CAMP4 Therapeutics Corp (CAMP) 2011 Q2 法說會逐字稿

Good afternoon, ladies and gentlemen. Thank you for standing by. Welcome to the CalAmp fiscal 2011 second quarter conference call. During today's presentation, all parties will be in a listen-only mode. Following the presentation, the conference will be opened for questions. (Operator Instructions). This conference is being recorded today, Wednesday, October 6th of 2010, and I would now like to turn the conference over to Lasse Glassen of Financial Relations Board. Please go ahead, sir.

Thank you, good afternoon, everybody. Welcome to CalAmp's fiscal 2011 second quarter earnings call. With us today are CalAmp's Chief Executive Officer, Rick Gold, along with the Company's President and Chief Operating Officer, Michael Burdiek, and Chief Financial Officer, Rick Vitelle.

Before I turn the call over to management, please remember 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 approvals 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 that 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 on 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 statements whether as a result of new information, future events or otherwise. With that, it is 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 second quarter results. I will begin with comments on our financial and operational highlights, and I will then provide an update on our satellite products business. Michael Burdiek will follow with an update on our Wireless DataCom business and Rick Vitelle will discuss additional details about our financial results, balance sheet, working capital management, and cash flow. I will wrap up with our business outlook and guidance along with some concluding remarks. This will be followed by a question and answer session.

Looking at our results, we made significant progress in the second quarter, with consolidated revenue increasing by 23% year-over-year and 12% on a sequential quarter basis. We're continuing to experience strong growth in Wireless DataCom, with Mobile Resource Management, or MRM, product revenues at record levels in the quarter. In addition, recent new orders have pushed our wireless networks backlog to an all time high at the end of the quarter. Our satellite products business also posted improvements in the second quarter in revenue and operating profitability on both a sequential and a year-over-year basis.

At the bottom line for the second quarter the GAAP basis net loss was $0.9 million or $0.03 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 $153,000 or $0.01 per diluted share. I refer you to our second quarter earnings press release issued earlier today for a detailed reconciliation of the GAAP basis pretax loss to the adjusted basis or non-GAAP net loss. Looking at our cash flow and balance sheet, during the second quarter of fiscal 2011, cash provided by operating activities was $0.4 million, and our net debt position was $8.1 million, unchanged from the first quarter.

Moving on to our satellite business, revenues of $11.4 million were up 15% compared to the same period last year and up 8% compared to the first quarter. The gross margin percentage for satellite products improved to 10% in the second quarter but remained below longer term historical levels, due in large part to the lower revenue run rate resulting in lower absorption of manufacturing overhead costs. As we've discussed in previous calls, over the past year we've worked closely with our direct broadcast satellite or DBS customers to develop several next generation products. These next generation products are important for our satellite business because we believe they will increase our addressable portion of the market and also improve our gross margins.

During this past quarter, we made progress in the ongoing qualification process for these products and have begun low volume manufacturing of one product. However, the introduction of these new products is not happening as rapidly as we had expected, with delays partly due to technical issues but primarily due to changes in the timing of our customers' plans. As a result, we do not expect our satellite segment revenue to show the level of growth we had previously expected in the third and fourth quarters. We're continuing to work closely with our customers and to support them as they launch these new products.

Now let's move on to an update of our Wireless DataCom business, which provides communication systems, products and services for applications in the utility, public safety, transportation, industrial monitoring and controls, and MRM markets. Providing comments today is our President and COO, Michael Burdiek. Michael?

Thank you, Rick. During the second quarter, the Wireless DataCom business generated revenues of $18.1 million, which was up 14% on a sequential quarter basis and up 29% year-over-year. In addition, after nearly two years of operating losses, our Wireless DataCom segment was solidly profitable in the second quarter. The sequential and year-over-year revenue improvements were largely driven by our MRM business.

We are also seeing some indications that our Wireless Networks business is beginning to recover, with several recently announced large new orders and a healthy pipeline of opportunities in the utility sector for Smart Grid infrastructure applications. In fact, we ended the second quarter with Wireless Networks' backlog at an all time high. The revenue breakdown within our Wireless DataCom segment this quarter was roughly two-thirds for MRM application, and one-third for Wireless Networks applications. This compares to a roughly 50/50 split in the second quarter of last year and a 45/55 split favoring Wireless Networks in the second quarter of fiscal 2009.

