When CalAmp Corporation (CAMP +0.00%) announced fiscal second-quarter 2018 results last Thursday, the market couldn't have been more pleased. Shares of the machine-to-machine (M2M) communications specialist jumped 10% on Friday in response, as investors celebrated the addition of multiple large new customers, increased clarity from a new reporting structure, and an encouraging forward outlook.
To that end, CalAmp spent some time speaking with analysts during their subsequent conference call, offering valuable insight into both that quarterly performance and what investors should anticipate in the coming months. Here are five important points CalAmp management discussed during that call.
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1. On progress in the heavy equipment market
We are very pleased with our execution in the OEM and heavy equipment market. We made further progress with Caterpillar in the second quarter, with revenue from this important customer reaching a new quarterly record of $10.5 million. ... Another front, we recently commenced shipments with a new global heavy equipment OEM which is expected to contribute approximately $2 million in revenue in the first half of fiscal 2018. -- CalAmp CEO Michael Burdiek (all quotes credited to Seeking Alpha)
More specifically on the former, CalAmp now expects revenue from Caterpillar to climb around 20% this fiscal year, which is at the higher end of its previous forecast. And diving further into the latter deal -- which represents the firstfruits of seeds that CalAmp began to plant when it signed a separate deal with Toyota Industrial Equipment two years ago -- Burdiek says this marks the new heavy equipment OEM customer's "initial foray into telematics" and should offer a "steady revenue contribution" to CalAmp's results over time.
2. The biggest software-as-a-service (SaaS) contract in CalAmp's history
Our investments in SaaS offerings are yielding great results. The company achieved a significant milestone in the quarter by booking the largest SaaS contract in the company's history involving AssetOutlook and CalAmp Telematics cloud services. This is an exciting new engagement with a global freight transport company to track mobile assets across North America. This program will roll out over the next few quarters, and is expected to contribute 10% incremental growth in SaaS recurring revenue. -- Michael Burdiek
Burdiek added during the call that this contract is tied to an unnamed "blue-chip" freight company and that CalAmp has been actively engaged with the customer for the "better part of two years." In fact, Burdiek says, this particular deal started as more of a "product-focused engagement" -- presumably meaning a less lucrative hardware-only agreement -- but evolved into a more comprehensive telematics services contract over time.
Considering CalAmp also only just launched its AssetOutlook platform in March, it should be interesting to see what kind of follow-on deals CalAmp can secure as more large customers follow suit.
3. On the favorable LoJack legal settlement
Net cash provided by operating activities was $36 million in the first half of fiscal 2018, which is attributable to our strong cash flows from operations plus the $15 million of net proceeds from the favorable settlement with the former LoJack supplier in June 2017. Pursuant to the settlement, we expect to receive approximately $31 million of additional net proceeds over the next four quarters, thereby further contributing to our strong free cash flows. -- CalAmp CFO Kurtis Binder
CalAmp reached this $46 million settlement early in the quarter with former LoJack battery supplier EVE Energy, resolving a contract dispute over quality issues that dates back to 2013. To be clear, though, this "only" bolsters CalAmp's GAAP financial results over the near term; CalAmp should recognize a second $13 million payment later this month, followed by another $13 million payment in February 2018, and the final $5 million payment in June 2018.
4. On CalAmp's "new" reporting structure
In the second quarter, we completed the alignment of our operations into two reportable business segments: Telematics Systems and Software & Subscription Services. This was done in order to drive profitable growth, global sales effectiveness, and operational efficiencies. These two reportable segments are supported by one global sales organization, a structure we put in place early in the second quarter. -- Kurtis Binder
To be fair, CalAmp did provide separate commentary on both its Telematics Systems and Software & Services segments starting with its fiscal first-quarter report in late June for the period ended May 31, 2017. But until the second quarter, it hadn't formally completed the alignment of these two businesses. Rather, they were previously lumped under a single "Wireless Datacom" segment after its legacy Satellite business ceased operations just over a year ago. So, in addition to the aforementioned operational benefits, this should provide added clarity for investors on the drivers of CalAmp's growth.
5. Looking ahead
We expect third-quarter consolidated revenues in the range of $89 million to $94 million. At the bottom line, we expect third quarter GAAP basis net income to be in the range of $0.28 to $0.34 per diluted share, which includes the contribution of approximately $0.28 from the expected receipt of the second quarter installment of legal settlement with LoJack's former supplier. We also expect third quarter non-GAAP net income in the range of $0.27 to $0.33 per diluted share, and adjusted EBITDA in the range of $12 million to $14.5 million. -- Kurtis Binder
Going into CalAmp's report last week, consensus estimates on Wall Street had predicted roughly the same adjusted earnings ($0.30 per share), but on revenue of $90.8 million, which was slightly below the mid-point of CalAmp's respective guidance range. Assuming CalAmp isn't under-promising with the intention of over-delivering, that guidance likely wouldn't have been enough to drive CalAmp stock's big pop to end last week. But investors were rightly pleased when you combine that outlook with the adoption of CalAmp's latest products and platforms by several large customers, color on its business enabled by the new reporting structure, and icing on the cake from the positive legal settlement.
"We've built an unrivaled technology foundation and innovative roadmap endorsed by a growing number of blue-chip companies," Burdiek concluded during the call. "We remain focused on delivering profitable growth and believe more than ever that we are well positioned for the future."
