CAMP4 Therapeutics Corporation (CAMP) Q4 2016 Earnings Report, Transcript and Summary

Greetings, and welcome to the CalAmp’s Fourth Quarter and Full Year 2016 Earnings Conference Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder, this conference is being recorded. I would now like to turn the conference over to your host Mr. Lasse Glassen. Thank you, Mr. Glassen, you may now begin.

Thank you, operator. Good afternoon, and welcome to CalAmp's fiscal 2016 fourth quarter and full year results conference call. With us today are CalAmp's President and Chief Executive Officer, Michael Burdiek and Chief Financial Officer, Rick Vitelle. Before we begin, let me remind you that this call may contain forward-looking statements. While these forwarding-looking statements reflect CalAmp’s best current judgment, they are subject to risks and uncertainties that could cause actual results to materially differ from these forward-looking projections. Risk factors that could cause CalAmp’s actual results to materially differ from its projections are discussed in the earnings release which was issued today and is available on our website and in our fiscal 2016 Annual Report on Form 10-K that was filed today with the SEC. We undertake no obligations to revise or update publicly any forward-looking statements to reflect future events or circumstances. Michael Burdiek will begin today's call with a review of the company's financial and operational highlights. Rick Vitelle will then provide additional details on the company's financial results and Michael will then wrap up with CalAmp's business outlook and guidance for the fiscal 2017 first quarter and full year. This will be followed by a question-and-answer session. With that, it's now my pleasure to turn the call over to CalAmp's President and CEO, Michael Burdiek.

