CAMP4 Therapeutics Corp (CAMP) 2008 Q2 法說會逐字稿

Good afternoon, ladies and gentlemen, and thank you for standing by. Welcome to be CalAmp second-quarter fiscal 2008 conference call. (OPERATOR INSTRUCTIONS). This conference is being recorded Thursday, October 11, 2007. I would now like to turn the conference over to Lasse Glassen with the Financial Relations Board. Please go ahead, sir.

Thank you, operator. Good afternoon, everybody. Welcome to CalAmp's fiscal 2008 second-quarter earnings call. With us today are CalAmp's President and CEO Fred Sturm and the Company's Chief Financial Officer Rick Vitelle.

Before I turn the call over to management, please remember that our prepared remarks and responses to questions may contain forward-looking statements. Words such as may, will, expects, believes, estimates, could, and variations of these words and similar expressions are intended to identify forward-looking statements. Actual results could differ materially from those implied by such forward-looking statements made today due to risks and uncertainties including, but not limited to, fluctuations in market demand for CalAmp's products and services; general and industry economic conditions; competition; continued pricing pressure in the DBS market; supplier constraints and manufacturing yields; timing and market acceptance of new product introductions and approvals; new technologies; the Company's ability to effectively and cost-effectively integrate acquired businesses; the Company's ability to obtain a waiver from the lenders under its bank credit agreement of the event of default under the credit agreement; the Company's ability to successfully requalify with respect to the sale of newer generation products to one of its key DBS customers; the risk that the ultimate cost of resolving a product performance issue with that key DBS customer may exceed the amount of reserves established for that purpose and other risks and uncertainties that are described under the heading Risk Factors in the Company's annual report on Form 10-K filed with the SEC. Any projections as to the Company's future financial performance represents management's estimates as of today, October 11, 2007. CalAmp assumes no obligation to update these projections in the future due to changing market conditions or otherwise.

With that it is now my pleasure to turn the call over to CalAmp's President and Chief Executive Officer, Fred Sturm. Fred?

Thank you. Good afternoon and thank you for joining us today to discuss CalAmp's fiscal 2008 second-quarter results. I will begin with comments on the financial and operational highlights from this past quarter, and then I will provide an update on several of our key business initiatives. Rick Vitelle will then discuss additional details about our financial results, balance sheet, working capital management and cash flow followed by our revenue and earnings guidance for the third quarter. I will then wrap up with some concluding remarks followed by a question and answer session.

Let me begin with our second-quarter financial highlights and overview. Total revenue for the second quarter was $32.7 million and was within the revenue guidance range of 32 to $35 million that we provided on our last conference call. Similar to last quarter, the topline results were driven by the continued strength of our Wireless DataCom division which generated revenues of $22.8 million and accounted for more than two-thirds of our consolidated revenue in the quarter.

As expected, the Satellite Division revenues of $9.9 million were down significantly on both a sequential quarter and year-over-year basis due to the product performance issue with a key DBS customer, which I will update you on in a minute.

Results of operations included a GAAP loss from continuing operations of $0.14 per diluted share and adjusted basis or non-GAAP loss from continuing operations of $0.08 per diluted share. I refer you to our second-quarter earnings press release issued earlier today for a detailed reconciliation of GAAP basis income or loss from continuing operations to adjusted basis income or loss from continuing operations. While our overall second-quarter results were significantly impacted by the loss of business from a key customer as a result of the previously reported product performance issue, we are working hard to regain that business, and we are making measurable progress towards resolving this matter.

As previously disclosed, certain direct broadcast satellite or DBS products that we shipped to one of our key customers during calendar years 2004 to 2006 experienced a field performance issue due to premature deterioration of printed circuit board laminate material provided by another vendor. In addressing this matter, the customer returned product to CalAmp for corrective action and earlier this year put on hold all orders for CalAmp equipment, including newer generation products pending requalification of all products manufactured by CalAmp for this customer.

At the same time, we are continuing to pursue the lawsuit that we filed in May of this year against the vendor that supplied the material that we believe caused the field performance issue. While we believe we have a strong case, predicting the timing and outcome of the ultimate resolution of this lawsuit is not possible at this time.

