CAMP4 Therapeutics Corp (CAMP) 2012 Q3 法說會逐字稿

Good afternoon. My name is Jessica and I will be your conference operator today. At this time, I'd like to welcome everyone to the fiscal year 2012 third-quarter conference call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session. If you would like to ask a question at this time (Operator Instructions).

Thank you. Joanne Keates, Director of Corporate Communications, you may begin your conference.

Thank you, Jessica. Good afternoon and welcome to CalAmp's fiscal 2012 third-quarter conference call. With us today are CalAmp's President and CEO, Michael Burdiek, and CFO, Rick Vitelle.

Before I turn the call over to management, please remember that our prepared remarks and responses to questions may contain forward-looking statements. Words such as may, will, expect, intend, plan, believe, seek, could, estimate, judgment, targeting, should, anticipate, goal, and variations of these words and similar expressions are intended to identify forward-looking statements.

Actual results could differ materially from those implied by such forward-looking statements, due to a variety of factors, including product demand; competitive pressures; 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 on April 28, 2011 with the SEC.

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 any forward-looking statements, whether as a result of new information, future events or otherwise.

With that, I will now turn the call over to CalAmp's President and CEO, Michael Burdiek.

Thank you, Joanne. Good afternoon and thank you for joining us today to discuss CalAmp's fiscal 2012 third-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 fiscal 2012 fourth quarter. We will then open the call to Q&A.

This quarter represents our third consecutive quarter of year-over-year revenue growth and our fourth consecutive quarter of increasing net income. The fundamental driver for our revenue growth and improving profitability in the third quarter was our wireless datacom business segment. As has been the case for the last several quarters, our Mobile Resource Management, or MRM business, continued to experience significant growth. This was complemented in the latest quarter by solid growth in our wireless networks rail and energy markets.

Consolidated revenue for this quarter was $32.8 million, up 11% year-over-year, with wireless datacom revenue increasing by 22% to $25.9 million. GAAP net income of $0.06 and non-GAAP net income of $0.09 were at the high end of our most recent guidance. We generated strong operating cash flow of $2.1 million in the third quarter and $7.5 million through the first nine months of this fiscal year.

Our wireless datacom operations posted record revenue in the third quarter, with MRM applications accounting for approximately two-thirds of total wireless datacom revenue, and wireless networks applications accounting for one-third. This revenue split in our wireless datacom segment is consistent with recent prior quarters, excluding the patent sale revenue recognized within MRM in the second quarter of this year.

Our MRM growth initiatives continue to drive momentum, and we believe that our products are gaining share in a market that is estimated to be growing at approximately 20% a year. We also believe we are now the number one provider of mobile data devices to the domestic global fleet segment with our industry-leading Location Monitoring Unit, or LMU product family.

In addition, we are gaining traction in Latin America, where we have developed Tier 1 cellular carrier channel partners to market our tracking products for the stolen vehicle recovery application. As has been the case with channel partners in the US, we believe we are well positioned to establish our products as the standard platforms for our customers internationally, thereby generating predictable and growing revenue streams once integrated into customers' end market solutions.

In the emerging Insurance segment, we believe our MRM business is competitively positioned with our recently introduced LMU 3000 product. We are currently working with a number of medium and large North American auto insurers to provide the hardware solutions to support their pay-as-you-drive and usage-based insurance initiatives. There are around 250 million insured vehicles in the United States alone. And while it may take some time before we see significant commercial deployments by key North American auto insurance companies, we believe we are well-positioned to provide the innovative hardware solutions for these deployments when they occur.

In our Telemetrics Systems business within MRM, where we provide bundled solutions, including tracking hardware, hosted software applications, and cellular data subscriptions, third-quarter results were in line with expectations, with healthy revenue from our Vehicle Finance segment, and the seasonal ramp in our remote car start application with the onset of winter weather.

We believe that our sale in the second quarter of the two vehicle finance patents has shifted the competitive landscape in our favor, as we are now seeing resellers and distributors in the buy-here/pay-here market align themselves with a high-value CalAmp brand. We believe that our brand position, along with consolidation in the market, bodes well for our revenue growth in this segment over the coming quarters.

At the end of the latest quarter, there were approximately 1.2 million MRM tracking devices in service with our customers that are supported by CalAmp's PULS cloud-based device provisioning monitoring and maintenance system. The PULS cloud platform, along with our embedded programmable event generator system called PEG, continues to drive adoption of our products by customers who find the ease of integration to be a key factor in lowering their overall development and support costs compared to competitors' products.

