CAMP4 Therapeutics Corp (CAMP) 2011 Q1 法說會逐字稿

Good afternoon, ladies and gentlemen. Thank you for standing by and welcome to the CalAmp fiscal 2011 first quarter conference call. During today's presentation all participants will be in a listen-only mode. Following the presentation the conference will be open for questions. (Operator instructions). This conference is being recorded today, Thursday, July 8, 2010. At this time I'd like to turn the conference over to Lasse Glassen for the Financial Relations Board. Please go ahead, sir.

Thank you; good afternoon, everybody. Welcome to CalAmp's fiscal 2011 first quarter earnings call. With us today are CalAmp's Chief Executive Officer, Rick Gold; 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, expect, intend, plan, believe, seek, could, estimate, judgment, targeting, should, anticipate, goal 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 due to a variety of factors, including product demand, competitive pressures and pricing declines in the Company's Satellite and Wireless markets, the timing of customer approval of new product designs, the length and extent of the global economic downturn that has and may continue to adversely affect the Company's business and other risks and uncertainties are described in the Company's annual report on Form 10-K for fiscal 2010, as filed on May 6, 2010, with the Securities and Exchange Commission.

Although the Company believes the expectations reflected in such forward-looking statements are based upon reasonable assumptions, it can give no assurance that its expectations will be attained. The Company undertakes no obligation to update or revise any forward-looking statement, whether as result of new information, future events or otherwise. With that, it's now my pleasure to turn the call over to CalAmp's Chief Executive Officer, Rick Gold. Rick?

Thank you, Lasse. Good afternoon and thank you for joining us today to discuss CalAmp's fiscal 2011 first quarter results. I'll begin with comments on our financial and operational highlights, and I'll then provide an update on several of our key business activities. Rick Vitelle will then discuss additional details about our financial results, balance sheet, working capital management and cash flow. And I'll wrap up with our business outlook and guidance, along with some concluding remarks. This will be followed by a question-and-answer session.

First quarter operating results were in line with expectations. Revenues of $26.3 million increased 15% on a year-over-year basis and were driven by improving fundamentals in both our Satellite and Wireless DataCom businesses. During the quarter we experienced continued strong demand for our mobile resource management, or MRM products, as well as contribution from key wireless network projects introduced earlier this year, or announced earlier this year.

In our Satellite business, as anticipated, first-quarter revenues declined compared to the fourth quarter of fiscal 2010 but were up on a year-over-year basis. We expect next-generation satellite products that are currently in the customer qualification process along with normal seasonal demand patterns in this market will help drive growth and improve profitability during the remainder of fiscal 2011.

At the bottom line, results of operations included a GAAP basis net loss of $2.5 million or $0.09 per diluted share. Excluding the impact of amortization of intangible assets and stock-based compensation expense, our adjusted basis or non-GAAP net loss was $1.1 million or $0.04 per diluted share. I refer you to our first-quarter earnings press release issued earlier today for a detailed reconciliation of the GAAP basis pre-tax loss to the adjusted basis, or non-GAAP net loss.

Moving onto our cash flow and balance sheet, during the first quarter of fiscal 2011 cash used by operating activities was $0.5 million and our net debt position stood at $8.1 million.

I will next provide updates for our Satellite and Wireless DataCom businesses. Looking at our Satellite business, revenues of $10.5 million were up 14% compared to the same period last year. The gross margin percentage for Satellite products remained below historical levels, due in large part to lower revenue run rate resulting in lower absorption of manufacturing overhead costs. We're continuing to work closely with our Direct Broadcast Satellite, or DBS customers, to develop next-generation products that we expect will increase our addressable portion of the market and improve gross margins over the remainder of fiscal 2011. We are currently developing four next-generation satellite products, two for each of our DBS customers. We're well into the production qualification process for the first of these products with revenue shipments expected to begin late in the second fiscal quarter or early in the third fiscal quarter of this year. We expect two other products to enter the customer qualification process this quarter with one more in Q3.