Despite this product performance issue, business with our other key DBS customer, DirecTV, remains solid. Through the second quarter of fiscal 2008, revenues generated from our business with DirecTV are up nearly 7% compared to the same period in fiscal 2007. Furthermore, we continue to believe the underlying fundamentals of our DBS market are healthy. Subscriber growth has been strong with DBS subscriber additions up 5% industrywide through the first half of calendar 2007.

More importantly, the DBS service providers commitment to enhanced services, particularly integrated DVR services and expanded HDTV programming, are significantly increasing the average selling prices of our equipment.

In fact, during the second quarter of calendar 2007, DirecTV reported 40% of its growth subscriber additions purchased HDTV and/or DVR services. This was a 50% improvement compared to the same period a year ago. DirecTV also noted that existing subscribers upgrading to the advanced services, which in most case requires new outdoor equipment, were also very strong. We believe we are well positioned to take advantage of this product upgrade cycle that will be driven by a significant expansion of HD programming expected to take place in the DBS industry later this year and into calendar 2008.

Now let's move on to the update on our Wireless DataCom division which provides communication systems, products and services for applications in public safety, global resource management and industrial monitoring and control. During the second quarter, the Wireless DataCom division generated $22.8 million in revenue. While revenues were slightly lower on a sequential quarter basis due primarily to unusually strong wireless OEM business we generated in the first quarter, our second quarter revenues were nearly 50% higher than the same period last year, driven by a combination of both organic growth as well as recent acquisitions.

Gross margins for the Wireless DataCom division were approximately 36% in our most recent quarter, similar to the first quarter. One of the highlights in the quarter was a significant increase in our business supporting mobile resource management or the MRM market. Key to this growth is the customer acceptance of several new products that we recently launched and targeted for applications in Vehicle Tracking, fleet management, high-value asset tracking and public transits markets. These products include two new location messaging units, a remote monitoring unit and a cellular data modem for analog to digital migration. We believe these products provide the right feature sets and price points to be meet the growing demand from a broad array of customers.

Also, during the period the Wireless DataCom division benefited from the first full quarter's contribution from the acquisition of Aircept Vehicle Tracking business which we acquired in March. Aircept generated second-quarter revenues of $3.2 million and significantly expands our MRM offering with a complete end-to-end solution that includes wireless tracking products, hosted application software and wireless data services.

During the third quarter, we're introducing a CalAmp hardware platform to Aircept's customer base that we expect will result in a significantly improved operating margin with expected annual cost savings in excess of $1 million.

We're also seen strong initial demand for a new product we recently introduced in conjunction with Numerex that facilitates the transition from analog to digital networks as an effective date of the FCC's analog (inaudible) ruling approaches.

Our solution providers businesses and consumers that are currently using analog networks to transmit data from machine to machine applications with a fast, efficient and cost-effective digital migration path to prevent service interruptions that could result from the FCC ruling. Based on current customer demand, we expect meaningful revenue for this product to continue during the second half of fiscal 2008.

Our Dataradio operating unit also continues to perform well and recently was awarded a contract initially valued at $2.4 million with the City of Shreveport to construct a mobile data network to be used by first responders in the City and the surrounding Caddo Parish. The system allows dispatchers to securely and accurately relay information to field personnel and allows first responders to access information without the need for backoffice support. The system will initially support approximately 500 first responders with opportunities to further expand the system in the near future. Work on the project is expected to begin immediately with systems acceptance scheduled for late 2008.

In addition, late last month we were notified of an award for Dataradio project of approximately $2.4 million for a new deployment of a public safety mobile data communications network for a major city government in a Western state. Contract negotiations are underway, and we will provide additional details once the final contract has been executed. We were pleased with our Dataradio public safety sales pipeline, and we expect to announce additional key awards in the near future.

Overall we are quite satisfied with the progress and performance of our Wireless DataCom division and believe our product offering and competitive position will enable CalAmp to take advantage of a large and growing addressable market for our Wireless DataCom solutions.

