CAMP4 Therapeutics Corp (CAMP) 2013 Q4 法說會逐字稿

Greetings, and welcome to the CalAmp fourth-quarter and full-year fiscal 2013 results conference call. At this time all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. (Operator Instructions). As a reminder this conference is being recorded.

It is now my pleasure to introduce your host, Lasse Glassen of Addo Communications. Thank you Mr. Glassen. You may begin.

Thank you and good afternoon, everyone. Welcome to CalAmp's fiscal 2013 fourth-quarter and full-year 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 the responses to questions may contain forward-looking statements. Words such as may, will, expect, intend, plan, believe, seek, could, estimate, judgment, targeting, should, anticipate, goal, and variations of these words and similar expressions are intended to identify forward-looking statements. Actual results could differ materially from those implied by such forward-looking statements due to a variety of factors, including product demand, competitive pressures and pricing declines in the Company's satellite and wireless markets, the timing of customer approvals and new product designs, intellectual property and finishment claims, interruption or failure of our Internet-based systems used to wirelessly configure and communicate with the tracking and monitoring devices that we sell, integration issues that may arise in connection with the Wireless Matrix acquisition, customer response to this acquisition, and other risks and uncertainties that are described in the Company's Annual Report on Form 10-K or fiscal 2013 as filed today 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 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.

Thank you, Lasse. Good afternoon and thank you for joining us today to discuss CalAmp's fiscal 2013 fourth quarter and full year. I will begin today's call with a review of our financial and operational highlights, Rick Vitelle will provide additional details about our financial results, and I will wrap up with our business outlook and guidance for the fiscal 2014 first quarter. This will be followed by a question-and-answer session.

Fiscal 2013 was a transformative year for CalAmp, highlighted by consolidated revenue growth of 30% and significantly improved profitability. At the topline, our performance was driven by a 41% year-over-year revenue increase in our Wireless Datacom segment, due to strong continued demand for our Mobile Resource Management or MRM products, and growing contributions from our energy, rail and public safety verticals.

The strong revenue growth, along with improving gross margin, boosted our profitability in fiscal 2013 with non-GAAP earnings per share doubling compared to the prior year. During fiscal 2013, we made significant progress on key strategic initiatives that we believe will further expand our addressable market, improve our gross margins, and strengthen our competitive position. Our investment in R&D increased almost $3 million over the prior year to $14.3 million, which resulted in the introduction of more than two dozen new products and seven patent applications. We believe that our strategic roadmap and our focused effort in R&D will continue to drive product innovation and organic growth going forward.

Our ongoing focus on international expansion resulted in sales outside the US growing to 18% of consolidated revenues for fiscal 2013, up from 11% in fiscal 2012. Within our MRM business, international sales accounted for 30% of total revenues, up from 14% in the prior year. We believe that our current products are competitively positioned to drive further international revenue growth as we develop additional channel partners and increase our global footprint.

In a strategic move to expand our addressable market and move further up the MRM value chain we completed the acquisition of Wireless Matrix in early March. We believe this acquisition is a foundational component of our long-term growth strategy, positioning CalAmp as a leading provider of integrated hardware and software solutions within our core verticals. We also believe that this acquisition will enable us to address new applications with major global enterprise customers.

Looking at our fourth-quarter results, consolidated revenue was $48.4 million, up 29% year-over-year with Wireless DataCom revenue up 45% to a record $37.3 million. Satellite revenue in the quarter was $11.1 million, which was in line with our expectations. At the bottom line we generated GAAP based earnings per diluted share of $0.11 excluding the effects of a $29.2 million tax benefit that Rick will describe in a few minutes. Non-GAAP EPS was $0.16, which excludes the impact of intangible amortization, stock-based compensation and acquisition-related expenses.

In the quarter, we generated cash flow from operating activities of $5.8 million and $16.6 million for the full year. We also successfully completed a common stock offering in February that generated net proceeds of $44.8 million which were used to fund the acquisition of Wireless Matrix. The offering was significantly oversubscribed and is indicative of the strong confidence in investors having CalAmp and our growth opportunities.

Now I'd like to review our operational highlights for the fourth quarter. The Wireless DataCom segment posted record revenue in the fourth quarter as momentum continued across a number of our key verticals. MRM products accounted for approximately 60% of total Wireless DataCom revenue with wireless networks applications recurring revenues accounting for the remaining 40%.

