Our non-GAAP net income for the fiscal 2015 second quarter was $7.5 million or $0.21 per diluted share, compared to non-GAAP net income of $6.8 million or $0.19 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 second quarter earnings press release that was issued today which is available on our website.

ALSO READ: Creating Sustainable Organizational Culture Change In 80 Days: Arthur Carmazzi (Transcript)

Now moving onto the balance sheet. At the end of the fiscal 2015 second quarter, the company had total cash, cash equivalents and marketable securities of $36.8 million with no bank debt outstanding. The consolidated accounts receivable balance was $38.3 million at the end of the second quarter. This represents an average collection period of 51 days compared to the receivables collection period of 46 days at the end of the preceding quarter.

Our total inventory at the end of the second quarter was $20.2 million, an increase of $5.2 million compared to the previous quarter, representing annualized inventory turns of approximately 8 times. The increase in inventories was primarily to support higher expected sales in the second half of the year. We anticipate that our inventory balance will trend down moderately in the second half of this fiscal year.

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

Michael Burdiek – President, CEO

Thank you, Rick. Now let’s turn to our outlook, including our financial guidance for the third quarter and year as a whole.

In the fiscal 2015 third quarter, we expect consolidated revenue in the range of $61 million to $65 million. We anticipate wireless datacom revenue in the third quarter will be materially higher on a sequential quarter basis while satellite revenue in the third quarter is expected to be down slightly. At the bottom line, we expect third quarter GAAP basis net income in the range of $0.08 to $0.12 per diluted share and non-GAAP net income in the range of $0.21 to $0.25 per diluted share.

For fiscal 2015 as a whole, we expect consolidated revenues to gain momentum as the year progresses. We anticipate full-year revenues in the range of $250 million to $255 million and non-GAAP net income in the range of $0.88 to $0.94 per diluted share. We are pleased with our near term growth prospects and anticipate the continued execution and investments in key strategic initiatives and geographic expansion will drive growth into fiscal 2016 and beyond.

In closing, I like to recap some key points. First, our MRM products business is showing renewed strength and I am pleased with the growth we are experiencing in several of our core applications.

Second, our international market expansion initiatives are bearing fruit and we believe that we are building a sustainable base of business and highly leverageable channels to help drive incremental growth.

Third, we are encouraged by our growing pipeline of Software-as-a-Service and Platform-as-a-Service opportunities as well as the traction we are experiencing for our solutions with municipal and energy enterprise customers.

ALSO READ: The Boeing's (BA) CEO Jim McNerney on Q2 2014 Results - Earnings Call Transcript

And lastly, emerging opportunities in the heavy equipment sector is expected to be strong growth catalysts in the second half of fiscal 2015 and beyond.

In closing, we firmly believe our unique hardware, software and service solutions, 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 are working to take CalAmp to new heights by continuing to focus on execution in the near term, while strategically positioning the company to capitalize on very favorable market growth trends over the long term.

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: (Operator Instructions) Our first question is from Mike Walkley of Canaccord Genuity.

Mike Walkley – Analyst, Canaccord Genuity

Nice to see a solid quarter and the better second-half outlook. Michael, can we just dive into that a little bit? In addition to Caterpillar, what are some of the key drivers for the second-half outlook and particularly to give you the confidence into that February quarter for another sequential growth off this third quarter guidance?

Michael Burdiek: Thanks, Mike. Well, actually we are expecting growth pretty much across the entire core. As we talked about in the prepared remarks, we saw a nice rebound in some of the core applications for our MRM products business. Energy was quite strong in Q2. We expect that trend to be basically intact for the balance of year. Of course, overall we expect to see nice growth and a nice solid ramp in the Caterpillar business in the second half of the year. Obviously we have got some increased confidence that that’s going to be realizable given the fact that we referred to the business being, by our estimates, north of $10 million in the second half.

Mike Walkley – Analyst, Canaccord Genuity

And then just with the moving parts in the different businesses implied your guidance as we think of maybe stable gross margins with satellite coming down from the favorable mix and then maybe slight uplift on better volumes on the MRM side?

Michael Burdiek: I think that’s a reasonable assessment. As we pointed out in the remarks, we expect the satellite margins to probably soften up little bit as we revert to more of a normal product mix there. That being said, we actually think there is some opportunity for us to see some expansion in gross margin of our wireless datacom business as we move through the next couple of quarters, probably a little more pronounced in Q4 than in Q3.

ALSO READ: The Truth About Debt: Why 99% Rich Use It & Others Fear It - Dr. Anil Lamba (Transcript)

Mike Walkley – Analyst, Canaccord Genuity

And just one last question and I will pass it on. But I just wanted to dig into a little bit of your comments on the insurance telematics sales. Can you share with us maybe what they came in for the quarter? And with improving in the back half of the year, was that back to a maybe $4 million run rate for the back half of the year?

Michael Burdiek: In Q2, it was approximately $2 million. As we pointed out, some of the challenges we faced with a couple of the existing programs in Q2, I think mostly business process and customer onboarding issues have been overcome. So we expect to see the business start to ramp up again in Q3, probably be a bit higher in Q4 than Q3. But nominally speaking, I think our outlook is still in the neighborhood of growth year over year of about 2x. So in the $15 million $16 million range for the full year.

Operator: Thank you. The next question is from Howard Smith of First Analysis.

Howard Smith – Analyst, First Analysis Securities

Two questions from me regarding that outlook. The first on MRM, particularly kind of in fleet or just generally in MRM, is the strength coming from existing volumes or existing customers just increasing their volumes? Or is it a share shift within those customers where you are incrementally getting more volume, or people who previously had captive and are now outsourcing for the first time? I am sure it’s all, but maybe you can give the relative importance of those three.

Michael Burdiek: Sure. Can I pick all of the above?

Howard Smith – Analyst, First Analysis Securities

Yes. I mean, okay.

Michael Burdiek: Obviously the core business was strong as we alluded to in the remarks. So domestically, I think, from a share perspective, probably maintain share with growth amongst our existing customer base. But a lot of the growth year over year came from penetrating international customer accounts and in some cases, you term that market share gains by basically displacing internal developments.

CalAmp Q2 2015 Results Earnings Call Transcript

Related Posts