With that, I will now turn the call over to Rick Vitelle, our Chief Financial Officer, for a closer look at the latest quarterly financial details and business outlook.

Thank you, Fred. I will provide a summary of our gross profit performance, working capital management and cash flow results for the fiscal 2008 second quarter, along with our outlook for the fiscal 2008 third quarter.

Gross profit for the second quarter of fiscal 2008 was $6.3 million or 19.3% of revenues compared to gross profit of $12.7 million or 23.2% of revenues for the same period last year. The reduction in gross profit and gross margin were primarily due to the lower sales of Satellite Division products. Gross profit in the Satellite Division was -$1.8 million compared to gross profit of $6.1 million or 15.7% of revenues in the second quarter of the prior year. The decline in Satellite Division gross profit was due mainly to lower overhead absorption rates resulting from the loss of business with a key customer. And we do expect that loss of business to be temporary as Fred indicated.

During the latest quarter, the gross profit generated by our Wireless DataCom division was $8.2 million or 35.7% of Wireless DataCom division revenue. This compares to $6.5 million or 41.7% in the same period last year. Quarter to quarter gross margins for our Wireless DataCom division may fluctuate moderately due to changes in product mix. However, as new higher margin Wireless DataCom products that were launched earlier this year continue to gain market acceptance, we expect to see improving gross margins over the next several quarters.

During the latest quarter, we sold our TelAlert software business unit to privately held MIR3, a San Diego-based company, that provides wireless notification services. Total consideration for the transaction, which was comprised of $4 million of cash, a $2.5 million note and MIR3 preferred stock, is valued at approximately $9.4 million. The TelAlert software business, which included the last of the remaining assets of the former Solutions Division for CalAmp, is reported as a discontinued operation for all periods presented.

Due to the relatively high carrying value of goodwill associated with the TelAlert business, which goodwill is not tax-deductible, the book income tax expense exceeded the pre-tax gain realized on the sale of the business. For accounting purposes this resulted in a net loss on the sale of TelAlert of $935,000 or $0.04 per diluted share.

Now moving on to the balance sheet, our total inventory at the end of the second quarter was $27 million, down slightly from $28.3 million at the end of the fiscal 2008 first quarter. Annualized inventory turnover was about 4 times.

Accounts Receivable of $24.8 million at the end of the second quarter represents approximately 67 days outstanding. Our primary sources of liquidity are our cash and cash equivalents which amounted to $8.4 million at the end of the second quarter. Net cash used for operating activities in the quarter was $2.1 million.

As noted above, during the second quarter, we received cash proceeds of $4 million from the sale of TelAlert. Total debt at the end of the quarter amounted to $32.8 million. As previously disclosed, the net loss reported in the first quarter of fiscal 2008 caused an event of default as a result of being out of compliance with the financial covenants under our bank credit facility. As a result, we cannot currently borrow on our working capital revolver, and that will be the case until such time as we are able to obtain a waiver from our lenders.

Furthermore, because the lenders have the right to call the loan until a waiver is granted, $30 million of previously classified long-term debt was reclassified to current liabilities in our balance sheet. We have maintained an ongoing dialogue with our banks during the past three months in an effort to resolve the noncompliance with the financial covenants, but this has been overshadowed by the need to both resolve the product performance issue that Fred discussed earlier and the need to resume doing business with that key customer.

In the near-term, we continue to believe that the restriction on borrowing under our bank working capital line of credit will not adversely affect our operations.

Now let's turn to our financial guidance. Based on our current expectations, we believe that fiscal 2008 third-quarter revenues will be in the range of 32 to $35 million with a loss from continuing operations on a GAAP basis in the range of $0.07 to $0.11 per diluted share. Non-GAAP adjusted basis loss from continuing operations per share for the third quarter, which excludes amortization of intangible assets, stock-based compensation expense and write-off of acquired research and development costs net of tax, is expected to be $0.01 to $0.05 per diluted share. Included in our third-quarter estimates are revenue contributions from our Wireless DataCom division in the range of 22 to $25 million.