Thank you, Lasse. Fiscal 2016 was yet another exceptional year with accelerated top line growth, margin expansion and record cash flows, coupled with the achievement of several strategic milestones positioning CalAmp for sustained, profitable growth. Consolidated revenues increased 12% year-over-year to $281 million, with yet another year of above market-rate growth for our Wireless Datacom segment, driven partly by shipments to our key heavy equipment OEM customer that nearly doubled compared to the prior year. In addition, full year consolidated gross margin of 36.7% grew by 180 basis points and helped to expand adjusted EBITDA margin to 17.5% from 15.3% in the prior year. Importantly, operating cash flow of $47 million was up by 65% compared to the prior year. At the bottom line, Adjusted Basis net income increased 20% during the year to $1.15 per diluted share. In addition to our strong operating results in fiscal 2016, we are extremely pleased with the progress we have achieved over the past year in advancing our strategic initiatives as a pioneer in the connected vehicle telematics space. Subsequent to the end of the fiscal year, we completed the acquisition of LoJack, a leader in aftermarket vehicle theft recovery systems offered through auto dealer channels. We believe that the LoJack’s world-renowned brand and channel relationships will create significant new opportunities for growth. Earlier in fiscal 2016, we also acquired Crashboxx and made a seed investment in the SmartDriverClub, two early stage technology companies that augment CalAmp’s state-of-the-art capabilities for the commercialization of a broad range of novel connected vehicle services. While fourth quarter consolidated revenue was lower than expected, consolidated gross profit margin, adjusted EBITDA and adjusted EBITDA margin were each at record levels for a single quarter. Our strong earnings performance was driven primarily by our Wireless Datacom segment and benefited from a favorable change in product mix. As previously announced, the revenue shortfall was mainly due to MRM product supply constraints late in the fourth quarter. This matter aside, we had an outstanding finish to a highly productive and transformative year for CalAmp in fiscal 2016. Looking at our fourth quarter results in more detail, consolidated revenue was $70.8 million, up 2% year-over-year. Consolidated gross margin increased to a record 38.9% in the fourth quarter, up from 35.5% in the fourth quarter of last year, while adjusted EBITDA margin improved to a record 19.3%, up from 17.9% last year. At the bottom line, we achieved GAAP-basis earnings of $0.15 per diluted share in the fourth quarter, with non-GAAP earnings of $0.32 per diluted share, up from $0.31 in the immediately preceding quarter. Operating cash flow was $9.5 million in the fourth quarter, bringing full year operating cash flow to a record $47.4 million and resulting in free cash flow of $43.1 million for the full year. This increased our total cash and marketable securities balance to $228 million at year end. Now I would like to review our operational highlights in the fourth quarter in more detail. Exceptionally strong shipments of telematics products to Caterpillar in the fourth quarter helped to offset the aforementioned MRM product revenue shortfall. Revenue with Cat exceeded $10 million in the fourth quarter and was sharply higher on both a year-over-year and sequential quarter basis. Over the next several quarters, revenue from Caterpillar is expected to settle into a more normalized quarterly run rate in the range of $7 million to $8 million. Telematics is a key strategic thrust for Caterpillar and we continue to look for ways to expand our relationship with this important customer. In addition to the ongoing business with Caterpillar, over the last several quarters we have made good headway in developing opportunities with other global OEMs in the burgeoning heavy equipment telematics market. I look forward to updating you on our progress in future periods. Our Wireless Datacom segment also benefitted from healthy contributions from our Software-as-a-Service and subscription based offerings. In total, recurring revenue from our Fleet Management, Automotive Aftermarket and data communication services was $10 million in the fourth quarter, and represented approximately 14% of total revenue in the quarter. Across all of our market verticals, we had approximately 482,000 unique software subscriptions at the end of the fourth quarter, which is down from 490,000 at the end of the immediately preceding quarter. The reduction was due primarily to churn and slow new subscriber activation rates for Remote car Start customers after an exceptionally warm winter in North America. Despite this, we saw a nice sequential quarter uptick in fleet customers, which carry significantly higher average revenue per user and gross profit. Moving on to our MRM products business, despite the relatively weak global macroeconomic backdrop and revenue shortfall in the fourth quarter, we saw solid year-over-year MRM product revenue growth in fiscal 2016 in the majority of regions around the world. Our pipeline has never been stronger with both new and existing accounts, domestically and internationally and looking ahead, we are well positioned to drive growth in fiscal 2017 and beyond. More broadly in the connected vehicle telematics space, over the past year we have taken significant steps forward to advance our pioneering vision. Following on the investments that we made during fiscal 2016 in Crashboxx and SmartDriverClub, shortly after year-end we completed the acquisition of LoJack. LoJack significantly strengthens our channels to market on a global basis for aftermarket vehicle telematics offerings and aligns well with our strategy to deliver innovative, next generation telematics technologies, and most importantly, software services. We believe that LoJack’s extensive relationships with U.S. auto dealers, as well as its international licensee footprint, will create defensible channels for innovative commercial and consumer focused telematics-based SaaS solutions. In the very near term, the acquisition is expected to be accretive to both consolidated gross margins and non-GAAP earnings per share, before the impact of any synergies. Though the process of integrating LoJack into CalAmp is in the early days, the core domestic business is performing well, with the International licensee activity very much a bright spot. Ongoing integration activities during the course of fiscal 2017 will focus on the following three core thrusts: First, we will nurture LoJack’s core stolen vehicle recovery domestic car dealership and international licensee channels, continuing the expansion of the successful pre-install program. Second, we will look to launch a telematics-based product that marries LoJack’s core RF technology with CalAmp’s telematics cloud services to expand the domestic serviceable market and to support a variety of telematics applications on our SaaS roadmap. And third, we will seek to leverage LoJack's growing auto dealership inventory management offering with the consumer sell through SaaS service based upon the Instant Crash Notification technology that we acquired with Crashboxx. Additionally, in conjunction with the LoJack acquisition, we changed the location of CalAmp's corporate headquarters from Oxnard to Irvine, California in order to reflect more accurately our prominent Southern California technology pedigree. Our base of employee in Orange and San Diego Counties has expanded substantially over the last few years and Irvine has become the center of gravity for our operations throughout Southern California. Overall, we're pleased with our recent progress in advancing our strategic initiatives in the connected vehicle space. We will continue to invest in the technologies, channels and strategic partnerships that we believe will position CalAmp to play a foundational role in the evolution of the overall M2M marketplace. Moving on to our Satellite segment, revenue in the fourth quarter was $11.9 million, somewhat better than our expectations. Subsequent to the end of fiscal 2016, EchoStar, our Direct Broadcast Satellite customer, notified us that as a result of the consolidation of its supplier base to better align with its future requirements, it will discontinue purchasing products from CalAmp at the end of the current product demand forecast, which extends through August 2016, As a result of this decision, CalAmp expects sales of this customer will seize after the second quarter of fiscal 2017. In light of the fact that EchoStar accounts for essentially all of our Satellite segment revenue, we expect that this portion of our operations will be discontinued during fiscal 2017. While we are disappointed by this development, the Satellite segment has not grown over the past several years and was not expected to grow going forward. Consequently, this segment was expected to be a smaller portion of our consolidated revenue and gross profit as a result of our stronger growth in other areas of our business. Exiting our legacy Satellite business, should have a positive effect on both our consolidated revenue growth rate and gross margin profile and will enable us to focus all of our management attention on the growth and profitability engine of the company, which is our Wireless Datacom segment, further bolstered by the recently acquired LoJack. Moreover, we do not believe that the loss of EchoStar as a customer will have a material adverse effect on our overall business and will largely mitigate the customer concentration risk the company has been exposed to over much of its history. Going forward, CalAmp will be a pure play pioneer in the connected vehicle and broader industrial internet of things marketplace with a highly diversified and global customer base. I would like to take this opportunity to commend the dedication and commitment of the Satellite business unit team over the years. Their efforts and the cash flow from the optimized Satellite business has allowed us to invest in the various Wireless Datacom strategic growth initiatives, which have driven an amazing and profound transformation of our company. With that, I will now turn the call over to Rick Vitelle, our Chief Financial Officer for a closer look at our fourth quarter financial results.