Through our bundled hardware and software offerings in the vehicle finance and remote start markets, we had approximately 235,000 active subscriber units on our network at the end of the latest quarter as compared to 220,000 subscribers at the end of Q2. This growing subscriber base provides an ongoing and complementary recurring revenue stream within our MRM business.

In the energy sector, we continue to experience steady revenue growth from utility and oil and gas customers. We have won several smaller projects recently, which we believe will lead to larger deployments over the coming quarters and years. In addition to the domestic growth prospects, we have a growing pipeline of international energy projects through our partners in markets around the world. Over the next few years, we believe that opportunities in the energy management field -- including applications in demand management, distribution automation, and advanced metering -- will deliver steady revenue growth for CalAmp.

Revenue from the rail sector through our Positive Train Control, or PTC project, reached a high point in our most recent quarter. During the quarter, we announced a $4.7 million addition to our ongoing PTC development project with the prime contractor. Including this contract addition, the project size is now approximately $19 million. Of this amount, we have recognized about $10 million of revenue from project inception through the end of the third quarter. We expect to recognize the bulk of the remaining revenue from this development project over the next three quarters.

Longer-term, we believe we are well-positioned to win future business for PTC production deployments. We continue to view rail as an attractive growth market for CalAmp going well beyond the near-term PTC application. We see opportunities for a range of applications with relevance for both our wireless networks and MRM product solutions.

Public safety market segment within our wireless networks business remained weak in the third quarter, though we have seen a recent increase in bid and proposal activity, including opportunities for our next generation 4G LTE router platform. Despite the challenging near-term funding environment, we see good long-term growth prospects from the public safety market for CalAmp broadband solutions for converged voice and data applications, with the expected deployments of private and public 4G LTE networks.

Moving onto our satellite business, we had somewhat lower revenue in the third quarter compared to the second quarter, though we saw meaningful sequential quarter gross margin improvement, driven by the recently completed transition of the business to a variable cost operating model. As we announced last week, subsequent to the end of our third quarter, we began shipping a new home video and data networking product to our key satellite customer. We expect this new product will drive improved revenue and profit for the satellite business in our fiscal fourth quarter and into our next fiscal year.

Overall, we are pleased with our consolidated revenue and earnings results in the third quarter, and we believe the ongoing execution of our business strategy positions us for solid year-over-year revenue growth to profitability in the coming quarters.

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

Thank you, Michael. I will provide a summary of our gross profit performance, income tax decision, working capital management, and cash flow results for the fiscal 2012 third quarter.

Consolidated gross profit for the fiscal 2012 third quarter was $10.2 million or 31% gross margin compared to gross profit of $7.7 million or 26% 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, transition of the satellite business to a variable cost operating model, and the shift in the relative revenue contributions of these two business segments in the third quarter of this year versus last year.

Looking more closely at gross profit performance by reporting segment, wireless datacom gross profit was $9.5 million in the latest quarter, or 36.7% gross margin. This compares with gross profit of $7.5 million or 35.5% gross margin in the same period last year. The improvements in wireless datacom gross profit and gross margin percentage are due to higher revenues and the associated increased absorption of fixed manufacturing overhead costs.

Our satellite business had a gross profit of $666,000 in the latest quarter or 9.7% gross margin. This compares to satellite gross profit of $190,000 or 2.3% gross margin in the comparable quarter of last year. Primarily because the transition to a variable cost model, we have lowered the breakeven point of our satellite business to less than $9 million per quarter.

Now turning to our tax position, an income tax provision of $28,000 was recorded in the third quarter, representing federal alternative minimum taxes. Under the federal AMT rules, we can only shelter 90% of our taxable income with net operating loss carryforwards. The effective income tax rate for fiscal 2012 is expected to be substantially less than statutory tax rates, due to the existence of net operating loss carryforwards for both US, federal and state tax purposes.

Now looking at our bottom line, GAAP basis net income in the fiscal third quarter was $1.7 million or $0.06 per diluted share, excluding the impact of intangible asset amortization in stock-based compensation expense 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 $2.6 million or $0.09 per diluted share. For a more detailed reconciliation of the GAAP and non-GAAP financial results, I refer you to our third-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 $12.4 million, representing annualized inventory turns of seven times. At the end of the immediately preceding quarter, inventory was $11.8 million, which also represented annualized inventory turns of seven times. During the last two quarters, we built up inventory in response to robust bookings and increased demand for our MRM products, and also to support shipments of preproduction radios on our Positive Train Control project.

