CAMP4 Therapeutics Q1 2024 Earnings Report

CAMP4 Therapeutics EPS Results

• Actual EPS: -$1.61
• Consensus EPS: -$0.69
• Beat/Miss: Missed by -$0.92
• One Year Ago EPS: N/A

CAMP4 Therapeutics Revenue Results

• Actual Revenue: $70.89 million
• Expected Revenue: $75.90 million
• Beat/Miss: Missed by -$5.01 million
• YoY Revenue Growth: N/A

CAMP4 Therapeutics Announcement Details

• Quarter: Q1 2024
• Date: 7/10/2023
• Time: N/A
• Conference Call Date: Monday, July 10, 2023
• Conference Call Time: 5:00PM ET

CalAmp Corp. is a global technology solutions provider founded in 1981 that offers businesses and consumers a wide range of software and hardware products and services worldwide. The company is headquartered in Irvine, California, with additional offices in Europe and Asia. CalAmp has a history of innovation and has received numerous industry awards for its products and services. Key highlights of the company's achievements include acquiring LoJack Corporation, a leader in vehicle theft recovery and advanced fleet management solutions and the launch of CalAmp iOn, a cloud-based platform for managing IoT (Internet of Things) devices.

Calamp's revenue has declined an average of -7.95% yearly, 12.07 percentage points lower than the US Communication Equipment industry's average revenue growth rate of 4.13%. CalAmp shed its satellite communications business in 2020, which resulted in a one-time gain of $85 million. CalAmp's stock performance has declined since 2018 from a peak of around $24.00 a share to a low of approximately $3.00. Despite this, the company could gain momentum as it recently announced a restructuring plan to transition to a cloud-based IOT platform.  

CalAmp operates in the technology solutions industry, rapidly evolving due to the increasing use of digital technologies across various sectors. The company's main competitors include industry giants like Cisco Systems, Inc. and Honeywell International Inc., as well as smaller companies like Fleet Complete and Orbcomm Inc. The industry is subject to various regulatory and political issues, including data privacy and security concerns, which can significantly impact the industry's growth and profitability.

CalAmp's management team is led by CEO Jeff Gardner, who has over 25 years of experience in the technology industry. Other key team members include the recent addition of CFO Kurt Binder, who has a history of succeeding in challenging business environments and CTO Anand Rau, who has 25 years of strategic management experience in delivering enterprise-class, mission-critical applications. 

CalAmp has identified several potential growth opportunities, including expanding its IoT platform, CalAmp iOn, into new markets, such as healthcare and agriculture. The company is also exploring new product launches, such as its recently launched connected car solution, which allows vehicle owners to monitor and manage their vehicles remotely. Additionally, CalAmp is actively pursuing acquisitions to expand its product and service offerings and increase its market share.

The technology industry is highly competitive, and CalAmp faces significant competition from larger, more established companies. The industry is also subject to rapid technological change, which can quickly make existing products and services obsolete. CalAmp must continue to innovate and stay ahead of the curve to maintain its market position. Additionally, the industry is subject to regulatory and political risks, including data privacy and security concerns, which can impact the industry's growth and profitability.

CAMP4 Therapeutics Q1 2024 Earnings Call Transcript

Key Takeaways

• CalAmp’s board has engaged advisors and formed a special committee to explore all strategic alternatives after receiving multiple unsolicited inquiries, though management declined to discuss the process on the call.
• In Q1 fiscal 2024, CalAmp reported revenue of $70.9 million—missing the low end of guidance—but achieved a 280 basis-point expansion in gross margin and $6 million of adjusted EBITDA through cost-efficiency measures.
• Demand from telematics service providers (TSPs) and channel partners softened as they worked through excess inventory amid improved supply chain visibility; management expects this correction to normalize in Q3–Q4.
• Recurring application subscription revenue grew modestly by $0.1 million sequentially, driven by key wins including an R&L Carriers deal adding 18,000 subscribers and a pipeline of 65 opportunities for the Vision 2.0 AI dash camera solution.
• The international automotive aftermarket business delivered profitable growth—particularly ramping the BMW relationship—while a new global organizational structure aims to drive further cost efficiencies and recurring revenue expansion.