Now let's move onto an update of our Wireless DataCom business, which provides communications systems, products and services for applications in the utility, public safety, industrial and mobile resource management markets. During the first quarter the Wireless DataCom business generated revenues of $15.8 million, which was up slightly on a sequential quarter basis and up 15% year-over-year. The year-over-year improvement was driven by our MRM business. We are also seeing encouraging signs in our Wireless Networks business, where we have been devoting significant resources to the utility sector for smart grid infrastructure applications. These areas of growth in the quarter were partially offset by the continued weakness in the public safety sector where, despite an increasing level of bid activity, state and local governments are still proceeding very cautiously and remain slow to commit to capital spending.

The revenue breakdown within our Wireless DataCom business this quarter was roughly 60% for MRM applications and 40% for Wireless Networks applications. This compares to a roughly 50-50 split in the first quarter of last year. Also, comparing Wireless Networks revenues in the latest quarter to a year ago, we have seen a significant shift towards utility and energy customers compensating for a decline in revenue from public safety customers.

Strong customer demand for our MRM products continues to lead the recovery of our Wireless DataCom business. First-quarter revenues for our MRM products were at near record levels and were driven by the strength of our local fleet management and school bus tracking verticals. In addition, new mobile tracking products that we launched earlier this year are driving our penetration into the emerging verticals of cargo tracking and auto insurance. The traction our MRM applications are gaining in the marketplace is due in large part to the return on investment end users can expect to realize by deploying one of our MRM solutions.

To illustrate, a large nationwide tree maintenance Company now relies on a fleet management solution using CalAmp products and technology. In addition to being able to lower fuel costs by 22% and improve fleet utilization by 32%, this customer is now able to obtain an annual fuel tax refund of more than $500,000 by accurately tracking the amount of fuel used by its fleet for purposes other than driving on public roadways. Cases such as this are indicative of the innovative ways customers can realize value by using our MRM products.

The Aercept portion of our MRM business also performed well with another solid quarter of buildings as we continue to benefit from improving fundamentals in the vehicle finance market. The Aercept customer base is expanding rapidly and as of the end of the first quarter we have approximately 140,000 actively monitored tracking units in the field. In addition, during the quarter we received a substantial follow-on order for a remote car start application where we are providing the wireless hardware and post-sale airtime services. This product is supported by apps on the Apple IPhone as well as BlackBerry smart phones and is now also available in the Canadian market. We expect to realize revenue from this follow-on order in our second and third quarters of fiscal 2011.

Moving onto our Wireless Networks business, we ended the first quarter with a record backlog, due in part to three key new orders announced during the first quarter totaling more than $15 million. These orders were from customers in the rail transportation, public safety and utility smart grid sectors. Each one of these products generated revenues in the first quarter with contributions expected to increase in subsequent quarters. Within the Wireless Networks business the utility sector remains a strong strategic growth opportunity. We believe our portfolio of wireless communications infrastructure solutions is well-positioned to serve the needs of this market, but we are now working on several pilot distribution automation projects where we have been able to successfully demonstrate the performance of our equipment and solutions.

In addition, during the first quarter we made significant shipments for a nationwide smart grid infrastructure project in Thailand that is being deployed by the Thai Provincial Electric Authority. We announced the award of the smart grid project last year and expect to complete it later this year.

In the public safety space, we made initial shipments on the order announced last quarter for a mobile data communications network for a Canadian provincial government agency. Applications include vehicle tracking, database query, secure inter-vehicle messaging and dispatch. Although this was an important order for us, order activity in the US public safety sector remains very sluggish, primarily due to constrained state and local government capital budgets.

We believe that orders in the public safety sector could increase over the remainder of fiscal 2011 as federal earmarked funding filters its way down to state and local agencies. That said, we have not built in any of this potential upside into our near-term operating assumptions for the business.

With that, I'll now turn the call over to Rick Vitelle, our Chief Financial Officer, for a closer look at the first-quarter financial details.

I will provide a summary of our gross profit performance, working capital management and cash flow results for the fiscal 2011 first quarter.

