CAMP4 Therapeutics Corp (CAMP) 2011 Q4 法說會逐字稿

Thank you for standing by. Welcome to the CalAmp fiscal 2011 fourth-quarter conference call. During today's presentation, all parties 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, April 28, 2011.

I would now like to turn the conference over to Lasse Glassen of the Financial Relations Board. Please go ahead, sir.

Thank you, and good afternoon, everybody. Welcome to CalAmp's fiscal 2011 fourth-quarter and full-year results conference 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 that our prepared remarks and responses to questions may contain forward-looking statements. Words such as may, will, expect, intend, plan, believe, seek, good, 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 2011, as filed earlier this afternoon 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 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 fourth-quarter and full-year 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 CalAmp's operational highlights, we returned to profitability on a GAAP basis in the fourth quarter for the first time in four years. Our Wireless DataCom business continued its strong momentum, with quarterly revenue increasing 48% year-over-year. This growth was driven by both our Mobile Resource Management and Wireless Networks products.

As Michael will discuss in more detail in a few minutes, we are seeing strong demand for our Mobile Resource Management, or MRM, products from local fleet management, vehicle finance, asset tracking and stolen vehicle recovery verticals. Our Wireless Networks products also showed strong growth, with contributions from projects in the public safety, railroad and energy sectors.

We are making significant investments in R&D to expand and strengthen our footprint in wireless data, and we are encouraged by the traction our new products are getting in the market.

At the bottom line, we generated steady improvement over the course of fiscal 2011 and returned CalAmp to profitability. GAAP basis net income in the fourth quarter was $303,000, or $0.01 per diluted share. Excluding the impact of amortization of intangible assets and stock-based compensation expense, our adjusted-basis, or non-GAAP, net income was $668,000, or $0.02 per diluted share. I refer you to our fourth-quarter earnings press release issued today for a detailed reconciliation of the GAAP and non-GAAP basis financial results.

Looking at our cash flow and balance sheet, net cash provided by operating activities during the 3- and 12-month periods ended February 28, 2011 was $51,000 and $857,000, respectively. Our net debt at the end of the fourth quarter was $7.7 million, up slightly compared to the net debt of $7.4 million at the end of the third quarter.

Now let's take a closer look at the Satellite business. Fourth-quarter revenue was softer than expected. During the quarter, we began the initial production ramp of a new product, as well as a production ramp of one older product that is experiencing renewed demand. However, these ramps did not begin until late in the quarter. Consequently, we recorded fourth-quarter Satellite revenue of only $5.6 million, which was sequentially lower by $2.8 million and was down substantially from $18.7 million in the fourth quarter of fiscal 2010.

We expect that volume shipments of these two products should drive significantly higher Satellite revenue during our fiscal 2012 first-quarter.

In addition, we are on track with the plans we discussed last quarter to enhance the operational flexibility and cost structure of our Satellite business. We are transitioning the Satellite business to a more variable cost model, with more functions performed by our manufacturing partners in Asia. This will allow us to reduce our fixed overhead costs and lower our breakeven point, while also improving our ability to respond to rapid shifts in demand. We expect to complete this transition during the second quarter of fiscal 2012.

Finally, we are continuing to work on three additional new products that we expect to launch this year, and we expect that both the revenue and profitability of our Satellite business will improve in fiscal 2012 compared to fiscal 2011.

Now let's move on to an update of our Wireless DataCom business, which provides communication systems, products and services to a number of markets, including utilities, oil and gas, public safety, railroads, fleet management and asset tracking. Providing comments today is our President and Chief Operating Officer, Michael Burdiek. Michael?

Thank you, Rick. Our Wireless DataCom business generated significant momentum during fiscal 2011, with revenue increasing sequentially in each quarter during the year. This culminated in fourth-quarter revenue of $23.4 million, which represents sequential growth of 10%, and an increase of 48% compared to the fourth quarter of last year. For fiscal 2011 full year, Wireless DataCom revenues of $78.4 million was up 37% compared to fiscal 2010.