Presentation

[Moderator]

Welcome to CalAmp first quarter 2024 financial results conference call. My name is Bethany, and I will be the moderator for today's call. All lines will be muted during the presentation portion of the call, with an opportunity for questions and answers at the end. If you would like to ask a question, please press star one on your telephone keypad. As a reminder, this call is being recorded. I would now like to introduce your host for today's conference call, Logan Lucas, Corporate Strategy and Investor Relations Manager at CalAmp. Logan, you may begin.

[Logan Lucas, Corporate Strategy and Investor Relations Manager at CalAmp]

Good afternoon, welcome to CalAmp fiscal first quarter 2024 financial results conference call. I'm Logan Lucas, Corporate Strategy and Investor Relations Manager at CalAmp. With us today are CalAmp President and Chief Executive Officer, Jeff Gardner, and Chief Financial Officer, Jikun Kim. During today's call, we will make certain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Exchange Act of 1934. Forward-looking statements are predictions, projections, and other statements about future events that are based on current expectations and assumptions, and as a result, are subject to risks and uncertainties. Many factors could cause actual future events to differ materially from the forward-looking statements in this communication.

[Logan Lucas, Corporate Strategy and Investor Relations Manager at CalAmp]

You should listen to today's call with the understanding that our actual results may be materially different from the plans, intentions, and expectations disclosed in the forward-looking statements we make. For more information about factors that may cause actual results to differ materially from forward-looking statements, please refer to the earnings press release we issued today, as well as the company's filings with the Securities and Exchange Commission. Leaders are cautioned not to put undue reliance on forward-looking statements, and the company specifically disclaims any obligation to update the forward-looking statements that may be discussed on today's call. Jeff will begin today's call with a review of the company's recent operational highlights, and then Jikun will provide a more detailed review of the financial results, followed by a question and answer session.

[Logan Lucas, Corporate Strategy and Investor Relations Manager at CalAmp]

With that, it's my great pleasure to turn the call over to CalAmp's President and CEO, Jeff Gardner. Jeff, please go ahead.

[Jeff Gardner, President and CEO at CalAmp]

Thank you, Logan, and thanks to all of you joining us on the call today. Over the past few years, CalAmp has been executing a strategy to enhance shareholder value as an independent company. In the past weeks, we have received unsolicited inbound inquiries. As a result, the board of directors has engaged advisors and formed a special committee to help us explore all strategic alternatives available to the company. We will not be answering any questions on this topic today. Overall, the CalAmp team is more focused than ever on driving top-line revenue with a leaner and more efficient cost structure to increase the profitability of the company. Strategically, we have converted the installed base to a subscription model, focused the sales organization on selling full-stack solutions, stood up a customer success team to drive retention and upselling, and restructured the business to improve cash flow and profitability.

[Jeff Gardner, President and CEO at CalAmp]

Regarding the first quarter, we saw varying degrees of strength and weakness in demand across the customer base. Specifically, we had a particularly strong quarter with our large industrial customer, with the account generating around $16.6 million in revenue. We expect this performance to continue into the future as we are increasingly able to ship against their demand. Demand from our Telematics Service Providers, or TSPs, and channel customers demonstrated some softness in the quarter as they adjusted their order volumes and inventory strategies to better align with a more normalized shipping environment. Due to supply improvements, customers no longer need to order as far in advance to secure supply, order volumes were lower as they sell existing inventory.

[Jeff Gardner, President and CEO at CalAmp]

We expect this to take a few quarters to correct. We will continue to drive additional revenue from other areas of the business. Now, to dive into our performance in the first quarter of fiscal year 2024, we recognized $70.9 million in revenue. Despite missing the low end of guidance, the team's focus on cost efficiencies produced gross margin growth of 280 basis points and generated over $6 million of adjusted EBITDA. The growth margin expanded due to better revenue mix and decreased PPV costs as the supply chain continues to normalize. Further, the company continued to realize expense efficiencies from the recent cost management initiatives, resulting in $5.4 million in operating expense reductions year-over-year. Improvements in gross margin and cost structure culminated in a strong adjusted EBITDA performance, which fell within our guidance range.

