CalAMP Corp

Hi all,

Sharing my updated notes on CalAMP Corp (CAMP).

Saul - I would be very interested in hearing your opinion and thoughts on this company as well as my analysis.

Anirban

About CalAMP

CAMP is a wireless communications company that specialises in the mobile resource management and the machine-to-machine areas. CAMP sells both hardware and software that have applicability in the construction, oil & gas, rail, utility, transportation, vehicle finance/insurance industries.

CAMP sells hardware/devices including:

  • Tracking and telemetry devices for tracking cargo, trailer, and vehicles. Tracking is used in fleet logistics, usage based insurance, stolen vehicle recovery, etc. (E.g., from calamp.com “The LMU-2100 insurance tracking unit offers leading edge technology including a 3-axis accelerometer for measuring driver behavior and vehicle impacts, features an internal back-up battery.”)
  • Broadband and cellular routers (self explanatory)
  • Private radios and narrow band equipment: These are used by public safety agencies, pubic utilities, and government agencies.
  • Satellite reception products (self explanatory).
    Complementary to its hardware business is its software business, where it specialises in Fleet and Asset Management, Vehicle Finance/Insurance, and Network Device configuration/management.

As per company data, CAMP has over 3 million device under management on its platforms and has an annual device run rate of 1.5 million. The company was founded in 1981 and has been trading on NASDAQ since 1983.

This is another company one can consider tapping into as a play into the rapidly expanding machine to machine communications area.

Financials
($ figures in Thousands, except per share data)

Table 1. Quarterly earnings data from Q1 12 through Q4 14.

											
====================================================================================================	
		Q1 12      Q2 13      Q3 13      Q4 13      Q1 14      Q2 14      Q3 14      Q4 14
====================================================================================================  
Date		5/31/12    8/31/12    11/30/12	 2/28/13    5/31/13    8/31/13    11/30/13   2/28/14	
Revenue		43,861     43,987     44,340     48,391     53,746     58,807     63,503     59,847	
Net income	4,182	   3,659      4,155	 32,630	    1,685      2,844	  4,207	     3,067	
Adj Net Income	5,307	   4,914      5,250	 4,797	    5,593      6,818	  8,166	     7,115	
Share Count	29,263     29,692     30,096	 30,800	    35,663     35,833	  36,206     36,390	
EPS		0.14	   0.12	      0.14	 1.06	    0.05       0.08	  0.12	     0.08	
Adj EPS		0.18	   0.17	      0.17	 0.16	    0.16       0.19       0.23	     0.20
====================================================================================================

Table 2. TTM revenues, EPS, Adjusted EPS, historical prices.


==============================================================================================================
			Q4 13		Q1 14		Q2 14		Q3 14		Q4 14		YoY
==============================================================================================================			
Revenue (TTM)		180,579.00	190,464.00	205,284.00	224,447.00	235,903.00	30.64%
Adj Net Income (TTM)	20,268.00	20,554.00	22,458.00	25,374.00	27,692.00	36.63%
EPS (TTM)		1.46	        1.37	        1.33	        1.31	        0.33	       -77.40%
Adj EPS (TTM)		0.68		0.66		0.68		0.74		0.78		14.71%

Closing price		10.95		13.17		16.74		24.37		32.04	
									
PE  (TTM)		7.50		9.61		12.59		18.60		97.09	
PS  (TTM)		1.87		2.47		2.92		3.93		4.94	
PE adj. (TTM)		16.10		19.95		24.62		32.93		41.08
==============================================================================================================

Some exerts from the most recent earnings release and conference call. Italicised text is straight from transcript/call.

Q4 2014, FY 14 earnings release: http://investor.calamp.com/phoenix.zhtml?c=80120&p=irol-…

Transcript available, courtesy seekingalpha.com:
http://seekingalpha.com/article/2164213-calamps-ceo-discusse…
My comments are in normal font.

  1. Consolidated fourth quarter revenue of $59.8 million, up 24% compared to the fourth quarter last year, with Wireless Datacom revenue up 32% over prior year fourth quarter to $49.2 million and Satellite revenue down 4% to $10.6 million. Satellite revenues contributes about 10 to 12 million per quarter; this should get over shadowed by earnings in the M2M and MRM space.