The consolidated accounts receivable balance was $15.8 million at the end of the third quarter. This represents an average collection period of 41 days, which is up slightly from the immediately preceding quarter. Net cash provided by operating activities was $2.1 million for the three months ended November 30, 2011, and $7.5 million for the nine months then ended.

At the end of the third quarter, cash and cash equivalents totaled $4.4 million, which was essentially unchanged from the end of the preceding quarter. At the end of the latest quarter, our total debt outstanding was $6.5 million, comprised of $3.5 million outstanding under our bank revolver and $3 million outstanding under the bank term loan. In addition, the amount available to borrow on the bank revolver was $5.5 million at the end of the latest quarter. Our net debt -- that is, debt minus cash -- stood at $2.1 million at the end of the latest quarter, and has been reduced by $5.6 million during the nine-month year-to-date period.

With that, I will 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 fourth-quarter consolidated revenues in the range of $34 million to $38 million. We expect satellite revenues to more than double on a year-over-year basis, and wireless datacom revenue to be marginally lower from the third quarter but up year-over-year.

We anticipate fourth-quarter GAAP basis net income per share to be in the range of $0.03 to $0.07. The adjusted basis for non-GAAP net income for the fiscal 2012 fourth quarter is expected to be in the range of $0.06 to $0.10 per diluted share. Based on our operating cash flow outlook, we expect to be at or near positive net cash position by the end of this fiscal year. We believe our robust and growing pipeline of opportunities across multiple market segments should drive continued momentum and profitable growth into fiscal 2013.

In concluding our prepared remarks, I'd like to recap some key points drawn from our recent results in the latest developments.

First, our wireless datacom business is experiencing strong revenue growth, driven by robust demand in multiple market, and we are now experiencing earnings leverage from top-line growth. We believe this business is very well-positioned for sustained long-term profitable growth, competitive products and technologies, and attractive markets.

Second, the outlook for our satellite business has improved. With the recent start of shipments of our home, video and data networking product to our key satellite customer, and the variable cost operating model now in place, we expect improvements in revenue and profitability of this business unit in our fiscal fourth quarter and into our next fiscal year.

And third, our strengthening balance sheet and our improving profitability and operating cash flow provide us with greater financial flexibility to invest in rapid expansion in the markets we serve.

Overall, we are quite pleased with our operating performance through the first three quarters of this fiscal year. We've achieved many of the milestones that we laid out earlier in the year, and we remain quite optimistic that our wireless datacom growth strategy will produce positive results for our shareholders. To that end, we will continue to focus our resources on serving those markets and applications that we believe have excellent long-term growth prospects, with products and services that have sustainable competitive advantages.

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

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

First, I'd like to ask about this new home video and data networking product. So one, is this -- since this is something you designed in conjunction with your main DBS customer, is this something that could lead toward higher gross margins in your Satellite segment? That's Part A.

And then Part B would be whether this particular product is to be followed up by other boxes inside of the home as opposed to your traditional business in that segment, which has been on a rooftop?

Sure. Well, let me start with Part A of the question. We expect that the product we announced last week will be somewhat higher margin than our traditional legacy product. Hopefully, that answers Part A.

In terms of Part B, we've talked throughout this year about the fact that we had three products in development in the qualification process. Obviously, the first of those three came through the queue last week and we've begun volume shipments of that product. There's a -- what we sometimes term here a big brother to that product that's a similar application. That's in the queue currently. And we hope to get that qualified and, hopefully, begin shipments perhaps late this quarter and perhaps into Q1 of next fiscal year.

And followed behind that is a product that's essentially a refresh of the legacy product that we've been shipping for nearly five years. So, hopefully, that gives us an opportunity to lower the overall cost of the platform and potentially see somewhat higher margins for that product, once it becomes qualified and replaces the legacy product we've been shipping most recently.

Okay, thanks. And just to clarify three months ago, when you said you were -- had structured this business to be cash generative above $9 million a quarter, was that with these products in mind? Or is this an additive to the expected possibility from that part of the business?

Well, it was part of our outlook at that period of time. But let me correct part of your question, if I could. You said cash flow generating north of $9 million. Two quarters ago, I believe we said that we expected the business to be breakeven at $10 million or less. We had updated that last quarter, and said we thought it was more like $9 million or less. We basically have reaffirmed that outlook today. The business is actually cash flow accretive at numbers well below $9 million through the overall -- the overhead cost absorption that's really built into the business.