[Jeff Gardner, President and CEO at CalAmp]

Overall, we are pleased with the progress we are making on the expense side of the business, and feel that the profitability we achieved, despite an unexpected top-line shortfall, demonstrates the effectiveness of our cost initiatives. We will maintain an increasingly lean expense structure to continue enhancing the profitability of the company. To help accelerate revenue growth, the sales organization will be dedicating additional bandwidth to new logo generation. Since Q1 marked the completion of the team's efforts to actively convert the installed base of device customers to subscription contracts. In addition, the team gained traction selling CalAmp software products, resulting in a modest sequential growth in our recurring application subscription revenue of approximately $100,000. The sales team closed multiple deals with new enterprise fleet customers, including an opportunity with R&L Carriers that added around 18,000 subscribers following the first quarter.

[Jeff Gardner, President and CEO at CalAmp]

The team continued to execute on renewals and upselling opportunities. New products, such as our next generation Vision solution, will also help us drive new bookings into the second quarter and beyond. This new solution is a standalone dash camera powered by advanced AI software that will help fleets optimize driver behavior and significantly decrease operating and liability-related costs. Since the full release, the team has qualified more than 65 different opportunities, and the pipeline continues to grow. Sales of this product will have a substantial positive impact on ARPU as we sell to both new logos and the existing customer base. To organizationally align behind our growth goals for recurring revenue, we rolled out new sales compensation programs.

[Jeff Gardner, President and CEO at CalAmp]

Built and implemented by Brennan Carson, our Chief Revenue Officer, the new compensation plans reward sales personnel based on the bookings value of new logo acquisitions, and reward customer success personnel according to the net revenue retention targets. This will help to drive our operating model towards the revenue growth, gross margins, and free cash flow we are aiming for. Internationally, the consumer automotive business continues to perform well, demonstrating profitable growth in the quarter. The company expects to continue ramping up revenues from the BMW relationship for the remainder of the year and into fiscal year 25. The relationships with BMW and several other of the world's top automotive brands will drive consolidated and recurring revenue growth well into the future for this segment. The operating models across the various geographies have been aligned under a single leader to maximize cost efficiency and operating effectiveness.

[Jeff Gardner, President and CEO at CalAmp]

We have already begun to see significant benefits to this new organizational structure and expect this trend to continue. The modest growth in our recurring application subscription line, which occurred despite declines in overall revenue and software and subscription services revenue, demonstrates the value and strength of the recurring software revenue we are focused on growing. We look forward to accelerating execution in this area of the business, which is positioned to grow as we execute on a robust pipeline of opportunities. These deals with direct fleet customers will continue to drive up ARPU, as the mix of recurring revenue shifts away from the low ARPU device management solutions purchased by converted Telematics Service Providers and channel customers, and towards high ARPU cloud API and application solutions purchased directly by fleet.

[Jeff Gardner, President and CEO at CalAmp]

We will continue to work with our TSP and channel customers to return to normalized order volumes over the coming quarters. With that, I'll turn the call over to Jikun to discuss our first quarter financial results in more detail. Jikun?

[Jikun Kim, Senior VP and CFO at CalAmp]

Thank you, Jeff. My commentary will include reference to non-GAAP financial measures. A full reconciliation of these non-GAAP measures with the corresponding GAAP measures included in the Q1 FY 2024 earnings release. Total revenue in the first quarter was $70.9 million. Revenues grew 10% year over year, but we realized a 10% sequential decline from $78.5 million last quarter. The sequential decline in revenue was driven by telematics devices and rental income revenues. As Jeff mentioned in his remarks, our TSPs and channel customers are working through their excess inventories, as well as our K-12 business is seeing a temporary slowdown in hardware installations. We expect this inventory corrections to take a few quarters to work through. Excluding the effect of the auto leasing, recurring application subscription revenue was $19.2 million, a $100,000 sequential increase.

[Jikun Kim, Senior VP and CFO at CalAmp]

Net subscribers increased 6% sequentially to 1.69 million subscribers. SNSS RPO and hardware backlog ended the quarter at $217 million and $20 million, respectively. RPO declined $17 million, and hardware backlog declined $9 million sequentially. RPO decline was driven by customer contract modifications, and hardware backlog decline was driven by TSP and channel customers working through their inventory corrections. Consolidated gross margin in the first quarter was 38%, compared to 35% last quarter. Gross margin continues to recover from the Q3 FY23 nadir, driven by a better mix of offerings, as well as significant reductions in purchase price variance. First quarter GAAP operating expenses, excluding restructuring charges, increased $100,000 sequentially, driven by increased R&D and sales and marketing activities, offset by lower G&A.

