CAMP Q2 2015 notes

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Hi all,

Below are my notes on Q2 2015. Overall, not anything spectacular to write home, but there are some bright spots with respect to the opportunity with Caterpillar. Plus, the valuation still appears to be decent for a small cap in the Internet of Things space.

Thanks,

Anirban

Transcript: http://seekingalpha.com/article/2544255-calamps-camp-ceo-mic…

Headline numbers

  • 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, inline with expectations

  • GAAP EPS of $0.09

  • Non-GAAP EPS of $0.21

  • Cash flow of $8.5M

  • Cash equivalent at quarter end of ~ $37M

  • Inventory stands at $20M in expectation of increased sales in Q3 and Q4.

Fleet Management

  • Demand for MRM products from fleet management customers rebounded
  • Uptick in demand for asset tracking products
  • CalAmp will supply hardware devices to Masternaut, Europe’s leading MRM services company. MRM has asset tracking and vehicle management solutions, I ‘m guessing primarily in Europe. This looks like a strategic partnership to drive European sales because it appears CalAmp does have some of the capabilities offered by Masternaut?

With respect to Masternaut, Burdiek noted the following in response to one of the questions:
Well, we have been working with Masternaut for the better part of two years. And so during that timeframe, we have been generally on a ramp. What’s interesting about Masternaut’s business, it’s involving a little bit. Earlier on the relationship was essentially an exclusive fleet focused relationship. But Masternaut’s dabbled in the UBI market a little bit in Continental Europe and we have been supporting them on some of their pilot programs. So the nature of that relationship is evolving a little bit because of the different sort of sub vertical applications they are looking to address with their range of software solutions.

Insurance telematics

This took a beating. It rang in $2M while in Q1 15 it did about $4M. It did well in Q1 2015! Why did it hurt this quarter?
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.

It appears the on boarding issues have been death with and management expected the insurance telematics segment to show a run rate of around $15 - $16 million for the year. This would represent a double over fiscal 2014.

Heavy equipment market

Management appeared really upbeat about the prospects here.

Expect to hit north of $10M in fiscal 2015.

In response to a question this is what the CEO had to say:
And I think qualitatively, it’s our belief that going in the next year the program is probably going to be a little bit bigger than we initially expected. So obviously it has to play out here over the next couple of quarters and we have to see where we settle in, in terms of the typical quarterly run rate. And we are nowhere close to being at that state yet obviously.

They reiterated that Caterpillar revenue of $10M would be split approximately 30/70 b/w Q3 and Q4.

With respect to a question from Rajesh Ghai from Macquarie, Burdiek noted that:

  1. They are confident of the CAT opportunity extending into fiscal 2016 because of the formal forecasts they have received from CAT
  2. They think they had underestimated the aftermarket opportunity.

Software application subscribers

  • Recurring revenues from fleet management, automotive aftermarket, vehicle finance applications and communication services comprised 16% of consolidated revenue.

  • There were approximately 485,000 unique software application subscribers, up from approximately 475,000 subscribers at the end of Q1 2015.

  • Launched Platform-as-a-Service initiatives with new key enterprise customers supplying bundled hardware, network connectivity and cloud-based subscriber management services, which is expected to contribute to recurring revenues in the coming quarters.

  • There was a nice question on increases in subscriber count but subscription revenue remaining more or less flat. It appears their software subs are seeing some headwinds. The adds were in the low average selling price category (vehicle finance), plus some in SaaS revenue, offset by churn in Satellite data subscriptions (which was from the Wireless Matrix acquisition).

Positive Train Control (PTC)

Down quite a bit over QoQ but was little better than they had expected.

Q1 + Q2 PTC revenue was about $4M, roughly equivalent to PTC full year revenue in 2014.

They have some backlog here and some incremental opportunities.

Mobile Data Terminal Initiative

This is a margin expansion, recurring revenue, opportunity.

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.

Outlook

Q3 revenue b/w $61M and $65M

Q3 GAAP EPS b/w $0.08 and $0.10

Q3 Non-GAAP EPS b/w $0.21 and $0.25

Fiscal 2015 revenue b/w $250 - $255M & non-GAAP EPS b/w $0.88 and $0.94

Curiously, in Q1 2015 management had noted that they expect earnings growth in the 20 - 30% range. They had framed it as being conservative to optimistic range. The re-stated guidance now calls for earnings growth between 15 - 22%. Management is blaming lower contribution for satellite and some uncertainty with respect to how much Caterpillar would deliver.

Concluding Remarks

Well, the quarter was meh over all, but there’s some bright spots to look forward to in Q3 and Q4. The Caterpillar opportunity should give a good boast to the revenue and earnings. CalAmp has many moving parts and sometimes I wonder how they will manage to grow their business with so many moving parts. This is something to be seen. However, at the same time, having their finger in as many pieces of the pie as possible and trying to figure out where the best action would be is may be an okay strategy. We will have to see how it pans out. I ‘m a bit disappointed with the lowering down of earnings growth outlook for fiscal 2015. But I do realise that earnings are going to be lumpy for a small company with so many verticals.

Assuming the After Hours price of $17.62 holds, based on the mid-point of non-GAAP eps we are looking at a forward PE of 19.4. That’s a decent PE to pay for a company growing at around 20% clip with a lot of optionality in front of it.

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