CAMP4 Therapeutics Corp (CAMP) 2014 Q2 法說會逐字稿

Greetings and welcome to the CalAmp Second Quarter Fiscal 2014 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, operator. Good afternoon, everyone, and welcome to CalAmp's Fiscal 2014 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, 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 on the Company's wireless and satellite markets, the timing of customer approvals and new product designs, intellectual property infringement claims, interruption or failure of our internet-based systems used to wirelessly configure and communicate with tracking and monitoring devices that we sell and other risks and uncertainties that are described in the Company's annual Report on Form 10-K for fiscal 2013 as filed on April 25, 2013 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. Michael Burdiek will begin today's call with a review of the Company's financial and operational highlights.

Rick Vitelle will then provide additional details about the Company's financial results and Michael will then wrap up with CalAmp's business outlook and guidance for fiscal 2014 third quarter. This will be followed by a question and answer session. 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, everyone. Thank you for joining us today to discuss CalAmp's fiscal 2014 second quarter results. I am very pleased with our second quarter performance, particularly the strong revenue growth and solid profitability. Our focused execution, coupled with continued strong customer demand for our products and services, resulted in a 38% year-over-year increase in Wireless Datacom revenue in the quarter. This growth was driven, to a large extent, by our Mobile Resource Management, or MRM, products business, which benefited from significant channel demand for stolen vehicle recovery products along with continued strength in fleet management and asset tracking. Our Wireless Networks business, which comprises the remainder of our Wireless Datacom segment, also generated strong year-over-year growth.

The acquired operations of Wireless Matrix, along with growth in the Energy vertical, more than offset a year-over-year reduction in rail revenue resulting from the completion of our Positive Train Control or PTC development project in the second quarter of last year. In addition, our Satellite segment once again generated meaningful operating cash flow and contributed to our bottom line profitability. On a consolidated basis, revenue for the second quarter was $58.8 million, up 34% compared to the second quarter last year. At the bottom line, we earned $0.08 per diluted share on a GAAP basis and $0.19 per diluted share on a non-GAAP basis; just above the high end of our non-GAAP guidance range for the quarter. Cash flow provided by operating activities in the second quarter was $8 million and we ended the quarter with a cash balance of approximately $30 million. CalAmp's strong momentum exiting the second quarter and healthy pipeline of new opportunities, driven by an expanding network of global channel partners and robust portfolio of innovative products, provides the Company with a strong tail wind as we enter the second half of fiscal 2014.

Now, I would like to review our operational highlights for the quarter. The Wireless Datacom segment posted record revenues in the second quarter with MRM products accounting for approximately 60% of total Wireless Datacom revenue and Wireless Networks products and services which includes contributions from the Wireless Matrix acquisition accounting for the remaining 40%. This is a small shift from last quarter where the MRM products to Wireless Networks revenue mix was approximately 55% to 45%. Similar to recent prior quarters, we are continuing to experience very strong customer demand for our MRM products. Fleet Management, which continues to be the largest application within MRM, along with asset tracking, stolen vehicle recovery, and the vehicle finance verticals, are all growing at a healthy clip. International demand from customers using our MRM products continues to be very robust and the recent investments that we have made to expand our global footprint have helped push international revenue in the first half of fiscal 2014 to 20% of consolidated revenue, up from 15% in the first half of last year. In fact, the channel demand for stolen vehicle recovery products from Brazil was exceptionally strong in second quarter.