Okay. Thank you, Michael. On the public safety front -- so this is a market that has just been in dormancy for the better part of the past few years, as customers, despite desiring products, have not been able to afford them. You said you're seeing an uptick related to 4G LTE products in particular; but is there also any change in their -- in your customers' ability to buy these products? Or what are you seeing?

Well, we see definitely an improvement in the pipeline based on some 4G project opportunities. Some of those projects are supported by federal grant funds. So that, in some cases, counters the local tax flow issues that states and municipalities are facing, in terms of just trying to manage their budgets.

So there's a little bit of a tailwind coming from the federal government there. So that is actually increasing our opportunities, because most of those grant funds are related to 4G LTE deployments in support of converged public safety communication applications. We think it will be some time before there are projects awarded. We think it will be sometime before the network buildouts begin. But we're getting some decent looks at some fairly large opportunities relative to what we've seen in the recent past.

Okay. Thank you. And then last question regarding the wireless networking and MRM businesses is Part, I guess, A on the Positive Train Control. When might some of those projects start to move to production volumes, where you might hope to sell some of your hardware? And then on the -- well, we'll just take that as the first part of that.

Sure. Well, we wouldn't expect to see any volume production until the development project is complete. And our piece of the development project won't be complete until probably sometime in our fiscal second quarter next year.

So we would think at the earliest, we would see revenues associated with production activities coming in Q3 or Q4 next year. But your outlook for opportunities there hasn't changed. We expect to compete for that business once the design phase of this project is complete. We won't be the only supplier into the market, but we would hope to be one of the -- one or two or three strong competitors out there competing for that business.

Thanks. And the last question relates to insurance pay-as-you-drive. So that's something else that I think the major revenue opportunities for you are more like a year off. But what has been the development in the past few months since we had last heard about this business?

Well, one development over the last few months is that we've actually been able to seed a number of pilot opportunities with our LMU 3000 platform. We introduced that about three months ago. And we've ramped pilot level or prototype level production of that platform. So we now have that in a number of different pilot projects in trials. So, that's one development that's occurred.

I think in terms of the number of pilot applications we're involved in, it's increased somewhat, but we still view that as a very interesting market segment. We think it will develop slowly, but we think it will develop steadily over the next year and potentially be pretty robust in the year after that.

Okay. Thank you.

John Henderson, Inflection Point Investing.

Great quarter, guys. Thanks for taking my call. (multiple speakers) Okay. You know, in regards to the PTC program, in the last earnings call, you stated that we've seen some pretty significant opportunities to participate in production part of that. I mean, do we see any contract announcements coming down the line as part of the production, part of the PTE rollout any time soon?

Well, we are involved in some budgetary quoting at this point in time. I wouldn't say that announcements are imminent. And again, we wouldn't expect to see any real revenue from production activities until probably our Q3 of next year, simply because of the development project carrying on at least through the end of our Q2 of next year.

Great. Okay. And then in regards to the California Metrolink and the Chicago Transit Link, which is hoping to be up and running by the end of 2012, I was wondering -- can you provide us with any estimates of how much equipment they would need to order -- to complete the production phase and installment next year?

I wouldn't be able to give you exact figures in terms of the number of radios or necessarily the revenues associated with those projects. We don't expect the Metro Lines or the Metro Rails to be anywhere near the size of opportunities that we see with the cargo rails, the Tier 1 and, in some cases, the regional rail operating companies.

We believe, in terms of market size, they represent the bulk of the market. We believe that the commuter lines will probably represent an early adopter community. So we're certainly interested in competing for that business, but we think the bulk of the business will come from the major rail operating companies.

I see. Okay. Last one that -- you know, I guess, essentially since CAMP has played such a pivotal role in the PTC design and the pre-[depth] production phase, I mean, would it be reasonable to expect that the railroads will want you to be one of the primary suppliers? I mean, in other words, what's your competition? Who -- and besides the price points, is there anything that would incentivize the railroads to go with another vendor other than CalAmp?

We would hope not. (laughter) I mean, certainly, our position as a key player in the development project probably gives us a first mover advantage in the market. But again, for a number of reasons, there will be multiple suppliers of radios into this opportunity.

And your main competitors here?