Consolidated gross profit for the fiscal 2011 first quarter was $6.1 million or 23.2% of revenues compared to gross profit of $4.7 million or 20.5% of revenues for the same period last year. The increase in gross profit and gross margin percentage in the latest quarter was primarily due to higher Wireless DataCom revenues.

Taking a closer look at gross profit performance by reporting segment, Wireless DataCom gross profit was $5.3 million in the latest quarter or 33.7% of Wireless DataCom revenue. This compares to gross profit of $4.3 million or 31.1% of revenue in the same period last year. With Wireless DataCom revenue lower than historical levels due to the global economic downturn, gross margins continue to be impacted by the lower absorption of manufacturing overhead costs along with the shift in mix from higher-margin Wireless Network products to lower-margin MRM products. We expect gross margins to improve in our Wireless DataCom business as market conditions improve and revenues continue to rebound.

Gross profit for Satellite products was $793,000 or 7.5% of Satellite product revenues in the latest quarter. This compares to gross profit for Satellite products of $427,000 or 4.6% of Satellite product revenues in the same period last year. Although we did not experience the start/stop production inefficiencies or the worker overtime and material shortages that adversely affected gross margins in both the third and fourth quarters of last fiscal year, the Satellite gross margin in the first quarter was still lower than historical levels. This was primarily due to lower absorption of manufacturing overhead costs resulting from lower sales volumes. However, we anticipate Satellite margins will improve as we begin shipping our next-generation products in volume later in the current fiscal year.

As was the case with last fiscal year, during the first quarter we did not recognize an income tax benefit despite our pre-tax loss of $2.5 million. In accordance with the applicable tax accounting rules, the income tax benefit associated with the pre-tax loss generated in the first quarter was offset by an increase in the deferred tax asset valuation allowance. Once we return to GAAP basis profitability, we expect to begin reversing the deferred tax asset valuation allowance, which will have the effect of reducing or eliminating reported income tax expense.

Now moving on to the balance sheet, our total inventory at the end of the first quarter was $11.1 million, representing annualized inventory turns of approximately seven times. This compares to total inventory of $10.6 million at the end of the immediately preceding quarter, which represented annualized inventory turns of approximately 10 times. The sequential decrease in turns is attributable to lower sales in the latest quarter coupled with the buildup of inventory related to new product launches.

The accounts receivable balance of $13.4 million at the end of the first quarter represents a 42-day average collection period compared to receivables of $16.5 million or a 43-day average collection period at the end of the immediately preceding quarter. Net cash used by operating activities was $456,000 during the first quarter of fiscal 2011. At the end of this first quarter, cash and cash equivalents totaled $4.0 million and total debt outstanding was $12.1 million. In addition to our cash and cash equivalents balance, our main source of liquidity is our revolving credit facility with Square 1 Bank, which provides for borrowings up to the lesser of $12 million or 85% of eligible accounts receivable. The unused borrowing capacity on the bank revolver was $1.8 million at the end of the first quarter.

Our total debt balance of $12.1 million at the end of the first quarter is comprised of $7.9 million drawn under this revolving bank credit facility and subordinated debt of $4.2 million. The subordinated debt, which was issued in the fiscal 2010 fourth quarter, has a principal face amount of $5 million and is reduced by a debt discount of approximately $800,000, which represents the unamortized fair value of the warrants that were issued along with the subordinated notes.

With that, I'll turn the call back over to Rick Gold for our guidance and some final comments.

Thank you, Rick; now, let's turn to our financial guidance. Based on current projections we expect fiscal 2011 second quarter consolidated revenues will increase on a sequential quarter basis and be in the range of $27 million to $30 million with growth anticipated in both our Satellite and Wireless DataCom businesses. The second quarter gross margin percentage is anticipated to improve slightly over the first quarter. As a result we expect a GAAP basis net loss in the range of $0.04 to $0.08 per diluted share. The adjusted basis net loss for the second quarter, which excludes intangibles and amortization expense and stock-based compensation expense, is expected to be in the range of $0.01 to $0.04 per diluted share.