Similar to recent quarters, customer demand for our MRM products remained very strong. Second quarter revenues for our MRM products were at an all time high, easily surpassing the previous quarterly record established more than two years ago prior to the economic downturn. The revenue growth in the quarter was driven by our leadership position in local fleet management and school bus tracking verticals, where we are benefiting from the addition of new customers, along with growth in sales to several existing customers. In addition, we continue to drive penetration for other emerging applications for our MRM products and services in vertical markets such as trailer tracking and auto insurance.

We believe our growth in MRM is being fueled by our ability to effectively and economically market a wide range of products that better address the increasing demand seen from a variety of applications, where end-users can both lower operating expenses and enhance the efficiency of their operations by deploying MRM solutions. Also within MRM, our Aercept unit, whose core business focuses on the vehicle finance market, generated another quarter of strong billings. The Aercept customer base continues to expand, with over 150,000 actively monitored vehicle tracking units in the field as of the end of the second quarter.

In addition to the core vehicle finance vertical, Aercept benefited during the quarter from sales to an automotive electronics OEM, where we are providing the hardware, data air time services, and application back end for a remote car start product, which is primarily used in colder climates. This product is supported by apps on popular smart phones, including iPhones and BlackBerrys, and sold through Best Buy and aftermarket automotive retail outlets in North America. Because this is a highly seasonal product, sales are expected to increase sequentially in the third quarter and tail off in our fourth quarter.

Moving on to our Wireless Networks business, we recently added to our record backlog with two significant new orders. During the second quarter, the US National Oceanic and Atmospheric Administration, NOAA, placed a $1.1 million order for advanced wireless modems. These modems will be used to gather and relay weather information from centers including temperature, wind speed, cloud height, visibility, and precipitation, all of which are critical to aviation and transportation safety. We expect to complete deliveries under this order in the second half of fiscal 2011.

In the public safety space, subsequent to the end of the second quarter, we were awarded a $1.5 million order from the city of Plano, Texas, to install a mobile data network for the Municipality's police, fire, and EMS agencies. The mobile data system is designed to provide mission-critical mobile data connectivity and seamless roaming throughout the 70 plus square miles of the city and is scheduled to be completed in mid-fiscal 2012. While we are pleased with this award, order activity in the US public safety sector remains sluggish, primarily due to constrained state and local government capital budgets. That said, our public safety backlog has been improving, and we still have a healthy sales pipeline including large opportunities we are working on with key partners. We are hopeful that conditions in the public safety sector have bottomed and will begin improving in the second half of fiscal 2011 and into fiscal 2012.

Also in our Wireless Networks business, we are making good progress on a key rail transportation project awarded to us and announced earlier in the year. We anticipate completing this development project by mid-fiscal 2012, and we believe we are well positioned to capture additional business in this market segment over the next several years. Finally, we continue to view the utility and energy sector as a major strategic growth opportunity for CalAmp. Although our revenues are still relatively small in this sector, we're already generating revenue from more than ten customers in the utility and energy segment that are using products and solutions provided by our Wireless Networks business.

As a testament to the progress we are making in fiscal 2011, we have initiated and are now working on over two dozen pilot projects for utility companies where we are demonstrating the performance of our equipment and solutions. Decisions by a number of these customers to move forward beyond the pilot phase are expected by the end of the current fiscal year, including several that could be multi-year, multi-million dollar opportunities for CalAmp. We continue to believe that our portfolio of wireless communications infrastructure solutions is well positioned to serve the needs of this high growth market and that it will become a significant contributor to our growth in fiscal 2012 and beyond.

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

Thank you, Michael. I will provide a summary of our gross profit performance, working capital management and cash flow results for the fiscal 2011 second quarter. Consolidated gross profit for the fiscal 2011 second quarter was $7.4 million, or 25% of revenues, compared to gross profit of $4.8 million, or 20.1% of revenues for the same period last year. The increases in consolidated gross profit and gross margin percentage in the latest quarter were primarily due to higher Wireless DataCom revenues.

Looking closer at gross profit performance by reporting segment, Wireless DataCom gross profit was $6.2 million in the latest quarter, or 34.4% of Wireless DataCom revenue. This compares to gross profit of $4.5 million, or 32% of revenue in the same period last year. While Wireless DataCom revenues has rebounded in recent quarters, it remains lower than longer-term historical levels. Also, gross margin improvements have been modest despite the increased revenue due to a shift in product mix from higher ASP, higher margin, Wireless Networks products, to lower ASP and lower margin MRM products, which accounted for two-thirds of Wireless DataCom revenues in the latest quarter.