The revenue breakdown within our Wireless DataCom segment in the latest quarter was roughly 55% for MRM applications and 45% for Wireless Networks applications. This represents a modest shift from recent quarters, where our revenue mix was closer to a 60/40 split favoring MRM applications. While MRM drove most of the Wireless DataCom segment growth in fiscal 2011, the recent revenue growth within Wireless Networks is encouraging.

Similar to recent quarters, customer demand for our MRM products continues to be very strong. Revenue from our core local fleet management vertical is increasing at a healthy pace, driven by new customer wins and the business of growth of our existing customer base.

Fourth-quarter MRM revenue was also benefited by new orders from a South American customer in the stolen vehicle recovery vertical. In addition, momentum is building for asset tracking applications, and we are seeing activity in a number of other new and emerging applications.

In MRM Services, our subscriber base for bundled solutions in vehicle finance and remote start applications continues to expand, with approximately 185,000 active units on the network at the end of the fourth quarter, up from 163,000 at the end of the third quarter.

We continue to invest in new technologies to broaden our MRM offerings. We're launching new products at an ever-increasing pace to meet demand from emerging applications to take advantage of cost reduction opportunities. Last month, we announced the availability of new MRM products for trailer tracking and for enterprise fleet workforce management.

Our new trailer tracking product line is designed specifically for tracking mobile assets, such as trailers and other towable equipment, and features extended life batteries as well as superior GPS and cellular performance. These devices can operate for extended periods without recharging or replacing batteries and could give owners of mobile drop-and-leave assets peace of mind.

We also introduced two new MRM devices in the enterprise fleet and workforce management space. Designed to enable a vehicle to function as a mobile WiFi hot spot, these devices have high-speed, high-data-rate capability and provide real-time Internet connectivity, streaming video of field events and other mobile data applications.

In addition, we recently refreshed our entire low- and mid-tier tracking product line in order to further improve the product performance and to reduce production costs. We believe our MRM products are competitively priced and we have the right feature set to capitalize on vertical markets that represent significant growth opportunities for CalAmp.

Moving on to our Wireless Networks business, momentum is continuing to build, and we experienced solid growth in the fourth quarter. We made good progress on an important rail industry development project that we were awarded in the first quarter of fiscal 2011. While we anticipate completing this project in the second half of fiscal 2012, there are significant follow-on opportunities in this vertical, and we believe it can be an important contributor to CalAmp growth over the next several years.

In the public safety space, an order for a mobile data network for police, fire and EMS agencies in the city of Plano, Texas contributed to our fourth-quarter results. Our work on this project is scheduled to be completed during fiscal 2012.

In addition, our public safety backlog continues to improve. Just this month, we were awarded a $1.7 million project to upgrade the mobile data communications network used by public safety personnel in the municipal region of Halton, Ontario, Canada. CalAmp designed and installed Halton's original network in 1999 and subsequently upgraded the network in 2004.

The latest upgrade project calls for the deployment of our latest-generation Paragon base station and Gemini mobile modems, operating in the 700-MHz license band, and will triple the data rate of the existing network.

In addition to Network Equipment, the project award includes system engineering, implementation and technical support following deployment. We expect complete delivery later this fiscal year.

Finally, the utilities sector is an important strategic growth area for our Wireless Network product and services. During fiscal 2011, we started work on 35 pilot projects for utility companies throughout the United States, where our Wireless Communication products are providing data connectivity for smart grid infrastructure solutions.

Specific applications include distribution automation, demand response and advanced metering infrastructure. 10 of these projects generated greater than $100,000 each in revenue in fiscal 2011, and we expect both the number and scale of these projects to grow in fiscal 2012.

Our go-to-market strategy has been to target utility customers both directly and through regional and global Tier 1 partners. As an example, Landis+Gyr recently completed compatibility testing and certified CalAmp wide area data networks as interoperable with their Gridstream smart grid solution. CalAmp products that were certified include the Vanguard 3G for use with cellular networks, the Viper for private RF networks in licensed bands, and the Phantom II for unlicensed networks.

