CAMP4 Therapeutics Corp (CAMP) 2012 Q2 法說會逐字稿

Good day, ladies and gentlemen. Thank you for standing by. Welcome to the CalAmp fiscal 2012 second-quarter results 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, Thursday, September 29, 2011.

I would now like to turn the conference over to Joe Calabrese from the Financial Relations Board. Please go ahead.

Thank you, Alicia. Good afternoon, everybody. Welcome to CalAmp's fiscal 2012 second-quarter results conference call. With us today are CalAmp's President and Chief Executive 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, could, estimate, judgement, 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 or uncertainties that are described in the Company's Annual Report on Form 10-K for fiscal 2011, that was filed on April 28, 2011 with the Securities and Exchange Commission. Although the Company believes the expectations reflected in such forward-looking statements are based upon reasonable assumptions, it gives no assurance that its expectations will be attained. The Company undertakes no obligation to update any forward-looking statement, whether as a result of new information, future events, or otherwise.

With that, it's now my pleasure to turn the call over to CalAmp's President and CEO, Michael Burdiek. Please go ahead, sir.

Thank you, Joe. Good afternoon and thank you for joining us today to discuss CalAmp's fiscal 2012 second quarter results. I will begin today's call with a review of our financial and operational highlights for this past quarter. And Rick Vitelle will provide additional details about our financial results. I will then discuss our business outlook and guidance for the next quarter and current fiscal year. We will then open the call to Q&A.

Our fiscal second quarter results showed strong and consistent growth in both revenue and net income, as well as solid improvements in our balance sheet. We believe that the positive financial results of the last few quarters represent an inflection point for the Company, and that we have formed the foundation for CalAmp's long-term profitable growth. Consolidated revenues for our most recent quarter were $33.8 million, up 15% year-over-year, with Wireless DataCom revenue increasing by over 40%. GAAP net income of $0.05 and non-GAAP net income of $0.11 were at the high end of our guidance, extending CalAmp's track record of profitable quarterly results.

As I said on our first-quarter call, we have focused our resources on products and markets that offer the greatest revenue and profit potential, and we are beginning to see the fruits of those efforts. Strong operating cash flow of $3.1 million for the second quarter improved our balance sheet and enabled us to retire our $5 million, 12% subordinated notes. This is expected to result in savings of approximately $0.5 million in annual cash interest expense. Our net debt balance at the end of the second quarter was $4 million. And based on our current outlook, we expect to be at or near a net cash position by the end of the current fiscal year.

Our Wireless DataCom operations had revenue in the second quarter of $25.5 million, representing significant growth year-over-year. These results include $3 million from the sale of 2 patents. The Wireless DataCom revenue breakdown in the latest quarter was approximately 70% for mobile resource management, or MRM, applications. And 30% for wireless networks applications. Without the revenue contribution of the patent sale, the split would have been closer to 65% for MRM and 35% for wireless networks.

Our MRM business posted record revenues in the second quarter, and we see continued momentum in our pipeline of opportunities. This momentum is the result of consistently strong demand for our MRM products and services, with applications in fleet management, vehicle finance, asset tracking, stolen vehicle recovery, and remote car start. In addition, we believe we are competitively positioned for several emerging MRM applications, such as pay-as-you-drive insurance. Just this week, we announced the launch of our LMU-3000, a new location monitoring and messaging device designed specifically for commercial and consumer auto insurance applications, a market that represents more than 250 million registered vehicles in the US alone. We are working closely with several top telematics service providers and tier 1 cellular carriers in North America and Europe to integrate the LMU-3000 with their individual service offerings. And we have several field trials underway with leading insurance companies.

In the second quarter, the subscriber base of our MRM telemetrics service business, which provides bundled prepaid MRM solutions for collateralized vehicle recovery and remote car start applications, continued to expand, adding subscribers in what has been in the past a seasonably weak quarter. There were approximately 220,000 active subscribers on our system at the end of the second quarter.

In the vehicle finance application, we expect increased demand for the second half of fiscal 2012 as we build up our direct sales efforts and add new channel partners for this business. We also see increased demand for our remote car start applications with the approach of the winter season. And we expect a meaningful revenue uptick from this market in the current quarter. We believe we are in an excellent competitive position to continue to grow our bundled solutions business in current verticals as well as new ones. Overall, in the MRM space, we plan to further leverage our domestic leadership position and are developing ecosystem of partnerships to exploit burgeoning international opportunities.