We expect gross margins to continue to improve in our Wireless DataCom business as revenues continue to rebound and we return to a more balanced mix within this segment. Gross profit for Satellite products was $1.1 million or 10% of Satellite product revenues in the latest quarter. This compares to gross profit for satellite products of $331,000 or 3.3% of Satellite product revenues in the same period last year. Similar to the Wireless DataCom segment, the Satellite segment gross margin in the second quarter remains below longer-term historical levels, primarily due to the lower absorption of manufacturing overhead costs resulting from lower sales volumes.

As in recent prior periods, during the second quarter, we did not recognize an income tax benefit despite our pretax loss of $930,000. In accordance with the applicable tax accounting rules, the income tax benefit associated with the pretax loss generated in the second 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.

Further on the subject of income taxes, during the second quarter, we received a federal tax refund of $807,000 as the result of a special five year carryback of the net operating loss that was generated in fiscal 2008. This NOL carryback was provided for by the Worker, Homeownership and Business Assistance Act of 2009. This tax refund was recorded as a reduction of the deferred income tax asset.

Now moving on to the balance sheet, our total inventory at the end of the second quarter was $12 million, representing annualized inventory turns of approximately 7 times. This compares to the immediately preceding quarter, where total inventory of $11.1 million also represented annualized inventory turns of approximately 7 times. The accounts receivable balance of $13.7 million at the end of the second quarter represents a 41 day average collection period compared to receivables of $13.4 million, or a 42 day average collection period at the end of the immediately preceding quarter.

Net cash provided by operating activities was $435,000 during the second quarter of fiscal 2011. Through the first six months of fiscal 2011 net cash provided by operating activities was $38,000. At the end of the second quarter, cash and cash equivalents totaled $4.1 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 One 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 $2.4 million as of the end of the second quarter. Our total debt balance of $12.1 million at the end of the second quarter is comprised of $7.8 million drawn under this revolving bank credit facility and $4.3 million of subordinated debt.

The subordinated debt, which was issued last fiscal year, has a principal face amount of $5 million and is reduced by a debt discount of approximately $700,000, which represents the unamortized fair value of the warrants that were issued along with the subordinated notes. With that, I will now 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 our most recent projections, we expect fiscal 2011 third quarter consolidated revenues will be in the range of $28 million to $32 million with Wireless revenue increasing sequentially and Satellite revenue roughly flat. We expect that our GAAP basis per share results will be in the range of breakeven to a net loss of $0.04 per diluted share. The adjusted basis income or loss per share for the third quarter, which excludes intangibles amortization expense and stock-based compensation expense, is expected to be in the range of $0.02 net income to $0.02 net loss per diluted share.

We expect that full year fiscal 2011 revenues will be in the range of $115 million to $125 million, which includes expected year-over-year growth in Wireless DataCom revenues of approximately 25%. Consolidated gross margin for fiscal 2011 as a whole is expected to be in the range of 24% to 27% of revenue, while total operating expenses for fiscal 2011 are expected to be essentially flat to slightly lower compared to fiscal 2010. We expect the full year GAAP basis net loss to be in the range of $0.08 to $0.16 per share, and adjusted basis results per share in the range of $0.03 net income to $0.05 net loss per diluted share.

In concluding our prepared remarks, I would like to recap some key points drawn from our recent results and latest developments. First, total revenues increased sharply in the second quarter, with growth accelerating in our Wireless DataCom segment, where MRM revenues were at a record level and ending backlog for our Wireless Networks products was at an all-time high. We expect growth of our Wireless DataCom business to continue in the second half of the year. Second, we have moderated our consolidated revenue projections in the second half of the year due to the slower than expected ramp of our Satellite business. That said, we continue to expect consolidated revenues to show sequential increases in both Q3 and Q4.

Third, we continue to make progress towards returning CalAmp to profitability. During the second quarter, our Wireless DataCom business achieved operating profitability after two years of losses and our Satellite segment also posted a small operating profit. We expect continued improvement in consolidated gross margin for the remainder of the year, and we expect our operating expenses to remain flat to slightly below last year's levels. Finally, we believe the R&D investments we've made in key growth markets, including Smart Grid communications, are beginning to bear fruit and position us well for future growth.

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

Thank you, sir. (Operator Instructions). Our first question comes from the line of Mike Crawford with B. Riley & Company. Please go ahead.

Thank you. Rick, you mentioned that you have begun low volume production of some new satellite products. Is that for two customers or just one, or can you tell us some more about that?

