Welcome to CalAmp's Fourth Quarter 2020 Financial Results Conference Call. As a reminder, this call is being recorded. I would now like to introduce your host for today's conference call, Leanne Sievers, President of Shelton Group, CalAmp's Investor Relations Firm. Leanne, you may begin.

Good afternoon, and welcome to CalAmp's Fiscal Fourth Quarter 2020 Financial Results Conference Call. I'm Leanne Sievers, President of Shelton Group, CalAmp's Investor Relations Firm. With us today are CalAmp's Interim President and CEO, Jeff Gardner; and Chief Financial Officer, Kurt Binder. Before we begin, I'd like to 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 differ materially 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 any forward-looking statements to reflect future events or circumstances. Jeff will begin today's call with a review of the company's financial and operational highlights, then Kurt will provide additional details about the financial results and outlook followed by a question-and-answer session. With that, it's my pleasure to turn the call over to CalAmp's Interim President and CEO, Jeff Gardner. Jeff, please go ahead.

Thank you, Leanne. First, I want to wish everyone and their families well in these unprecedented times. I'm very pleased to join you today and to have taken an operating role at CalAmp, as Interim President and CEO in late March after spending the last 5 years as a member of the Board. I'm incredibly excited to be a part of helping our customers further their digital transformation via the connected IoT landscape, which CalAmp is uniquely positioned to provide. My familiarity with the company and its business enabled me to seamlessly step into this position and make a strong contribution to its future. For those of you who may not know me, I most recently served as President and COO of Brinks Home Security, a leader in the smart home market. For the past 5 years, and prior to that, I was CEO at Windstream, and CFO at Alltel, both Fortune 500 businesses in the wireless and wireline telecommunications industries. All these businesses were focused on a recurring revenue model. So I'm very familiar with the network communications, data capture and software services sectors and how to drive significant value from these powerful paradigms for enterprise customers and shareholders alike. CalAmp has a long pedigree in distributed wireless data communications and application platforms with a tremendous potential for delivering increasing profitable growth, which presents an exciting opportunity. Being appointed to this position, right in the middle of this COVID-19 pandemic, was clearly not part of the original plan. But I have moved to California and become fully engaged over the past few weeks. I am doing all I can to help lead this team and our organization in the best possible direction. Our top priority, as an organization, is to accelerate our digital transformation to become a full stack…

Thank you, Jeff. Today, my commentary will include reference to 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 fiscal 2020 fourth quarter and full year earnings that was issued earlier today. First, I want to emphasize that we are actively monitoring the impact of COVID-19 on our operating results and liquidity. We have implemented certain cost containment and cash containment measures, especially in areas such as personnel, travel and other discretionary spending. We believe that our existing cash, future cash flows and available borrowing capacity are sufficient to fund our ongoing operations through these uncertain economic conditions, prompted by the pandemic. As Jeff mentioned, our fourth quarter consolidated revenue increased 3% year-over-year to $87.2 million. For the full year 2020, consolidated revenue was $366.1 million, a slight increase over the previous year. In 2020, international revenue was $99.7 million or approximately 27% of consolidated revenue, compared to $95.3 million or 26% of consolidated revenue in 2019. Software and Subscription Services revenue increased 83% year-over-year in the fourth quarter to a record $34.8 million or 40% of consolidated revenue, and $124.9 million or 34% of consolidated revenue for the full year. The revenue growth was driven by our recent acquisitions, especially the acquisition of Synovia Solutions, which contributed $11.3 million to our fourth quarter revenue as well as solid performance from our LoJack Italia subsidiary. For the full year, our subscriber count grew by approximately 41% to $1.3 million. Telematics Systems revenue was $52.4 million in the fourth quarter and $241.2 million for the year, down over 15%, both sequentially and year-over-year. A large portion of the revenue decline for MRM Telematics products…

Thank you, Kurt. I'd like to reiterate, once again, to all of you, that we are adapting day-to-day and week-to-week as we work through this difficult situation, along with our customers and communities by using innovative ways to get things done. Looking back over the past year, we've accomplished some important things, not the least of which, was expanding our Software and Subscription Services revenue to well over 35% of our total revenue. And the new products and applications we've released into the market recently, including iOn Tags, iOn Vision and others represent exciting revenue opportunities. As we look to emerge from these temporary global conditions, I can tell you that the CalAmp team has a healthy perspective and a positive mindset to accomplish great things in the quarters and years ahead. With that, I'd like to open the call up for your questions. Operator?

[Operator Instructions]. We have one question from the line of Mike Walkley.

Jeff, certainly, challenging time to take over a CEO role with lots of changes. Maybe just high level, can you discuss your first couple of weeks, how the message has been received from the employee base? And then just areas that you're most excited about in terms of opportunities for new recurring revenue services that you see for CalAmp?