In wireless networks, we made progress on a number of projects in the public safety and energy sectors, including a recent win on a smart grid project with 1 of our tier 1 utility metering channel partners. This project, which involves wireless metering infrastructure equipment for a large electric cooperative in the Southwest, represents the first joint win with this important channel partner.

In our Positive Train Control rail project, we achieved a key milestone in the second quarter by completing the design phase and fulfillment of pilot units. Recent contract change orders have increased the overall value of this project to more than $14 million, with more than half of the backlog remaining to be shipped. Subsequent to the second quarter we began the pre-production phase of the PTC project, and we are on track to begin deliveries of radios in the current quarter. The end customer for these pre-production radios are multiple railroad companies including the 4 Class I railroads in the United States.

We are currently working with our prime contractor-customer on opportunities to expand the scope of the current project, as well as securing the rights to manufacture and sell fully-qualified production radios once the pre-production phase of our PTC project is complete. Based on our current backlog, we expect meaningful revenue contributions from this project through the first half of our fiscal 2013. We believe we are well-positioned not only to win significant PTC-related business but also to sell other CalAmp communications solutions into this key growth market.

Moving on to our Satellite business, second quarter results were in line with our expectations. Revenue in the quarter was $8.3 million, with an operating loss of $450,000, of which approximately $350,000 was from nonrecurring costs associated with the completion of the transition of our DBS business to a variable cost operating model. Going forward, we expect to have improved operating flexibility in our Satellite business and a reduced quarterly breakeven point of less than $9 million in revenue. We expect our gross margins to trend higher in the third quarter with the full benefit of the operational transition.

As mentioned on our last call, we continue to work on 3 new satellite products, and expect to start volume production of 1 new product, a home video distribution platform, later in our third quarter. The 2 other products recently entered into the product qualification phase with our customer. Based on current customer demand projections, we expect Satellite revenues to be flat in our current quarter and to ramp up in the fourth quarter of this year.

On the intellectual property front, our internal program to harvest wireless innovations has started to yield patent grants that protect our proprietary technology. We have a growing pipeline of patent applications which are byproducts of the wireless technology advancements made each day by the extraordinarily talented professionals in CalAmp's growing engineering ranks. We expect to leverage CalAmp's intellectual property with the introduction of unique products with sustainable competitive advantage in the markets we serve. And when it makes sense, we will monetize the value of some of our IP, as we did with the sale of patents in our second quarter. Though there are macro economic uncertainties in the overall business environment, to date we have not seen any discernible drop in demand for our products, aside from some continuing sluggishness in the public safety market.

Overall, we remain quite bullish in our outlook for Wireless DataCom business in fiscal 2012 and beyond. The entire team at CalAmp is focused on building upon our current momentum and exploiting opportunities, both domestically and internationally, with particular emphasis on opportunities to move up the value chain by offering integrated solutions in key growth markets.

With that, I will now turn the call over to Rick Vitelle, our Chief Financial Officer, for a closer look at our second-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 2012 second quarter. Consolidated gross profit for the fiscal 2012 second quarter was $11.8 million, or 35% gross margin, compared to gross profit of $7.4 million, or 25% 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 an increase in Wireless DataCom revenue, including the $3 million patent sale for which there was no associated cost of revenue. Excluding the effects of the patent sale, consolidated gross profit and gross margin in the second quarter were $8.8 million and 28.7%, respectively.

Looking closer at gross profit performance by reporting segments, Wireless DataCom gross profit was $11.3 million in the latest quarter, or 44.5% gross margin. Gross margin for the Wireless DataCom segment, excluding the patent sale, was 37.2%. This compares with gross profit of $6.2 million, or 34.4% gross margin in the same period last year. Wireless DataCom gross margins have improved in recent quarters, primarily due to improved absorption of manufacturing overhead costs resulting from higher revenues, as well as the introduction of lower cost units in certain markets.

Satellite products had a gross profit of $445,000 in the latest quarter, or 5.4% gross margin. This compares to gross profit for satellite products of $1.1 million or 10% gross margin in the comparable quarter of last year. We incurred approximately $350,000 in nonrecurring costs and expenses in the second quarter as we completed the transition of the satellite business to a variable cost operating model. As Michael said earlier, with the realignment of the cost structure of this business unit now complete, we expect the quarterly breakeven revenue level to be less than $9 million.

