Welcome to the CalAmp Fourth Quarter and Full-Year Results Earnings Release Conference Call. At this time, all participants are in a listen-only mode. At the conclusion of our prepared remarks, we will conduct a question-and-answer session. As a reminder, this conference is being recorded. I would now like to introduce your host for today's conference, Nicole Noutsios, Investor Relations for CalAmp. Nicole, you may begin your conference.

Thank you, operator. Good afternoon, and welcome to CalAmp's fourth quarter and fiscal year 2018 financial results conference call. With us today are CalAmp's President and Chief Executive Officer, Michael Burdiek; and Chief Financial Officer, Kurt Binder. Before we begin, let me remind you that this call may contain forward-looking statements. While these forward-looking statements reflect CalAmp's best current judgment, they are subject to risks and uncertainties that could cause actual results to materially differ from those implied by these forward-looking projections. These risk factors are discussed in our periodic SEC filings and in the earnings release issued today, which are available on our website. We undertake no obligation 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. Kurt Binder will then provide additional details about the company's financial results and outlook. 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 for joining our call today. We achieved several transformative business and operational milestones during fiscal 2018, realizing record revenues and delivering strong bottom line results. Our consolidated revenues for the fourth quarter reached a record level of $94.4 million, up 10% year-over-year. Along with our strong revenue growth, we generated $59 million of free cash flow in fiscal 2018, which is up an exceptional 228% year-over-year. On the business and operational fronts in fiscal 2018, we realigned our global sales organization and armed our team with a comprehensive suite of SaaS solutions. These changes contributed to our successes during the year with several global enterprise customer wins, including the largest SaaS contract award in the company's history. We saw impressive growth with Caterpillar and ramped shipments with one new global heavy equipment customer. There's clear evidence that our investments in our sales organization and go-to-market initiatives are driving successful strategic partnerships and channel activity. Additionally, we continue to rapidly innovate and expand our product portfolio, especially in the connected vehicle marketplace with our next generation LoJack LotSmart advanced dealer inventory management system and LoJack SureDrive sell-through consumer telematics application. Overall, we are realizing the benefits of our investments and have a strong foundation to drive increased recurring revenue and long-term profitable growth. Our Telematics Systems business had a strong quarter with revenues of $78.3 million, up 10% year-over-year. MRM Telematics products revenue was again a strong contributor with growth of 29% year-over-year, driven by broad-based demand across our diversified customer base. During our fourth quarter, we announced our strategic partnership with Trimble, a customer we have worked with for several years. We are continuing to expand our relationship to provide a broad portfolio of telematics devices, the device management systems designed to support a wide array of field…

Thank you, Michael. It is a pleasure to be here today. My commentary will include reference to the non-GAAP financial measures of adjusted basis net income, adjusted EBITDA and adjusted EBITDA margin. A full reconciliation of these non-GAAP measures with the closest corresponding GAAP basis measures is included in the press release announcing our fourth quarter and fiscal year earnings that was issued earlier today. Consolidated revenue for the fiscal 2018 fourth quarter was $94.4 million, an increase of 10% year-over-year. For fiscal year 2018 as a whole, consolidated revenue was $365.9 million, an increase of approximately 4% year-over-year. However, excluding last year's revenue of the Satellite business which ceased operations effective August 31, 2016, revenue for the fiscal year was up 9% from $336 million in fiscal 2017. We have a number of profitability and balance sheet metrics that highlight our strong business and financial performance in the year. For instance, free cash flows for fiscal 2018 was $58.6 million, an increase of 228% over the prior year, including a $28.3 million non-operating gain on legal settlement with a former LoJack supplier. Profitability was also strong in fiscal 2018 with adjusted EBITDA of $52.4 million or 14% of consolidated revenue, which represents a 6% increase over the prior year. Our Telematics Systems and Software and Subscription Services businesses delivered solid financial results for both the fourth quarter and fiscal year. Within our Telematics Systems business, revenue for the fourth quarter was $78.3 million, up 10% year-over-year. The growth is due to solid demand and increased sales volume from a well-balanced base of customers, especially our global enterprise accounts, several of which are transitioning to our newer LTE products. Revenue from MRM Telematics products reached a new record in the fourth quarter of $42.4 million, an increase of 29% year-over-year.…

Thank you, Kurt. In closing, I would like to highlight a few important takeaways as we look ahead into fiscal 2019 and beyond. Number one, our core Telematics device business is on solid footing with technology transition tailwinds expected later in the year. Two, our Software and Subscription Service business is expected to see solid growth as we fully deploy our newer large program wins. Three, we are aggressively executing on the LoJack telematics transformation as a fundamental thrust in the renaissance of the brand. And last but not least, we are now tapping in to a substantially expanded addressable market by leveraging unique partnerships to monetize the millions of units in our installed base. I am pleased with our progress and the future does indeed look bright. I would now like to open the call up to questions.

