Business Overview

CalAmp Corp. (NASDAQ:CAMP) is a connected intelligence company that leverages a data-driven solutions ecosystem to help people and organizations improve operational performance. The company solves complex problems for customers within the market verticals of transportation and logistics, commercial and government fleets, industrial equipment, and consumer vehicles by providing solutions that track, monitor, and recover their vital assets.

CalAmp was founded in 1981 and is headquartered in Irvine, California. The company's origins can be traced back to the development of the first commercial cellular modem, which laid the foundation for its transition into the telematics and connected vehicle solutions industry. In the early 2000s, CalAmp experienced significant growth as demand for its telematics products and services increased. However, the 2008 financial crisis led to a downturn in the business, forcing the company to restructure and refocus its strategy.

To navigate the challenging economic environment, CalAmp divested non-core business units and doubled down on its core telematics and software-as-a-service offerings. This repositioning allowed the company to weather the storm and emerge stronger. In the early 2010s, CalAmp began to see the fruits of its strategic pivot, as its solutions gained traction in key verticals such as transportation, logistics, and industrial equipment.

A major milestone for CalAmp came in 2018 when the company issued $230 million in convertible senior notes to fund its growth initiatives. This capital infusion enabled CalAmp to invest in product innovation, expand its global footprint, and pursue strategic acquisitions. Notable acquisitions during this period included the purchases of LoJack and Synovia Solutions, which bolstered CalAmp's capabilities in vehicle tracking and fleet management.

Despite these successes, CalAmp has also faced its share of challenges. In 2020, the COVID-19 pandemic disrupted supply chains and dampened demand for the company's products, leading to a decline in revenues and profitability. CalAmp responded by implementing cost-cutting measures and doubling down on its subscription-based business model, which provided more predictable and recurring revenue streams.

Through these ups and downs, CalAmp has remained committed to its mission of helping customers optimize their operations and improve their bottom lines. The company has built a loyal customer base, with an installed base of approximately 10 million devices reporting to its cloud-based platform and approximately 1.6 million software and subscription services subscribers worldwide.

The company operates under two reportable segments: Software & Subscription Services and Telematics Products. The Software & Subscription Services segment offers telematics devices bundled with cloud-based, application enablement, and telematics service platforms that facilitate integration of CalAmp's own applications, as well as those of third parties, through open APIs to deliver full-featured IoT solutions to a wide range of customers and markets. The Telematics Products segment offers a portfolio of wireless data communications products, including asset tracking units, mobile telematics devices, fixed and mobile wireless gateways, and routers.

Financial Performance

In the fiscal year ended February 28, 2023, CalAmp reported revenue of $350,000, a significant decline from the prior year due to challenges in its Telematics Products segment. The company's net loss for the year was $49.29 million, with an operating cash outflow of $44.16 million and negative free cash flow of $44.83 million.

For the most recent quarter ended November 30, 2023, CalAmp reported revenue of $53.63 million, representing a 32% year-over-year decline. This decrease was primarily driven by lower sales to Telematics Service Provider (TSP) customers, partially offset by strong performance in the industrial and connected car segments. The company's net loss for the quarter was $85 million.

The company's financial performance has been impacted by several factors, including softness in demand from its TSP customers, a difficult migration from its legacy PULS device management system to the new DMCTC platform, and broader economic uncertainty. CalAmp's gross margin declined to 36% in fiscal 2023, down from 37.5% in the prior year, primarily due to product mix shifts and higher excess and obsolescence charges.

For the nine months ended November 30, 2023, CalAmp's Software & Subscription Services segment generated revenue of $119.77 million, representing 64.3% of total revenue. The segment's gross profit was $51.52 million, with a gross margin of 43%. Adjusted EBITDA for this segment was $17.07 million. The decrease in revenue compared to the prior year period was primarily due to lower shipments of products to customers that transitioned onto multi-year subscription arrangements.

The Telematics Products segment generated revenue of $66.46 million for the same nine-month period, accounting for 35.7% of total revenue. Gross profit for this segment was $15.46 million, with a gross margin of 23.3%. Adjusted EBITDA for the segment was $1.42 million. The decrease in revenue compared to the prior year period was largely driven by the conversion of certain hardware customers onto multi-year subscription contracts, with the associated revenues now classified within the Software & Subscription Services segment.

Overall, CalAmp's consolidated revenue for the nine months ended November 30, 2023, was $186.23 million, down 14% year-over-year. Gross profit was $66.98 million, with a gross margin of 36%. Total Adjusted EBITDA was $12.95 million. The decline in revenue and profitability was primarily attributable to the transition of certain customers to the subscription-based model, as well as lower shipments and product mix challenges across both segments.