Thanks, Michael. I will provide a summary of our gross profit performance, income tax position, working capital management, and cash flow results for the fiscal 2016 fourth quarter. Consolidated revenue for the fiscal 2016 fourth quarter was $70.8 million, an increase of 2% compared to the fourth quarter last year. Consolidated gross profit for the fourth quarter was $27.6 million, an increase of $3.0 million or 12% over the same quarter last year. The gross profit increase is the result of favorable changes in both the Wireless DataCom and Satellite product mix as well as higher revenue in the Satellite segment. Consolidated gross margin was a record, 38.9% in the latest quarter, compared to 35.5% in the fourth quarter last year. Looking more closely at gross profit performance by reporting segment, Wireless DataCom gross profit was $23.9 million in the fourth quarter, with a gross margin of 40.5%. Year-over-year, Wireless DataCom’s fourth quarter gross profit was up $1.4 million while gross margin increased by 340 basis points. Our Satellite business had a gross profit of $3.7 million in the fourth quarter with a gross margin of 30.9%. This compares to gross profit of $2.1 million and a gross margin of 24.4% in the fourth quarter of last year. Late in the fourth quarter, a jury in the U.S. District Court for the middle district of Florida, returned a verdict against CalAmp in a patent infringement lawsuit brought in 2013 by Omega Patents LLC, a so called patent assertion entity. The jury awarded Omega damages of $2.9 million for which CalAmp recorded a full reserve in the fiscal 2016 fourth quarter. Following trial Omega made a motion seeking an injunction and requesting the court to exercise its discretion to trouble damages and access attorney's fees. CalAmp's responsive motion is pending and the judge's ruling has not yet been rendered. In addition, we've filed post-trial motions and are also seeking to invalidate the asserted patents in actions filed with the U.S. Patent and Trademark office. Notwithstanding the adverse jury verdict, CalAmp continues to believe that its products do not infringe Omega's patents and that it will prevail on appeal. Moving on to our income tax position, in the fourth quarter we recognized approximately $580,000 of federal R&D tax credits as a result of the congressional action in December 2015 to extend and make permanent the federal R&D tax credit program. In addition, our deferred tax asset valuation allowance was reduced by $2.5 million as a result of our assessment for the realize ability of certain deferred tax assets. Collectively these factors resulted in a $2.4 million income tax benefit in the fourth quarter. For fiscal 2016 as a whole, our GAAP basis effective tax rate of 20.5% compared to 33.4% in fiscal 2015. The lower tax rate in the latest year is primarily attributable to the R&D tax credits and the decrease in the deferred tax asset valuation allowance that were recorded in the fiscal 2016 fourth quarter. For fiscal 2017, we estimate our GAAP basis effective tax rate will be approximately 33% and our non-GAAP tax rate will be about 4%. Although the company's GAAP basis effective tax rate for the full year in fiscal 2016 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 and research and development tax credit carry forwards and is expected to remain so for the next few years. At the bottom line, GAAP basis net income for the fiscal 2016 fourth quarter was $5.5 million or $0.15 per diluted share, down from $6.5 million or $0.18 per diluted share in the comparable quarter last year. Our non-GAAP net income for the fiscal 2016 fourth quarter was a record $11.7 million or $0.32 per diluted share, compared to $11.6 million or $0.32 per diluted share for the same quarter last year. Non-GAAP earnings excludes the impact of intangible's amortization expense, stock-based compensation, acquisition and integration expenses, provisions for litigation related awards, the gain on investment in LoJack securities, non-cash interest expense in the form of debt discount amortization and the non-operational equity and net loss of affiliate and includes income tax expense for cash taxes paid or payable for the period. Adjusted EBITDA which is also a non-GAAP measure was $13.7 million in the fiscal 2016 fourth quarter with an adjusted EBITDA margin of 19.3%. This compares to adjusted EBITDA of $12.4 million and an adjusted EBITDA margin of 17.9% for the same quarter last year. Adjusted EBITDA excludes the effects of investment income, interest expense, income tax expense, depreciation expense, intangible asset amortization, stock-based compensation expense, acquisition and integration expenses and provisions or litigation related awards. For a reconciliation of the GAAP and non-GAAP financial results please see our fiscal 2016 fourth quarter and full year earnings press release that was issued today, which is available on our website. Now moving on to our liquidity position and balance sheet, at the end of fiscal 2016 the company had total cash and marketable securities of $228 million and total outstanding debt of $139.8 million, which represents a carrying value of our 1.58% convertible unsecured notes that we issued in May 2015. Net cash provided by operating activities was $9.5 million during the fourth quarter and $47.4 million for fiscal 2016 as a whole. We also have a $15 million bank working capital line of credit that is fully available for borrowing. Subsequent to the end of fiscal 2016, we used cash of approximately $109 million to complete the LoJack acquisition net of cash acquired. Our consolidated accounts receivable balance was $49.4 million at the end of the fourth quarter compared to $45 million at the end of the immediately preceding quarter. The receivables balance at the end of the latest quarter represents an average collection period of 56 days compared to 51 days at the end of the preceding quarter. Our total inventory at the end of the fourth quarter was $16.7 million, representing annualized inventory returns of approximately 10.2 times, down slightly from inventory turns of approximately 10.5 times in the preceding quarter. Total inventory decreased by approximately $1.4 million compared to the previous quarter. Our cash conversion cycle of 23 days at the end of the latest quarter was unchanged from the preceding quarter. Finally before turning it back to Michael, I’d like to quickly provide a brief overview of the LoJack acquisition. Total consideration for LoJack was $130.7 million, which includes the $4.1 million cost of approximately 850,000 shares of LoJack common stock that CalAmp purchased in the open market in November and December 2015 prior to entering into a definite acquisition agreement with LoJack. With the cash of $15.8 million on LoJack’s balance sheet as of the acquisition date, the net consideration was approximately $115 million. The allocation of the LoJack purchase price to the underlying asset acquired and liabilities assumed is subject to a formal valuation process that has not yet been completed. CalAmp will record the preliminary purchase price allocation in the first quarter of fiscal 2017. With that, I'll turn the call back over to Michael for our financial guidance for fiscal 2017's first quarter and full year along with some final comments.