Well, we think that it probably is interesting to Tier 1 EMS companies, perhaps even to some traditional suppliers of network equipment and infrastructure into the rail marketplace. But we're not sure exactly who the key competitors will be at this stage.

I got you.

But I think those would be the usual suspects.

I see. All right. And then I actually had a question for Rick, if I may.

Okay.

In terms of the valuation allowance of $40.2 million, I think?

Right.

I mean, with the earnings now -- the earnings leverage kicking into the model, I was wondering can you provide us some color on what the tax rates will look like? And whether or not you plan to modify the valuation allowance?

Well, we do expect that at some point in the future, we will have to modify the valuation allowance substantially. Currently, we're modifying the valuation allowance incrementally to offset the current taxable income. The primary test for a company in our situation is that we have to have pretax income on an aggregate basis for the most recent three-year period. So when we get to that point, we will probably be reducing our valuation allowance by a substantial amount.

So on an aggregate basis for the previous three years? I'm sorry, can you repeat --?

For the current and prior two-year period, for the most recent three-year period.

I see. Great. Well, great quarter and best of luck. Thank you very much for taking my call.

(Operator Instructions) Orin Hirschman, AIG Investment.

Hi, congratulations on a lot of progress in the quarter. (multiple speakers) Just to follow up on the last set of questions, just it sounds like at this moment in time, there isn't -- I don't know, it could be just because the spec really isn't truly finished and ironed out, but it doesn't sound like there is a competitor at this moment on the radio side. Is that a fair statement?

Well, there's not competition period on the radio side, because the design isn't released.

Okay.

Because the design phase of the project isn't yet complete.

So my question is related to preproduction units. I mean, you know, I assume during the preproduction phase, whether that's a six-month phase or three-month phase, and you're going through a little bit of it now, already, I believe, it -- I don't know if the volumes are meaningful at that point. But I'm just asking for some color on that.

Well, the volumes aren't anywhere near the volumes we would expect as part of a production contract, simply because these are relatively smaller quantities; they're priced somewhat higher than we would expect to be selling production radios at. So we're talking quantities in the hundreds for preproduction radio deployments. We would expect production volumes to be in the thousands.

Could those preproduction volumes total add 1 million or 2 million a quarter for a quarter -- a period of time? (multiple speakers) So you can get --?

(multiple speakers) Well, they have -- they certainly added that -- more than about -- approximately $2.5 million in our Q3.

Just on the radio side itself?

Almost all on the radio side, yes.

Okay. Is there any reason why that shouldn't continue for the next couple of quarters until we get to production?

Well, actually we expected to be down this quarter because of the various staging for the preproduction radios and their testing regimens. So we've shipped basically stage one of the preproduction radio quantities. They're going through a phase of test and acceptance right now, so there's a bit of a lull in the preproduction activities. Due to timing of those radio deliveries and the testing processes, we're actually going to see somewhat lower revenue on the rail project this quarter. But we expect that to ramp up pretty significantly in Q1 and potentially spilling over into Q2 of next year.

Now so just a follow-up as well that's tied to that. Just in terms of the overall guidance for the wireless side to be down slightly from Q3, can you just review again, besides this contributor you just mentioned on the rail radios, what else is in there, if there is anything?

Mostly related to what I just described.

Okay. Just if you would describe the overall -- I mean you have described it on the call pretty definitively, but if you had to pick just one or two other opportunities besides rail and besides insurance that are currently ramping, and then have a good -- very good potential in the next 6 to 12 months, [hopefully, you have] public safety, what would those two or three verticals be?

Well, they're actually a number. That's why we used the word multiple a couple of times in the call script. We see continued strength in MRM, specifically in the Fleet segment. It's been very strong and there just seems to be a lot of momentum there. So we expect continued growth in that area.

Of course, insurance is an emerging application for us. It will start to add to revenues next year. We expect it to be, again, pretty robust in the year after. We see steady and increasing opportunities in the energy sectors, particularly internationally, which is interesting. And, of course, rail has been a good growth engine for us over the last several quarters. And last and not least, we're seeing some -- fortunately, some strength in our satellite business, which just complements everything else I just described.

And just one last question on the wireless side. Just you mentioned now just international utility related, for example. You know, any breaks yet on the long, long, long story of domestic utilities?

Not really. It's more of the same, I would say, though we've seen larger opportunities enter the pipeline. But as we've talked about for many quarters, these things take -- tend to take a while to gestate. And even though the opportunities are coming in and are larger than some we've seen in the recent past, they'll take a while to consummate.