With that I will now turn the call back over to Fred for some final comments.

Thank you, Rick. Just to recap the key points from our recent results, our overall revenue of $32.7 million was within expectations. Our EPS was in line, excluding the effect of the TelAlert sale, the after-tax effect of the TelAlert sale. Our Wireless DataCom division results were very strong, and this segment continues to gain in significance and offset the temporary loss of revenues from our Satellite Division.

Through the first half of fiscal 2008, Wireless DataCom revenues of $46.2 million accounted for nearly 60% of our overall business and are nearly double the revenues from the corresponding period last year.

Finally, we believe that we are very close to resolving the product performance matter with one our key DBS customers, and we anticipate resumption of volume shipments to this customer in the current fiscal year.

That concludes our prepared remarks. Thank you for your attention, and at this time I would like to open up the call to questions. Operator?

(OPERATOR INSTRUCTIONS). Murray Arenson, Ferris, Baker Watts.

I wanted to obviously start with trying to dig a little bit deeper on the requalification process. Can you tell us a little bit about where you're at right now, whatever you can tell us in terms of are there points of negotiation that you're working on here? It seems like we're past all the technical stuff. Just kind of give us a better sense of what you're working on and (multiple speakers) complicated and try to clue us in how long --

Yes, I will try to clue you in as much as I can. First of all, two key products have been provided to our customer for requalification and is going through their requalification process. So they have the key products that drive our revenue in the process of requalification. We are obviously in significant discussions with respect to settling the matter both financially and otherwise. We're trying to do that to the extent that it minimizes the cash impact on the Company as we move forward. And so there is a lot of details as you can imagine and moving parts when you talk about either reworking product or replacing product going forward and for what time period that might cover. And so we're certainly going through that. And as those details change, we made changes in our estimate to complete the program in terms of the cost. What we did not mention in the prepared remarks is I believe there was about $1.5 million increase in the estimate of cost to complete the overall program, and every quarter we will be making adjustments as we make new estimates to complete based on actual performance or changes in the program. But that is in the numbers that you have and that you see for the most recent quarter. We have about $1.5 million of additional cost based on where we are in the negotiation process in terms of the resolution.

So we are certainly a long ways down the path of getting an agreement put in place and signed by both parties, but there are still details that need to be worked out on both ends that as you can imagine when you get down to the end, it is usefully the last 1% that takes 40% of the time.

Okay. So you mentioned trying to limit the financial strain on the Company. Can you give a little bit more on that? I mean you talked in the press release about pursuing a waiver with the lenders. As I read that, that is something you have not done but you're working on now. Can you --?

Yes, we are working concurrently both with the bank and with our customer with respect to trying to one, get back into producing product for that customer to generate revenues which obviously generate cash, and use materials. We have a significant amount materials in our pipeline that either we are obligated for or own currently. So there's a significant amount of cash investment already made. So we're working concurrently with both our customer and then the bank with respect to -- the bank has to approve any agreement that incorporates areas that they may have I guess some oversight on with respect to either a receivable or a note or anything that would come across -- if you go back -- if you look at our note with the bank and agreement with the bank, there is -- they almost control a lot -- a lot more than you think at the time you sign those things. So when you fall out of compliance, all the things that seem so like a detail when you sign it become very important factors.

And so we have to -- some -- what I can say is some segments of our settlement agreement proposal include aspects on which the bank will have to provide consent. And so you end up having a negotiation with three -- a three party negotiation in some respects. So that makes it a little more complicated.

Obviously. So, as you look at your working capital requirement going forward, is there a date certain or a point in time where you take a look, and say, well, we need to at least if nothing else get a waiver done by X point in time or we have got some liquidity concerns beyond what we think we can manage on the working capital side?

Well, right now we are not in that position. I think that, that is far enough. We have enough cash. If you look at our performance of the last quarter, I think we consumed $2 million of cash. We have 8. Now there is some restriction on a portion of that 8. However, we believe we are close enough today that that is not a cause for major concern. I mean obviously it should be in the back of our heads, but we're concentrating on getting the agreement put in place so we can move forward in that respect. But there is no particular date and time where "we would run out of cash" at this point.