Thank you, Rick. With the expected treatment for our satellite segment as a discontinued operation going forward, the operations of this segment are being excluded in the following financial outlook. For our fiscal 2017 first quarter, we expect to achieve consolidated revenue from continuing operations in the range of $77 million to $85 million. We expect revenue from our key heavy equipment OEM customer to decline to a more normalized quarterly level of between $7 million and $8 million. We also expect a $2 million sequential decline in first quarter revenue from our solar OEM customer before an expected rebound through the balance of the year. Overall we expect wireless DataCom revenue to be substantially higher on a year-over-year basis due to organic growth and contributions from LoJack. At the bottom-line, we expect first quarter non-GAAP net income from continuing operations in the range of $0.18 to $0.24 per diluted share with adjusted EBITDA in the range of $10 million to $13 million. For our fiscal 2017 as a whole, anticipating the discontinued operations treatment for the satellite segment, we expect revenue from continuing operations to be in the range of $375 million to $400 million with non-GAAP net income in the range of $1.15 to $1.35 per diluted share along with adjusted EBITDA growth of approximately 20%. On a comparable basis, fiscal 2016 pro forma revenues from continuing operations were $241 million with fiscal 2016 pro forma non-GAAP net income of $0.96 per diluted share and adjusted EBITDA of $49 million. We are not in a position at this time to provide GAAP basis net income guidance for either the first quarter or full year because the valuation of intangible assets arising from the LoJack acquisition is not yet complete. In closing, I would like to recap some key points. First we generated terrific results in fiscal 2016, highlighted by accelerating revenue growth, margin expansion and record cash flow. Second, we made significant progress over the past year in advancing our pioneering connected vehicle vision, positioning us well for sustained profitable growth well into the future. Third, our global competitive position and the pipeline of growth initiatives has never been stronger. And finally, our ever increasing scale, impressive roster of global enterprise customers, IP portfolio and emerging strategic opportunities forms a highly favorable backdrop for sustained momentum into fiscal 2017 and beyond. 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?

At this time, we'll be conducting a question-and-answer session. [Operator Instructions] And our first question comes from the line of Mike Walkley from Canaccord Genuity. Please proceed with your question sir.

Okay. Great. Thank you. Just starting with the Satellite Division Michael, just how should we think about modeling the operating expense with that division? Are the employees going to get reassigned or absorbed within CalAmp or do you expect some layoffs or how should we just think about the OpEx impact from Satellite going forward?

Well, I believe that the majority of the Satellite employees will probably transitioned out over the next quarter up through the end of our Q2. We'll probably maintain a couple of key employees there for various projects that we have ongoing within the rest of the company.

Okay. And any idea what the absolute OpEx is assigned to that division as we try to model that impact to our models?

I think the cash OpEx associated with supporting that business was in the neighborhood of $3 million to $4 million a year for a little over $1 million roughly $1 million a quarter. I think that the way -- a good way to ballpark it.

Okay. Great. Thanks. And then just to the MRM business, while I realize May has historically been a slower quarter with the $3.5 million supply issue maybe getting pushed into the May quarter. Is there something else within that division maybe why overall guidance is a little soft or is it just from a seasonal trend you're seeing?

Well I wouldn’t ascribe seasonality to it at all. Clearly as we announced when we issued our preliminary results a month or so ago, we had some choppiness in terms of order flow for our MRM products business coming out of the holidays, our yearend holidays. And as business began to pick up through late January into February, we saw our backlog building without an ability to fulfill that backlog based on essentially our supply chain completely shut down during the Chinese New Year holidays in China towards the latter part of the quarter. So we did see favorable bookings trends and pick up in business activity through late Q4 and obviously given what happened in Q4, we’re a little bit cautious as it relates to the guidance going into our Q1.

Okay. Got it, so…

But a bit fundamentally, the business is solid and as we mentioned in our prepared remarks, the pipeline of opportunities is really astounding and we’re making great progress, integrating with significant new customers and obviously the larger the customer, oftentimes the longer it takes to really pull him across the line before they really start contributing to order flow and revenue contribution.