[Jikun Kim, Senior VP and CFO at CalAmp]

The sequential OpEx increase was driven by annual incentive and commission resets for FY 2024, along with recruiting activities related to our CEO and CTO transitions. GAAP operating expenses declined $5.4 million year-over-year. The cost reductions that we implemented in late 2023 and early 2024 are starting to take impact, not only in our OpEx, but our cost of goods sold and capital expenditures. Q1 FY 2024 adjusted EBITDA was $6 million or 9% of revenue, compared to $6.8 million in the prior quarter. Year-over-year, adjusted EBITDA increased by $4.1 million. At the end of Q1 FY 2024, we had total cash and cash equivalents of approximately $35 million, as compared to $42 million last quarter. The decline in cash was driven by working capital paydowns and CapEx in the quarter.

[Jikun Kim, Senior VP and CFO at CalAmp]

Excluding working capital paydowns, cash generated from operations would have resulted in a positive $4.1 million cash flow, a $3.5 million improvement from the prior quarter. At the end of the quarter, we have $35.6 million in undrawn asset backline availability. As customary, this availability is subject to various covenant tests. The $230 million 2% convertible senior notes are due on August 1st, 2025. Our objective is to generate a high-quality, strong EBITDA run rate by the end of the fiscal year to provide financing options to resolve this continuing overhang on our shares. As demonstrated over the past few quarters, EBITDA quality and quantity continues to improve over time. Our future EBITDA run rate increases will be driven by several factors and initiatives.

[Jikun Kim, Senior VP and CFO at CalAmp]

First, the normalization of telematics device revenues in the second half of FY 2024. Our TSP and channel customer inventory corrections should be behind us. Recurring revenue growth driven by new solutions like Vision 2.0, our video dash camera, which will drive significant ARPU growth, upsell opportunities across our installed base of K-12 customers, and new subscribers in our commercial fleet market segment. Three, continued improvements in gross margins, trending back towards our historical 40% levels. Lastly, aggressive cost reductions implemented in 2023 and 2024 across our cost of goods sold, operating expenditures, and capital expenditures. In addition, we will have to continue our vigilance to cash flows and cash generation over the next 25 months.

[Jikun Kim, Senior VP and CFO at CalAmp]

Executing on these EBITDA run rate improvements could provide the following financing options: Organic positive cash flows gives the opportunity to pay off a portion of the convertible loan as it matures. 2% coupon is very valuable financing during these times of high interest rates. Refinancing a portion of the convert with term loan structure, which will come with higher interest rates and expenses. Refinancing a portion of the convertible loan and pushing out the maturity, which will come with higher interest rates and lower conversion prices, as well as other financing options. There is no single solution that will address the convertible note. It will take a combination of these and other solutions to resolve over time. As for Q2 FY 2024 guidance, we expect revenue to range between $67 million-$73 million, with adjusted EBITDA expected between $5 million-$9 million.

[Jikun Kim, Senior VP and CFO at CalAmp]

With that, I will turn the call back over to Jeff for some final thoughts and comments.

[Jeff Gardner, President and CEO at CalAmp]

Thank you, Jikun. I am proud of our team for the continued progress we have made in driving these transformational efforts. I am confident in our ability to execute on growing both revenues and profitability into the future, both of which will ultimately manifest in value creation for our shareholders. With that, we will now open the call to your questions. As a reminder, we will not be answering questions on our board's decision to explore all strategic alternatives for the company. Operator?

[Operator]

Thank you. We will now begin the QA session. If you would like to ask a question, please press star followed by 1 on your telephone keypad. If for any reason you would like to remove that question, please press star followed by 2. Again, to ask a question, please press star 1. We ask investors to limit themselves to 2 questions. As a reminder, if you're using a speakerphone, please remember to pick up your handset before asking your question. We will pause here briefly as questions are registered. Our first question comes from the line of Scott Searle with Roth MKM. Please go ahead.

[Scott Searle, MD and Senior Research Analyst at Roth MKM]

Hey, good afternoon. Thanks for taking the questions. Hey, Jeff, I apologize to ask about the strategic process, but I just wanted a quick clarification. Was it a single inquiry or was multiple inquiries? I thought it was plural in the release. I just wanted to clarify that, then I had several follow-ups.