Now, turning to our tax position, an income tax provision of $6,000 was recorded in the second quarter, representing minimum income taxes in certain states. The effective income tax rate for fiscal 2012 as a whole is expected to be substantially less than statutory tax rates due to the existence of net operating loss carryforwards for US, federal, and state tax purposes.

Looking at our bottom line, GAAP basis net income in the fiscal second quarter was $1.4 million, or $0.05 per diluted share. Our second quarter results included several nonrecurring charges and expenses, as described in today's press release. Excluding the impact of intangible asset amortizations, stock-based compensation expense, and the nonrecurring foreign currency translation loss of $800,000 associated with the shutdown of our French subsidiary, and including an income tax provision that reflects taxes paid or payable for the period, our adjusted basis or non-GAAP net income in the latest quarter was $3.1 million, or $0.11 per diluted share. For a more detailed reconciliation of the GAAP and non-GAAP financial results, I refer you to our second-quarter earnings press release that was issued today and which is available on our website.

Now, moving on to the balance sheet. Our total inventory at the end of the most recent quarter was $11.8 million, representing annualized inventory turns of approximately 7 times. At the end of the preceding quarter, inventory was $9.7 million and represented annualized inventory turns of approximately 10 times. In the latest quarter, we built up inventory in response to robust bookings and increasing demand for our MRM products, and also to support shipments of pre-production radios on our Positive Train Control project in the second half of fiscal 2012.

The consolidated accounts receivable balance was $14.3 million at the end of the second quarter. This represents an average collection period of 37 days, which is unchanged from the immediately preceding quarter. Net cash provided by operating activities increased to $3.1 million during the second quarter, driven by higher net income. As previously announced, we renewed and enhanced our credit facility with Square One Bank last month. And we concurrently retired our $5 million 12% subordinated notes, which significantly reduced our borrowing costs. Prior to this, the blended interest rate on our combined bank and subordinated debt was about 9%. As a result of taking these actions last month, all of our debt now bears interest at 4.25%, which is equal to the bank's prime rate plus 1%. Consequently, we expect to reduce our annual cash interest expense by approximately $0.5 million going forward.

At the end of the second quarter, cash and cash equivalents totaled $4.3 million, which was essentially unchanged from the preceding quarter. In addition to our cash balance, our main sources of liquidity are our revolving credit facility with Square One Bank, and cash generated by operations. At the end of the latest quarter, our total debt outstanding was $8.3 million, down from $9.9 million at the end of the preceding quarter. The total debt balance of $8.3 million is comprised of $5.3 million outstanding under our bank revolver and $3 million outstanding under the new Square One Bank term loan, of which $2.5 million is classified as a noncurrent liability at the end of the second quarter. In addition, the amount available to borrow on the bank revolver was $3.7 million at the end of the latest quarter.

With that, I'll now turn the call back over to Michael Burdiek 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 2012 third quarter consolidated revenues in the range of $30 million to $34 million, with Wireless DataCom revenue up sequentially excluding the second quarter patent sale and with Satellite revenue flat. We anticipate third quarter GAAP basis net income per share in the range of $0.02 to $0.06 per diluted share. The adjusted basis non-GAAP net income for the fiscal 2012 third quarter is expected to be in the range of $0.05 to $0.09 per diluted share.

Looking ahead, based on our current backlog and robust pipeline of opportunities, we expect continued profitable growth in our Wireless DataCom business over the next several quarters. Likewise, prospects for our Satellite business are improving, and we expect to ramp up shipments in the fourth quarter and have positive operating income for the second half of the year. On a consolidated basis, we expect somewhat higher net income in the second half of this year compared to the first half.

In concluding our prepared remarks, I'd like to recap some key points drawn from our recent results and latest developments. First, we are now experiencing earnings leverage from strong revenue growth, driven primarily by the robust demand in our Wireless DataCom business. Second, with the completion of the transition of our Satellite business to a variable cost operating model, we have reduced the breakeven point of this business to below $9 million in quarterly revenues, and expect positive operating income from our Satellite business for the second half of this year. And third, our strengthening balance sheet provides us with greater financial flexibility to capitalize on market growth opportunities.