Liquidity and Debt Restructuring

As of November 30, 2023, CalAmp had $38.17 million in cash and cash equivalents and $28.7 million available under its revolving credit facility. However, the company's immediate sources of liquidity have been a concern, as the principal amount of its 2025 Convertible Notes, plus accrued and unpaid interest, exceeds its available cash resources.

To address this challenge, CalAmp announced in December 2023 that it had entered into a $45 million term loan agreement with Lynrock Lake Master Fund LP, which will provide additional liquidity and operating flexibility as the company implements its restructuring efforts and works to return to growth, profitability, and cash flow generation. Concurrent with the term loan, CalAmp also entered into a supplemental indenture, granting a first priority security interest in substantially all of its assets to the holders of the 2025 Convertible Notes.

The company's debt-to-equity ratio as of the most recent quarter shows $228.15 million in long-term debt and total debt. CalAmp's current ratio stands at 1.641, while its quick ratio is 1.417, indicating a relatively stable short-term liquidity position.

Operational Highlights and Outlook

Despite the financial challenges, CalAmp has continued to make progress in certain areas of its business. The company's industrial and international connected car segments have performed well, with the industrial segment, particularly the large OEM customer, achieving several milestones in the third quarter of fiscal 2024.

CalAmp has also released an upgraded version of its AI dash cam solution, Vision 2.1, which offers standalone video capabilities as well as additional telematics functionality, such as GPS tracking, without the need for a separate gateway or LMU device. This new product has been well-received in the K-12 and commercial fleet applications.

Furthermore, the company's edge computing platform, EdgeCore, has gained traction with industrial OEMs, who are showing significant interest in its flexibility and computing power. CalAmp believes this edge platform, combined with its DMCTC cloud, enables customized edge computing capabilities for proprietary edge apps, which can lead to lower operating costs, improved flexibility, and lower latency compared to traditional device-to-cloud solutions.

In response to the ongoing challenges, CalAmp has implemented a significant cost reduction initiative, targeting $16 million in annualized cash savings relative to the second quarter of fiscal 2024. These savings are expected to be fully realized by the end of fiscal 2025, with approximately 75% coming from operating expenses and capital expenditures, and the remaining 25% from reductions in cost of goods.

Looking ahead, CalAmp expects revenues from its industrial market segment to decrease from recent multi-quarter highs to a more normalized level in the fourth quarter of fiscal 2024. However, the company is optimistic about a recovery in its TSP customer base, which it believes will partially offset the decline in the industrial segment. For the fourth quarter of fiscal 2024, CalAmp expects consolidated revenues to be down slightly and for adjusted EBITDA to be stable relative to the third quarter of fiscal 2024, which was $1 million.

The company has also stated that with its recent cost reduction initiatives, it expects to achieve adjusted EBITDA breakeven at approximately $42 million in quarterly revenue, depending on product mix and gross margins. CalAmp remains cautious on providing forward guidance beyond the current quarter but expresses optimism about the overall business and growth catalysts going forward.

Risks and Uncertainties

CalAmp's business is subject to several risks and uncertainties, including its ability to regain compliance with Nasdaq listing standards, the potential impact of a fundamental change under its 2025 Convertible Notes if the company's common stock ceases to be listed on Nasdaq, and the ongoing economic and market conditions that have affected its TSP customers.

The company's failure to meet Nasdaq's applicable listing criteria could result in the termination of the listing of its common stock, which could have a material adverse effect on its business, results of operations, and financial condition. Additionally, if the company's common stock ceases to be listed on Nasdaq, a fundamental change under the 2025 Convertible Notes would occur, potentially requiring CalAmp to repurchase the notes at a cash repurchase price generally equal to the principal amount, plus accrued and unpaid interest.

Furthermore, the continued softness in demand from its TSP customers, primarily related to the post-COVID supply chain correction and subsequent inventory rebalancing, as well as an intensified competitive environment in the overall telematics solution ecosystem, have posed significant challenges for the company.

Conclusion

CalAmp is a data-driven solutions provider that has faced a challenging environment in recent quarters, particularly within its Telematics Products segment. The company has responded with a strategic cost reduction initiative and a debt restructuring agreement that aims to strengthen its financial position and provide the necessary flexibility to navigate the current market conditions.

Despite the headwinds, CalAmp remains focused on driving growth in its industrial and international connected car segments, as well as leveraging its innovative edge computing platform to address the evolving needs of its customers. The successful execution of its transformation plan and the ability to stabilize its TSP customer base will be crucial for the company's future performance and long-term success.