[Jeff Gardner, President and CEO at CalAmp]

Yeah. Yeah, it is, it was plural in the release.

[Scott Searle, MD and Senior Research Analyst at Roth MKM]

Okay. Thank you.

[Jeff Gardner, President and CEO at CalAmp]

Thanks.

[Scott Searle, MD and Senior Research Analyst at Roth MKM]

Hey.

[Jeff Gardner, President and CEO at CalAmp]

Go ahead with the other question.

[Scott Searle, MD and Senior Research Analyst at Roth MKM]

Yeah, you know, just looking towards normalization of on the product side of the equation, I'm wondering if you could give us some idea of what the level of channel inventories and customer inventory levels are on that front. I guess kind of bundled into that question, how, how are you feeling about the gross margin profile? To clarify, Jikun, did you say the second half, or did you say the fourth quarter when you expect more normalization on that front?

[Jikun Kim, Senior VP and CFO at CalAmp]

Yeah.

[Jikun Kim, Senior VP and CFO at CalAmp]

Yeah, on both the volume.

[Jikun Kim, Senior VP and CFO at CalAmp]

Yeah. Can you hear me?

[Scott Searle, MD and Senior Research Analyst at Roth MKM]

Yes.

[Scott Searle, MD and Senior Research Analyst at Roth MKM]

Yes, fine. Thank you.

[Jikun Kim, Senior VP and CFO at CalAmp]

Okay. Yeah, yeah, on both the volume as well as the gross margin, we're discussing the second half of the year, so Q3 and Q4.

[Scott Searle, MD and Senior Research Analyst at Roth MKM]

Gotcha. Just looking to-.

[Jeff Gardner, President and CEO at CalAmp]

Scott, on the inventory levels.

[Scott Searle, MD and Senior Research Analyst at Roth MKM]

Oh, yes.

[Jeff Gardner, President and CEO at CalAmp]

Scott, on the inventory levels with our TSPs, it really is quite a unique situation. Very quickly, they went from an environment where they're having to place their orders 6 months out to now, companies like us are able to give them precise times in terms of delivery. And we completed filling much of the backlog. They're just adjusting to that. As Jikun said, we expect their inventory levels to normalize in the 3rd and 4th quarter. That's what we're seeing.

[Scott Searle, MD and Senior Research Analyst at Roth MKM]

Gotcha. Just lastly, if I could, you know, looking to the guidance in the second quarter, how are you expecting gross margins to trend on that front, both as I look at it from a SaaS standpoint, as well as on the product front? Then coupling that into, I think, the long-term model, you've talked about 18 months out, EBITDA margins getting into the mid-teens. Is that still the track and the path that you're on, even with some headwinds in the first quarter?, and the second quarter?

[Jeff Gardner, President and CEO at CalAmp]

Yeah.

[Jeff Gardner, President and CEO at CalAmp]

Scott, it definitely is driving those kind of EBITDA margins. Jikun mentioned some of the things that we're focused on. The expense improvements are real, and there's more to come in that regard. We've seen only a portion of the savings to date. On gross margin is incredibly important. I'll let Jikun talk about it. There are two things going on there. One, the product mix, where we're focusing more on full stack solutions, and two, the environment, the supply chain environment. Jikun, would you elaborate on that, please?

[Jikun Kim, Senior VP and CFO at CalAmp]

Yes. If you remember, you know, we kind got into a gross margin percentage problem in Q3, FY 2022. I'm sorry, 2023, and we've been building our way out of it. Last quarter was 35%, this quarter was 38%. If you go back a few quarters, before the COVID crisis and the supply chain issues, you'll see it normalizing in 40%. That's the current business model as is. As Jeff mentioned, as we shift more to a recurring, application subscription revenue model, we do anticipate that gross margin to, you know, go above the 40% historical numbers. Obviously, this is much further out from a timeframe standpoint.

[Scott Searle, MD and Senior Research Analyst at Roth MKM]

Great. Thanks so much. I'll get back in the queue.

[Jeff Gardner, President and CEO at CalAmp]

Yeah.

[Jeff Gardner, President and CEO at CalAmp]

One other thing I'd like to add to that, given that we're focusing on these full stack customers going forward, that's gonna really drive the more margin profile and higher ARPU. Today, in the first stage of our transformation, those conversions were moving our TSPs to a device management solution which had a lower ARPU. Good ARPU growth there. We had good subscriber growth there, now I think we're searching and focusing on higher ARPU customers.