Overall, we are quite pleased with the progress we have made in the first half of our fiscal year. We're executing on our growth strategy by focusing our resources on markets with good, long-term growth prospects and developing products and services with sustainable competitive advantage. We believe the foundation is in place to build upon our recent strong financial performance over the coming quarters.

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

(Operator Instructions) Mike Crawford of B. Riley & Co.

Thank you very much. Nice to see the growth, in the wireless business especially. Could you talk a bit more about the Positive Train Control opportunity? Is it just 1 prime integrator that you're working with primarily for this 1 expanded-scope project? As well as the other opportunities you're looking at in that space?

Yes, Mike, this is Michael Burdiek. Hello. Yes, we are working on 1 contract with 1 customer at this point in time. And as we talked about on previous earnings calls, this is the development phase of the PTC program, which most people know is an initiative mandated by Congress, with a current deployment deadline of the end of 2015. So we are involved in the development phase of the PTC rollout, with a, as you said, prime system integration customer. And the expanded scope of the project again is on that same project with that same customer at this point.

And can you just talk a little bit more about what kind of equipment, what kind of radios you're providing? Or is that something you're not able to discuss?

The PTC, or Positive Train Control project involves the deployment of a communications system including base station infrastructure, locomotive radios, radios for wayside termination point. So there's a number of different radio platforms that are part of the PTC network. We are involved in a number of developments which relate to each of those radio types.

So with this pay-as-you-drive insurance development that really seems to be sweeping the industry, so you're on some pilot projects now, I think you expect this really not to even start ramping until the end of this current November quarter. First, is that correct? And then, two, what's the revenue potential for this segment of the business?

As we pointed out in the prepared remarks, and as pointed out in the press release from earlier this week, we just announced a key product platform, which we believe will be successful in the insurance application. That product has already been involved in a number of very low-level pilot project activities. We expect that those pilot activities will expand somewhat in scope. To be quite honest, we don't expect to see material revenue increases from that application until probably late this fiscal year and into our fiscal 2013. It's a very big opportunity, as we've talked a fair amount in recent investor presentations. We scope the market size at roughly $300 million, in terms of served market opportunity over the next 4 years or so. And the opportunity we believe for CalAmp is primarily a hardware opportunity.

And then just turning to the numbers a little bit. So, excluding patent sales, the gross margin in the Wireless DataCom segment was 37.2% in the quarter. I know this is mix driven between MRM and wireless networking, but at what range of gross margin would you expect that segment of the business to operate at going forward?

Is the question related to Wireless DataCom in total or MRM specifically?

Wireless DataCom gross margin. And I do recognize that, if you need to discuss it between MRM and wireless networking, maybe so, because I think one has a higher margin than the other.

Yes. On a blended basis, we've stated several times that our long-term objective for Wireless DataCom is roughly 40% gross margin on a blended basis. Also, as we've talked about, our MRM businesses, that being our products and our telemetrics systems businesses, operate roughly in the 30% to 40% gross margin range. Whereas the business activities in our wireless networks business operate roughly between the 40% to 50% gross margin range. Therefore, on a blended basis, you can see how we would arrive at an objective of roughly 40% for the Wireless DataCom business as a whole.

And then last question relates to satellite, which maybe it's more of a product line than a true segment. But if that's going to be around $8 million again this quarter and then step up above your $9 million breakeven, that might be true for a quarter or 2. But do you have any visibility in that business beyond that 6 to maybe even 9 months range?

Historically, we've had pretty good visibility for the next quarter. We've had reasonable visibility 6 months out, poor visibility 9 months out, and virtually no visibility 12 months out. So we feel pretty good about the outlook for Q3 in terms of our guidance. And we feel reasonably good about the guidance we're giving into our Q4. Obviously, things get foggy as we look out into fiscal 2013. We are pleased that we've made significant progress in terms of operating flexibility in that business. You might recall, last earnings call we talked about a goal of getting the business to a breakeven point of less than $10 million. We think we've done better than that. And certainly, even at a flat quarter, the business is cash accretive to the Company, given the overhead absorption that gets wound into the financial results of the business. So even at a nominally breakeven operating income profile, it's actually got good benefit in terms of overhead absorption to the overall Company results.

Okay. Thanks, Mike. It's nice to see those 30 products or so you developed in the last 2 years really kicking in, helping to drive some growth.

Nick Mauro with Sidoti & Co.

Just a couple questions. Given how the trend's been going, can you see a scenario with the Wireless DataCom and the MRM business taking off, that the satellite eventually gets phased out?