We are increasingly bullish on insurance telematics as a future growth driver of our business and we are seeing encouraging signs as we continue to actively support a handful of customers who are in the initial stages of launching their telematics-based insurance offerings. We believe our products are competitively positioned, both in terms of functionality and price, and we are closely monitoring this developing ecosystem so that we can rapidly respond to opportunities as they rise in the future for CalAmp to provide value beyond just the hardware component. In the shorter term, we expect to generate meaningful revenue from insurance carriers starting in our third quarter. As our technology matures and our customers validate their business models, revenue from insurance telematics applications could become a significant growth catalyst for CalAmp well into the future. As an illustration of the progress we are making in this area, during the second quarter, we announced production shipments of our next generation telematics devices to the United Kingdom-based RAC Motoring Services. RAC is similar to AAA in the United States and like AAA, offers insurance and other auto-related services to its membership base of more than 7 million customers. As part of this agreement, CalAmp's LMU-3050 telematics device will help facilitate realtime crash detection, service alerts to help avoid breakdowns, fuel savings capability, driver scoring, rapid roadway assistance, and other innovative customer support services for RAC's broad membership of private automobile owners, insurance clients, and commercial fleet customers.

We are also looking to leverage our strong partnerships with wireless carriers to help expand our MRM products business. During the second quarter, our line up of fleet management, vehicle finance, insurance telematics, stolen vehicle recovery, and asset tracking wireless devices for MRM was certified by Sprint for operation on Sprint's nationwide cellular network and by Anatel in Brazil, Telestra in Australia, and ICASA in South Africa. Through these partnerships, we were able to bring our high performance wireless location and messaging products to a broader customer base to further expand our wide range of M2M applications. Turning to our Wireless Networks business, second quarter revenues were at an all-time high, driven by contributions from our Wireless Matrix acquisition. Recurring revenues represented approximately 16% of consolidated revenue, down from 18% last quarter due to the accelerated growth rate in MRM. At the end of the second quarter, we had 405,000 unique software application subscribers that provide an ongoing recurring revenue stream for our Wireless Datacom segment. This is up from 395,000 subscribers at the end of the first quarter.

Since completing the acquisition of Wireless Matrix in early March of this year, the integration of operations has progressed ahead of plan and is now substantially complete. I am pleased to note that we are seeing a solid pipeline of opportunities here, especially in a number of enterprise customers vertically aligned with our existing channels. Importantly, we are on track to achieve our non-GAAP EPS accretion and incremental EBITDA targets for this acquisition and we continue to believe that this acquisition accelerates our growth prospects and will strengthen our competitive position within key verticals in the coming years. Within the Energy vertical, we are also seeing good top line growth. In the second quarter, we benefited by contributions from our previously announced contract win with Pepco Holdings; one of the Mid-Atlantic region's largest energy delivery companies. In addition, we saw a nice ramp in business with a new OEM customer in the commercial solar power industry that we highlighted last quarter. In the heavy equipment sector, our development activities with Caterpillar for cellular and satellite-based mobile telematics devices remains on track.

During the second quarter, we recorded modest revenue related to the developments in prototype activities and continue to believe this important customer could drive meaningful revenue growth for CalAmp starting in our next fiscal year. The heavy equipment sector represents a tremendous market expansion opportunity for us as we further integrate and leverage the asset tracking and fleet management application expertise that we acquired with Wireless Matrix. We are investing in business development initiatives, both directly and with other global heavy equipment OEMs, and through carrier partnerships to identify future global growth opportunities in this important market segment. In other market verticals, demand from our rail and government customers remained weak in the second quarter. We continue to be actively engaged with customers and partners in these markets as we monitor legislative and regulatory developments that continue to delay demand and infrastructure rollouts. Overall, we are pleased with the strategic direction of our Wireless Networks business and its potential for growth with multi-national enterprise customers where we can leverage CalAmp's unique portfolio of hardware, software, and service content. Turning to our Satellite segment, revenue in the second quarter was $11.6 million, up 18% year-over-year.

The second quarter gross margin of 19.7% reflects a 230 basis point improvement year-over-year, primarily due to a product mix favoring higher margin home networking equipment. We expect that our Satellite business will continue to generate gross margins in the mid- to high teens and contribute meaningfully to our operating cash flow and bottom line 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 second quarter financial results.