It is for one, and we're not at liberty to go into a lot of details about specific products for specific customers, but I will say that product is one for our historically largest customer, Mike.

Okay. And I believe there has been a hope that you would also kind of get back in with another customer where you have been out for a while, and is that something you think might still probable or how would you touch that?

Yes, and two of the products that we're working on are for each of the two customers, and the two that we are working on for the other customer are in development, and our current expectation is that they will be qualified and result in revenue in the current fiscal year.

Okay. Thanks. And then on your public safety business, so that's nice to see maybe a thawing of the budget freeze where these projects have been in limbo for a while; so you have this Plano deal. Are there -- do you have a handful, other, of those types of projects that could thaw at some point in the next 12 months or is it just too hard to say?

Why don't I let Michael answer that one?

Hello, Mike. This is Michael Burdiek. Let me try to answer that. Yes, we are pleased to see some activity actually finally come out of the bottom of the funnel for our public safety business, and we do have a number of outstanding proposals, the timing of award which is uncertain. But we are somewhat optimistic that we'll see some increased activity in that business that we stated earlier in the second half of this year and through fiscal 2012.

Okay. Thank you. And then also, it is nice to see the nice profitability coming back to the Wireless DataCom business. So in regards to maybe something that's a little bit further out for that business, you have a couple of projects you are working on now in the Smart Grid, but to what extent are you getting any pushback from a cyber security perspective of people putting critical infrastructure on a grid or having critical data carried over, something like a Wi-Fi waveform, where there could be some kind of malicious code maybe slipped into a system. Is there any discussion like that, that slows down these things for you, or is it other factors that are keeping these things from progressing more quickly?

Actually, security is a critical issue for utilities, public safety agencies, and others who deploy what could be termed mission-critical infrastructure. And as is the case in the public safety market, we see utilities being highly reluctant to put critical data on networks that are open, whether it is a Wi-Fi network or cellular infrastructure. So there is a strong preference for private radio infrastructure, namely the kind of products that we specialize in in our Wireless Networks business. And so in that marketplace, the utility marketplace, Smart Grid deployments in particular, we think we're very well positioned to deal with those sorts of issues.

And there are a number of security specifications and protocols that we comply with and that are a core part of the product offering.

Again, a lot of commonality between what we see in terms of public safety, critical issues; we see comments through the utility marketplace.

Okay. And I am sorry, maybe could you do your best at kind of quantifying that opportunity for CalAmp both in terms of number of projects you're trying to be engaged in and/or kind of size of market or how much you might win in the next few years, if possible?

Well, as many as possible, within reason, obviously. And this is still a growth market for us, and one thing we could find ourselves doing is getting over extended. And so we're focused on regional investor-owned utilities, primarily domestic companies at this point, and we're putting a lot of effort and energy behind turning what are currently pilot projects into full deployment projects with CalAmp as the lead supplier of wireless infrastructure. And as we mentioned in the previous remarks, we've made a lot of progress in terms of both revenue generating opportunities in the utility market as well as additional pilot projects which could turn into revenue generating opportunities in the near term.

So Mike, let me just add -- not Michael, Mike -- I am sitting across the table from Michael. Of all the market segments we serve, the Smart Grid communications market is the one that we expect a couple years hence to be the biggest opportunity, just the biggest market. It is also the one where we think CalAmp has the best chance to differentiate ourselves and compete, so we believe that when we get to critical mass in that market, that it will quite likely represent the largest single market that CalAmp plays in.

There is a question there on what that time scale is, and these are projects that typically take one to two years to get from pilot to full deployment, and it is really just this year that we've rolled out these two dozen plus pilots that we have talked about some percentage of which we hope will, and we expect will, go into full deployment. So it is difficult for us right now to accurately project what the trajectory of that curve is, but the bulk of these projects represent multi-million dollar opportunities for CalAmp and this is the area, the single area that we are focusing the majority of the -- or the largest piece of our R&D, as well as sales and marketing resources.

Okay. That's very helpful. Thank you.

Thank you. Our next question comes from the line of Ilya Grozovsky with Morgan Joseph. Please go ahead.

Hi, guys. Thanks. Can you elaborate a little bit more on the delays on the satellite side and is that something that's rolling into a couple of quarters out or is that something that should appear next quarter? I am just having a little bit of a tough time understanding how that is playing out.