In addition, based on the current backlog of orders and pipeline of new opportunities, we are reaffirming our expectation that full-year fiscal 2011 revenues will increase in the range of 10% to 20% over fiscal 2010 with growth in both our Satellite and Wireless DataCom businesses. We continue to expect the consolidated gross margin for fiscal 2011 will be in the range of 23% to 27% of revenue and that fiscal 2011 total operating expenses will remain essentially flat compared to fiscal 2010.

Looking further ahead, we believe that we can achieve a quarterly revenue run rate of $50 million by the fourth quarter of fiscal 2012, more or less balanced between our Satellite and Wireless DataCom businesses.

In concluding our prepared remarks, I'd like to recap some key points drawn from our recent results and latest development. First, our first quarter results at both the top and bottom lines were within our expected ranges. Second, the fundamentals underlying both our Satellite and Wireless DataCom businesses are improving. Customer end demand continues to increase, and we expect growth from both business segments in fiscal 2011. And, finally, based on our backlog of orders and business pipeline, we remain on track to generate 10% to 20% year-over-year revenue growth during the current fiscal year. We are executing well operationally, and we expect to reach profitability later this fiscal year.

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

(Operator instructions) Mike Crawford, B. Riley & Company.

Regarding the Wireless DataCom business, can you talk in a little bit more detail about your go-to-market strategy, both directly and then through partners like Consert, which is using your WiMetry device in combination with their software-as-a-service platform?

So, is your question specific to the wireless network side of that business, or does it include MRM as well?

Let's start with the wireless networks.

Okay, so on the wireless network side of the business, the majority of our sales are direct to end users, whether it be the utility company, the energy company, the public safety agency or the industrial concern. That said, there are several cases where we are partnered with either manufacturers of complementary equipment that have a prime contractor relationship with the end user or, in a smaller number of cases, with resellers, although that's not a major component of our go-to-market strategy.

And, specifically in the utility business, we've announced partnerships with Elster on the metering side, with ARCADIAN Networks, which is a spectrum and solution provider. But the majority of the work we are doing is on the distribution automation side there, and typically those projects are being managed directly by the utilities. And as they roll out, we are dealing with them directly.

Just to be clear, the ARCADIAN Networks -- is that where you are getting your 800 MHz spectrum?

No. We have another relationship that we announced a few months ago with Space Data for some 900 MHz spectrum, some spectrum that they hold that we have exclusive rights to market and use in the utilities segment. So ARCADIAN had some 700 MHz spectrum that we have partnered with them on a couple of projects for, but in the case of the Space Data spectrum, we are actually offering that spectrum ourselves to our customers as part of a bundled solution encompassing both hardware and spectrum.

Just for my edification, on the MRM side, when you are offering vehicle tracking as a service, how is that signal carried? Is that through one of these owned spectrums as well?

No. So in the case of our Aercept business, where we do offer a complete end-to-end solution, there we actually -- we have a network of agents, but we also have direct sales and we have telemarketing there. We actually do sales and fulfillment over the website. And in that case we provide the hardware, we source the hardware ourselves. But we have relationships with the cellular carriers. And we have AT&T, for example, where we have special airtime deals where we are able to get very good pricing because the nature of our usage of airtime is very benign from a carriers perspective, and so it's very efficient and very attractive for them to add the kind of customers that we bring to them.

But we offer to our customer, who in that case would be a vehicle finance company or actually an auto dealer, we offer a complete solution where they buy a contract, typically a two- or three-year contract that includes the hardware, it includes the access to the web-based back end, the portal, to be able to do the tracking online, and it includes the airtime as well. So they pay us, typically, up front for that contract, and then we recognize the revenue for that over the term of the contract. So if you look at our deferred revenue line item, the bulk of that is actually associated with the multi-year contracts for Aercept.

And then in some cases, you can buy an extension to that. At the end of that term, if they need to recycle that unit or that unit is still in a car that is collateral for a loan, we will sell extensions either a month at a time or a year at a time, for the airtime and the access to the web-based portal.