Okay. Great. So it's fair to assume that you should see kind of a sequential pick up and maybe a stronger second half for the fiscal year in the MRM piece of your business?

I think that’s a fair statement.

Okay. Great and then just one for me and I'll pass it on. Just on the LoJack, I know its new in terms of what you seek of it. Can you maybe just walk us through just how you're thinking about synergies both shorter term in terms of the cost side and then longer term with some of the new products you talked about in the call getting into the channel, just how we should think about the LoJack opportunity both this year and may be longer term?

Sure. Well let me start with the very short term and that is as it relates to the guidance for this quarter, for this quarter we expect virtually no synergies. Many of the key executives that we plan to transition out are actually supporting us during a transition phase. So we’re bearing the burden of most of the preexisting OpEx as we work through our Q1. Through the balance of the year though, I would expect that the OpEx will normalize around roughly $15 million a quarter on a normalized basis that's excluding obviously stock comp expense and amortization expenses. So looking down the line obviously with relatively fixed operating expense profile associated with supporting LoJack channel, one would expect that there would be a fair amount of leverage there and that’s our view. As it relates to long term synergies, really it wasn’t about the short term, when we considered to acquiring LoJack. It was all about the longer term and we see tremendous opportunity to leverage the LoJack brand and their key relationships both the dealer channel relationships as well as some of their ecosystem relationships to supply LoJack branded products and services probably more services in nature that can truly leverage that resounding consumer brand that represents safety and security. And I think if you wanted to try to describe in a pictorial way what our roadmap really looks like, I think you can look at the SmartDriverClub and you could go to their website as they recently launched the website and have gone public with their -- with their offerings and it describes very well the kind of opportunities we see and the kind of leverage we believe we can accomplish through the LoJack channel and with the LoJack brand.

Right. Thank you very much and good luck with the LoJack consolidation.

Thank you.

Our next question comes from the line of Howard Smith from First Analysis. Please proceed with your question.

Oh yes. Thank you. Good afternoon, gentlemen. Wanted to kind of walk through a little math here and then ask you if you could just correct me if I’m wrong and if not may be comment on it. If $0.19 was a contribution from the satellite division in this year that just ended and I believe relative to consensus and things there was about that amount of accretion expected from LoJack. So those look like they somewhat offset and at the midpoint of guidance if you take out the $0.20 versus the $0.96 without it, your growth, your organic growth rate on EPS is decelerating from what you've been doing the last three years and I’m curious, A, am I thinking about that right and B, is that more due to you can’t absorb some of the fixed cost without that Satellite contribution at the gross profit line or is there something else contributing to that.

Well, I think you’re the beginning of the math equation I agree with you on that is the roughly $0.19 non-GAAP EPS contribution from Satellite for FY'16. Clearly LoJack had a lower operating margin than CalAmp has had, not only operating margin, but EBITDA margin. So to a certain extent, from a margin perspective, LoJack is dilutive. However there we do believe as per our guidance when we announced the acquisition that there is an absolute bottom-line accretion contribution coming to us through the LoJack acquisition. Obviously there are certain ongoing fixed expenses, which the satellite business was otherwise going to absorb that are now finding their way to the bottom-line or will have to be offset with additional synergies or new opportunities for growth that will hopefully derive as we work our way through the LoJack integration and through the balance of the fiscal year as we roll out additional strategic initiatives and new product -- new product offerings.

Okay. And let me just ask a follow-up kind of differently, is there anything inherently less profitable in the business you’re getting in the Wireless DataCom segment that's ongoing or is it -- that there is a mix every quarter certainly, but pretty much the growth you’re expecting, the ability to leverage that a little bit and bring that to the bottom line hasn’t changed.

No, no and I think it’s interesting to point out that Satellite from a margin perspective had its best year ever last year. For the last few years, each of our three businesses, the two within the Wireless DataCom segment and Satellite have been running at roughly the same EBITDA margin level on a percentage basis as all of the other businesses. So they’ve been operating from a functional equivalent standpoint from an EBITDA margin perspective. So Satellite having had a phenomenal year last year obviously creates some challenges as it relates to sustaining kind of the bottom line margin profile that we’ve been experiencing and further obviously challenged by the fact that LoJack had a lower EBITDA margin percentage for its operations. Now we do believe that there is a good deal of operating leverage as it relates to operating expenses that will not likely grow as fast as revenue growth particularly on the G&A line.

Okay. I appreciate the color Michael. Thank you.

Thank you.

And our next question comes from the line of Mike Crawford from B. Riley & Company. Please proceed with your question.

Thanks. Given that Satellite comprised I believe the bulk of the activity in Oxnard and you're moving the headquarters to Irvine, are you just going to get out of that space entirely in Oxnard?