Would you say, though, overall on that business, that you would guess you will see growth year-over-year in this coming fiscal year?

We expect to, yes.

Okay. Okay, congratulations on continuing to hit your milestones since we signed on a few quarters ago as a shareholder. And I hope you continue, with God's help.

We appreciate that. Thank you.

Thank you.

Marc Robbins, Catalyst Research.

Thank you very much, and again, very nice quarter. I'm going to add on to the last questioner's question about the break -- anything breaking through on the utility side. And I guess my follow-up would be -- do you see that maybe, Michael, you're losing some business to the other competitors? Or is it decisions just not being made?

Well, I think there are two factors. I think one is decisions are simply not being made, or if they're being made, they're being made very tentatively. So, in some cases, it's hard to discern when something's gone from an opportunity to a pilot to a larger pilot to a full deployment. I mean, these -- it just tends to be steady increase in engagement with the utility, one you seem to have been designed in, so to speak.

In certain circumstances, we've seen utilities pull back from some of their initiatives. So they may have canceled some of the projects they originally anticipated they would roll out, perhaps because they were a little more ambitious from a capital expenditure standpoint than they were willing to bite off. So we see delays and slower rollouts than we would have hoped for.

Okay. So but you feel very good that you're just not losing the business to someone else?

Not in the areas where we're focused -- or have been focused over the last couple of years.

Okay. Very good. Michael, discuss with me a little bit more about how you described earlier in your prepared remarks the preeminent position you have, or you hold in the wireless business. Tell me again how you phrase that and how you perceive that position?

Well, I might start using that phrase preeminent. (laughter) I like that.

That's copywritten, you know. (laughter)

(laughter) I will call and ask permission.

That's okay. (laughter)

Obviously, in all the markets we serve, we have competitors. But we think our strategy, our focus, and in particular, our focus on technologies and product capabilities that give us a sustainable competitive advantage, really has allowed us to become a leader in many of the market applications we serve. In particular, the MRM applications.

We just have a team of people there who can execute, who understands the applications, who come up with very innovative approaches to solving problems; and the really designing state-of-the-art product platforms, very tailored to the application, and they're all supported by state-of-the-art, back-end, cloud-based, computing platforms, which really allow us to look like a modern supplier in this industry, whereas others may be a little more behind the times.

Okay. Thank you. And then moving on to the next section of my question -- you mentioned that you are now supporting -- I think I heard the number 135,000 versus 120,000 in the previous quarter of -- I'm going to say radio signals or -- that you're monitoring on an ongoing basis. A is, are my numbers right? And B, if I remember correctly, does that kind of indicate to you -- should that indicate to me a bit of a slowing of this trend?

First, to answer the question about the numbers. No, the numbers are not quite right.

Okay.

Last quarter, we had 220,000 units --

Oh, to 135,000? (laughter)

And today -- today was 230,000.

Oh, okay. All right. (laughter) But my question -- okay, thank you for helping me with that number. But my question is still kind of -- my real question still stands, and that is, are we seeing a slowing of this monitoring business? Or are what we really seeing, a shift more of this business towards you producing more radios and there's a real market there, and not quite so much on the monitoring side?

Actually, if you go back two quarters ago, we had 210,000 subscribers; at the end of last quarter, we had 220,000. At the end of this latest quarter, we had 235,000. So we've actually seen greater subscriber increases between Q2 and Q3 than we did from Q1 to Q2. So that doesn't suggest we're seeing a slowing in terms of subscriber uptake; just the opposite, in fact.

Okay. No, you're right. Okay. Good. Thank you. All right. Now you'd said something in your address, earlier address, about the fourth-quarter wireless business being a little bit below the third quarter. Is that a seasonal factor or is that a timing factor? Help me understand that just a little bit.

The main reason that we're expecting wireless revenue to be down marginally from Q3 is solely because of the phasing on the PTC project.

The phasing on of the PTC project?

Yes. As I mentioned earlier, we just passed through the first stage of preproduction activities on that project. And so we captured a good chunk of revenue for that activity in Q3. Because of the testing and the acceptance process associated with those initial deliveries under the preproduction phase of the contract, we're going to see a little bit of a downturn in revenue. And we expect it to pretty significantly going into Q1.

Yes, that -- okay, that was my follow-on, that we'd see kind of a -- the bulge in the snake would kind of work its way through the snake, then. Okay.