Okay, thanks; well, it's nice to see that deferred revenue is up 10% quarter over quarter. And then just final questions related to the Satellite side. So we know you've been hoping to be designed into DirecTV as well as EchoStar, and it sounds like -- that you are still in qualification. To what extent do you have any control over this process? Is it none; it's just one day they say, okay, go ahead? Or how does that work?

We're working in an active partnership with both customers, at both the engineering level and the supply chain level. So it's an ongoing dialogue. There's a part of the process where -- at the early end where it's largely under our control. And that there's a part of the process at later stages where it's largely under the customer's control. But that process is moving forward, and we expect to have revenue from multiple new products with both customers this year.

Just to clarify the comment you made about -- there was those two prototypes or designs with each of those customers, and then you said there's two more this quarter and one more in Q3. Are those additional on top of that?

No, no. Those are of those four that we've already talked about.

I see; okay, thank you very much.

Ilya Grozovsky, Morgan Joseph & Co., Inc.

What revenue level do you think you need to be at for the business to be breakeven?

Breakeven on a GAAP basis?

Yes.

So, there's obviously some assumptions about mix that go into there, but the way we are looking now, in the low to mid 30s on a consolidated basis.

Okay.

I should say, mid-30s -- I should say mid-30s on a consolidated basis.

Okay, and what will the mix assumptions be at that level?

Well, our Satellite business has more seasonality to it than our Wireless business does. And so, if you look at the last, certainly last year, the first couple quarters were lower in the Satellite business, the last couple quarters were higher. We are anticipating a similar kind of behavior this year. So at that level, we would be assuming something close to an even split there, something certainly within 60-40, but probably closer to 50-50.

Marc Robins, Catalyst Research.

Help me understand something. You mentioned this previously, and maybe you will be kind enough to add a few things this time around. Do you want to talk a little bit more about the work you are doing for the railroad? Because typically, anything that involves a railroad can develop into great big, huge opportunities because there's nothing about railroads that are small. Can you bring a little more light onto that?

At this point, I'm not at liberty to go into a lot of detail about it, but this is a real communication application that has -- where we are currently a subcontractor, but the potential market for this application includes -- it includes locomotives, it includes waypoints, it includes some infrastructure for a number of the very large railroads. So what we are currently under contract for only takes it through a development and preproduction phase, but there is a potential market here that is quite substantial. But we are fairly early on in that process.

And, the development was, what, $15 million?

Well, it was one of the contracts that was included in that -- it was one of the three contracts that we announced that, in the aggregate, were $15 million.

Okay, okay, so in aggregate -- so some portion there, too? Okay.

Yes. By the way, we like that market, not just for the reason you mentioned, that obviously the --

Well, it has to be hard and it has to last forever. If you are out -- you know what Eastern Oregon is like. There are prairie fires that take out all the equipment, so it has to be particularly -- it has to exist through any kind of condition. So it's exactly the kind of stuff you want to make.

Right. It's a customer that places a premium on robustness and reliability.

Exactly.

But there's enough volume to actually drive some scale and give us some leverage on that side. So like the utility market, there's actually a lot in common there.

The flip side, I will mention, is they are also regulated entities, and they don't move at the speed of light. But we think that there's some important and potentially valuable opportunities there, and it's something we are focusing on.

But once you're regulated -- I mean, you said they're regulated. Does that mean you could be, quote-unquote, regulated in?

Well, it takes a while to get qualified, as with utilities, and to really get up the ramp. But on the other hand, once you're in and once you're successful and you're proven, it's pretty sticky business.

Yes, exactly; perfect, perfect, yes. Okay, now, this is something that I don't know a lot about, but -- and I would really like you to help me on this. I guess I've been forced to watch TV on the Internet, and to me there is technologies that are coming more and more forcing folks to watch -- Hulu, I guess, is going to start charging for a service, premium service, and so forth. And there are other companies that are coming out with boxes that will help avail folks to essentially replace the Comcast box, and I would imagine possibly the satellite box. Where do you fit in this upcoming brawl, and does this hurt you or help you?

