CalAmp Corp. (CAMP) is a connected intelligence company that leverages a data-driven solutions ecosystem to help customers improve operational performance. The company provides asset tracking, monitoring, and recovery solutions for the transportation and logistics, commercial and government fleets, industrial equipment, and consumer vehicle markets.
Founded in 1981 and headquartered in Irvine, California, CalAmp has 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.
Company Background and Evolution
In its early years, CalAmp focused on developing wireless communication products and services, establishing itself as a leader in mobile resource management (MRM) telematics devices and applications. These MRM solutions enabled customers to track, monitor, and recover vital mobile assets. Over time, CalAmp transitioned its business model towards a subscription-based Software-as-a-Service (SaaS) approach, bundling its telematics devices with cloud-based software platforms and application enablement services. This strategic shift allowed customers to rapidly deploy full-featured Internet of Things (IoT) solutions, offering scalable and cost-effective SaaS offerings for global deployment.
During this business model transition, CalAmp faced challenges in managing the migration of its large installed base of MRM telematics customers onto the new subscription-based platform. This required significant technical effort and impacted revenues in the short term. Additionally, the company had to navigate intellectual property disputes and patent infringement claims. Despite these obstacles, CalAmp persisted in executing its strategic shift towards a SaaS-focused business, leveraging its deep domain expertise, robust product portfolio, and blue-chip customer relationships to transform its operations.
Business Segments
The Software Subscription Services segment offers solutions comprised of telematics devices bundled with cloud-based application enablement and telematics service platforms. These solutions facilitate integration of CalAmp's own applications, as well as those of third parties, through open APIs to deliver full-featured mobile IoT solutions to a wide range of customers and markets. Key services include tracking and monitoring within Fleet Management as well as Supply Chain Integrity and International Vehicle Recovery. For the three months ended November 30, 2023, this segment generated $34.46 million in revenue, with a gross margin of 40%. For the nine months ended November 30, 2023, it generated $119.77 million in revenue, with a gross margin of 43%.
The Telematics Products segment offers a series of advanced telematics products for the broader connected vehicle and emerging industrial IoT marketplace, which enable customers to optimize their operations by collecting, monitoring, and effectively reporting business-critical information and desired intelligence from high-value remote and mobile assets. Telematics Products include OEM and MRM products. This segment's portfolio includes asset tracking units, mobile telematics devices, fixed and mobile wireless gateways, and routers. For the three months ended November 30, 2023, this segment generated $19.17 million in revenue, with a gross margin of 19.8%. For the nine months ended November 30, 2023, it generated $66.46 million in revenue, with a gross margin of 23.3%.
Recent Challenges and Strategic Initiatives
In recent years, CalAmp has navigated several challenges, including supply chain disruptions, competitive pressures, and the COVID-19 pandemic. The company's revenue declined from $216.44 million in fiscal year 2022 to $186.23 million in fiscal year 2023, a 14% decrease. This was driven primarily by lower sales to Telematics Service Provider (TSP) customers, who have been rebalancing their inventories and facing competitive challenges in their end markets.
To address these headwinds, CalAmp implemented a significant cost reduction initiative in the third quarter of fiscal 2024, targeting $16 million in annualized cash savings relative to the second quarter of fiscal 2024. These savings are expected to come from a combination of reductions in cost of goods, operating expenses, and capital expenditures. With these cost savings, the company believes it can achieve adjusted EBITDA breakeven at approximately $42 million in quarterly revenue, depending on product mix and gross margins.
Recent Developments and Product Innovations
Despite the revenue decline, CalAmp's Software Subscription Services segment continued to perform well, with several key developments in the quarter. The company released an upgraded version of its AI dash cam solution, Vision 2.1, which offers standalone video capabilities as well as telematics functionality without the need for a separate gateway or LMU device. This solution has been released for the company's K-12 and commercial fleet applications.
Additionally, CalAmp's international connected car business continued to execute well, achieving several milestones in the quarter. The company was granted Toyota Genuine certification, enabling its solutions to be installed at Toyota's ports and streamlining the sales and customer delivery process. Furthermore, Jaguar Land Rover endorsed CalAmp's Stolen Vehicle Recovery system as its recommended solution to help mitigate the impact of a growing theft issue in the UK.
Financials and Liquidity
On the financial front, CalAmp ended the third quarter of fiscal 2024 with $38.2 million in cash and cash equivalents, a decrease from $41.93 million at the end of the prior fiscal year. The company's cash flow from operations was $1.8 million in the quarter, while free cash flow was negative $0.5 million.
For the most recent quarter, CalAmp reported revenue of $53.625 million, representing a year-over-year decline of 32.0%. The company reported a net loss of $85.004 million for the quarter, primarily due to goodwill impairment charges, restructuring costs, and lower gross profits. The operating cash flow for the quarter was $1.83 million, while free cash flow was negative $522,000.
The company's debt-to-equity ratio stands at -3.26, reflecting the impact of recent losses on shareholders' equity. CalAmp maintains a $50 million asset-based revolving credit facility, of which $28.7 million was available as of November 30, 2023, subject to certain borrowing base and covenant requirements. The company's current ratio is 1.69, and its quick ratio is 1.35, indicating a relatively stable short-term liquidity position.
Subsequent to the quarter, CalAmp announced the closing of a $45 million term loan with Lynrock Lake Master Fund LP. This new financing replaces the company's previous asset-backed line of credit and provides additional liquidity and operational flexibility as CalAmp continues to implement its restructuring efforts and return to growth, profitability, and cash flow generation.
CalAmp's largest international market is Europe, Middle East and Africa (EMEA), which accounted for $45.07 million or 24.2% of total revenue in the most recent nine-month period.
Leadership Changes and Future Outlook
The company also announced the appointment of veteran technology leader Chris Adams as its next President and CEO, effective January 22, 2024. Adams brings a wealth of knowledge and experience from a broad range of technology companies, and the CalAmp team is confident in his ability to lead the company through its transformation and drive value for customers and investors.
Despite the challenges faced, CalAmp remains optimistic about the long-term prospects of its business. The company believes it has excellent products and solutions, a blue chip customer base, and a large and growing market opportunity. With the cost reduction initiatives, new leadership, and strategic financing, CalAmp is positioned to navigate the current environment and chart a path to profitability and sustainable growth.
In terms of near-term outlook, CalAmp expects revenues in the fourth quarter of fiscal 2024 to be slightly down compared to the third quarter levels. Adjusted EBITDA is anticipated to remain stable relative to the third quarter's $1 million. The company expects its cost reduction initiatives to result in achieving adjusted EBITDA breakeven at approximately $42 million in quarterly revenue, depending on product mix and gross margins. CalAmp has expressed optimism about stabilization and recovery in their TSP segment, as well as continued strength in their industrial and international connected car segments.