Overall, we have a bullish outlook for our Wireless DataCom business in fiscal 2012 and beyond. As revenue trends upward, we expect to see further improvements in gross margin and profitability.

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

Thank you, Michael. I will provide a summary of our gross profit performance, income tax position, working capital management and cash flow results for the fiscal 2011 fourth quarter.

Consolidated gross profit for the fiscal 2011 fourth quarter was $8.4 million or 28.9% gross margin compared to gross profit of $7.0 million or 20.2% gross margin 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 $8.9 million in the latest quarter, or 37.9% gross margin. This compares to gross profit of $5.1 million, or 32.5% gross margin, in the same period last year.

As Wireless DataCom revenue has continued to rebound in recent quarters, gross margins have increased, primarily due to improved absorption of manufacturing overhead costs. We expect Wireless DataCom gross margins will further improve, given continued growth in revenue.

Satellite products had negative gross profit of $493,000 in the latest quarter. This compares to positive gross profit for Satellite products of $1.9 million, or 9.9% gross margin, in the fourth quarter of last year. The negative gross profit in the latest quarter is primarily due to the low level of sales that has resulted in lower manufacturing overhead absorption rates.

As Rick Gold discussed a few minutes ago, we expect the profitability of our Satellite business will improve in fiscal 2012 as the result of increasing revenue and the transition to a more variable cost production model.

Now, turning to our income tax position, an income tax benefit of $172,000 was recorded in the fourth quarter as the result of the carryback of net operating losses of our French subsidiary. Excluding this item, no income tax provision or benefit was recorded in fiscal 2011, and no tax provision or benefit is expected to be recorded in fiscal 2012 due to the existence of net operating loss carryforwards for US Federal and state tax purposes.

Now moving on to the balance sheet, our total inventory at the end of the fourth quarter was $9.9 million, representing annualized inventory turns of approximately 8 times. This compares to the immediately preceding quarter, where total inventory of $9.8 million at quarter-end represented annualized inventory turns of approximately 9 times.

The accounts receivable balance was $16.8 million at the end of the fourth quarter, representing an average collection period of 51 days. This compares to an accounts receivable balance of $13.0 million at the end of the immediately preceding quarter for an average collection period of 41 days.

The increase in the average collection period in the fourth quarter is not attributable to any underlying deterioration in the receivables collection experience. Rather, it results from the fact that a significant portion of fourth-quarter sales were made in the latter part of the quarter, which has the effect of skewing the collection period upwards as a result of the formula used to calculate this metric.

Net cash provided by operating activities was $51,000 during the fourth quarter. For fiscal 2011 as a whole, cash provided by operating activities was $857,000.

At the end of the fourth quarter, cash and cash equivalents totaled $4.2 million and total debt outstanding was $11.9 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 amount available to borrow on the bank revolver was $3.8 million at the end of the fourth quarter. Our total debt balance of $11.9 million is comprised of $7.49 million outstanding under this revolving bank credit facility and $4.46 million of subordinated debt.

These subordinated notes payable, which were issued in the fourth quarter of fiscal 2010, have an aggregate principle face amount of $5 million. For financial reporting purposes, the principal amount is reduced by a debt discount consisting of the unamortized fair value of the warrants that were issued along with these subordinated notes. At the end of the latest quarter, this unamortized debt discount was $540,000.

Finally, a word of explanation regarding the S-8 Registration Statement that we filed with the SEC today. Two years ago at CalAmp's 2009 annual meeting, the stockholders approved the addition of 3 million shares to the Company's 2004 incentive stock plan. None of these shares have been issued yet, however. The S-8 is a routine filing that will allow these shares to be issued to employees and directors in the future, pursuant to the provisions of the 2004 stock plan and consistent with past practices.

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 latest projections, we expect fiscal 2012 first-quarter consolidated revenue in the range of $31 million to $34 million. Satellite revenue is expected to increase significantly on a sequential quarter basis. Wireless DataCom revenue is expected to increase significantly on a year-over-year basis, but be down slightly on a sequential quarter basis.