Interestingly enough, that's sort of happening now. We've talked on previous calls about our keen focus on driving additional growth in our Wireless DataCom business. Obviously the profit profile of that business is a lot more attractive than anything we could ever expect to experience with the satellite business, even in the best of quarters. And as Mike Crawford just pointed out, in many ways, the satellite business is more of a product line than it really is a business. And if it weren't for historical reporting obligations that we break that out as a segment, we'd probably tick it in as a product line under some of our OEM activities. So we think we're doing the right thing with regard to managing that product line for absolute operational efficiency. And we think we have it in a good place in terms of operational flexibility. And so our keen focus in terms of our marketing, sales, and business development initiatives is everything that's going on in our wireless networks and MRM businesses.

And then in terms of the debt, you guys have been paying it down pretty well. Is that trend going to be continuing? Do you have any idea when, or if you even plan on knocking it all off?

We've given guidance in this call -- nominal guidance, I should say -- in this call as well as our previous earnings call that we expect to be at or near net cash by the end of this fiscal year. So the guide slope is to be in a net cash position. Now, part of the new credit facility was a term loan. And obviously the term loan is at fairly attractive interest rates. So whether or not we would consider retiring the term loan early or not, that's somewhere down the line. But for right now, we think the cash flow being generated from the businesses is very healthy, and it's giving us additional financial flexibility.

And then lastly, I know you've been selling patents a little bit lately. Do you have any idea how long that's going to be going on for? Or is that just a quarter to quarter thing?

That's a time and a place thing. CalAmp has developed intellectual property for its entire history and existence. And the patent sale in the most recent quarter is not an aberration. CalAmp's actually sold patents in the past. Just not in very recent history. And so it's not really a one-off situation. We are not in the business of selling patents. But when we see opportunities to monetize our intellectual property, and we can do it under the right terms and conditions whereby we would have a grant back license, giving us complete freedom of movement in terms of the markets we operate in, we would give that some consideration.

Ilya Grozovsky.

So my question was if you guys could provide an update on your efforts on the utility front.

Sure. It continues to be a very important market for us. We mentioned in the prepared remarks that we'd won a contract in partnership with 1 of the tier 1 metering channel partners which we've developed over the last couple of years. It's an important win. It's actually been a long time coming. We've been working on that project with that partner for more than a year. And it is the nature of the utility marketplace, you have to spend a lot of time in business development and piloting activities before you start to see meaningful revenue contribution from any 1 project, or any 1 new product initiative. Just to give you some idea of how long things take, we had initiated more than 2 dozen pilot projects over the last 12 months. And some of them have been converted into full deployments. And through the first half of this year, we've recognized more than $1 million on those pilot projects that were initiated over the last 12 months or so. It doesn't sound like a lot of dollars, but the good news about those types of projects are that once they start, they tend to go on for a very long period of time. So we're in a layering mode, really, in terms of our wins within the utility sector. That's more of a tidal wave situation than it is a tsunami. And so we hope to continue to build upon the successes we've had on recent pilots and expand the revenues with the ones that have been converted into full deployments.

Marc Robins with Catalyst Research.

Just a couple of housekeeping things. I'm looking, as we're talking, I thought I remember that the number of MRM units that Camp was monitoring on an ongoing basis was 220,000 units at the end of the last quarter. Am I wrong on that? Is my memory fading? Which is probably very likely.

I'm sure your wit is as sharp as ever, Marc. But your memory has faded slightly. We had announced at the end of last quarter, approximately 210,000 units.

210,000, okay. And it's now 220,000?

Correct.

Was there a little bit of a slowing in that trend for some reason, of anything notable?

No. There's a small seasonal effect. As we pointed out in the remarks, our Q2 is the 1 quarter in that business where there's no real seasonal influence over demand. We're entering into the traditional seasonal wave or in-demand in the remote car start application. And typically in our late Q3, into our Q4 and oftentimes spilling over into our Q1, we see seasonal effects from demand in the vehicle finance business.

And then the second thing, PTC and pay-as-you-drive, help me understand a little better what's going to happen in November. You're not really going into production, but you're ramping up development models? Describe what it is you're doing at the end of November so I can have a little better --

On the PTC project --

No, the pay-as-you-drive.