We continue to experience solid demand for our MRM products in the fleet management, asset tracking, stolen vehicle recovery, and vehicle finance verticals. We are also seeing strong demand for our MRM products internationally and we are particularly encouraged by this ramp up by launch customers in the MEA region as well as continued growth in Latin America. At the end of our fourth quarter we had over 2.1 million MRM devices in service with customers around the globe.

Looking ahead, we are increasingly encouraged with the traction we are seeing in the usage space insurance vertical, which we believe has the opportunity to generate meaningful revenue in the second half of fiscal 2014. Our products are competitively positioned, both domestically and in Europe, and we are actively supporting key customers who are in the early stages of launching their telematics-based insurance initiatives.

Turning to our wireless networks business, fourth-quarter performance was solid, driven by strength across all of our major verticals. In the vehicle finance and remote start markets, the number of unique subscribers for our bundled service offerings grew to 329,000 at the end of the fourth quarter, up from 305,000 subscribers at the end of the third quarter. This subscriber base provides an ongoing recurring revenue stream for our Wireless DataCom segment.

In the energy sector, we have seen a significant uptick in activity. During the quarter we announced that CalAmp had been chosen to supply the New Hampshire Electric Cooperative with wireless communications hardware for its wide area smart meter advanced metering infrastructure, providing critical data backhaul and distribution automation capabilities.

We also announced a new contract with Pepco Holdings, one of the Mid-Atlantic region's largest energy delivery companies, to supply expanded bandwidth wireless data communication devices as part of their wide area network. We are on track with our development activities to support this project and expect to ramp shipments in the third fiscal quarter.

In support of market expansion in the energy vertical, we recently announced CalAmp's energy management control, which is a comprehensive scalable low control analytical solution for monitoring and managing demand response for smart grid applications. We believe that our continued R&D investments and product innovation such as this will continue to fuel organic growth in the energy sector in the months and years ahead.

During the quarter, we completed shipments on our previously announced award to supply wireless communication devices for interoperable positive train control, or PTC, for Southern California's Metrolink commuter rail network. Looking ahead, we expect revenues from rail transportation will be lower during the first half of fiscal 2014 due to a lull in activity between last year's completed development projects and follow-on production orders that are not expected to begin ramping until the second half of fiscal 2014.

Also during the fourth quarter, we announced a development agreement with Caterpillar to provide the world's leading heavy equipment manufacturer with ruggedized wireless routers that will enable vital data communications for equipment deployed around the globe. Due to upfront development and integration requirements, we expect that meaningful revenue from the project will likely not be seen until the fourth quarter of this fiscal year at the earliest.

Now moving on to our Wireless Matrix acquisition, the transaction closed during the first week of March. The integration process is proceeding according to plan and, operationally, the business is performing in line with our expectations. We are more bullish than ever with the prospects of leveraging Wireless Matrix robust mobile workforce management and asset tracking applications to build upon our current product offerings in existing markets. We believe this acquisition accelerates our development roadmap, enabling CalAmp to offer higher-margin turnkey solutions for new and existing customers, and increases our relevance with mobile network operators and key channel partners in the global M2M marketplace.

Turning to our Satellite segment, revenue in the fourth quarter was $11.1 million, an increase of 38% sequentially but down 7% year-over-year. The fourth-quarter gross margin of 16.5% was consistent with our expectations. We expect that our Satellite business will continue to generate gross margins in the mid- to high teens and contribute meaningfully to our profitability going forward.

With that I will now turn the call over to Rick Vitelle, our Chief Financial Officer, for a closer look at our fourth-quarter and full-year 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 2013 fourth quarter.

Consolidated gross profit for the fiscal 2013 fourth quarter was $15.1 million, an increase of $4.5 million over the same quarter last year, predominantly as a result of higher revenues in the Wireless DataCom business. Consolidated gross margin was 31.1% in the latest quarter compared to 28.2% in the fourth quarter of last year. The increase in the consolidated gross margin percentage reflects the higher proportion of total revenues represented by the Wireless DataCom segment in fiscal 2013 versus the prior year.