We expect fiscal first-quarter GAAP-basis per-share results in the range of a $0.01 loss to $0.02 income per diluted share. The adjusted-basis non-GAAP per-share results for the first quarter are expected to be in the range of breakeven to $0.03 income per diluted share.

Based on our current fiscal 2012 forecast, we expect fiscal 2012 revenue and operating results to trend higher compared to fiscal 2011, with growth in both our Satellite and Wireless DataCom businesses.

In concluding our prepared remarks, I would like to recap some key points drawn from our recent results and latest developments. First, at the bottom line, we generated steady improvement over the course of fiscal 2011 and returned CalAmp to profitability on a GAAP basis in the fourth quarter.

Second, Wireless DataCom segment revenue increased sequentially in each quarter of fiscal 2011 and has been growing ahead of our expectations. Full-year Wireless DataCom revenue was up 37% compared to the prior year. We continued to generate strong demand for our MRM product line, while momentum is building for our Wireless Networks product line. Our overall Wireless DataCom pipeline is very robust heading into fiscal 2012, and we believe we are well-positioned in several high-growth markets.

Third, while demand for our Satellite products has been soft, we received customer approval of one new product late in the fourth quarter, and we continue to actively work on additional products. In the meantime, we are making changes in the cost structure that we believe will improve the financial performance and operational flexibility of our Satellite business going forward.

Finally, we expect revenue in fiscal 2012 to trend higher compared to fiscal 2011, with growth in both our Satellite and Wireless DataCom businesses, and we expect to be profitable on a GAAP basis for the year as a whole.

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

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

Thank you. Yesterday on its conference call, PCTEL disclosed that it has been supplying CalAmp with antennas for a positive train control project with Metrolink. And I'm wondering how that project is going and what else you have in the hopper regarding that PTC.

Hello, Mike. First of all, that would be news to us. To the best of my knowledge -- and I believe I would know -- we have not purchased any incentives for that specific application. We do do business with PCTEL in a number of different verticals and we have a very good relationship with them.

On the broader question on the rail, our initiative in the rail industry, Mike, we are -- as we mentioned on the last quarter, we are not at liberty to disclose any of the details of that. We are a subcontractor to a prime contractor on that contract. The end customers are multiple Class 1 railroads. But unfortunately, we are not at liberty to comment on any of the specifics.

I will say that our contract currently is a development contract. It is not a production contract.

Okay, thank you. And then, Rick, regarding the Satellite business, the new design that started to ramp at the end of the quarter, is that with your 31% customer from FY '11?

Yes, that product is for our historically largest customer. Just a comment on that. In Q1, that product will represent incremental revenue for us. Longer term, we expect that product to transition to the other product we've had in development for this customer, and which we expect to complete later in the year.

Back to what I think is going to be your follow-up question there, the other two products we referenced last quarter were for the other major DBS service provider, and those two products have actually gone to the back burner. As they moved through development, there were changes in the customers' expected product mix and demand that made those less attractive for both the customer and for CalAmp. So they are on hold for now.

At the same time, two development programs that we've been incubating for our historically largest customer have moved to the fast track. Those products are newer architecture, they have significantly higher software content than our typical satellite products. In fact, they share some attributes of some of our wireless products. And in the current quarter, we have delivered several hundred units of those for evaluation, and we expect to be ramping production in the second half of the fiscal year.

So we've got a lot going on on the development side; managing these product launches and transitions is going to be key. We do expect a certain amount of revenue volatility. The first quarter is going to be very robust, filling the pipeline with that new product. We expect the second quarter to be softer. But then we expect the back half to be stronger, as those other two products I just alluded to come in.

Okay, thanks, Rick. And then if you look at CalAmp's last two years combined, and you look at the total gross margin on Satellite, over that two-year period, that is half of the gross margin you got just in this one quarter on the Wireless DataCom business. To me, clearly, the Wireless DataCom business is driving the vast majority of the value here today, although with recovery, that Satellite business could be worth something.