Our short term -- in the short term, our outlook is not that we would move from the Oxnard facility. Obviously as our lease comes up, we'll reevaluate what our requirements are from a facility's perspective, but we still also have some ongoing product manufacturing, product provisioning activities in Oxnard. But that actually has been sort of a shrinking activity as well, but our entire corporate finance organization at least most of it, as well as some of our corporate development activities and other administrative functions will remain in Oxnard.

Okay. And the lease comes up when?

Within the next 18 months or so.

Okay. And then Michael perhaps again you can just bridge us from the caution in your guidance following what you saw before Chinese New Year and before you start to rebuild MRM backlog to the astounding opportunities that you never felt stronger about in your pipeline?

I will try to answer your question as best I can. So I’m not sure I followed it perfectly. I am not sure that there is increased caution in any sense. Obviously as we integrate an incremental $100 million plus of revenue from LoJack and an additional 500 and some employees pretty significant international operations, we want to make sure we walk before we run as it relates to trying to embed optimism in the financial results of those acquired assets.

Okay. Maybe stated -- maybe asked a little differently, so on the MRM side of your business, well on Fleet Management let's say, do you supply what eight out of the top 10 providers worldwide and are you seeing particular…

In North America.

In North America, so are you seeing any particular changes in that market where at one point maybe you thought it was maturing and slowing down and then you thought it was maybe growing again as it looked like it might be slowing down again where these providers are finding it hard to grow given just the inherent churn in their business or?

Well I think it’s clear that some of the incumbents are facing up and coming competition than competitors. But that being said, I think the market overall even those who are being challenged by the up encumbers or in general doing pretty well. But as the market has grown over the years, the growth rates have slowed. As it relates to us increasing our share of the market I think we’re well positioned with some of the up encumbers and I think we’re also exceptionally well positioned. With the other two hold outs and our ability to integrate with those customers and grow our customer base in North America let alone with some of the larger players outside the United States, which we think are also great opportunities. I’d also like to point out we didn’t mention in our prepared remarks, but our MRM product revenues related to the Fleet segment of the market actually grew 17% at FY '17 versus FY '15 and given our relatively large share of the market, I would say that’s pretty good proxy for market growth. So, we think there is still a fair amount of fuel in that engine and certainly growth prospects are promising going forward.

Great. That’s very helpful and then final question is more related to its financial. So do you think it will just have one Wireless DataCom segment going forward or are you going to split that into one, two or three segments given the continuing business? A – Michael Burdiek: I think whether it's one segment or more than one segment, I think we will provide in the future some additional color. Around the two key components of our Wireless Networks business that being the network products activity including some of the OEM activities with the likes of Caterpillar and separate that from SaaS or recurring revenue source and we will likely continue to break out our MRM product revenues as we have done in some of tour investor presentation materials. So, I would expect that you'll see a little more elaboration around the or about the underlying components of our preexisting Wireless DataCom segment. And obviously we'll interested in reporting on the LoJack channel activities, whether those channel activities are actually sales of existing MRM product, new MRM products or new SaaS services.

Great. Thank you. A – Michael Burdiek: You’re welcome.

And our next question comes from the line of Jonathan Ho from William Blair. Please proceed with your question.

Hey guys, can you maybe give us a little bit more color in terms of EchoStar? Does it provide any sort of specific rationale as to why they chose to maybe rationalize with some of the other suppliers, just given your long-standing relationship? And it did seem like you were ahead of the competition in terms of the current generation of product.

That’s a great question Jonathan. If you look at Dish's most recent reported results and you really look at the results over the last year, they had a very challenging year. They saw a net subscriber decline and if you try to normalize their reported net subscriber numbers by backing out the growth that they saw with their sling subs, which they throw into the same hopers they would with a traditional DBS customer, they saw a significant decline in that subscribers. Now what Dish has done traditionally is when they've seen a customer deactivation actual recover the various equipment components that are part of the system and we purpose those. We refurbish then if they're in good shape and reusable, but we purpose them with new subscribers and new installations. And so if you couple the next subscriber decline with the fact that they have all of this inventory flowing back into their inventory reserves available for new, new subscriber activations and you contemplate that secular trend is likely to continue if not accelerate then you can see the room for multiple suppliers for some of these traditional products is relatively limited. And we were and have been in a good position to continue to support them but we made very, very clear to EchoStar over the last several years that we really need a minimum threshold of business activity, otherwise the business doesn’t make any sense for us and I think they've been conscious of that over the years. In many ways I think we’ve been living on borrowed time. And we were one of the last two men standing as it relates to the supply of the latest generation outdoor receiver equipment. But the fact of the matter is that we were not in the prime position there and I think they essentially made a default judgment giving consideration to the dialog we’ve been having with them for the last several years.

Got it. Thanks for the additional color. With regard to LoJack, is there any sort of seasonality that we should be aware of on the revenue or expense side, or can you just maybe give us some sense of whether there is going to be any anomalies as we start to model this quarter by quarter?