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 2014 second quarter. Consolidated gross profit for the fiscal 2014 second quarter was $19.8 million, an increase of $5.7 million over the same quarter last year, primarily as a result of higher revenue in the Wireless Datacom segment. Consolidated gross margin improved to 33.7% in the latest quarter compared to 32.1% in the second quarter of last year, due to the higher proportion of total revenues represented by the Wireless Datacom segment in the latest quarter versus the prior year, including the contributions from our Wireless Matrix acquisition. Looking more closely at gross profit performance by reporting segment, Wireless Datacom was $17.6 million in the second quarter with a gross margin of 37.2%. Year-over-year Wireless Datacom gross profit was up by $5.1 million, while gross margin improved by approximately 80 basis points, primarily due to the shift in revenue mix towards higher margin, subscription-based revenues associated with the Wireless Matrix acquisition.

However, on a sequential quarter basis, Wireless Datacom gross margin declined from 39.1% in the first quarter, primarily as a result of a second quarter revenue mix that had a greater portion of MRM product sales for which the gross margin is not as high as the rest of Wireless Datacom revenues. Our Satellite business had a gross profit of $2.3 million in the second quarter with a gross margin of 19.7%. This compares to gross profit of $1.7 million and gross margin of 17.4% in the second quarter of last year. These year-over-year profitability improvements in our Satellite business are primarily due to a shift in product mix in favor of more home networking products and efficiencies achieved with the transition to a variable cost production model. Next, looking at bottom line results, GAAP basis net income for the fiscal 2014 second quarter was $2.8 million or $0.08 per diluted share compared to net income of $3.7 million or $0.12 per diluted share in the second quarter of last year. The lower year-over-year GAAP basis net income is due in part to the elimination of substantially all of the Company's deferred income tax asset valuation allowance at the end of fiscal 2013 that caused the Company's effective income tax rate to revert to a level that approximates full statutory tax rates beginning in fiscal 2014.

Despite this, on a cash basis, the Company's pretax income is still largely sheltered from taxation by NOL carry-forwards and is expected to remain so for the next few years. Also contributing to the lower year-over-year GAAP net income is the higher intangibles amortization expense in the current year associated with the acquisition of Wireless Matrix. Our non-GAAP net income for the fiscal 2014 second quarter was $6.8 million or $0.19 per diluted share compared to non-GAAP net income of $4.9 million or $0.17 per diluted share for the same quarter last year. Non-GAAP earnings excludes the impact of intangibles amortization and stock-based compensation expense 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 second quarter earnings press release that was issued earlier today that is available on our website. Now, moving on to the balance sheet, at the end of the fiscal 2014 second quarter, the Company had cash and cash equivalents of $29.7 million.

Operating cash flow was strong in the latest quarter at $8 million. Our total outstanding debt at the end of the second quarter was $7.1 million, comprised of our bank term loan and the carrying value of the non-interest bearing note payable issued in May 2012 as part of the purchase consideration for the product line acquired from Navman Wireless. The bank term loan balance at the end of the latest quarter was $4.6 million. The Navman note payable, which at the end of the latest quarter had a face value of $3 million and a carrying value of $2.5 million, is payable in the form of sales price rebates as sales are made to Navman under the five year $25 million supply agreement that was entered concurrent with the Navman product line acquisition.

Our total inventory at the end of the second quarter was $14.2 million, representing annualized inventory turns of approximately 11 times. At the end of the immediately preceding quarter, inventory was $12.4 million that also represented annualized inventory turns of 11 times. The consolidated accounts receivable balance was $27.6 million at the end of the second quarter. This represents an average collection period of 41 days that is a slight improvement over the receivables collection rate of 42 days 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. Let's turn to our financial guidance. Based on our latest projections, we expect fiscal 2014 third quarter consolidated revenue in the range of $59 million to $63 million. We anticipate that Wireless Datacom revenue in the third quarter will increase on a sequential basis, driven by emerging demand for insurance telematics products. We expect Satellite third quarter revenues to be relatively flat on a sequential basis, but up significantly year-over-year. At the bottom line, we expect third quarter GAAP basis net income in the range of $0.07 to $0.10 per diluted share and non-GAAP net income in the range of $0.19 to $0.23 per diluted share. We continue to expect that the second half of fiscal 2014 will be stronger than the first half of the year, as several previously announced opportunities begin ramping and expense reductions associated with the Wireless Matrix acquisition and integration take hold.