Well, we don't play in the Internet video realm. We are a wireless communications company, so --

So it really circumvents you completely?

Well, broadband wireless is somewhere where we do play, but not really at the consumer level today. We are much more on the high-performance, high reliability end of that. But our focus in the video delivery market today is satellite. Satellite is still -- today, the Internet TV is much less of a competitive alternative to the other primary delivery mechanisms as it is an adjunct to them for people who are mobile. But the satellite TV guys are also -- things like that Slingbox technology, they are offering ways to get the benefits of mobility but also with the access to the breadth of programming that the satellite providers have, which is something that they continue to be in the lead in.

And so again, our business -- and one of the things that I've mentioned on prior calls is that our business is driven much less by the top line or net subscriber fluctuations among our customers and the nuances of their month-to-month, quarter-to-quarter battles with alternative providers of video programming than it is with just the inherent churn of the 33 million subscribers that are out there, the 1% to 2% a month churn of those subscribers. As well as -- and even, ultimately, more importantly over the next couple of years, is the upgrade cycle, where you may have noticed that the satellite providers right now are focusing very much on the HD programming when they are -- if you look at their ads, the print ads, the TV ads, they are differentiating themselves against cable as well as against each other by the amount and the type of their HD programming. And so, again, the equipment that was put on rooftops three, four, five years ago is in almost every case not compatible with the latest generation of HD, HD local, DVR technology, etc.

So that whole upgrade cycle to the HD as well as DVR as well as some of the home networking advances that the satellite guys are driving -- that's really where the focus is for them and where the focus is for us over the next few years.

Okay, but I also know that the satellite guys are some of the most scrappiest contenders in the entertainment arena. And I've got to believe that they've got to be aware of what redbox has done to the DVD rentailer business. And, likewise, I think home delivery of Internet television -- I think they are going to be -- they've got to be aware of that, where there's going to have to be a combination of signals sooner rather than later. And I'm just wondering if you've heard any inkling of that with your conversations.

Well, I don't want to speak for our customers; they are much better at that than we are. But they are obviously looking at a lot of things, whether it be competitive threats or other technologies that can be incorporated and co-opted. But again, I think in the near to medium term for us, it's really all about programming and picture quality, and that's something that the satellite TV is clearly the leader in.

Richard Todaro, Kennedy Capital.

Inventory at Dish -- this quarter, we were suffering through an inventory correction there. Do you have any read where we are at on inventory within that customer, to the best of your ability?

Well, I think our expectation at a high level is that the overall pattern this year, certainly qualitatively, is going to be not unlike last year, where -- and this is something we've seen before from a seasonality standpoint, where the football season and the holiday season is really driving some of the marketing and some of the focus of the business, and you see this around some of the advertising and what's happening there.

So, the summer -- interestingly enough, several years ago the summer was also a bigger season when there was more new home construction and there were more people moving then. But now, the last couple years, if you look at our business and if you look at the demand patterns, it's been very much focused towards the back end of the year. So that's our current expectation and consistent with the forecast that we are looking at.

Dish is advertising this HD like crazy, free HD. Have you seen any pickup based on that in their rolling 12-month forecast that they are giving you, any signs of life in the business due to that?

Again, I can't comment at a granular level on the details of our customers' businesses. But certainly, we are seeing the influence and the impact of the focus on HD. I can certainly attest to that.

Do you know if they are offering the free HD to existing customers, or is that all customers -- I mean, just to new customers? Do you know that?

I don't know the details of the specific package.

Do you, off-hand, just have a rough ballpark what percentage of Dish customers today actually have an HD-qualified --

They don't disclose those numbers. But my understanding from third-party sources is that well under 50% of the satellite TV subscribers in the US today are receiving HD programming.

How about working capital as far as inventory build, as you do the seasonal build in the back half of the year? I know you've got about $4 million in cash and $1.8 million on the credit line. How comfortable do you feel on the ability to fund working capital as sales ramp up?