Yes, Mike, as I said in my script - thanks for the question, and it is a challenging time to start. But I've got to tell you, the team has been incredibly receptive. We've jumped in, and we've attacked these challenges aggressively, which I'm very pleased about. And it's a difficult time, but I think the way the team is working, the way we're - I think people are working harder than they ever have. We're meeting virtually every day to really meet with our customers, kind of focus on our strategy and put ourselves in the best position to improve the operations here. And I really think that we've made some progress in some key areas. You've got to step aside from COVID-19 for a minute, but the fact that we're now - we have a fully diversified set of global Tier 1 suppliers, the fact that our team has really changed this business with much more of an emphasis on SaaS, positions us well for the future. And I'm really excited about the product suite that we're developing. I've talked a lot about - in my comments about iOn and fleet and transportation and the opportunity that we have there. So I'm really excited about that. We've got two members of the management team that I think are going to really add some great value and accelerate things. I think that's one of the challenges here is to kind of do everything we can to move faster to focus on the right products. We added Arym Diamond, who came from salesforce.com and Oracle before that, a real SaaS revenue expert, and very good with strategic customer relations and a real solid product person. And along with - and Jeff Clark, our Senior Vice President of Products. Together, I think they're going to add some real value. I can already see the pace of the company improving in just the last 30 days, and everybody is reacting really well in a difficult situation.

Great. And with that team in place, do you feel you need to add more areas of talent to transform the company? Or do you feel like you have the right resources now? I know Kurt also mentioned some costing objectives just during the uncertain times.

Sure. I think those were two of our key hires that we needed to make to kind of fill out our team and that we're in a good position now. And as Kurt mentioned, we're going to be very conservative go-forward with regard to investing in additional people. We've got some pressure on the business. So we've already been very sensitive to cost. If you look at the business and how - even before I arrived here, the team had made great progress on some of the synergies in the supply chain issues, our headcount is down significantly year-over-year. So I think we're in good shape as it relates to the talent that we need to be successful go-forward.

Okay. And just on the shorter term, I know you're not providing guidance, just - it makes sense with the may quarter end and a lot of the world still locked down. But just on the software subscription business, how sticky is that? And how should we maybe modeling that business in the shorter term? Is that kind of flattish? Or do you lose some customers, like you talked about on Synovia because a lot of school buses aren't shuffling kids back and forth. Just kind of puts and takes on that business in the short-term would be helpful.

Yes, sure. I'll let Kurt weigh in on this after me. But as I look at that, that's some quality - that's quality revenue, $124 million, 35%. And it's recurring. And there's a good portion and that's recurring and it's unaffected by what's going on out there. There is some portion of it, as Kurt mentioned, I believe, that, for instance, in the Synovia business, we have a little bit, not all, there's a huge recurring portion of the revenue, but some of it is affected by our ability to install the products and new bus fleets around the country, and we've - that's been put on hold. We were working every day with some of our partners around the country, and there's - just yesterday, a big installation that we had talked about where they just don't have anybody there to kind of receive our product or allow our technicians to access their buses at this time. So that will have some impact. But I mean, I think we're in such better shape with that recurring revenue stream than we would have been, say, a year or two ago.

Yes. And Mike, in terms of visibility, it's tough to give any guidance there, especially with the challenges around the installations and - but obviously, the SaaS business is much more stable and predictable in a normal environment. As we look at what's happening with COVID-19, we do see that or think that the business will rebound a bit in the second half of this year. We've been watching closely and listening to our advisers. Obviously, Q1 and Q2 are going to be a challenge. So very limited visibility there. But when you get out until our Q3 and Q4, we'd expect there to be some rebound, albeit, we're not in a position to give guidance. So I think we're pretty excited about the progress we made between fiscal '19 and fiscal '20. I think we've set ourselves up well for future growth in the SaaS business. And so once we get through this temporary economic situation, prompted by COVID-19, we'll be in a great position.

Great. And just one last question and I'll pass the line. I just wanted to clarify, Kurt, is Caterpillar an area of still relative strength? I think you talked about some visibility there with their LTE upgrades. So is that one of the areas in hardware that we should think about is stronger maybe than the other areas of hardware?

Well, Mike, as you know, CAT's an exceptional customer for us and one that we are very closely aligned with. We're strategic partner with them. And one of the things that we've been working on has been the 3G to 4G upgrade and their transition that they're going through. So in terms of outlook in the future, we expect them to be a significant contributor to our revenue. We see that, right now, there's still consistent demand coming out of CAT, and that they haven't modified their forecast in any great way. We do know that they are challenged a bit with some of the facilities being temporarily shut down. But right now, we think that it's still going to be a solid year with CAT for us.

And next question from the line of George Notter.