Great question, yes there is some seasonality in our business. There are kind of two components to seasonality. One is their international licensees have traditionally stocked their shelves at the end of the calendar year and it’s generally resulted in lower international licensee product of activities in the first calendar quarter of the year. Then if you layer on top of that, the seasonality associated with the car business in North America tends to be a little bit slower during the winter months than it is during the warmer months of the year and that results in some seasonality pattern to their business. And we're capturing a little bit of the first calendar quarter obviously in our consolidated results and we would expect that the next couple of quarters will be the peak of their seasonal activity before we would see probably a traditional seasonal decline in the core product sales and licensee activities towards the end of the calendar year. Having said all of that, we’re hopeful by the end of this calendar year certainly by the end of this fiscal year that we'll be in a position to begin to augment the core offerings -- the core legacy offerings from LoJack with some of these more modern telematics based solutions.

Got it. Got it. And just one last one for me. Are any of the LoJack franchises potentially able to change their agreement or exit the agreement with a change in control? Just want to understand if there is any potential risk to the prior revenue from existing franchisees?

I don’t have each and every one of the international licensee agreements memorized. So I can't answer that question directly. But I can assure you based on my dialog with LoJack customers, LoJack partners and LoJack licensees around the world they are very, very enthused about the possibilities that CalAmp represents as the new owner of LoJack.

Great. Thank you.

And our next question comes from the line of Rajesh Ghai from Macquarie. Please proceed with your question.

Yes thanks. I would like to start off with a clarification. Michael, do you see OpEx run rate long-term would be around $15 million a quarter or did I hear it wrong?

$15 million -- pro forma $15 million a quarter for LoJack operations.

LoJack operations. OPEX for the combined company would be about approximately double that.

Approximately on a pro forma basis.

On that front, the model for LoJack, obviously, as you said, was -- had a much higher proportion of operating expense. Why wouldn't that be reduced going forward? Is that essentially a function of the model that they have, or are there opportunities, for example, to reduce G&A, which was almost approximately double that of yours as an independent company?

Well at the very least I wouldn’t expect G&A to grow and I think there probably is some down the line opportunities to extract some synergies in the G&A line. I would not expect that in R&D or sales and marketing. Those are two areas we need to continue to invest in and support so that we can exploit these channel opportunities.

Okay. And, in terms of the timing of revenue synergies, you talked about three opportunities. What's the timing for those? Are they expected to be in fiscal 2017, or do you think -- would you think that would take longer than that material?

Our goal is to launch at least one new telematics based product or service offering this fiscal year.

Okay. And what are your expectations for growth for the MRM, Wireless Datacom and legacy LoJack business? Do you expect all three segments to grow in '17, or would you expect LoJack to potentially have -- be flat or down?

Well we're not giving specific guidance on LoJack, but I can give you some qualitative outlook for Wireless DataCom, Wireless Networks and MRM business and obviously our goal, our objective each and every year is to grow at or greater than the market rate of growth. Our more recent assessment on a blended basis was that the markets and the verticals were exposed to the products and services that are supplied by Wireless Networks and MRM are growing roughly 13% per year or at least was last year and we exceeded that by a little bit of a margin.

Okay. And my last question is on the LoJack business. I believe they had a fleet management SaaS business that they were reselling based on the [bump in] service. Do you plan to continue doing that or in general how big is that and does it solve the rest?

I think it’s pretty small today, but we do plan to leverage the resources that were supporting that solution to promote some of our own core products and there is some question as to whether or not we’ll move forward with LoJack as the enveloping brand for some of those fleet management offering or a full transition of those two to CalAmp based products and services.

All right. Thank you.

You're welcome.

And our next question comes from the line Anthony Stoss from Craig-Hallum. Please proceed with your question.

Michael, a couple questions. You mentioned you are making continued progress with other heavy equipment OEMs that are testing your service, and I think you have been talking about it for a few quarters. Any way you can give us a optimistic and maybe a pessimistic view in terms of, is a couple of quarters out or is it even longer than that? And then, secondly, not a lot of commentary from you guys on UBI. I would love to hear kind of where you think you stand on UBI. And then my last question is, is it across the board, or is it more of a geographic weakness in any particular part of the world? Thanks.