Looking more closely at gross profit performance by reporting segment, Wireless DataCom gross profit was $13.2 million in the fourth quarter with a gross margin of 35.4%. Year-over-year, Wireless DataCom gross profit was up by $4.1 million while gross margin held steady.

Our Satellite business had a gross profit of $1.8 million in the fourth quarter with a gross margin of 16.5%. This compares to gross profit of $1.5 million and gross margin of 12.1% in the fourth quarter of last year.

Next, looking at bottom-line results, GAAP basis net income for the fiscal 2013 fourth quarter was $32.6 million, or [$1.06] (corrected by company after the call) per diluted share. During the fourth quarter of fiscal 2013, the Company recognized an income tax benefit of $29.2 million as a result of eliminating the deferred tax asset valuation allowance associated with net operating loss and tax credit carryforwards that are expected to be utilized in future years. Excluding this income tax benefit, GAAP basis net income in the fourth quarter would have been $3.4 million, or $0.11 per diluted share compared to net income of [$1.6 million] (corrected by company after the call) or $0.06 per diluted share in the fourth quarter of last year.

Our non-GAAP net income for the fiscal 2013 fourth quarter was $4.8 million, or $0.16 per diluted share, compared to non-GAAP net income of $2.6 million or $0.09 per diluted share for the same quarter last year. Non-GAAP earnings excludes the impact of intangibles amortization, stock-based compensation, and acquisition-related expenses of approximately $300,000 for the fourth quarter, and includes an income tax provision for cash taxes paid or payable for the period.

For a reconciliation of the GAAP and non-GAAP financial results, please see our fourth-quarter earnings press release that was issued today which is available on our website.

Beginning in fiscal 2014, we expect our GAAP basis effective income tax rate will revert to a more typical level of around 40% based on full US federal and state statutory tax rates, even though on a tax return basis our income will still be largely sheltered from taxation by our NOL and tax credit carryforwards. Our non-GAAP earnings method recognizes as a tax expense only the taxes paid or currently payable in cash, and for this reason our non-GAAP earnings will not be affected by the year-over-year comparability issues arising from the elimination of the deferred tax asset valuation allowance. So we encourage our analysts and investors to pay particular attention to the non-GAAP results going forward.

Now moving on to the balance sheet. At the end of fiscal 2013, the Company had cash and equivalents of $63.1 million, which included net proceeds of $44.8 million raised from a public stock offering in the fourth quarter, and total bank debt of $1.8 million. Shortly after the end of fiscal 2013, CalAmp completed the previously announced acquisition of Wireless Matrix for a cash payment of approximately $47 million net of cash acquired, and also entered into a new bank term loan for $5 million.

Giving pro forma effect to these two transactions as if they had both occurred at the end of fiscal 2013, the year-end balances of cash and bank debt would have been $19.6 million and $5 million, respectively. The pro forma net cash balance, that is cash less bank debt, of $14.6 million at the end of fiscal 2013 represents an increase of $12 million over the net cash balance of $2.6 million at the end of fiscal 2012.

Our total outstanding debt at the end of the fourth quarter was $4.7 million comprised of $1.8 million under our bank term loan, and the $2.9 million carrying value of the non-interest-bearing note payable issued in May 2012 as part of the purchase consideration for the Navman wireless asset purchase. The Navman note payable, which had an original face amount of $4 million, is payable in the form of sales price rebates as sales were made to Navman under the five-year $25 million supply agreement.

Our total inventory at the end of the fourth quarter was $13.5 million, representing annualized inventory turns of approximately 10 times. At the end of the immediately preceding quarter, inventory was $13.2 million, which represented annualized inventory turns of nine times.

The consolidated accounts receivable balance was $19.1 million at the end of the fourth quarter. This represents an average collection period of 38 days, which is slightly better than our receivables collection rate during the previous quarter.

With that, I'll now turn the call back over to Michael 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 2014 first quarter consolidated revenue in the range of $50 million to $54 million. We anticipate Wireless DataCom revenue in the first quarter will be significantly higher on both a year-over-year and a sequential quarter basis. The revenue contribution of the Wireless Matrix business is expected to more than fully offset the projected lull in shipments of positive train control radios in the first quarter.