I guess, Jeff, maybe this is one for you. It's sort of an oddball question. But you've come in, you're implementing a 100-day plan, you're making changes on the personnel, you left your prior role at Brinks Home Security, I guess, I'm just curious about the interim tag to the title you have right now. Why is it interim? And maybe you could just help us understand that. And then I also wanted to ask about - maybe just answer that, and I've got another - a follow-up.

Okay. Sure. Well, first, I'm fully committed to this opportunity. I'm certainly not behaving like an interim CEO and asking one of the team members here, I've jumped in, and I want to do this, and I think I have the experience and energy to really add a lot of value here, and I'm jelling very well with the team. I obviously have submitted a 100-day plan to the Board that I think can accelerate our transformation. Being on the Board for 5 years gave me a head start on that. And the Board has not initiated a search yet. And I have the support of the Board and the management team. And so I hope to earn the support of the investors through improved financial performance and transparency. And having said that, of course, it's at the discretion of the Board. So that's kind of the situation of where we're at. But I feel great about the support I'm getting, both from the Board and from the management team.

Got it. Okay. Great. Fair enough. And then you talked about trying to drive organic growth on the software and subscription side of the business. Could you give us a sense for what that looks like right now? I think you guys mentioned 1.3 million subs. I think it was a similar number exiting the prior quarter. And certainly, I think, there's probably some rounding in here. But how many subs were you able to add in the quarter? And then what does that look like in terms of organic growth?

So George, I'll start that, and Jeff can add in here. So just in terms of full transparency, when we started fiscal 2020, the growth that we experienced was heavily influenced by the 3 acquisitions, Synovia being the largest, but Tracker, U.K. and Mexico were key contributors. When you look at our organic growth, we were actually in aggregate down about 6% to 7%. But in that variance, we did have some pockets of success in growth, specifically, the supply chain integrity solutions has actually shown growth, and we see longer-term opportunity there. Obviously, we've talked a lot about LoJack Italy, that up until the COVID-19 pandemic was growing consistently double-digit growth. So what we know that we need to do better is just further engage strategically with our customers, align ourselves, help them understand the value proposition that we have to bring in integrating our hardware devices with our CalAmp Telematics Cloud and then a market vertical application that's perceived as value add. So we think we can do that. We think that the acquisitions, in particular, the Synovia acquisition, has really given us a road map to accomplishing that. That in combination with what we've been able to accomplish with LoJack Italy, really establishes a road map for us to be successful longer term. So more to come there.

Yes, and it's complicated, Kurt. On the - if I could just add something there. I think part of this is all about strategic engagement with the customers. We have such a great platform, and we are much more than a device company today. We're delivering a great set of products and services. So the fact that we brought Arym Diamond into the fold, as our Chief Revenue Officer, he really understands how to sell SaaS. At salesforce, to me, as a customer of salesforce and all my prior jobs, I know they're one of the most aggressive SaaS sales teams in the country, and they're very good at it. Arym's bringing all that skill set. In just his first 45 days here, I see a huge difference. And he and I are getting engaged at the strategic level. Our development team is developing great products like the iOn Suite. We talked about the iOn Tags, which has launched and soon iOn Vision. So we're rolling out products that really add value to our customers and partnering with our TSPs. So we're going to make that a real focus in 2021. And as Kurt said, some of the businesses that we acquired now are going to fall in the organic, and they're going to represent a huge opportunity.

Got it. And then I guess, just I'm inferring from the response that M&A is probably less of a tool here as we look forward. The balance sheet probably drives some of that certainly. But I - is that a fair assumption?

I think we have so much upside focusing on our current business. We were pretty acquisitive last year. Right now, I think, it's time to focus on organic growth and maintaining our balance sheet position.

Your next question is from the line of Paul Coster.

So you're more than 2/3 way through the quarter, and you're suspending guidance for this quarter. So I'm just wondering what typically is the third month of the quarter in terms of the linearity of the business?

Paul, yes. So when we look at - this is the Telematics Systems business, and in particular, MRM Telematics, and for - to a lesser extent, the network and OEM products shipments. They tend to be fairly back-end loaded. We - in moving to more of an outsourced model with our Tier 1 suppliers located in places like Malaysia, Mexico as well as Taiwan and China, there's still limited visibility there. And so given the fact that a fair amount of our hardware shipments, whether it be to international destinations or domestically here in the U.S., are heavily dependent on the suppliers and access to labor, especially in countries like Malaysia and Mexico, it's still difficult to get great visibility on. We thought that it was appropriate to hold on providing guidance.

So it's more to do with supply than it is demand then?

I think that's a fair statement. Yes, I think...

I think in the first quarter, for sure.

Yes. I mean we - as you know, Paul, we exited fourth quarter with an abnormally high amount of backlog. And then that, in combination with the consistent demand, particularly in the months of March and April, the customer demand was not as big a challenge. But we do think that on the supply side, we still have some work to do, and it's just tough to get great visibility there.