But if CalAmp were to somehow divest the Satellite business, what problems would that create in terms of overhead, absorption? Are there any hurdles in that regard that would lessen that impact, given potential leases coming up? Or what can you say regarding that whole connection between the two businesses?

Certainly, your observation about where our profit growth and revenue growth are being driven is certainly on point. That said, the Satellite business is quite intermingled with our Wireless business. The manufacturing, the operations, many of the engineering resources, are shared resources.

And so we -- as I think we've communicated over the last few calls, we are looking at that Satellite business going forward less as the foundation of the Company, but rather as a product line that we treat incrementally. And so one of the reasons that we are restructuring the way we operate that business is not only to drive the breakeven point down, which it will -- it is going to take it from $15 million down to $10 million -- but it will also allow us to run that business much more as incremental business than as core business.

And finally, we believe that there is substantial potential for product and market synergy going forward between the two businesses. The products that I alluded to today that start to look more Wireless-like is a baby step in that direction.

But we are going to manage the Satellite business for cash in the near term. We are looking to the Wireless business to drive our growth. But we do expect the Satellite business, once we get through this transition, to be a meaningful contributor to profit for the Company and ultimately for value. And we also believe that as we look forward, that ultimately those two businesses are going to converge in multiple dimensions. So long answer to a short question.

Okay, thank you. And then the last question relates to gross margin. So I'm happy to see the revenue guidance above our model for first quarter, and I think that is likely to flow through for the year. You already had the highest gross margin we've seen in quite a long time in this quarter just completed.

But given the expected ramp in Satellite, that is probably going to bring the overall gross margin down for the year. But if you had to give your best guess at this point, do you think you are going to be coming out in the 27%, 28% range for the year of fiscal 2012 on gross margin, or --?

Let me talk to that, Mike. To your first point on revenue, our three analysts that are out there range -- their estimates for the year estimate range from $133 million to $142 million for fiscal 2012. We are actually comfortable with numbers at the lower end of that range.

As I mentioned, we do expect a robust quarter from a Satellite standpoint in Q1, but we do expect some softness in Q2 there. Wireless, there is a seasonal dip in Q1, but we expect the year to be onward and upward from there. But at this point, we don't want to lean too far forward on the revenue standpoint.

On the gross margin standpoint, the estimates that are out there range from 26% to 28.2%. We're actually comfortable with the high end of that range and maybe even a tad higher, depending on mix and depending on the success of some of the initiatives I mentioned earlier.

And kind of the last piece of that puzzle, on operating expenses, we are making some significant investments on the product development front both in R&D as well as support. So we expect OpEx to grow this year, but we expect it to grow at a percentage that is less than our revenue growth rate.

Okay. Thank you.

Ilya Grozovsky, Morgan Joseph.

Thanks, guys. Can we talk a little bit about the Wireless DataCom? Obviously, you kind of made some comments about 2012. You are coming off of a 2011 where you grew that top line there about in the high 30% range. What kind of a percentage growth do you think that business could see in 2012?

Well, as Rick mentioned earlier in the remarks, we expect that business to grow. We expect Satellite to grow this year as well. Rick just sort of back-enveloped an overall sort of annual revenue growth for the Company as a whole. And we haven't given specific percentages out. That was pretty obvious in the prepared remarks.

We expect solid growth in the business this coming year. And we've said in some of our presentation materials and the investor presentations listed online that we expect our Wireless Networks market to grow roughly 10% and our MRM market to grow greater than that. And we would expect to be operating within those ranges.

And you feel that -- I know you just did the back of the envelope on that $133 million number for the year, but that is -- I mean, I just want to understand how you feel you are going to get there. And what kind of expectations do you have for Satellite for the year as well?

Let me first talk about Wireless, and I'll let Rick pick it up with Satellite. The reason we have such confidence in Wireless coming into the new year is that our pipeline is very robust in all market segments, both MRM, products, applications and within our Wireless Networks vertical. Our backlog is very solid.