Thank you. Your first question comes from Mike Walkley with Canaccord Genuity. Your line is open.

Great. Thank you and congratulations on a strong close to the fiscal year.

Thank you.

With your -- just building on the SaaS pipeline, can you talk about how the overall pipeline is looking for AssetOutlook, GovOutlook and FleetOutlook? And also just with this large global freight transport customer, can you talk about the rollout there, how it's progressing and when this customer might let you share the name to benefit from a large customer reference win?

Well, I wish I could answer the last part of that question. I really don't know when and if they'll allow us to announce their name, but they are a very important customer. And as we alluded to in our prepared remarks, we're starting to see incremental opportunities with that customer, not only to address the initial application with our AssetOutlook software suite, but also with extensions on that, including Supply Chain Integrity technology and other platform services as they extend the initial service out to not only their proprietary fleet, but also fleet components that they may lease or leverage from other partners. So we're very, very excited about that. And I would say, as it relates to the overall SaaS pipeline, that's probably the biggest element in the pipeline. It's just extending our relationship with that customer in a more holistic fashion. I would say, as it relates to those individual fleet and asset tracking applications, you mentioned AssetOutlook, GovOutlook and FleetOutlook, most of our emphasis these days is on enhancing the capabilities of AssetOutlook to be more comprehensive and include features that were only formerly part of GovOutlook or FleetOutlook. So, going forward, I would say, most of our new opportunities and certainly most of them in our pipeline, as it relates to asset and fleet management opportunities, are centered around AssetOutlook and its capabilities.

Great. Thanks. And then just as we think about the longer-term model, you shared on the call how some of the duplicative costs going on with the SaaS public cloud move are being offset by some stronger margins on the hardware side. Any color on just quantifying what the duplicative costs are? And then when they're done, where they might be a rerating of either company gross margins or adjusted EBITDA margins?

I think as it relates to timing, you'll see incremental, and perhaps even modest incremental improvement as we work our way through the year with us bearing the brunt of some of those duplicate costs more towards the beginning of the year as opposed to the latter part of the year.

Okay. Great. But to be done by year-end you think, and then just see a steady increase in gross margin is the way to think about it?

Well, I doubt it we'll be completely done, and we will continue to carry some modicum of proprietary infrastructure to support some legacy services. But over time, those things will start to dissipate and become essentially immaterial as it relates to overall effect on the financials.

Okay. Great. Last question for me and I'll pass on. Just on the comment on the move to LTE creating some near-term pause, as your mix shifts more to these LTE products, does it create an ASP uplift at all that may help overall revenue growth and is the margins on these newer products better than the products you might be replacing? Thank you.

Great question. First of all, I'd like to kind of point out that the word to be used probably isn't pause. But when we've seen these technology transitions and carrier initiatives to transition off of legacy, older-generation infrastructure with their subscribers, it caused us a great deal of market angst. And our job is to make sure we ease that angst as much as possible. And the reason why we're focused so much on LTE product developments, we're trying to be ahead of that curve so that there isn't, quote, a pause in the market. But we don't want to be overly optimistic as it relates to customers move towards those newer technology platforms. But I'd say, in general, for us, again using the past as the indicator, there generally has been some modest uplift as it relates to ASPs, but not necessarily a big uplift in terms of product margin.

Okay. Thanks for taking my questions.

Thank you.

Your next question comes from Howard Smith with the First Analysis. Your line is open.

Yes, thank you. I was glad hear the margin question, that was on my list. So I wanted to talk – you talked international about the strength, particularly you called out Italy. I was wondering if you could discuss some of the other areas of success or pockets of weakness internationally outside of that. And then a broad – I'll ask them both and you can answer both. A broader question on LoJack, talking about the kind of transformation of your strategy there. And I wanted to know, you had thought at one point you could, maybe at the end of this year, something kind of stabilize that base, and it sounds like you have somewhat with the offset and I'm curious, is that kind of how you were thinking about it, but the core – what I'll call core LoJack would continue to decline or has there been some change that's kind of accelerating the transition here, and how that business has gone over the last year?

Sure. Well, thanks, Howard. Thanks for stacking them up for me here. As it relates to the international market landscape, I wouldn't say that anywhere it was weak. So, certainly, no air pockets anywhere. I would say Europe wasn't as much, up as much as Latin America was in FY 2018. But I would say we're very, very bullish on our international opportunities and we think we have a great sales organization now and certainly scale in these international markets to kind of support that ongoing momentum. As it relates to LoJack, well, there's no real fundamental change in our outlook. We just want to make sure it's clear that no one should expect a big upturn in LoJack channel-related revenues here in the near term. But we are quite focused on pursuing and in fact, enhancing our overall transformation strategy, and it's really important that we have our sales organization aligned with that strategy and to a certain extent, resist the temptation of pursuing short-term product revenue for the benefit of a long-term recurring revenue stream and overall higher revenues per subscriber than would have been the case in the past. And I think as it relates to sort of the inflection point, I think we're working our way through it now. And we're very encouraged with the reception we've received from the newest generation of LoJack applications and the dealer lot management portal which we introduced and previewed at NADA back in March. So, we believe on the right track. We think we have the sales organization aligned with the strategy and structured for success, and the incentives are in place for us to see all of that through.