Satellite revenue in the first quarter is expected to be up on a sequential quarter and relatively flat on a year-over-year basis. At the bottom line, we expect first-quarter GAAP net income in the range of $0.01 to $0.05 per diluted share, and non-GAAP basis net income in the range of $0.11 to $0.15 per diluted share. We expect that our first-quarter GAAP basis operating results will be impacted by transaction and integration expenses associated with the Wireless Matrix acquisition, of approximately $600,000.

Based on our latest projections we expect the second half of fiscal 2014 to be stronger than the first half, as some of the recently announced opportunities begin ramping and operating expenses revert to a more normalized level as a result of synergies and expense reductions associated with the Wireless Matrix integration.

In closing, I'd like to recap some key points drawn from our recent developments. First, our Wireless DataCom segment posted impressive revenue growth in the fourth quarter as well as the full year, driven by strength across all of our core verticals with particular momentum in our MRM products business. Second, our unique hardware, software and services portfolio as supported by established channel partnerships with global reach, has given us the leverage and scale to pursue increasingly larger opportunities. And finally, we believe the Wireless Matrix acquisition will accelerate our growth prospects, strengthen our competitive position within key verticals, and increase our subscription and fast-paced revenues.

Overall our competitive position continues to improve as we pursue opportunities for integrated hardware and software solutions for larger global enterprise customers. We have established a solid foundation and expect to continue to drive profitable growth in the months and years ahead.

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

(Operator Instructions). Mike Walkley, Canaccord Genuity.

Thank you very much. Congratulations on the strong results. Michael, maybe just on a high level, I realize you just closed the Wireless Matrix acquisition. Could you discuss some customer feedback and synergies you believe you might be able to capitalize on and maybe just any commentary on the potential new deals, given your new capabilities and scope?

Sure. There's sort of two parts to the story. There's the legacy Wireless Matrix customers, obviously, and then there are existing CalAmp or prospective CalAmp customers.

I'd say on both fronts the response has been very positive. Obviously, Wireless Matrix being married up to CalAmp really buttresses, I think in many ways, their channel initiative. Obviously CalAmp is a pretty solid and secure financial platform to operate from, certainly much more so than the Wireless Matrix employees and channel partners were able to operate from before. So that's very positive.

So there were probably opportunities in the Wireless Matrix pipeline that are more secure today than they were before we announced the acquisition.

In terms of CalAmp customers, again there are kind of two parts to that story. There are existing customers for MRM products, like Wireless Matrix was before, and of course there are key customers and channel partners for our wireless networks business in the energy, rail, government market segments which view the ability for CalAmp to provide a mobile workforce management solution as highly complementary to the types of products and services we were offering before.

On the MRM product side obviously a little bit of concern, given Wireless Matrix competed with some of our key customers. But I think in general, our customer base there is accepting of our overall growth strategy and acknowledges that we are focused on specific verticals, not necessarily across all verticals where some of our traditional MRM products customers are focused.

Great, thanks. And just for modeling purposes, can you guys help us with the first quarter of Wireless Matrix, just the pro forma or OpEx levels for the Company within consolidated and maybe where you think that pro forma OpEx run rate is as the year plays out, and could you consolidate some costs?

Sure. When we announced the acquisition back in December, there was obviously some public information available for Wireless Matrix existing operations. At that time, and again I'm going from memory here, their OpEx was around $25 million per year. As we talked about in our last earnings call, our classification to some of that OpEx would be a little bit different than the accounting approach taken by Wireless Matrix prior to us integrating the operations. So some of that OpEx would naturally been folded up into cost of sales in terms of service delivery initiatives and efforts.

So on a normalized basis, we would have classified some of that OpEx into cost of sales. And so the OpEx was probably from a CalAmp perspective somewhere in the $22 million to $23 million range on an annual basis. Obviously we set out some objectives when we announced the acquisition and we went through the equity raised back earlier this year, and we had suggested that we expected to take out certainly more than $2 million potentially more than $3 million of that OpEx in terms of headcount reductions and other synergies.

We obviously -- also obviously eliminated the public company expenses. And so on a normalized basis, one followed the sort of transitory or transitional expenses are moved out as we move into Q2 we would expect sort of a pro forma OpEx and support of Wireless Matrix to be less than $20 million a year.

In the first quarter, obviously we are bearing pretty much the full brunt of that pre-existing OpEx. The first quarter is more like a quarter of the $22 million or $23 million in terms of incremental OpEx over what would be kind of normalized CalAmp OpEx run rate in Q1 without Wireless Matrix.

