What happened

Shares of CalAmp (NASDAQ:CAMP) fell 18.7% on Friday after the machine-to-machine communications company announced strong fiscal third-quarter 2020 results but followed with disappointing guidance.

So what

On the former, CalAmp's revenue climbed 9% year over year to $96.6 million, as a 7.8% decline in telematics systems revenue (to $63.2 million) was more than offset by 67.5% growth in software and subscription services sales to $33.4 million. That translated to adjusted net income of $5 million, or $0.14 per share, down sharply from $8.9 million, or $0.25 per share a year earlier. Both the top and bottom lines were within guidance provided in September for per-share earnings of $0.11 to $0.17 and revenue of $92 million to $98 million.

Red arrow with stock market data indicating losses.

Image source: Getty Images.

"Underpinning this growth in our [software-as-a-service] business was strong performance from our recent acquisitions, and in particular, Synovia Solutions," CEO Michael Burdiek said. "Additionally, despite recent tariff headwinds, we saw increasing orders from certain key enterprise customers, including strong sequential growth at our largest OEM customer."

Now what

Looking to the current fiscal fourth quarter, however, CalAmp sees revenue of $95 million to $100 million (up from $84.4 million in the same year-ago period) and adjusted net income per share of $0.10 to $0.16. Most analysts were modeling significantly higher earnings of $0.24 per share on revenue near the midpoint of CalAmp's target range.

In the end, while CalAmp is certainly making progress in its ongoing transition toward more recurring software and subscription revenue sources, it's no surprise to see shares falling as that transition appears to be coming at the expense of profitability.