Okay. Can you talk a little bit about the DirecTV business? Tell me if I have this wrong, but it seemed like the seasonal trends that you see coming from DirecTV are a little bit different from the seasonal trends we have seen historically from Echo. So, as you provide your guidance into third quarter and look out into the fourth quarter which is generally kind of seasonally week, is that the way we should look at that. It gets weaker and weaker until they turn the corner, or is it all different because of the upgrade cycle and because of how DirecTV operates?

Well, as you look I think quarter to quarter, we're not projecting a significant increase in the third quarter, and that may be a conservative look. Although a couple of things are happening in the marketplace. One of the things that is happening in the marketplace is they are getting better at managing the churn, and they are improving their churn, which is a big contributor to the overall demand for the product.

So they is still -- we would still expect to see some seasonality. If you go through and I think there is the range of probably roughly 10 to $13 million is what we are projecting for the satellite business in the third quarter, of which there would be very little of Echo business in that.

Okay. So do you think Q4 gets weaker than Q3 because of the winter season or not necessarily?

Generally speaking, it does, yes. I would expect all things remaining equal that the fourth quarter would be weaker than the third quarter for each of our -- whether we had the issue with our customer or not, that is typically the type of curve that we would have.

Larry Harris, Oppenheimer.

I just wanted to follow up a bit on that prior question. I'm to read into this that even if you were to be qualified by Echostar that it would probably still be a downward move in terms of revenue in the satellite area from the third to the fourth quarter?

I guess yes, you might be reading too much into it. I think what we also said, what I said in my prepared statement was that we would expect to begin shipping some volume in this fiscal year which would likely begin occurring out of our fourth quarter.

So, on the one key customer that we are not shipping essentially anything right now, we are shipping -- by the way, we are shipping some product to them that is not affected by this. I would expect to see that revenue increasing from essentially a zero base and that we would see some degradation in the current business with DirecTV.

Sure, I understand that. Okay. And you're working to obtain qualification on both HDTV and analog products or just HDTV?

Well, the HDTV and what I would call legacy products.

And legacy. So both those markets potentially could be available to you with a satisfactory settlement?

Correct.

Okay. And do you have a sense that you might be able to get back to the share that you had, the market share, that you had previously or over time circumstances change and you have to I guess fit yourself to those circumstances?

Well, certainly we will have to earn all the share that we gain. And whether or not we get back to -- I mean we had a fairly significant share there. I think we will probably lose in the long run a certain amount of that share just as a result of this. How much that is we don't know. But certainly I think we will lose a portion of the share that we enjoyed over the last several years. But I think that we will regain enough share that we will have a significant meaningful position at that customer.

I understand. And turning to the accounting issue, the financial restatement and I guess the data here available --

This is Rick Vitelle. There was -- you said restatement?

Yes. The restatement I guess there is data provided for the two quarters of 2006 and 2007. How should we think of the numbers say on a full-year basis last year on a full-year basis on a restated? Is there information --?

Okay, okay, I would quibble slightly with the terminology. We have retroactively reclassified our income statement to show the operations of our Solutions Division as a discontinued operation as required by the accounting rules, but it is not considered a restatement per se.

My apologies for (multiple speakers)

(multiple speakers) overly sensitive to that.

I understand. Alright. So, on a continuing operations basis for the last fiscal year, what should we be thinking about in terms of what the revenues and earnings numbers look like?

Well, at our current run-rate, we just finished up with $32.7 million for Q2 without the Solutions Division, and we're providing guidance for the third quarter of 32 to $35 million on a consolidated basis. So -- and we are also providing guidance for the Wireless DataCom unit on a stand-alone basis. I'm not sure I can go beyond that right now other than to point out that Fred has provided some forward-looking information as to our expectations.

Okay.

We have not historically in the past, Larry, provided specific guidance going out that far in terms of revenue. But clearly we would expect to begin seeing a much better picture with the advent of shipping to our key customer as we resolve this, and that impact will be quite significant next year we would expect.