Great, that's helpful. Just wanted to dig in a little bit more to some of your commentary about the stronger second half of the year with some of your new announced customers. How should we think about the size of a couple of these big opportunities? Maybe a Caterpillar or the Pepco, just in terms of when you think it hits and kind of a long-term opportunity with those type of customers?

There are at least four, potentially five initiatives that could contribute in the second half of this fiscal year that won't in any way impact the results for the first half of the year.

Number one, it's the insurance Telematics opportunities that are very much moving through our pipeline. We believe that that could contribute meaningfully to revenues in the second half of the year. It's unlikely that will impact Q2, but it certainly could impact Q3 and Q4. We are involved in a couple of control launch initiatives with a couple of key insurance opportunities, and so we are becoming more confident that that will contribute in the second half of the year.

In terms of size, I hate to speculate. But it's probably in the few millions of dollars of opportunity, incremental opportunity in the second half of the year.

Another key project that we are involved in is the Pepco Holdings smart grid project. We had some revenue from Pepco Holdings in Q4, but that was for standard product and our existing portfolio, we are currently working on a brand-new radio design, it's a broader band, narrowband, I hate to use two kind of contrasting references, but a broader band product that will offer them significantly improved throughput for their existing spectrum holdings. We are going through a product altercation phase right now with Pepco, and we expect that we will begin shipping those radios against our contract sometime in Q3 again, in terms of incremental opportunity, probably similar in scope or size and magnitude as what we see as a potential contributor on the insurance front.

Then of course it's PTC. We don't expect much, if any, revenue from PTC this quarter, potentially the same situation next quarter. But, as the deadline becomes ever nearer, we believe that there is a degree of pent-up demand developing in the rail marketplace and that eventually that demand has to break loose, so we would expect that PTC will certainly contribute more in the second half of the year than it will in the first half.

In terms of Caterpillar, again we have announced a development contract. We've gone through one round of product design and validation, we're going through sort of a Phase II in that development program, the first phase being targeted essentially legacy or older types of heavy equipment and product platforms. The second phase involves essentially upgrades to those base platforms that would address a broader portfolio of their products.

And Caterpillar is very, very rigorous in terms of how they qualify products and qualify production processes. And so we are deep into their program in terms of their standards and processes. And all of that will take time to work through the normal system with Caterpillar.

We may see some revenue from Caterpillar later this year, but I would expect most of the ramp in contribution, which could be significant, begin happening sometime next calendar year.

And then the last thing, which we haven't really talked much about, but it's the introduction of a new satellite data telemetry platform to serve existing Wireless Matrix customers in the rail and utility markets. Wireless Matrix had [Endolite], the satellite communication product, about two years ago, they had not been able to sell new hardware products, really initiate any new activations for satellite services for nearly 18 months.

We are preparing to introduce a new satellite platform that will allow us to sell hardware and to begin to activate new data subscriptions, once that satellite platform is introduced. We expect that to take place sometime over the coming months.

And so there, again, we would see some potential contribution in the later half of this year from that initiative.

Great, thanks. Just I'll ask one more and pass it on to the other analysts. But just in terms, since you ended there, in terms of your recurring revenue with Wireless Matrix, can you give us kind of the recurring revenue for the Company post the deal here, maybe what's implied in your guidance and how you can see that trending longer-term?

When we announced the deal and talked about it on the last earnings call, we approximated recurring revenues, whether they are SaaS-based data services or air time services to the various applications of being approximately 20% on a consolidated basis. As we look at our guidance for Q1, it's pretty close to that. Maybe a percent or 2 lower than 20% of our consolidated guidance.

(technical difficulty) with some of these initiatives?

Excuse me?

Would you expect that percent to grow over time with some of these initiatives?

We expect -- I wouldn't necessarily expect the percent to grow this fiscal year, because we expect our other businesses to grow, too. So we expect everything to grow. But we don't expect the recurring revenues to grow any faster than our other products and offerings in our Wireless DataCom segment.

Okay, thank you. Good luck executing -- (multiple speakers)

Just to add to that, that could change over time. Obviously we are focused on growing recurring revenues, and so we are obviously focusing a lot of investment in that area.