We feel very comfortable with that. We expect our inventory turns to grow over the course of the year. The dollar value of inventory -- we expect it to grow slightly, but not as fast as revenue. And so, when you factor the AR and the AP into that, our models show -- you know, the cash and the credit line will bounce around a little, but we feel we've got -- that the revolver will give us ample capacity to accommodate that.

One of the gentleman earlier asked about your breakeven on a GAAP basis. But have you talked about that on a non-GAAP basis, what sort of revenue number do you need?

Our guidance for next quarter on a non-GAAP basis was $0.01 to $0.04. So, obviously, if you look at the mid range of that, we're not too far off.

Yes, I just wanted to clarify that. Okay, thanks guys, keep up the good work.

James Basch, Dialectic Capital Partners.

Just looking at your reiteration of guidance for the full fiscal year and revenues up 10% to 20% implies a pretty steep back half of the year ramp. So I was hoping to get more color from you guys and what you're seeing right now that would be the drivers of that.

So it's really across the business, James. We expect the Wireless Data business to grow in the back half of the year. We also expect the Satellite business to grow in the back half of the year. And the Wireless business, it's -- on the wireless network side, it's some of the projects that either -- well, basically, projects that got underway in the first quarter or just getting underway in the second quarter. Those projects, just the nature of the way they ramp, is going to lead them to grow over the course of the year.

And then in the MRM side of our business, we're getting additional penetration into some other verticals. I mentioned the cargo tracking vertical. We are very bullish on that one. We think we can be the leader in that. We think it makes a lot of economic sense for the customers. So those are the things that are driving it on that side.

And on the Satellite side, it's the combination of seasonality, as well as -- and the seasonality has kind of an accelerator component into that where, when our customers expect to have seasonal demand up, they want to make sure that the shelves are stocked for that. And then I guess a second order contributor there is the remote car start product. That's yet another seasonal thing where, in Q2 and Q3, Q3 in particular, we expect to see -- we have orders that will drive that.

And then you layer some of the new products on top of that on the Satellite side that increase the served market -- those are all the factors that come in there that drive some of those expectations.

And then, just looking at cash flow projections, so you are going to be around net income breakeven, roughly, this coming quarter, or the quarter that we are in currently. Any thoughts on cash flow projections either this quarter or for the full fiscal year?

I think, for the fiscal year as a whole, our expectation is that the operating cash flow will be somewhere around breakeven, plus or minus $1 million or so from breakeven. And obviously the EBITDA that we are looking at based on the guidance we gave is tilted towards the back half of the year. There is going to be growth in Q2 and on into the year that will drive some working capital requirements. But, again, just given the nature of the business, we expect -- we had some product launches in Q1 that caused us to buy some material in advance of the actual revenue. So we expect, not unlike what we saw last year, the turns to go up over the course of the year. We don't expect dramatic changes in days receivable or days payable.

So that drives us towards an expectation on the operating cash flow that's somewhere around breakeven, plus or minus $1 million.

Okay, and then on the Satellite side, what are you expecting from new products in terms of revenue contribution in the back half of the year?

We're not breaking that out on a product-by-product or a customer-by-customer basis, James. And some of that, it really depends on the timing of the ramps and how that affects -- a couple of the products we are looking at are going to be incremental, but a couple of them over time may cannibalize some of what we are -- at least one of the ones that we are currently shipping. So there's some uncertainty around exactly how much of this growth would be new products versus how much would be some of the products we are already making.

But we expect it to be -- it will be in the millions of dollars that we are expecting in the back half of the year from new products.

(Operator instructions). Management, I'm showing no further questions at this time. Please continue.

All right, well thanks to everybody again for joining us today, and we look forward to speaking with you again next quarter.

Thank you, ladies and gentlemen. If you would like to listen to a replay of today's conference, please dial 1-800-406-7325, or 303-590-3030, using the access code of 432-3973. This does conclude the CalAmp fiscal 2011 first quarter conference call. Thank you very much for your participation. You may now disconnect.