So we don't know for sure, Ilya, but in a couple of these cases what has happened is the customer has evolved their program plan, and has changed some of the requirements and we are responding to that. And so we still anticipate that these opportunities will result in business for CalAmp, but the timeframe has been pushed out. So beyond that, it is tough to say. On the projects that we're shipping now and ramping, we have forecasts that give us three months of reasonable visibility, but beyond that we're working with our customers and it is somewhat of a fluid situation.

Okay. And then so in your guidance, there is a scenario -- I guess the lower end is down a little bit from the current quarter, but in your comments, you had said that you see sequential growth. Are you just sort of throwing out a range to be conservative, or how do I (multiple speakers)--?

At the midpoint of that range we expect sequential growth and we do expect sequential growth in Wireless. Wireless we have more visibility at the beginning of the quarter in terms of backlog and run rate than we typically do in Satellite, but from our perspective that's actually a relatively narrow range. I know from investors' perspectives it looks like a wide range.

Okay. Great. Thanks.

Thank you. Our next question comes from the line of John Quealy with Canaccord Adams. Please go ahead.

Hi, it is Mark Segal for John. Just to go back to some questions with regard to Smart Grid, can you talk a little bit about the relative mix of those pilot projects that you're on? Are they mainly for data backhaul, distribution, automation, or just what sort of type of mix are you looking at?

I would say in general most are data backhaul, whether it involves a distribution automation application or an AMI application. But whereas two years ago, a good deal of our thrust was towards AMI backhaul and targeting those applications, today, in particular in response to the market and where the Smart Grid dollars are being invested, we're more focused on the distribution automation front. Whether it's cap bank controllers, voltage regulators, or other elements that are part of the distribution network, really focused on those types of applications, and we see that the vast majority of the pilot projects that have been initiated over the last couple of quarters involving our products are really focused on distribution automation.

Okay. That's helpful. And can you just talk a bit about the approach going forward to increasing the penetration in the utility marketplace? Should we be looking for more reliance on a partnership approach or perhaps a direct sales approach as the volumes begin to scale here?

Well, I think some of both. In the distribution applications, we're building relationships with some of the critical infrastructure suppliers there, where they may have the application device, and we have the natural fit in terms of wireless technology, so we would expect the pipeline of opportunities to build with those types of partners. But we also will continue to pursue opportunities on a direct basis, where there may involve a direct procurement for wireless infrastructure solely, which would then be retrofitted onto existing infrastructure and existing devices, with some anticipation that network would grow, and there would be new devices added over time.

All right. Great. Thanks a lot.

Thank you. (Operator Instructions). Our next question comes from the line of Richard Todaro with Kennedy Capital.

Hi, guys, it is great to see the improvements in the Wireless business, but the Satellite is way behind, I think, where anybody would have expected it to be this year. And I am just trying to get an idea, you're saying it is a fluid situation, but we're at like $11 million. I think we were thinking that this would be tracking up towards $18 million to $25 million at some point, as you got the new products ramping and business started to roll in on that. And I'm just trying to understand how much of this is your guys internally, how much is it that the customer changed the spec and they think that they could start using that satellite product in six months or have they used a competitor's product in the meantime? Is the potential still there? What's going on?

Okay. So just to back up and remind ourselves, we were on the sidelines for a couple, three years, so really fundamentally what we're doing here is building back our product offering to match the requirements of the customer's. And we need to do that in a way that not only obviously hits all the performance requirements and specs, but also meets the economic requirements of the customer as well as CalAmp. But we're doing this -- we have targeted certain products to do that with, that don't necessarily represent everything that the customers are buying because there are some things they're buying now that they are going to phase out over time, and by the time we got qualified it wouldn't really make sense to do that.

So we've worked with the customers to target some specific products that we think are the best fit for their needs and make the most sense for us from a business standpoint, and using that as the way to get back into the market. So we're a lot less concerned about taking market share away from companies that are building an older generation product than we are about getting in early on some of these next generation products. That's just kind of the first observation.

To get back to the specific question, as I said in the comments, it is a mix. We have had some technical challenges and, as we mentioned on prior calls, we are doing multiple products at the same time and so we have had some resource challenges as well. But fundamentally the biggest challenge for us right now is just hitting the specific requirements as they evolve and we're staying engaged with the customers to do that. We had certainly hoped that by this time we would have -- be farther along in the ramp in that business, but we're working the issue. And we're also doing this against a backdrop of an industry that's -- it's a maturing industry, and so there is a finite number of opportunities to do that, and we're focusing on the ones that we can.

But are you missing an opportunity right now because you have missed a technical spec or you didn't qualify --

No.

-- that somebody else is shipping in?