Great. Best of luck executing on all the initiatives you have going on this year.

Appreciate it. Thank you, Mike.

Howard Smith, First Analysis.

Yes, thank you. Good afternoon, gentlemen, and congratulations on a strong end to a solid year. My question is in regards to Wireless Matrix, you talked about in the last question -- session about the revenue side specifically, and customer reaction. I'm just curious, now that you have had that asset for about seven weeks, is that anything positive, negative or otherwise just noteworthy that you've seen as being the operator of that asset?

I would say probably one of the bigger surprises, but hope for outcomes was the reaction of some of our customers in the energy and public works markets. They are highly engaged with us in terms of contemplating what we might be able to do from a mobile workforce management standpoint. So I think we are starting to see some real synergies from a channel perspective particularly in, again, the energy public safety and public works markets.

That's interesting. That reaction. More of a housekeeping question, on the international side. You mentioned part of the strength in this quarter was due to some new customers coming on board. Is there kind of an initial stocking order to get them up and running, and then maybe Q1 a little falloff from those customers, or is this kind of the run rate with those customers going forward?

No, our customers generally aren't kind of stocking in nature. They don't build up a warehouse of materials and then start feeding installations from that. That's not the dynamic of our MRM products business, for sure.

And so in many cases, a lot of our international customers which contributed to revenue in Q4 will continue to ramp over time, just as our key customers have in the United States over the last three or four or five years.

So this kind of run rate is the start and you continue to build as those customers ramp with their -- growth of their business.

We certainly hope so.

Those are my questions, thank you very much.

Mike Crawford, B. Riley & Co.

Thank you. Getting back to the insurance opportunity, which is really sounds like pulling into the second half of the year, there's a couple of big insurers here in the US, Progressive and Allstate, that have their Snapshot and Drive Wise programs that are already up and running. Is that something that you're participating in already? You did mention some early-stage controlled launches that you're involved with. But what has changed in the insurance market in the last three months?

In terms of the two insurance providers that you mentioned, we are not involved in either one of those two initiatives. And in terms of the Progressive rollout, it's markedly different than the kind of control launches that we are involved in. The earlier Progressive UBI program and the Snapshot device is different in nature than what many of the insurance carriers are contemplating in terms of driver behavior, driver assessment, risk management types of initiative.

Our -- the programs we are involved in, either in pilot or in controlled launch, involve essentially real-time telematics where a device is installed in a vehicle, whether it's commercial or consumer, and it's providing either -- either a stream of data or data that is someways assessed and compressed and analyzed in real-time at the device level and then sent up to back in software and applications. And so that type of process is different from what Progressive has been doing mostly up to this point in time. And so from a process standpoint it's quite a bit different.

In terms of what's changed over the last three months, things have just progressed through the pipeline. And what were pilot programs at one point in time now look to be more like controlled launches.

Thank you, Michael. And then back at distributor (technical difficulty) you were demoing that asset management and control solution for load control. And then, subsequently, we've seen this company Silver Spring Networks go public with what seems to me a pretty similar solution. How would you contrast what you're able to do regarding both control systems and the Silver Spring Networks, what they can do?

Well, how do I answer that question? Silver Springs has traditionally provided data communications solutions for smart metering and smart grid applications. That's really their core business; to a certain extent that's what we've been doing over the last several years within our wireless networks business. As with Silver Springs, obviously, we are looking to expand our offering with utility customers from just hardware and data communications solutions over into the application arena. I detect that Silver Springs is making similar moves.

In terms of where they are exactly in terms of SaaS-based or recurring revenue initiatives in the utility space, I can't really say. I'm not sure they are necessarily focused on demand response as much as we are targeting demand response with our software and solution initiatives.

Okay. Thank you. And then also, with Wireless Matrix, you already, I think, at IWCE were showing a workforce management solution for the public safety market. And is that -- clearly that is something had been working on before the acquisition is finalized. How quickly can we roll out this FleetOutlook-like products for other verticals?

We can roll them out immediately. Wireless Matrix has sold FleetOutlook and their mobile workforce management platform into the utility market, for example, they had good presence amongst a number of different municipalities for public works, and public workforces. So in many ways we'll just continue on with the march. Obviously our channels are much broader, probably deeper in many cases in the utility market, and the public safety and public works arena. And so it is really leveraging our existing channels to further expand and grow the overall pipeline of opportunities. And so that's something that we are pursuing today, Wireless Matrix was pursuing before.