[Operator]

Thank you. Our next question comes from the line of Jerry Revich with Goldman Sachs. Please go ahead.

[Jerry Revich, Research Analyst at Goldman Sachs]

Hi, good afternoon, everyone. I'm wondering if you folks can just talk about when do you expect to turn free cash flow positive, and if you wouldn't mind just bridging through the drivers of the working capital headwind to cash flow this quarter and how that resolves itself sequentially in the back half. Thanks.

[Jikun Kim, Senior VP and CFO at CalAmp]

Sure. Let me just take a look at the data here. If you know, based on the prepared remarks. Hold on a second. My apologies. Just give me a moment. I'm looking up some information. Okay. Yeah, if you look at the current free cash flow, you will see that it was a negative $3 million in the quarter. If you look at the working capital charges, that attributed almost $7 million to it. Core operations was positive $4 million. Operationally, we are generating cash. If you know, subtract out CapEx, without working capital adjustments, you'll see that it was a positive $2 million dollar in the quarter. Good, strong turnaround. Now, having said that, we've got some working capital challenges.

[Jikun Kim, Senior VP and CFO at CalAmp]

You'll see that our accounts receivable, if you go back 2 years, is increased $20 million. A lot of this has to do with the conversion. Then if you look at our accounts payable, you will see that that has also increased roughly $20 million over the last few quarters. We need to, you know, address both of these. We made some headway on accounts payable in the last quarter. We dropped it from 52 to 47. We'll obviously continue to need to do that over the next few quarters. In terms of when we turn free cash flow positive, you know, obviously, it's gonna take quite a few quarters.

[Jerry Revich, Research Analyst at Goldman Sachs]

Can you expand on that last point? If you don't mind, is it the issue of until the receivables profile stabilizes with the new business model? Is that what's driving that comment, it would take quite a few quarters? If you don't mind, just more context on that point, please.

[Jikun Kim, Senior VP and CFO at CalAmp]

Yeah. I mean, basically, you know, accounts receivable increases were funded by AP increases, so you can address the cash flow in two ways. Pay down the payables and hold your receivables flat, or you can reduce the receivables and hold your payables flat. We're trying to go the payables route.

[Jerry Revich, Research Analyst at Goldman Sachs]

You know, separately, can I ask, deferred revenue came down sequentially in the quarter. What was the driver? Is that normal seasonality or any other factors that are driving the sequential deferred revenue decline?

[Jikun Kim, Senior VP and CFO at CalAmp]

Yeah, I think we discussed, you know, our K-12 revenue is declining a bit, and, that's the primary driver. It should come back.

[Jikun Kim, Senior VP and CFO at CalAmp]

It's a seasonal thing.

[Jerry Revich, Research Analyst at Goldman Sachs]

Cool. Thank you.

[Jikun Kim, Senior VP and CFO at CalAmp]

Hey, Jerry.

[Jikun Kim, Senior VP and CFO at CalAmp]

Thanks for joining. I did wanna point out that we did, after the quarter end, we did convert our largest TSP to a subscription model by signing an IFA MSA later in the quarter. Really happy about that, turning all of our attention towards our growth segments and serving our TSP customers with a new device management solution.

[Jerry Revich, Research Analyst at Goldman Sachs]

Jeff, how much was that contract? How much did that add to deferred revenue?

[Jeff Gardner, President and CEO at CalAmp]

That happened after the quarter end. We're not gonna provide details on the individual contracts, but it was our biggest TSP, Jerry, and very important in terms of where our focus lies. It's good to have that step behind us. I know it was painful, but we are in a position now where everything that we sell has a recurring revenue component with the exception of the CAT business. I think we're where we wanted to be. Took a little longer, but I think the focus of our sales force on higher ARPU is gonna make a big difference.

[Jerry Revich, Research Analyst at Goldman Sachs]

Thank you.

[Jeff Gardner, President and CEO at CalAmp]

You're welcome.

[Operator]

Thank you. Our next question comes from the line of George Notter with Jefferies. Please go ahead.