I was just going to say, we are working with these suppliers in all of these locations on a weekly basis, if not daily, to kind of monitor how we're doing in the month. So as Kurt said, it's important. The last 30 days is always important, and I just want to let you know that we're very focused on it, and they're doing their very best. These guys are doing their best to keep as much of their staff working as possible, and they're making progress every week.

Is there anything in the accounts receivable? I mean I know that it's not particularly elevated. But nonetheless, you must be scrutinizing the composition from a credit perspective, in addition to which you must be a little concerned about some of your customers from a subscription perspective. Can you just talk to us about your credit risk perceived or real?

Sure. Sure. So you are correct. I mean, that is an area that we're very focused on. And in fact, we have team meetings on a weekly basis to scrub through any of the past due accounts and to make sure that we have very diligent collection follow-up procedures in place. But as you know, we have a very diversified mix of customers. What we've seen so far is a lot of the larger ones, say the global enterprises, companies like AT&T, CAT, Verizon, have remained very consistent in their payment cycle, which we certainly appreciate. That being said, some of the smaller customers have reached out and indicated that they need potential deferred payment programs. So we're working on that on an individual case-by-case basis. But generally, we haven't seen that, broadly speaking, across our entire portfolio of receivables. So we've been pretty pleased with the way we've been managing our cash balance and the fact that our customers have been still very responsive. And we're hopeful that this will continue over the next few months as we start to come out of this COVID-19 situation.

Okay. And my last question really is focused prospectively, the May quarter, I see you've got some supply uncertainty as we roll into the second - fiscal second quarter, though, if this is a real recession and it's got a tail to it, then you would expect to see a demand issue emerging. Are you seeing anything at the moment in terms of churn for your SaaS business? And are you seeing any - can you explain to us - you said it's recurring, but invariably, there's some way in which customers either roll off or they reduce certain types of options or there's some variable component to contracts on the downside. Can you just talk us through any of those risks?

Yes. I'll take the first part. And we haven't seen a lot of churn. Although we are concerned about the really first and second quarter about - as we talked about in this - on our - in our prepared remarks, our ability to access some of our customers, both, if you look at Italy, where - which is a big Software as a Service part of our business. We've had - it's pretty much shutdown. So things like that are affecting us on the demand side. And Kurt, maybe you can talk to the last part of that question on the contracts.

Yes. I mean most of the contracts range anywhere from, say, 24 months to as high as 60 months. As you know, as I pointed out earlier that Synovia was a big contributor of our revenue this year. Most of their contracts are at 60 months. And they're assigned to the appropriation process within various municipalities in K through 12 school districts. So we haven't seen any clear indication that there's been a dramatic increase in churn. Certainly, we're trying to keep tabs or keep in touch with our customers. So whether it's our sales force, that is focused on the government fleets or the commercial transportation fleets, or frankly, even in Italy and some of the LoJack subscription services, we've been really pressuring our sales team to be in constant touch or engagement with our customers to give us feedback. So at this point in time, Paul, we haven't seen an indication that there would be a dramatic increase in churn.

Next question from the line of Jerry Revich.

Thanks, operator. We can move on to the next call, and we'll circle back with Jerry at a later time.

And next question from the line of Pavan Kumar.

This is Pavan, on for Mike Latimore. I have two questions. Which LoJack service geographies are doing best and worst between Mexico, Italy and the U.K.?

So let me just rephrase the question. So which geographic region for the LoJack subscription services is doing best or worse? So let me frame up the response this way. So up until the impact of COVID-19, the LoJack Italia subsidiary, that particular entity and that geographic region was doing exceptionally well for us. Over the last few years, it had been growing at the high teens, even low 20s. And it's adversely full subscription model. So we've been extremely pleased with what Italia and the management team there have been able to do. And our vision really is to be able to take that model and emulated here in the U.S. So that's really been a beachhead and one that we've been extremely pleased with. As it relates to both Mexico and the U.K., as you know, those were recent acquisitions that we closed at the beginning of this fiscal year. And those acquisitions have been performing to expectations. Both of those markets have been impacted by COVID-19. I will say that the U.K. market was impacted ahead of Mexico. Mexico is still - I think it's a bit of a delayed impact there. But I said up until the COVID-19 matter, those business were meeting our expectations. I think we lost that call.

At this time, we don't have any questions from the queue. Please continue.

Okay. This is Jeff. Thank you for joining us on the call today and for your continued interest in CalAmp. Next Tuesday, Kurt and I will be participating in the Oppenheimer Emerging Growth Conference. It's a virtual event, of course. So please let Oppenheimer know if you're interested in joining, we'd be glad to have a meeting with anyone on the call. Look forward to working with you in the future and keeping you updated on CalAmp in the June time frame. Thank you.

And that concludes today's conference call. Thank you, everyone, for participating. You may now all disconnect.