Hi all,
Below are my notes on CAMP Q1 2016 earnings. Looked like a good quarter to me, and the stock still looks cheap for the growth prospects and its great for put writing.
As always, please read my notes with caution, use your own judgement, and if you have questions I 'm happy to discuss them here.
Cheers,
Anirban
Long CAMP, short CAMP puts
Release: http://investor.calamp.com/phoenix.zhtml?c=80120&p=irol-…
Transcript: http://seekingalpha.com/article/3295485-calamps-camp-ceo-mic…
10Q:http://investor.calamp.com/phoenix.zhtml?c=80120&p=irol-…
Headline numbers
o Consolidated Q1 16 revenue up 11% year-over-year to $65.4 million. Their guidance was for $63 to $67m, so they nicely got to the midpoint. The company generally seems to give reasonably accurate guidance. Consolidated gross profit for the fiscal 2016 first quarter was $23.5 million, an increase of $3.3 million over the same quarter last year, primarily attributable to higher Wireless Datacom revenue.
o Wireless Datacom revenue up 21% year-over-year to $57.8 million. This is the business segment that really matters in the long run, and this seems to be growing nicely in the 20+% range for the pat several quarters.
o GAAP net income up 57% year-over-year to $0.11 per diluted share.
o Adjusted Basis (non-GAAP) net income up 37% to $0.26 per diluted share.
o Adjusted EBITDA margin of 16.3% compared to 12.9% in the first quarter last year.
o Net cash provided by operations of $16.3 million and total cash and marketable securities balance at May 31, 2015 of $209 million. This uptick in the cash balance was due to their convertible debt offering which provided net around $150m. The company is nicely cashed up, so they might possibly be looking for some acquisitions.
Notes from the Conference Call
As a recap, the two business segments of the company are 1) Wireless Datacom, and 2) Satellite. The satellite business is a legacy business, which contribute very little compared and its more or less steady as she goes. The Wireless Datacom is the one we should really be focusing on for the long-term. The Wireless Datacom business is often talked about in terms of their Mobile Resource Management (MRM) product business and the wireless networks business. I look at the former as the hardware/product business and the latter as the software solutions & services business. There’s more information on this on the CAMP products page:
http://www.calamp.com/products
The Wireless Datacom segment was again called out for delivering solid results. The split was 60% MRM products and 40% wireless networks. The demand was said to be broad based, i.e., a range of customers and in a range of verticals. It was noted that that the telematics product being shipped to one key heavy-equipment industry player (This is Caterpillar by the way.) was following as per expectations and is expected to pickup in the second half of 2016. They believe this relationship with CAT has meaningful upside in 2016.
In the wireless networks side of the Wireless Datacom segment (i.e., the software & services side of the business), they noted:
- Solid growth in enterprise fleet management SaaS solutions with large wins from enterprise fleet management customers
- Solid demand in automotive aftermarket and vehicle finance industries
One point of concern is the sequential decline in the number of customers using their software subscription services. It’s down to 486,000 unique subscribers, down from 495,000 subscribers in Q4 2015. They again noted that this was due to higher than usual churn (same reason as Q4 2015), but they did say that they are getting more higher margin fleet SaaS customers, so the customer mix is now more favourable from a margin point of view.
In the MRM product side of things, they noted solid demand for products used in fleet management & asset tracking services, both in the US and internationally.
- Their Android-based Mobile Data Terminal (MDT-7) seems to be getting traction. In Q1 2016, they announced a preferred partnership with Magellan (GPS device & content service provider), which sees Magellan’s navigation s/w bundled with MDT-7. This provides fleet operators an integrated navigation + fleet management solution.
- Insurance telematics grew nicely and appears to be gaining traction. The Crashboxx acquisition is expected to play a key role in developing this fledgling area.
- MRM product business saw good demand from all geographies. Michael (CEO) noted that they saw some transition in Latin America from lower-end stolen vehicle recovery types of products more towards low to mid ranged fleet types of products.
It appears there’s broad growth happening in all key verticals.
- Usage-based insurance applications are gaining traction. CAMP noted more demand from existing customers. This is quite positive, IMO, considering their Crashboxx acquisition.
- Positive Train Control is seeing “good quoting activity"
- They appear to be getting some traction in the public safety market.