We are just expanding the number of pilot opportunities that are in our pipeline. And some of those earlier pilots that we've been participating in over the last quarter or so are starting to expand into larger deployments. More field trials, you might say, as opposed to laboratory testing and integration efforts. Which is what we've been involved in primarily up to this point in terms of insurance pilot opportunities.

So it's going out of the lab and essentially into the true field where people can test them in their cars and they can get feedback and say -- We'd mark you with this kind of a grade if you were actually an insurance client, and that kind of a rate kind of a thing.

Yes. You might call it control group kind of testing.

And then again, help them better understand what's going on with the PTC here in the next 2 quarters with the Positive Train Control?

In the next 2 quarters?

Yes.

First of all, maybe we can reference to last quarter. Last quarter, we were ramping down the design phase on the contract. When I say design phase, I truly mean engineers with CAD programs and designing circuits and that sort of activity. The design phase also involved a fair amount of prototyping activity. So we actually did build radios, and we shipped them to our customer for testing. We're moving into a completely different phase of the project now. Were moving into what is being termed pre-production phase. We're actually building radios, which are hopefully close to what will actually be deployed as part of a production activity. And we're deploying those radios to the major rail operators in North America for their field testing. And given the scope of the project, it involves a fair number of radios. And so that's why the contract has grown as it has in scale. And it's expanded over the last quarter from just a little over $10 million to now more than $14 million.

Now, my understanding is both the California Metrolink (I think that's it) and then the Chicago Transit Link, both of those entities want to be up and running by the end of 2012. Isn't that a little bit more than just a field trial? And isn't that pushing everybody on the equipment side to get things produced and out, because it's going to take some time to install and train and then test and then get them going to make the date?

Simple answer is yes.

Okay, so I'm not goofy. It's just that, I know this has to be an extraordinarily complicated system and a lot of moving parts.

Just to point out the difference in scale between a commuter line deployment and, let's say, one of the tier 1 rail operators in the US, the commuter lines are relatively small in scale and in scope. But oddly, the PTC application for them is much more important. So the major rail companies are going to be the ones driving the volumes in this project. But the commuter lines are obviously very eager to get deployments underway sooner rather than later.

Good quarter and excited to see what's coming down the pike. But it sounds to me like the real inflection, or the tipping point, for the Wireless DataCom side is these next 2 major products, PTC and pay-as-you-go. And it appears that maybe not in the third quarter, but in the fourth, first, and second, you should see volumes, production volumes, tip up. And not only possibly the gross margin continue to trend towards that 40%, but also the dollar, the revenue dollars really creep up substantially as you move away from prototyping and bread-boarding and the rest of it.

Yes, I would modify those comments slightly.

Well, you always would, Michael. Next to an attorney, I don't know anybody that modifies things more than you do.

We do expect growth to come from our rail project over the next few quarters. We do expect continued growth in our MRM business over the next few quarters. But we think the growth over the next few quarters in MRM will be driven primarily by existing applications, and then insurance will be a bigger influence on results as we go into the new fiscal year, fiscal year 2013.

And how is overseas business? Is that continuing to meet expectations?

It's percolating along. Were making good progress. A lot of the activities we're involved in internationally involve projects. So we have a pipeline of RFP and proposal activities. And hopefully we'll begin to talk about the impact international sales is having on our results in quarters down the line. Right now, we're focused on executing on the key growth initiatives in the US, those being insurance, the PTC project, as well as some of the smart grid initiatives we've had underway for a period of time.

(Operator Instructions) Richard Todaro with Kennedy Capital.

When I've visited the Company in the past, I thought the wireless applications have been great, but I've been worried that they've been shorter runs and good gross margin but harder to get to revenue scale. And it sounds like that you're on track now for a couple of these things that could be pretty decent multi-year opportunities for you. Could you rank in order what you think is the best opportunity for you? And then anything maybe that you're working on that you haven't talked about, because some of these have been, like the insurance thing, I think, has caught some of the investors by surprise?

It's hard to rank opportunities. The good news is we have multiple of them in play at the same time. We have a key initiative in our wireless networks business, that being the PTC program. We think, as we mentioned in our prepared remarks, that our opportunity in rail goes beyond PTC. Rail operators buy lots and lots of communications gear. And although CalAmp has been selling into that market for a period of time, our degree of penetration there has been infinitesimal compared to what we see as growth opportunities down the line. Again, PCT and other.