All right. Thank you.

Thank you.

Your next question comes from Mike Crawford with B. Riley. Your line is open.

Thank you. Shouldn't the declining stolen vehicle recovery mix be improving gross margins? And I guess ancillary to that, what is your potential journey toward your longer-term 50% gross margin target?

Great question. As it relates to margins, I would say the outlook on the LoJack front isn't markedly different than what it was in the past. I mean, the SVR products were quite high margin as it relates to some of the other products in our portfolio. And given that this LotSmart and SureDrive, SureDrive in particular, is essentially a channel sale, sort of resell model, we can't expect to see 75%, 80% gross margins on that type of transaction. But we do think that LotSmart in combination with the sell-through product SureDrive should be somewhat at least modestly accretive to the gross margin outlook as it relates to what we might have been able to see in the past with LoJack legacy SVR product sales. As relates to the journey to $100 million, we're on the path and I would say we're happy with where we are and we're certainly passing through some critical milestones as it relates to that journey. And I talked earlier about the opportunities we see with our global freight transport customer. And we believe that other opportunities in the pipeline can support our journey to $100 million of subscription revenue. And as it relates to 50% gross margin aspirational target on a consolidated basis, it's fundamentally dependent on the pursuit of or the journey towards $100 million of Software and Subscription Service revenue, because that's going to be the fundamental driver that allows us to see the degree of margin accretion to 50% from where we are here today.

Okay. Thank you. Then, you've grown business with these large global brands, as you mentioned, Caterpillar, Trimble, Verizon, what about on the insurance front which could have the potential at one point down the road to be – maybe even your largest vertical, bigger than fleet per se? For instance, what's going on with the Smart Driver Club where you still have a 49% minority interest? How are they doing, and what else is going on in the insurance side?

Well, we made an announcement just a few weeks ago as it relates to a unique relationship with TransUnion. And the group we're working with, the TransUnion, is essentially their insurance practice. So, the initiative that we talked about in that press release was directly related to an insurance opportunity, although not in the form of a usage-based or telematics-based insurance program. But we believe that TransUnion could be a fantastic partner for us to monetize not only our installed base, but to allow us to tap in more directly into telematics-based programs with insurance carriers in the U.S. As it relates to Smart Driver Club, I would say we're very pleased with their progress. They've been having particular success in the UK through the aggregator channel in onboarding telematics-based insurance policies and the performance of their book, i.e., the KPIs associated with loss ratios and profit per policy, premium per policy, all the KPIs are outstanding. And so, we're encouraging them in every way possible to continue their current pursuits and to do whatever they need to do to make sure that they're doing what they can do given their budget constraints, to continue to pursue their existing strategy onwards towards, I would say, building a very, very profitable insurance franchise. So, we're very encouraged there. And meanwhile, we've been able to successfully onboard some of the driver behavior technology that they've developed. It's become part of our – we're terming our safety suite, giving us the ability to integrate that into SureDrive and some of our fleet applications, so that we can provide real-time and post-trip feedback on driver behavior in order to help drivers improve their driving ability and obviously reduce risk and potentially save lives.

Okay. Thank you very much.

Welcome.

Your next question comes from Mike Latimore with Northland Capital. Your line is open.

Hi. This is Rishi Vallikandi (46:27) for Mike Latimore. Thanks for taking my call. A couple of questions here. How many dealers are currently using SureDrive and LotSmart, and where could that number be by the end of this year?

Excellent question. So, at the end of the fiscal year, we had 13 dealers that were active with a combination of LotSmart and SureDrive sell-through activities. And as relates to outlook, I would expect that number to increase pretty dramatically as we work our way through this fiscal year. And just as an indication of that, we actually doubled the number of dealers who were active with LotSmart and SureDrive just from the end of Q3 to the end of Q4.

Okay, great. And regarding the Caterpillar, so are you in most of the Caterpillar SKUs now or are there more to come?

Great question. We're in well under 50% of the current SKUs or machines that are being produced at their factories around the world. And I alluded to new programs that should enable us to increase our penetration rate, and attach to a greater percentage of their product portfolio as we complete those programs that are going to be active through most of this fiscal year.

Great. That's helpful, Mike. Thank you.

You're welcome. Thank you.

We have no further questions at this time. I turn the call back to Michael.

All right. Well, thank you for joining our call today and we look forward to speaking with you at the end of our first quarter.