  2. Consolidated fiscal year revenue rose to a historic record of $236 million, up 31% year-over-year, with Wireless Datacom revenue up 34% over prior fiscal year to $187 million and Satellite revenue up 19% to $48.9 million.

  3. Also in the fourth quarter, we made a small strategic acquisition of Radio Satellite Integrators that is expected to expand our presence in the state and local government market by augmenting our current range of public safety products with high margin, Software as a Service (SaaS) solutions. For fiscal 2014 as a whole, recurring revenue including SaaS subscriptions accounted for about 16% of consolidated sales.

  4. Insurance telematics is growing and trend is expected to continue in FY 15.
    *In fiscal 2014 we announced supply agreements with three key customers in the insurance telematics space and we expect to execute additional agreements with customers and channel partners during fiscal 2015 and beyond.
    *This vertical contributed about $4M in Q4 14.
    *We are also participating a proof of concept phases for an additional half-dozen opportunities in the US and Europe. Though our near term opportunity in the insurance telematics market is mostly hardware centric, we believe that longer-term there are opportunities for CalAmp to add additional value beyond just hardware devices.

  5. In the heavy equipment market, CAMP has an agreement with Caterpillar to supply telematics devices for heavy equipment. Meaningful revenue contribution is expected in the second half of current fiscal year.

  6. Acquisitions: Wireless Matrix and RSI.
    The RSI acquisition expands our presence in the state and local government market by augmenting our existing public safety products with high margin software as a service or SaaSs solution. The integration of both acquisitions has now been completed and we are pleased to report that these acquisitions were accretive to CalAmp’s margins and non-GAAP earnings in fiscal 2014 and are expected to contribute to our future growth and profitability.

  7. Software subscriber base is growing and expected to grow in the near term.
    *At the end of the fourth quarter we had approximately 460,000 unique software application subscribers, up from approximately 430,000 subscribers at the end of the third quarter.

  • Management hinted at other opportunities in fleet management for municipal customers and recent contract wins.

Guidance

Management believes that their satellite segment would be more or less flat going forward, so roughly 10 to 12 M per quarter. In the wireless data communications segment, they expect to grow faster than the market. The market is growing, according to management, at about 15%, and they expect to hit upper teens. This lows like they are setting up a low hurdle (sand bagging may be?) as their YoY revenue growth was about 30%. Non-GAAP earnings growth is expected to be about 30% for fiscal 2015. Similar to fiscal 2014, they expect the second half of fiscal 2015 to be stronger than the first half.

Management guided Q1 15 revenues in the $56 - $60 million range. Taking the mid-point, this equates to about 7% YoY revenue growth.

Valuation

Based on today’s (5/21/14) close, we get the following metrics:


=====================															
Stock Price	17.37								
PE (TTM)	52.64								
PS (TTM)	2.68								
PE ajd (TTM)	22.27	
=====================

On a TTM PE basis, CAMP looks expensive. On an adjusted basis, CAMP shares look attractive. In the past 5 quarters, CAMP has traded on an adjusted PE between 16 and 41.

I suppose, we should be careful in interpretation of the non-GAAP numbers. For FY 14, management has taken the pre-tax GAAP net income ($17.9 M), and added back amortisation of intangible assets ($6.3M), stock-based compensation ($2.9M), and acquisition & integration expenses ($0.6M). I ‘m okay with adding back stock-based compensation, assuming these compensations will reduce at some point in time and provided the earrings are calculated based on fully diluted share count. I know this is hotly debated! Adding amortisation is fine. Adding acquisition costs back seems weird though, especially for companies regularly making acquisitions. There’s something funky going on with taxes as well. The management had the following commentary in their earnings:
Notwithstanding the fact that beginning in fiscal 2014 the Company’s GAAP-basis effective tax rate approximates the US federal statutory tax rate of 35%, the Company’s pretax income is still largely sheltered from taxation by NOL and research and development tax credit carryforwards and is expected to remain so for the next several years.
I ‘m guessing this effectively means that they are sheltered from paying any taxes from their income because of tax credits that they have carried forward from previous years.

Given the promising area, good progress YoY, and recent pull back in the stock, CAMP appears to be ripe for establishing a starter position.

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