No, I understand that. I was thinking about the historical financial statement, but I guess that will be released as it is available. In other words, showing the divested business as a discontinued operation.

You can get that by simply taking the previously reported revenues and margins of our Solutions Division and taking it out of your model.

Okay. I understand. Alright. That is helpful. Thank you.

J.D. Abouchar, GRT Capital Partners.

So just to help me clarify this, the $1.5 million in expense this quarter for requalification, should that sort of just be thought of as a warranty expense or ongoing fixing the problem, or is that more like an R&D?

Okay. There is a two-part answer to this, and I'm going to answer the first part, and then I'm going to turn it over to Rick. But to be clear, this -- these reserves reside in several places on the balance sheet depending on what they are applicable to, and we are required to review the adequacy of those reserves each quarter based on the facts and circumstances and the history -- the actual what the new estimate is going to be because right now we're making estimates on return rates. We're making estimates on cost, and as we develop factual historical information that either supports or changes that, we will be required to look at each of those areas, as well as other areas that might come up and say, this is what we now think the end game cost for this particular portion of the reserve is.

So it is a fairly complicated financial accounting, believe it or not, because you have -- in here we have vendor liability, we have inventory, we have Accounts Receivable, we have all kinds -- it lands in a lot of different places. So with that, I will turn over to Rick. If I have not missed up all of the accounting on it so far, I will turn it over to Rick.

Well, that is the best explanation I can give you is that that $1.5 million additional pretax P&L charge in the second quarter associated with this matter is really a change in estimate.

So basically you are increasing your estimates by $1.5 million?

That is correct.

Okay. And then when you talk about coming to a final agreement with your customer about this, are we anticipating yet another charge or some sort of compensatory payment to them? (multiple speakers) -- or when you're talking about this settlement, is it more just for requalification?

Let me try to answer that. The requalification costs are not significant, first of all. So that -- we can get that out of the way. In terms of -- when there is a -- let's just say, when we have a final agreement, we're going to take that final agreement and we're going to say, okay, now -- and they might have changes to it from what we have today. And we're going to make whatever adjustments based on our estimates and whatever that agreement has in it, and we're going to compare it to what we have today, and we're going to make an adjustment for that.

So right now all of our reserves reflect our best estimate as to the cost to execute on what we believe to be the agreement that we are going to end up with. Okay?

Now that agreement may change, and to the extent it changes both good and bad, we will make those adjustments. And we will make the adjustments whether -- if the return rate is lower, then it will benefit from that. If it is higher, it will cost us money. But we won't know some of these things until we actually experience them.

Got you. Okay. So if we look at the operating loss for the satellite division of $3 million, what I'm trying to get to is how much of that is still that onetime effect, and can we get to sort of a revenue number for satellite that would be breakeven? I would just like to sort of frame how bad satellite still is.

Okay. I will turn that over to Rick Vitelle.

Just a moment. I don't have my model in front of me. I think we're probably -- breakeven is probably around $15 million in revenue off the top of my head.

Okay. And then I guess on a brighter spot, the wireless sort of getting roughly right around a breakeven loss of $500,000. What -- higher margins are obviously more OpEx. What is going to drive that segment to some nice profitability? Is it just we need more revenues to absorb the overhead, or do gross margins continue to climb from the 36%? Because that is obviously we're starting with much higher gross margin there, but we're not dropping it to the bottom line yet. So what sort of is the game plan to get that to give us earnings? Is it more topline, better execution, cost savings? What is going to make it contribute?

Yes, yes to all of those. Certainly we're trying to grow the topline because that has the longest lasting impact as we gain market share and customer acceptance. I mentioned a couple of times about some gross margin improvements, particularly in our Vehicle Tracking business. So we have some areas there that we are introducing -- are in the process of introducing products this quarter, which will have a fairly significant impact on those businesses. And it should not be lost on anybody when you go through our financial statements, sort of the accounts (inaudible) I say, there is a lot of our arcane methodology that intangible asset amortization and all in that -- in those operating expenses. And so there is a significant non-cash expense generated in operating that business because it has been generated in a large degree through acquisitions. And so I think it is incumbent upon us to take you potentially through it as we move into the future, sort of the non-GAAP analysis of that side of the business, which I don't think we have done to this point. But clearly we're working on growing the revenue, and we have been introducing a number of products. Our public safety side of the business has had some good key wins. Shreveport was one. We have another major city where hopefully we will announce in the next several weeks.