So we enter the year in a much better position than we entered last year, and obviously, you've just seen last year's results. So we have a great deal of confidence we are going to be able to continue our momentum in Wireless DataCom. I think we feel as confident about that as we have for anything entering (multiple speakers).

Sorry to interrupt you, but -- and so then I'm sort of having a tough time reconciling that with why Q1 guidance for that business would be down sequentially.

Well, Rick briefly mentioned seasonality. If you look at our MRM business in particular, there are a number of seasonal influences in every quarter of the year except for Q1. In Q2, typically, we experience a ramp in school bus installations in our school bus tracking vertical. In Q3, we have over the last two years, seen a seasonal bump in terms of remote start application activity. And in Q4, in our vehicle finance business, which is part of our MRM Solutions Group, we see a general uptick in terms of vehicle finance activity related to tax season and tax refund effects.

To a lesser extent in our Wireless Networks business, there is a seasonal inflows in that those types of products are generally purchased as part of capital budgets. And as you know, capital budgets tend to get blown out at the end of a budget year, and there tends to be new budgets coming into play at the start of a new year. Our Q4 spans those two phenomenon. So there is a smaller seasonal affect in planning Q4.

But I think you shouldn't read too much into our guidance that Wireless will be down slightly from Q4 to Q1. Our core business is very strong, and we have a great deal of confidence in Wireless DataCom as we enter into the new year.

I would characterize that comment regarding Q1 as more illustrative of how strong the bump was we got in Q4 than any other. It is not out of the question that Q1 could be very, very close to Q4. But as we look today, and just based on kind of recent trends, that would be our expectation.

On the Satellite side, that is much more about product transitions and the ebb and flow of the new products and getting those out there than any other macro phenomenon.

Okay. So basically, we are sitting here today two thirds of the way into your Q1, and with the guidance for the Wireless piece being flat -- sorry being down sequentially, is your $31 million to $34 million -- and you just did $29 million -- so is that increase, even to the low end, essentially a function all of the Satellite (multiple speakers)?

That is correct.

Increase in Satellite for the quarter?

That is correct.

Okay, great. Thank you very much.

And the reason -- if you look at the earnings guidance for the quarter, which is kind of flattish compared to last quarter on the up revenue, it is because of that potential mix shift there.

Right. Got it. Thanks a lot, guys.

(Operator Instructions) Marc Robbins, Catalyst Research.

Thank you and congratulations on the profit. That's nice to see.

Thank you.

Talk to me a little bit about the deferred revenue. It was up $700,000 on a base of $5 million. Can you give a little explanation as to how that came about?

Well, the first thing -- this is Rick Vitelle -- the first that that is important to note is that substantially all of that deferred revenue balance relates to our -- the Aircept portion of our MRM business, where we are selling tracking devices into the vehicle finance market and also into the remote car start market.

The increase of roughly $700,000 in the fourth quarter was really a function of the strong shipments of tracking units during the fourth quarter.

So that's where you get paid up front and then you have to amortize the revenue over a period of time?

Right. The tracking hardware gets amortized over 12 months.

Okay, then I understand that. Okay. What roughly is the NOL now?

$75 million is the US Federal NOL.

That's close enough. So it's a whole bunch.

And the soda truck opportunity that was mentioned in the last call, I guess it was supposed to be you were outfitting 10,000 soda delivery trucks. Did that get started in the quarter, or was that beginning to get ramped in the third quarter and was it underway in the fourth, or is that going to really get under way in the first?

It began in Q4 and will continue through at least this calendar year, possibly through our fiscal year.

So that is another layer of business that we can just kind of depend upon for 2012.

Yes, but I think it's important to keep in mind that we announced that as the single largest opportunity we had ever booked for MRM. But in the overall scheme and mix of opportunities that make up the MRM revenue, I wouldn't overweight that too much.

Well, that begs an interesting question then. Is the kind of device that you would be using with those vehicles, would that be a significantly less costly or valuable device than what might be used in the vehicle trackings, the vehicle theft or the vehicle insurance market?