Within the MRM business, the fleet management application has been a key driver of growth. It continues to drive growth. We don't see any throttling back in momentum on that front. And of course, we have another great growth opportunity in the pipeline with the pay-as-you-drive or user-based insurance application. In our telemetrics services business, 2 years ago we were exclusively focused on the vehicle finance market. Today, we're selling into that market and actually with better prospects, I would say. And we've also added the remote car start application on top of that previous bundled service, which was very singular in terms of where that business was focused. So we're pleased that we have so many good growth initiatives. And, as you point out, ones that aren't very temporary in nature. There are long-term secular trends driving the demand for the kind of products that CalAmp develops in its Wireless DataCom businesses.

The PTC opportunity, next year what could CalAmp do in the PTC business roughly?

I hate to forecast.

Just wondering like a ballpark number.

We've suggested we've got pretty solid revenue growth into the new fiscal year, just on this development project. And as rail start to deploy equipment and infrastructure to support the PTC rollout, which again has a current deadline of 2015, we would expect some pretty significant opportunities to participate in the production part of that overall network rollout.

When you guys say you're with a prime, did that prime -- you're in pre-production. What I'm trying to understand, is that prime, have they actually won the business and now once it gets to production they're locked in? Or are they competing for the actual business in pre-production phase or something like that?

No, they actually have somewhat of an exclusive arrangement in terms of developing the radio designs, the protocols, the supporting software infrastructure that will be part of this PTC deployment. Given that all of the radios used by all of the rails have to interoperate with each other, they basically have to follow the same design. And so you can't have a half a dozen companies basically competing for the design and the application. It just wouldn't work.

What about the insurance opportunity? Have you gotten any feedback from your customers? I've known for years that they've wanted to do this, but there's been some resistance. It seems like they're finding some niches that work -- employees and teenagers and different things. What sort of feedback are you getting on this?

The feedback we're getting from the market is that virtually every major auto insurer in the US, and a number in Europe, are anticipating that they're going to roll out programs in 1 form or another involving telematics technology for user-based insurance applications. So some are looking at very large projects and large deployments. Others are looking at more niche types of deployments for specific types of drivers. But I would say a key indication of the potential market size is the fact that the major tier 1 cellular carriers in the US are being very aggressive in terms of pursuing this business. Because they see this as one of the most important M2M applications that's going to demand data services over the coming years.

What I don't understand is where you guys came up with the $300 million number. Because it seems low, relative to -- I thought these modules were $50 to $100 a module or something. So it seems like the market potential for this could be huge.

It could be. Again, we've pointed out that we see the opportunity here as being primarily a hardware opportunity. ASPs for these types of telematics devices continues to decline. Obviously, the volumes are increasing faster than ASPs are declining which is why our business has been growing. We try to be somewhat conservative when we estimate market size. And given the risk aversion nature of auto insurers, we don't expect them to go all-in instantaneously. So when we look at the market size of $300 million over the next 4 years, that's really the market just sort of starting to take off. It's not going to be at the peak, I would say, terms of deployment 4 years down the line.

Okay. So you're assuming that there is a significant ASP decline in that market potential.

I wouldn't say significant but certainly there will be ASP decline.

And then on the satellite side, I know you guys have decided you want to walk away, I think, from some of this, and different things. But is any of the pullback in the business, is that customer pullback from DISH saying business is slower? And is the ramp based on customer pickup? I know you talked about 3 new products. I don't want to completely throw this out because at one point you guys did $25 million in this. So I just don't know if you think it's an $8 million to $10 million run rate for the foreseeable future. Or do you think that it goes to zero or do you think it could get to $15 million or whatever?

I don't see it going to zero in the foreseeable future. And $15 million would definitely be at the high end of our expectations over the coming quarters. As you know, we've seen a fair amount of quarter-to-quarter volatility in terms of revenue contribution from that business. And it's ranged from $5 million to $12.5 million over the last 4 quarters.

It's wonderful there's so many things in this world that track from GPS or to send a signal from this device to this device. And all these guys now between smartphones and cell phone carriers have a huge incentive to get all this pulled together. And if you guys can grab onto this trend, you will be a big winner and I just couldn't wish you more success in the future.

Thank you. There are no further questions at this time. I will turn it back over to management for any closing remarks.

Okay. Thank you, everyone, for joining us today. We look forward to speaking to you again next quarter.

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