Cost reduction is another, and clearly we have to be effective in where we spend our money from an engineering and product development standpoint. We do spend a significant amount of revenue on a percentage basis on R&D programs in that side of that business, and that is an area of focus on becoming a little more efficient and getting the results out of our R&D organization.

That is okay. The final question is one of your key customers on the wireless side had a pretty bad quarter recently but yet has also announced some large contract wins. Have there been any pluses or minuses to your wireless business? Has that customer affected it either positively or negatively, or are their -- what their issue is not part of the solution you provided to them?

Okay. I cannot speak to how their -- any issues they may or may not have reflected on us, but what I can say is I think our Q1 -- we have already said our Q1 to Q2 revenue we had a fairly significant reduction, not because of any issues they had, but because of a well-known and publicized large order that was fulfilled essentially did not recur although our customer I think has announced some additional orders.

And so what we're concentrating on is executing well with the products that we have and we provide them. And our current forecast reflects the most current thinking as of today with respect to what our backlog is and what their business situation is. So growth in our revenue forecast is our plans to meet their requirements. I really cannot say whether they are up or down. I think you can draw your own conclusions from looking at our revenue.

Just following on Fred's comment, that customer's business units that was the subject of that announcement, that negative announcement, is a portion of their business that we're not selling into.

Right. Okay. Just a final question since you mentioned backlog. Is there a backlog number that is relevant to discuss for this quarter or historically?

We have historically not provided that information for a variety of reasons, and we are just still not doing that.

I thought I would give it a try.

Nice try. Thank you for trying.

(OPERATOR INSTRUCTIONS). Patrick Forkin, Tejas Securities.

With respect to the settlement agreement, is it -- do you guys anticipate that there will be some provisions in that agreement that would obligate your customer to place some purchase orders with you going forward?

I cannot talk about the details of any agreement, but I guess I think you could logically conclude that before we went out and spent a lot of money to make right this situation, that we would want certain aspects to ensure that we had an ongoing successful operation.

Okay. So that is really what you are basing your optimism on as far as not just getting requalified, but they will start taking volume shipments again?

Obviously to enter into a settlement agreement, I mean you would have to have some -- it has to be a quid pro quo.

Okay. And then you mentioned you are looking for the cash impact on the Company for that to be as minimal as possible. Did that include some preferential pricing on those future sales for that customer?

Without being specific again, I think it can include a lot of things, and if we had preferential pricing, that would reduce our margins in the future. I think the accounting treatment with that would probably be adverse to the Company from an optics standpoint. So in terms of pricing, I doubt we would see something like that because of the adverse accounting. So this is a good point that you bring up because there is a lot of ways to solve problems and addresses issues that both we have and our customer has. And then you have to sometimes overlay the -- you know, I sort of refer to the arcane accounting rules over those. And sometimes those rules -- you know, something that would make sense to you and me to do would not make sense from the outside of sort of the investor standpoint without a lot of explanation on a long-term basis. And what you describe is just one of those where if you give them price concessions in the future, you are lowering your margins almost forever, and you would have to explain that. And I don't think that is something that the investors or as a Company we want to do.

Fair enough. Thank you very much.

At this time I am showing no additional questions in the queue. I would like to turn the call back over to management.

Okay. Well, this is Fred and I would like to thank everybody for joining us today, and hopefully we will be back giving you some good news in this near-term. Thank you very much.

Ladies and gentlemen, this does conclude the CalAmp second-quarter fiscal 2008 conference call. If you would like to listen to a replay of this call, one will be available by dialing 800-405-2236 or internationally at 303-590-3000 and entering passcode 11098626 followed by the #.

You may now disconnect, and we thank you for using AT&T Teleconferencing.