It wouldn't be the lowest tier product, but it would be more in the category of mid-tier products.

Okay.

Back to Michael's earlier point, a lot of our customers in that business are run rate customers. So while we don't necessarily -- it is rare that we get a huge order for a single contract in that business. What we typically do is we qualify our customers and then they buy products on a monthly basis, as needed.

Okay.

But we have a significant diversity of customers and applications and markets and, increasingly, geographies in that business that allows us -- even though individual customers, it is more difficult for us to predict, this is a business where actually the statistics are starting to become relatively meaningful.

And so we don't -- again, we don't have a huge backlog at any point in time typically in that business, but once a customer has integrated a CalAmp product into their offering, that is what they are going to use. And so we have a reasonably high degree of confidence that next month is going to look pretty close to last month, with some ups and downs and puts and takes related to some specific opportunities or seasonality or outliers.

I guess then the next question is we're beginning to see some improvement -- some real improvement in the sale of newer vehicles versus used vehicles. Does that mean anything to the outlook of that business?

Not really.

Not really, okay. Okay.

Let's go back to something on the Satellite, and the gentleman before me understood it and I was just totally lost. You said -- and I apologize. You said that there were two products -- your largest customer, you were going to ship a new product and you were starting up an old product, and you had two products for the lesser of the two customers and then -- go through that explanation again, if you don't mind. I did get lost.

Let me just kind of cut to the chase. We have launched one product, which is now in volume production. That was with our historically largest customer.

And that is the old product or the new product?

It's the new product. That's the new product. When I say launch, I meant a new product. We restarted manufacturing on a legacy product that had gone on -- it was in hibernation, but it came back. But that was not a new development.

So we have a product -- first new product in five years, actually, that was qualified and launched and is now in volume production for our historically largest customer.

We have three other products today in development. And understand that this is always a fluid situation, as I discussed last quarter, because of the continuing evolution of some of the opportunities. But we have three other products in development today. Those all happen to be for that same customer.

We had two products a quarter ago in development for the other large system operator. Those products are on hold. And they were replaced by two products for the other customer. So it is -- and realistically, three at one time or four at one time is about our available bandwidth. So --.

All right. Let me state what I think I heard you said. For the lesser of your two major customers, Satellite customers, you had two new products that were under development. They were put on hold, and they have been replaced with the development of two newer designed products for that lesser customer?

No, two products for our largest customer.

Okay, so right now, you're not really developing (multiple speakers) --

By the way, we never use the word lesser with any of our customers. (Laughter)

All right. There is the pig customer and the cow customer. (Laughter) All right, well, however you want to -- the larger customer, the less large customer. Okay?

So the larger customer now has two products, and the product that was otherwise under development. So it has three products essentially under development.

That's correct.

Oh, I'm glad we got through that one. And then talk to me a little bit about -- one last question and I promise to get off -- talk to me a little bit about going to this more variable manufacturing process on the Satellite side.

What you are really doing is trying to get fixed costs -- drive fixed costs way down, be more responsive to whatever the demand situation might be, and essentially, if possible -- question mark -- drive up the gross margin if you could, without having so much of a negative if the volume is very low?

Correct.

Okay. Would we ever be able to see gross margin in excess of 20%?

Not with the traditional product mix we've had. If the product mix evolves in the direction reflected by those two new developments I talked about, that would not be out of the question.

But Mark, to be clear, in the near term, the real driving force behind the variable cost I talked about, it is less about savings in direct costs -- although there are savings in direct costs. It is much more on the indirect side. And as you pointed out, to take that fixed cost out of there, so we can treat this as a product line and really manage it for cash on an incremental basis, rather than as foundation business.

Which is what it historically was five, six, seven years ago.

Absolutely. Okay, thanks very much. I will get back into queue.

(Operator Instructions) I am showing no further audio questions at this time. I will now turn the call back over to management for any closing remarks you may have.

Thanks 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 call, please dial 1-800-406-7325 and enter in the access code 4430187.

We would like to thank all of you for your participation today. You may now disconnect.