- They have a key customer in the solar segment, which is expected to modestly grow over their solid FY 15 numbers.
I found the following from the conference call interesting.
we’ve been a dominant supplier of fleet products to application service providers in North America for some period of time, we have significant market share, but even through our market share is quite high in the U.S. and in North America more broadly and as we look at the largest application service providers in that region in the North American region, roughly 8 out of 10 of the top service providers are our customers, that leads two large ones that we have left to tackle. I think in terms of some of the holdouts we’re starting to see some opportunity to potentially penetrate those key North American accounts and likewise in various regions around the world where some of the larger application service providers up to this point in time have relied mostly on their own internal developments for their product solution …
So it appears many bigger players are moving to an outsourced model for hardware, which makes sense from a cost & efficiency point of view.
The CAT relationship is progressing well. They were "awarded the highest supplier designation by that customer in recognition through our top tier quality systems and processes”.
Concluding Thoughts
This quarter was another good quarter. Many of the analysts on the call started by congratulating them on the quarter. As I noted for Q4 15, the segment that matters (wireless datacom) continues to grow and the growth this quarter and going forward was broad-based. The Caterpillar relationship is shaping up nicely and should give a good boast to the revenue and earnings. Management might have made a smart acquisition in the usage-based insurance area with Crashboxx. It appears management is excited about the opportunity and why shouldn’t they be. Insurance is a very big industry and its ripe for technology-based disruption.
This quarter, looking at the questions & answers, it appears that the competitive landscape hasn’t changed much. They were asked about Asian competition (implying “cheaper” competition) and it looks like there’s no material impact on the business. My sense is that the IoT space is still in its nascent years, and there’s much opportunity here for growth, so there’s room here for many players. Right now, CAMP seems to be trying to keep its fingers in as many pies as it possibly can, and its trying to see if any of the verticals can become a dominant one over time. Insurance telematics and fleet logistics are the obvious candidates at this point, based on their performance and business trajectory.
The following guidance was given:
o Q2 16 revenue b/w $66m and $70m. At the midpoint there will be some sequential growth. At the mid-point, that’s a nice 15% growth over Q2 15 ($59.2m). This stacks up nicely with what SWIR has been saying, i.e., we expect to see about 15% or so organic growth in the business and the remainder is likely to come from acquisitions.
o Q2 Non-GAAP EPS b/w $0.24 and $0.28. Note that this represents a 33% YoY earnings growth.
o FY revenue b/w $280m and $290m. At mid-point, that’s about a 17% YoY revenue growth over FY 15 ($244m).
A note regarding the non-GAAP earnings calculations.
The company’s GAAP effective tax basis is 36.7%. However, CAMP notes that its pre-tax income is still largely sheltered from taxation by NOL and R&D tax credit carry forwards; this situation with respect to taxation is likely to remain unchanged for several years. Non-GAAP net income excludes the impact of intangibles amortization expense, stock-based compensation expense and non-cash interest expense in the form of debt discount amortization, and includes an income tax provision for cash taxes paid or payable for the period.
With CAMP, it’s now become somewhat of a pattern. The stock has been range bound, and usually sees a 10% up following earnings release. It was up some 10% in AH trading following Q4 15 release. It was up again some 9% following Q1 16 release, but overall the stock has been rangebound, sitting in the $18 to $21 range. All the while though, I think the business has evolved, grown, and shown some solid trend for long-term growth in the IoT space. Well, the rangebound behaviour is great for writing options. I have been selling puts around the $18 to $20 region, while I continue to hold my modest position in CAMP.
With the stock at $19.46 (as of 7/3/2015), trailing TTM EPS (non-GAAP) of $1.04, the stock has a trailing PE of 18.71. That’s pretty cheap for a company expected to grow revenue around 17% or so, and expected to grow earnings even faster because of margin expansion. There’s also the potential of bottomline boast from acquisitions given the company is now sitting on a cash horde of $200 million. The cheap valuation with respect to the company’s prospects also makes this a good candidate for put writing, and the premiums on it are nice.
If someone wanted a small cap IoT exposure at a very good valuation, CAMP could be one to look at. It’s got some validation though its relation with CAT and it is growing nicely in many verticals.