In terms of the specific demonstration at IWCE, what I think you saw there was a converged solution, whereby CalAmp can offer a range of different applications, including mobile work force management applications through what we might term the CalAmp app store, to serve a range of different applications whether they're public safety, public works, utility and oil and gas customers, and that is sort of our concept and strategy going forward.

Okay, thank you. And just final question on Caterpillar. So your radios are being qualified now, and that's a process you expect to take six to nine months, and then it sounds like, and then you talked about revenues more meaningful in the next fiscal year. I was wondering if you could help size that opportunity in terms of units and or dollars for the Company.

I would love to give you a specific estimate. I can't. Caterpillar, even in its slow quarters and slow years, builds a lot of products. I don't know the exact quantity in terms of unit shipments they make per year, but it's certainly well North of 100,000. So if our telematics designs are integrated even narrowly in one or more of their factories on one or more of their product platforms, it represents pretty significant unit volumes for us.

Okay. Thank you very much.

[Travis Hook], Craig Hallum.

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Pardon me one second, we are having a brief technical issue. Your line is now open, you may proceed with your question.

Thanks and thanks for taking my call. You've been speaking a lot about several initiatives going on and it sounds like in a good way you certainly have a lot of irons in the fire here. But between a pretty sizable acquisition and several large enterprise customers, are you on board with hopefully some more down the road? You sort of have a high-class problem and that is execution as far as -- I was just wondering if you could speak to your priority as far as the next couple of quarters or how you plan to stay on focus and manage what is seemingly a lot of different initiatives going on. And then I have a quick follow-up.

That's a great question. And based on our recent discussion, in terms of providing specifics on these opportunities, you might've seen that they're fairly recent opportunities and maybe even recent product development initiatives. That's really not the case. If you look at the insurance market, we have been talking about that for two years. We introduced a product almost two years ago that today is involved in a number of various pilot projects, and is part of the couple of the controlled launches I described.

So certainly whenever you begin to deploy relatively immature technology in new market applications, and when it involves significant unit quantities, obviously you encounter a number of different challenges there, both in terms of engineering, engineering updates, as well as product support and field application engineering, and as we've grown our business we've grown -- we've increased those resources. And so, I think in general we're pretty well prepared to deal with these potential significant ramps in the insurance market.

In the energy space, the product that [Fi] initially qualified and is actually taking some shipments of in the last quarter is a product that we introduced again almost two years ago. We are adapting that product to this broader band application and the spectrum assets that are specific to Pepco Holdings. There's engineering effort involved in that, but we've got the engineering resources we believe to support that.

On PTC these are standard products, it's really an operational challenge if a significant demand develops in the second half of the year. And I think, again, we've got scalable operations and a lot of flexibility from a manufacturing perspective, so I think we can support that.

Caterpillar, I think we're going to have plenty of time to prepare. They have, again, a very, very rigorous product qualification and production process qualification and verification program. And Caterpillar, in many ways, would help us along if we ran into bumps in the road from a production perspective, whether it was capacity or quality. So I feel reasonably comfortable that these initiatives are -- can be managed in a very effective and efficient way.

Great, thanks. As I said, it's a high-class problem, you guys are well on your way to becoming a small cap -- small-cap conglomerate. So good work.

I haven't heard that reference.

And then just a housekeeping question on margins. You earlier spoke to some of the OpEx but I was wondering back on the Wireless Matrix acquisition, you had speculated that you might see naturally a pretty big jump in margins due to the vastly different margin profile of SaaS versus hardware. I was just wondering for housekeeping and modeling, could you --? Now that you've had it for a couple of weeks could you speak to that a little bit more as far as the next couple of quarters gross margin wise as to what you're sort of looking for, hoping to achieve?

Sure. On a -- for the Wireless DataCom segment, which Wireless Matrix is being integrated into, it represents approximately a 5% increase in gross margin as compared to where we have been the last couple of quarters. And then of course, on a consolidated basis, that has to be factored down a little bit roughly 4% on a consolidated basis.

Great. Thanks. Appreciate it.

Mike Latimore, Northland Capital.