[George Notter, MD and Equity Research Analyst at Jefferies]

Hi, guys. Thanks very much. I guess I wanted to ask about your recurring application subscriptions metric. I saw that it was up, I guess, $100,000 sequentially, but it was down year-on-year. The SaaS subscriber metrics you give us were up pretty substantially, year-on-year. I guess I'm wondering about that dichotomy, you know, the revenue down, the subscriptions, subscribers up. Can you kind of talk to that phenomena?

[Jikun Kim, Senior VP and CFO at CalAmp]

Sure. I think, Jeff alluded to this, our subscriber count, the big growth that was really tied to our, you know, TSP conversions, right? We have very heavy subscribers, based on our, you know, Telematics Service Provider business, very large chunk of the business, and we converted them to a subscription model. Very low ARPUs, right? Extremely low ARPUs. They only buy our device management capabilities. While the subscriber base increased, our ARPU did not increase a lot, and hence, it was relatively flat. Last year, compared to this year, we did see some FX headwinds that we had last year and that we are not seeing this year.

[George Notter, MD and Equity Research Analyst at Jefferies]

Got it. Okay. Okay, thank you. Then the other one I wanted to ask was.

[Jikun Kim, Senior VP and CFO at CalAmp]

If you look at the... Yeah, just one more commentary. We did bottom out from a recurring revenue standpoint in Q3 FY2023, and so we've been making sequential improvements over time the last two quarters on that metric.

[George Notter, MD and Equity Research Analyst at Jefferies]

Okay. Got it.

[Jikun Kim, Senior VP and CFO at CalAmp]

Then. George, that's

[Jikun Kim, Senior VP and CFO at CalAmp]

The metric that as we focus on our full stack solution, that's the metric that we believe, and investors believe for our discussions. That's the right thing to look at in terms of how we're growing this business. That recurring revenue business is what you guys would refer to as more pure SaaS business.

[George Notter, MD and Equity Research Analyst at Jefferies]

Got it. And then, the K-12 business was a bit softer. Can you talk about why that was? I think you mentioned seasonality, but, you know, I get summertime.

[Jeff Gardner, President and CEO at CalAmp]

Yeah, yeah. George, very simply, we installed fewer units in the quarter with a little bit of pressure, but we expect that we'll bounce back over the next couple of quarters. We're still in a really good position in that business with a go-to-market process that is driven by our sales expertise and familiarity with the customers in that, in that business. Adding the camera solution is gonna really help our sales reps. We're already in a leadership position in the market, but going forward, we've got. The cameras are I think, are getting a really good reception in the K-12 business as well as SLED.

[George Notter, MD and Equity Research Analyst at Jefferies]

Got it. Okay, and then any thoughts on-you'll like those metrics?

[Jeff Gardner, President and CEO at CalAmp]

I'll let Jikun take that. George, I just wanted to also point out that when we talk about the vision solution over time, this is a very high ARPU add-on for customers, so it can really do a lot in terms of growing that incremental margin that we talked about earlier. Jikun, would you take the second part there?

[Jikun Kim, Senior VP and CFO at CalAmp]

I'm sorry, I didn't hear the question. If you could repeat the question.

[George Notter, MD and Equity Research Analyst at Jefferies]

Yeah, I mean, I guess, like I get that the telematics transition, you know, you move customers onto the lower ARPU capability. You know, I know the story here is to migrate the company to more of a full stack solutions provider. I know the K-12 business is obviously an element of that, but I, you know, as I kinda look at all these metrics, I'm just curious, like, how are you doing in terms of retention of existing customers? Do you have retention rates you can share with us? Any thoughts there?

[Jikun Kim, Senior VP and CFO at CalAmp]

Yeah, no, we haven't disclosed that, but I can share with you the subscriber base for K-12 has been relatively flat the last few quarters. You know, we are a very large market shareholder in that market, and you know, obviously, as an incumbent large shareholder, we get attacked quite a bit by some of our competitors, but we are holding our own. It's time to go on the offensive, obviously, to make sure that we increase ARPUs, meaning upsell existing customers, with this Vision solution as well as gain share.

[George Notter, MD and Equity Research Analyst at Jefferies]

Okay, great. Thanks very much, guys.

[Jikun Kim, Senior VP and CFO at CalAmp]

Sure.

[Jeff Gardner, President and CEO at CalAmp]

You're welcome.

[Operator]

Thank you. Our next question comes from the line of Anthony Stoss with Craig-Hallum. Please go ahead.

