CAMP Q4 2015 Notes

Hi all,

Below are my notes from the Q4 2015 earnings release and conference call. This looked like a good quarter and the stock looks cheap. So far, this has been a great put writing candidate for me, with its juicy premiums.

Anirban
Long CAMP, short puts

Earnings release. http://investor.calamp.com/phoenix.zhtml?c=80120&p=irol-…

Transcripts. http://seekingalpha.com/article/3088506-calamps-camp-ceo-mic…

Headline numbers

o Consolidated fourth quarter revenue up 16% year-over-year to $69.2 million. Note that guidance for Q4 was b/w $66M and $70M, so they hot near the upper end of the guidance. Consolidated gross profit was up to 35.5%, compared to 34.4% in Q4 2014. FY revenues were $250M,which was a new record for the company.

o Wireless Datacom fourth quarter revenue up 23% year-over-year to $60.5 million

o Fourth quarter GAAP net income per diluted share up 125% year-over-year to $0.18

o Fourth quarter Adjusted Basis (non-GAAP) net income per diluted share up 60% to $0.32; non-GAAP EPS was guided b/w $0.26 and $0.30, so this was a beat on the guidance. FY non-GAAP eps worked out to be $0.96, a 25% YoY growth.

o Fourth quarter Adjusted EBITDA margin of 18%

o Net cash provided by operations for fiscal 2015 of $28.6 million, and total cash and marketable securities balance at February 28, 2015 of $44.4 million.

Some points from the conference call

There’s more revenue coming from outside the US, about 25% in 2015 versus 19% a year ago. This is good for diversification but introduces all sorts of currency effects in the results.

The wireless datacom segment was called out for excellent performance. Here the sales mix was 45% wireless networks and services, and 55% MRM products. This seems to be more or less stable along this distribution.

In the wireless networks business sales were strong with shipment of telematics product to a key heavy equipment industry OEM (about $7M). This is the Caterpillar relation, and this will continue to drive revenues into 2016. They also had good revenue contribution from enterprise fleet management software services.

The interesting bit here was that recurring revenue from fleet management, automotive aftermarket, vehicle finance applications and communication services comprised 15% of Q4 total revenues and 16% for FY total revenue. However, a point of worry was that the # of subscribers to their software services was flat sequentially at 495,000. They attributed this to higher than usual churn.

In the MRM products business, shipments to Brazilian company Sascar was highlighted. See conference call for details.

Among the various verticals that were discussed, it appears the energy vertical is growing at about 10% rate. In the rail segment, it’s the PTC radios, and this doubled in FY15 versus FY14 (although off a small base), and the fleet market is doing well.

There was an interesting question regarding the opportunity from cellular network technology transition, from 2G to 3G to 4G. It appears most of the smart grid infrastructure is still using 2G tech and it looks like they will only be upgrade at some point in the future. With location based services (fleet telematics, insurance telematics etc), it appears US-based demand has already shifted to 3G or 4G, while outside the US the primary focus is still on 2G tech.

The acquisition of Crashboxx was discussed. This company is an early stage company in the insurance telematics applications area. Right now, for UBI, Calamp is selling devices, and it was approximately $10M for FY 15. So may be, this acquisition offers some complementarity. Later on, in response to a question, CEO Burdiek said the following:
Crashboxx is a key element of our strategy going forward. What’s interesting about Crashboxx is that Crashboxx has technology that addresses sort of areas of the whole UBI value chain that almost no one else is able to address. So the Crashboxx technology coupled with our device portfolio, coupled with our connect platform, coupled with our App store utility gives us an amazing set of technology elements to be able to address insurance telematics opportunities anywhere from risk assessment all the way back through claims automation and claims disposition. (Text courtesy Seeking Alpha.)

There was nothing of note about the satellite division. It produced $8.7M revenue with 24.4% gross margin. The wireless datacom has gross margins around 37%.

Concluding Remarks

This quarter was good, especially for the segment that matters (wireless datacom). The segment that matters (wireless datacom) continues to grow but growth is expectedly lumpy. 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.

The issue with CalAmp might be its focus on too many verticals and thus too many moving parts. I keep wondering 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 expect the earnings to continue to be lumpy for a small company with so many verticals.

CAMP gave the following guidance:
o Q1 16 revenues between $63M and $67M.
o Q 16 non-GAAP EPS b/w $0.24 and $0.28.
In AH trading CAMP was up about 10% at $18.28, so I will give some valuation numbers based on this price point. Trailing non-GAAP EPS is $0.97. That puts the trailing PE at about 18.8. Last year, the company grew earnings at about a 25% rate. I think they can continue achieving 25% growth rate in this fledging IoT area. So, overall the stock still looks cheap to me at these levels.

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. The company has no LT debt and has about $44M in cash.

I have about a 2% (give or take a bit) allocation to CAMP, so I ‘m not looking to add right away but I will continue writing puts in the $17 - $20 vicinity. The put premiums have been good, so far.

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