Thank you. Great year there. On the PTC railroad opportunity, when the spending does return in that category later this year do you see it at levels similar to what you just had? Higher, lower? How do you think about that? And what's the main factor sort of causing the policy for a few quarters?

Sure. So if you look back on fiscal 2013 as a whole, we had approximately $15 million of rail revenue. About half of that was specifically related to the product development program that we were involved in and did not in any way involve the shipment of production radios. So about $7.5 million was project revenue. Another $2.5 million or so was related to the Driverless Train project that we were involved in for mining application in Australia. So that's about $10 million out of the $15 million of rail revenue last year, then we had about $5 million of actual PTC production radio revenue.

So obviously in Q1, we are looking at a very late quarter, probably just in the range of a few hundred thousand dollars. Q2 could be similar. But our goal and our hope is that we would exceed the $5 million of reduction revenue that we experienced last fiscal year. In some ways what we had in terms of overall PTC revenue kind of distorts the picture, and in terms of the $5 million of production revenue we did have last year, a lot of that was really dovetailed and somewhat related to the development program. I wouldn't consider that to be sort of normal demand in any way.

That's helpful. In terms of the number of CalAmp salespeople at year-end, what was that number, and do you plan on adding any organic leaders here?

Oh my. I don't know what the exact number of salespeople -- what the headcount was there, but definitely would expect we would be adding headcount in the sales and marketing area this fiscal year.

Okay. And then just kind of a housekeeping, what will be the intangible asset amortization costs per quarter going forward here?

I'll let Rick address that question.

Was that the amount of amortization?

Yes.

It's the net effect of newly acquired identifiable intangibles coming onstream, and some becoming fully amortized in the first half of the current fiscal year, but it's going to average right around $1.5 million on a quarterly basis in FY '14.

Great. And also, was the Navman contribution in the quarter similar to last quarter?

It was down a little bit. I believe in Q3 it was about $2.6 million, and the latest quarter perhaps just a little under $2 million.

Great. Thanks a lot.

Shai Dardashti, DCM.

Just as an observation -- first an observation. What you have done in the past three years should be a Harvard case study. It's absolutely spectacular and it's much more than a quarter-to-quarter story what's happening here. So thank you.

We appreciate that, Shai. Thank you.

And I am noticing there's an evolution in the competition in the 10-K. I'm curious over a 24-month perspective, which companies do you expect to compete more with over time?

Oh my. That's a very -- we will have to factor that -- we will have to work that into the case study. We talked a little bit about this, I believe, on the last call and maybe specifically to one of your questions, Shai. I believe that, increasingly, we will be competing with larger types of companies and competitors.

If you look at the overall mobile resource management marketplace, there's one large player and its name is Trimble. I would expect as we get deeper into some of these construction equipment, heavy equipment markets, potentially long-haul markets, that we would bump into people more along the profiles of a Trimble than perhaps some of the people we bumped into in the past.

Also, the competitive landscape may change marginally as we expand more internationally, but not significantly. We would expect the landscape of competitors to remain pretty much the same.

In terms of software and services, you see -- we expect to see a fair amount of consolidation. And in that sense, again, we probably will be looking at larger competitors, not smaller ones on average from a software and services perspective as it involves mobile workforce management and asset tracking solutions.

And if I could really nitpick, I'm seeing the order of the names of the companies and the 10-Ks are different year to year. And it's not alphabetical. How are these --? What's the sequence that's being used in the 10-K as to companies?

We've had -- this is Rick, Shai. We've had some consolidation among our subsidiaries, so if you're referring to our subsidiaries list, or the reporting segments (multiple speakers)

No, I am looking at, there's a list -- I'm sorry.

If you're referring to the reporting segments, Wireless DataCom versus Satellite, up until a couple of years ago we typically listed our Satellite segment first.

I believe his question related to the ordering of competitors as described in the 10-K.

Okay. I don't think there is anything underlying the sequence with which those names are listed. It's just a function of how they were updated with various individuals within the Company.

Okay, thank you.

At this time, there are no further questioners. I would like to turn the call back over to management for any closing comments.

Thank you for joining us today, and we look forward to speaking with you at the end of our first quarter.

Ladies and gentlemen, this does conclude today's teleconference. You may disconnect your lines at this time. Thank you very much for your participation and have a wonderful evening.