[Anthony Stoss, Senior Research Analyst at Craig-Hallum]

Thanks. Hey, Jeff. I just wanted to ask a question, more big picture, competitive landscape-wise. You've been having issues clearly on component sourcing, et cetera, and pricing over the last several years. Seems now, though, that, you know, a lot of your competitors are actually growing where you guys aren't. Can you give us any kind of confidence that you're not losing share, that the fact that your telematics devices are probably abnormally high versus your competitors, and they're using price to take share? That's what it seems like to me.

[Jeff Gardner, President and CEO at CalAmp]

Yeah, on the, on the TSP side, it's really important, Tony, as you know, that the TSP business is pretty unique to us. When you look at us compared to Geotab or Samsara, they don't really have this big TSP business. That's where we started. It was necessary to convert that base to a subscription model, so we could manage it. I think that will be more stable over time. We are still winning business from our customers because our configurability, we are priced a little higher, but our customers really need that configurability. They place a lot of value on it. It allows them to... You know, it's not as simple as you would think to switch providers.

[Jeff Gardner, President and CEO at CalAmp]

I really think on the TSP side, this inventory correction that they're making with the change in the supply chain is having a big impact, at least in the first and second quarter. When I think about share and what we're trying to do with the business now, really turning towards those full stack customers, and the sales force can really focus there now, and that's where I think you'll see us growing that recurring revenue line item. It makes us look more like a pure play, like Samsara and Geotab over time, which, yeah, they are growing, and we think we are a very good competitor, especially at the high end of the market with big fleet, long-haul customers, where we can leverage our engineering and transportation logistics expertise.

[Jeff Gardner, President and CEO at CalAmp]

We do very well there. We tend to compete upmarket. We've seen a couple of wins, as we said, at the end of the first quarter there. Those are a little bit longer sales cycles, but higher ARPU.

[Anthony Stoss, Senior Research Analyst at Craig-Hallum]

Just to mention, that you expect this to continue on for a couple of quarters, do you expect kind of this $70 million run rate that you're at for both May and your guide for August to be largely similar for November and February?

[Jeff Gardner, President and CEO at CalAmp]

No, I think Jikun said that we'd recover in the back half of the year. We expect the TSPs to be back to more normalized levels in the second half. The first quarter, Jikun, would you just review the guidance once more and why we went with that guidance range?

[Jikun Kim, Senior VP and CFO at CalAmp]

Yeah. I mean, it's relatively flat guidance relative to Q1 actual, slightly down, but you know, again, this reflects our TSP situation, second half of the year, we do expect the TSPs to come back.

[Anthony Stoss, Senior Research Analyst at Craig-Hallum]

Would you expect it to be up year over year versus what you did in fiscal 2023 for both November and February?

[Jikun Kim, Senior VP and CFO at CalAmp]

Well, if you look at, fiscal 2023, right, Q3 and Q4, we're up at $79 and $79. I think, those ordering is kind of what caused some of the TSP problems, and so, you know, normalization would, you know, put you somewhere between current levels and Q3 and Q4.

[Anthony Stoss, Senior Research Analyst at Craig-Hallum]

All right. Thank you.

[Jeff Gardner, President and CEO at CalAmp]

You're welcome. Thanks, Tony.

[Operator]

Thank you. That concludes the question and answer session. I would now like to pass the conference back to Jeff Gardner for any closing remarks.

[Jeff Gardner, President and CEO at CalAmp]

Yeah, thank you very much. Thank you all for joining us on the call today, for your continued interest in CalAmp. We look forward to sharing our progress with you during our second quarter 2024 earnings call later this year. Operator, you may now disconnect the call.

[Operator]

That concludes today's conference call. I hope you all enjoy the rest of your day. You may now disconnect your lines.

Participants

Analysts

• Anthony Stoss, Senior Research Analyst at Craig-Hallum
• George Notter, MD and Equity Research Analyst at Jefferies
• Jeff Gardner, President and CEO at CalAmp
• Jerry Revich, Research Analyst at Goldman Sachs
• Jikun Kim, Senior VP and CFO at CalAmp
• Logan Lucas, Corporate Strategy and Investor Relations Manager at CalAmp
• Moderator
• Scott Searle, MD and Senior Research Analyst at Roth MKM