Precisely. And we've seen some volatility on this project quarter-to-quarter. It's not unprecedented for revenue to be down from one quarter to the next, but it's oftentimes been offset in the subsequent quarter by a particularly large ramp.

Okay. Even more importantly, are you beginning to see any inroads with your work in the PTC arena in the railroad -- the regular major operating railroad side of the business? Is that beginning to bear any fruit whatsoever? Or are you still -- is it part Scrabble effort?

(laughter) Well, you know, our key focus right now from a business development standpoint is pursuing PTC-related business opportunities with the major rail operators. But as part of that, obviously, we have the opportunity to introduce the complete portfolio of CalAmp capabilities, including products that we may sell into other market segments from our wireless networks business, or even some of our MRM solutions.

Right. And as we've talked in the past, I mean, if the railroads ever figured out what business they were really ever in, and could track engines and track cars, and track freight, like the trucking business could, I mean that would be wonderful for them and terrific for you. And I know that that's where we'd like to see CalAmp go eventually. I was just wondering if we'd made any headway. So, I guess not quite.

Not in any substantive way, but obviously, that's part of our strategy in the real marketplace.

Okay. That's great. Now, last question and I really apologize to you letting me go on. Help me better understand what the satellite business is doing with the whole home video data network. I'm sorry, I only have a physics chemistry degree; (laughter) I can't do this computer stuff any more. I worked out of 360, you know? So what can I say.

So, what's that product all about?

Yes. What is it about and why should I be excited? And then following on, does this device give you -- and probably not -- but does it give you any better inkling as to what this major customer is trying to do, going in the future with his capability satellite and wireless capabilities?

Well, let me try to answer the first question as best I can. So our current key customer in this market is really the only service provider that doesn't offer a whole home video networking solution. And so this platform gives them the ability to introduce that into the market.

So now he's just up to the competition?

Essentially, yes.

Okay.

And from a CalAmp standpoint, this is an incremental product opportunity because it's complementary to what we've traditionally done through the design and manufacture of outdoor receiver equipment. So this is a complementary product. It in no way cannibalizes any of the other business activities we had underway with that customer.

In terms of where is the market going? I'll try to answer it from that point of view. I think that the satellite service providers see an opportunity or perhaps even a need to offer a complete bundle of services -- TV, phone, streaming video. And the easiest way to be able to deliver those bundled services is through a broadband connection to the home.

And we believe that our customer was probably looking at opportunities to be able to expand our offering, to provide broadband solution into the home, whether it's through a partnership with someone who provides a wired service or through a buildout of a network, or through a partnership that would allow them to offer those services through a broadband wireless connection. Obviously, we're in the wireless business and we're in the wireless data business. And if the market ends up going in that direction, whereby the service providers offer broadband services through wireless connections to the home, hopefully, that presents an incremental business opportunity for CalAmp.

And I'm going to step back for a second, and again, I appreciate the audience indulgence. The competitor's product -- was that two separate pieces of equipment made by two different manufacturers? And what I mean is, somebody made the horn amplifier on the roof and then somebody made the other device inside, the high definition video and data stuff, because -- and this is the reason why I ask that. I always believed that you were one of the very, very few wireless folks that could do both satellite -- or all three satellite coaxial and RF, and that's tricky business.

I would agree with that last comment. In terms of how companies delivered content to the home, outside of outdoor receiver devices, the satellite service providers themselves today cannot offer any broadband connection to the home, other than through one of the cable providers or one of the (multiple speakers) --

Right. I'm sorry, Michael. What I'm saying is, is you have this device that you're now manufacturing to deliver, that has both satellite capability and some really neat, whole-home ability, okay, which is not satellite stuff. It's RF and whatever else.

Yes.

And I'm wondering -- this is a complete package that you're producing for your customer. The other customers, the competitive products that seem to have this already, it must have been parceled out. It's not one supplier supplying the whole package.

No, no, no. There are multiple competitors serving each of the major broadcast TV service providers in the US. The competitor to our main customer actually has integrated the whole-home video networking capability into the outdoor receiver equipment. So it's one integrated device. However, that integrated device sells for somewhat higher ASPs than, let's say, a device that doesn't include this whole-home video capability integrated in with the outdoor receiver.

I got it. Hey, thank you. I'll get back in the queue. I appreciate your help.

No further questions at this time. I'll turn the call back over to Michael Burdiek for closing remarks.

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

This concludes today's conference call. You may now disconnect.