Sure, great series of questions. I’ll try to answer them in order. As it relates to heavy equipment opportunities you might recall some quarters ago we announced a relationship or partnership with Toyota Motor Handling and we throw that opportunity into the heavy equipment category. We made good progress there and I think at this stage we're running a little over a 1,000 subscriptions and its part of we call a telematics cloud service offering. So, I think we already see other opportunities contributing at least in terms of some of the key metrics in that case subscriber metrics, but the revenue base there is also growing. We have had another pilot project that’s been ongoing for well over a year that’s recently increased the number of subscriptions and the number of devices deployed to what we’ve considered to be a meaningful level. So believe they will contribute to revenues well within the next quarter or two. But as it relates to heavy equipment market opportunities there is no bigger opportunity than Caterpillar. It is a market in and of itself and so obviously we’re keen to continue to nurture that relationship in the current project and program, but we believe that there are significant other opportunities within Caterpillar that at some point over the next several quarters could potentially contribute to revenues as well. As it relates to UBI, we had a reasonably good year as it relates to prior year revenues associated with hardware sales. We were a little bit below where we thought we would be at year end, but mostly due to the supply chain constrains at quarter end, how we've been able to fulfill all of our UBI related backlog at the end of FY '16 we would have probably been a little bit ahead where we were for FY '15 from a product perspective. And there are some other opportunities in the pipeline, but again our focus on growth in the UBI space is not around pure hardware sales. We’ve made an investment in Crashboxx. We're making great progress in commercializing the technology. We plan to launch a instant crash notification service through the SmartDriverClub in the U.K. So we think some of these ancillary telematics service opportunities are much, much greater in magnitude. In the near term and the longer term than anything we've been doing up to this point in time as it relates to hardware sales. And then lastly, on the international front as we mentioned in the prepared remarks, we saw revenue increase in the majority of regions around the world for MRM product sales. To give you a couple of examples, we saw roughly 20% year-over-year revenue growth in Western Europe for MRM product shipments and on a consolidated business actually a 40%. Again on the MRM product front, we saw about 13%, 14% increase in product revenues in Latin America. On a consolidated basis, Latin American revenues were actually down marginally due to two key energy projects that we shipped in FY '15 that created really a tough comp for Wireless Networks into FY '16. And there were only really a couple of regions that were not notable contributors to revenue and perhaps a little bit disappointing and that was South Africa was well off from the prior year and our shipments of products to the Asia-Pacific region was down a little bit, but that hasn’t been a big contributor of revenue up to this point in time anyway. If you look at the absolute decline in international revenue year-over-year, I believe in FY '15 we are right around $53 million. In FY '16 we’re right around $47 million. Canada alone was down $7 million from FY '15 to FY '16. So setting aside Canada and the Asia-Pacific region, we actually had a pretty good year growing international revenues on a consolidated basis.

Okay. Great, very thankful. Thank you.

Thank you.

And our next question comes from the line of Daniel Amir from Ladenburg. Please proceed with your question.

Thanks a lot. A couple of questions here. First of all, back to the OpEx question here. So should we model basically a step-up from the August quarter to the May quarter in terms of OpEx as we get a full quarter of LoJack? And then, we would expect maybe some OpEx decline due to the decline in G&A from the Satellite going away? I mean, is that kind of the way to look at the OpEx for the year?

I would modify that outlook slightly. I think you might expect a marginal increase in absolute OpEx from Q1 to Q2 for the regions you pointed out. However, I think we expect to see a real moderation in OpEx growth for the balance of the year, in fact probably a plateau somewhere between Q2 and Q3 and potentially flat for the balance of the year.

But where is exactly the $1 million OpEx savings from the satellite that you mentioned?

That obviously is reflected in the outlook I just described. If we continue to grow our Wireless Datacom segment, one would expect that sales and marketing, R&D expenses and even some G&A expenses to support that business activity would grow and obviously that growth is being modulated by the expected wind-down of some of the satellite operating expenses.

Okay. A follow-up question. Just on the interest income, so what should we look at the interest income for fiscal year '17?

I will hand that one off to Rick.

Investment income, we expect will be in the vicinity of $1 million maybe $1.1 million.

$1 million to $1.1 million for the year?

Yes.

Okay. And then, the final question, a bit on the visibility of the business right now, has your visibility improved in the past 30 to 45 days, given the supply constraints you had earlier in the quarter? Is it now better than it was or how would you state that?

I would say it's equal to better than it was 30 to 60 days ago and that outlook is partly due to the fact that we believe the LoJack business to an extent the core business, what we might term the legacy business, is probably fairly predictable.

Predictable in terms of a quarter out, it meaning visibility…

Perhaps even more further out than that.

Okay. All right. Thanks a lot.

You're welcome.

Our next question comes from the line of Greg Burns from Sidoti & Co. Please proceed with your question.

Good afternoon. What was the split of MRM products to wireless networks for the quarter?

It was almost 50-50.

Okay. And in terms of EchoStar, is there any inventory or balance sheet impact to the wind down?

If any, minimal.

Okay.

Well below our level of materiality.

Okay. And I saw at FirstNet, there was an RFP put out for that. I don't know if that's something at this stage that you will be involved in, but can you just maybe give us an update on the outlook for FirstNet, or the potential upside there for CalAmp?

We'll, we've been benefitting from some FirstNet deployments in the United States over the last year and there are certain number of different opportunities in our pipeline going into FY'17. I think the RFP that you're referring to might have been more in the form of an RFI and certainly we're monitoring all the FirstNet related activities, but clearly we want to be well positioned as a mobile device router supplier if not more than that from a telematics service perspective.

Okay. Thank you.

You're welcome.

There are no further questions at this time. I'll turn the call back over to management for any closing remarks.

Thank you for your support and for joining us on today's call. We would like to remind everyone that we kick off a very busy month of investor conferences in May where we will be participating in three conferences across the country. We hope to see many of you at these events. Thanks again and have a great day.