None of the new products that we're working on has anyone beat us to the market on, the ones that are new launches, so from that standpoint, no. But obviously, on some of the older products that are out there, that we were not able to participate in that were developed a few years ago, we are clearly not participating in those businesses.

And so these products that you have been working on that you have had either technical issues or the customer is kind of moving the target a little bit, is anybody shipping products into those today? If they were ready today and you hit the technical spec, would the customer turn on the switch and go, okay, good, we're going to start shipping these, or is it --?

One of those products is in that category, yes, yes.

So what's your diagnosis or your thoughts on this -- how do you get these resolved and get this --?

That was not one of the first ones we'd expected to be shipping. So that one we expect to have into qualification this quarter, which is not that much of a delay on that one particular one. So the other ones, it is really a question of doing what we have historically done and working with the customers. The one advantage we have over every one of our competitors in the industry is that when some of these requirements change, just given the fact that our engineering organization is located domestically, it is easier for us to engage with the customers and work through that dialog, and so that's what we're doing.

So just help me get a vision that -- of how you think that this could start to -- obviously at $11 million, it is not enough business for you guys to really make a go of it, so how do you think that this finally plays out for the Company or when do you think it could start to ramp?

So our objective -- you know, we're playing for the long-term here. Our objective is to get this business back up into the 20s, $20 million plus revenue run rate per quarter, at which point it should be healthily profitable. But the challenging thing about this business is the process of qualifying new products and the fact that there is only two customers and the fact that the economics are very challenging there. But as we have seen before, once you get in and you get qualified on some of these products, they can last a long time, and we're shipping some products today that were developed five, six years ago. So what is important is to get through that process, and as we have also seen, some of these individual products, when you hit the demand cycle right, can represent a nice spike.

So it is really a question of -- and we do want to have a presence with each of the primary DBS service providers in the US. But if we can get this business -- we were marginally profitable, the operating line on revenues, under our nominal breakeven point of 15 in this business, but if we can get back north of 20, the business should be quite healthy. That said, I would say as we look forward, the role of the Satellite business in CalAmp as we have gone forward, and I have said this before, it is going to be one of multiple legs of the stool here.

We have that business, we have the Wireless Networks business, we have the MRM business. I do not see the Satellite business returning to the overwhelming share of our revenue that it represented several years ago.

I understand that and it is better that the other ones are higher margin and all of that. It is just I am just -- is this a six-month ordeal, and then you think you are going to start ramping back up from $11 million on new products or is this -- we just don't know?

If it is not, we'll be very disappointed, Rich. I think we have our arms around what's going on here, but again, there is only so much we can do here. Obviously the technical performance and the cost of the product is up to us, but we also have to work with the customers to make sure we're doing the right thing for what they're going to be wanting going forward. But with those caveats, we expect we have got work to do over the second half of this year and we expect to check several of these boxes during that period.

Okay. And then finally, just your line of credit, I think it is -- you have an availability of something like 2 or --

2.4.

2.4. How do you feel about that with the ramp in the Wireless business, any inventory you would need and all the rest of that?

Well, between the cash that we're generating from operations and the availability on the revolver, we think we have adequate liquidity to fund our operations and growth.

Okay. I just -- I guess I assume the inventory turns on the Wireless business is slower and you may need more capital for that, and I am just trying to get read if that continues to grow, if that's going to be an issue. I know you do have foreign cash, but just trying to get a read if you guys have --

The inventory of the different segments is actually kind of converging, Rich. A couple years ago, there was much more of a disparity in the turns than there is now. One of the things we've worked very hard to do in our Wireless business is move down to a smaller number of platforms there, such that -- there is certainly more of a diversity there with different standards and frequencies and whatnot. But we have migrated in all of the new products across both our MRM and our Wireless Networks business to a much smaller number of common platforms than we had before, which allows us to drive substantially better inventory performance. We have also moved a substantial amount of the subassembly manufacturing offshore, such that we don't have to stock as much there.

Okay. Thanks, guys.

Thank you. (Operator Instructions). There are no further questions in the queue. I would like to turn the call back to management at this time for any closing remarks.

Okay. Thanks again for joining us today. We look forward to speaking with you again next quarter.

Take care, everyone.

Thank you, ladies and gentlemen. This concludes the CalAmp fiscal 2011 second quarter conference call. If you would like to listen to a replay of today's call, please dial 303-590-3030 or 1-800-406-7325 and enter the access code of 4370173, followed by the pound sign. We thank you for your participation. You may now disconnect.