IMAGE SOURCES: Calamp Corp.
What: Shares of CalAmp Corp. (CAMP +0.00%) were down 10.1% as of 11:30 a.m. EST Tuesday after the machine-to-machine communications specialist announced mixed preliminary fourth-quarter 2015 results, preliminary current-quarter guidance, the completion of its acquisition of LoJack (NASDAQ: LOJN), and commented on a recent patent infringement lawsuit.
So what: For perspective, in December CalAmp revealed it had pursued "friendly discussions" with vehicle-recovery technology company LoJack for almost two years to no avail, including two prior all-cash offers at a lower price. As a result, CalAmp went out on a limb by publicly announcing its offer to acquire LoJack in an apparent effort to urge LoJack shareholders to consider the deal. Sure enough in February, CalAmp announced it had entered into a definitive agreement to acquire LoJack for $6.45 per share, or roughly $134 million.
Today, CalAmp announced it has completed that acquisition through a short-form merger between LoJack and CalAmp subsidiary Lexus Acquisition Sub, with LoJack surviving the merger. LoJack is now a wholly owned subsidiary of CalAmp, creating a definitive leader in connected car solutions and vehicle telematics.
However, while that's all well and good, the market is less pleased by the rest of CalAmp's press release on Tuesday.
On one hand, CalAmp now expects to report fiscal fourth-quarter revenue of $71 million, below guidance provided three months ago for revenue of $73 million to $78 million. On the other hand, that should translate to adjusted net income of $0.32 per share, which -- thanks to favorable changes in product mix during the quarter -- is near the high end of CalAmp's previous guidance for EPS of $0.28 to $0.32.
Now what: For the full fiscal year 2016, CalAmp anticipates revenue will increase 12%, to $281 million, including 13% growth in Wireless DataCom segment revenue, and 20% growth in adjusted net income, to $1.15 per share. Analysts, on average, were anticipating slightly higher revenue of $285.8 million, but slightly lower earnings of $1.14 per share.
In addition, CalAmp provided preliminary guidance for fiscal 2017 first quarter revenue between $86 million and $94 million. Keeping in mind that includes 10 weeks of operations from LoJack, analysts were expecting significantly lower first-quarter revenue of $75 million.
Finally, CalAmp noted that, late last month, a U.S. district court jury in Florida awarded $2.9 million in damages to Omega Patents in a suit originally brought by the patent-assertion entity in 2013. But Omega is now seeking "enhanced damages and has requested the court to exercise its discretion to treble damages and assess attorney's fees." CalAmp, for its part, is filing post-trial motions seeking to invalidate the asserted patents and, if need be, pursue an appeal to overturn the jury verdict as CalAmp continues to believe its technology doesn't infringe Omega's patents. To that end, its obvious the patent lawsuit won't be resolved any time soon, and the size of the "enhanced damages" being sought by Omega remain to be seen.
Regarding CalAmp's underwhelming fiscal fourth-quarter revenue performance, CEO Michael Burdiek also explained MRM product supply constrains and slow responsiveness from a supply chain partner following the Chinese New Year prevented the company from fulfilling roughly $3.5 million in product orders during the quarter. Those orders are largely expected to be filled in the current quarter, which -- combined with adding LoJack to the mix -- explains its strong first-quarter 2017 guidance.
In the end, then, the ongoing patent lawsuit notwithstanding, it seems the market is primarily overreacting to what amounts to little more than chunky revenue being spread out across two quarters. As such, I think long-term investors would do well to use this as an opportunity to open or add to a position in CalAmp stock.