In closing, I'd like to recap some key points. First, our MRM products business is showing continued strength. We are pleased with the progress we are making on the international front and we are keenly focused on the successful deployments of our insurance telematics products through the rest of this year. Second, emerging opportunities for our products and insurance telematics, energy and heavy equipment sectors, as well as international expansion, are expected to be growth catalysts at both the top line and bottom lines in the second half of fiscal 2014 and beyond. Third, the integration process for the Wireless Matrix acquisition has preceded rapidly and is now essentially complete.

We remain on track to achieve our EBITDA and EPS accretion targets for the full year and we remain focused on growing the opportunity pipeline to achieve strong growth in fiscal 2015. Finally, we firmly believe our unique hardware, software, and service portfolio, supported by established channel partnerships with global reach, give us the leverage to win a disproportionate share of opportunities and drive broader adoption of emerging M2M applications. 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 Walkley, Canaccord Genuity.

This is Matt Ramsay on the call for Mike today. Congratulations on a very solid quarter and exciting guidance.

Thank you.

Just wanted to start out, Michael, with a question about the international growth opportunities. Obviously, you highlighted it in your prepared remarks today and in a press release that you issued last week and it sounds like that was the primary reason for the results above the high end of the guidance range on the revenue line. Maybe you could walk us through exactly what drove the upside this quarter? Not just on a segment basis, but also is it more the timing of some of these opportunities hitting earlier than you might have thought or maybe the size of the overall opportunity being larger than you initially anticipated?

Sure. Thank you. Certainly, the international growth was a strong driver of results in the second quarter, no question about it. We had a significant amount of business activity related to stolen vehicle recovery products for a customer in Brazil that drove significant sequential quarter growth in our MRM products business; but we did see other activities on the international front, specifically in Europe with a number of different customers, not just MRM product-related but also energy-related for certain customers across Continental Europe. But international has been a very, very strong growth driver for us, obviously of late. Our Wireless Datacom segment, in Q2, reached a threshold of 25% of revenues coming from international customers, which is definitely a little bit ahead of our earlier outlook. Looking into the future, we expect international to be strong, but it's going to shift a little bit in terms of sector focus.

Whereas Brazil was a strong driver of growth for stolen recovery products in Q2, we expect that to taper somewhat into Q3 as it becomes more of a flow business and less involving of channel selling activities. We see UBI opportunities start to ramp, in the UK specifically, with RAC and potentially with a couple of other customers on a smaller run rate basis. We see those as the primary drivers of growth on the international front in the coming quarter. Then to a little bit lesser extent, we've got some interesting utility projects that we're involved in, in the UK, which potentially could contribute to Q3 revenue, probably a little bit further down the road, either in Q4 or early part of next fiscal year.

Great, thanks. Just a follow-up on the international point, you've highlighted in your prepared remarks some new carrier qualification deals, many of which were in international markets. Maybe you could speak a little bit to how evolved those are? Are those contributing revenue today or in the guided quarter or is that more of a longer term opportunity to expand the [TAM]?

Certainly, carrier certifications are a requirement for shipping and delivering product within some of the countries we mentioned, but I wouldn't discount the Sprint certifications. Those are really quite key as well. Obviously, the biggest market for our MRM products remains the United States and Sprint's obviously a big player here, so having additional products certified with Sprint is an important milestone for us. But if you look at South Africa, it's a great growth market for us in terms of fleet management and stolen vehicle recovery products. Our business activities, at least as it relates to MRM products, has been relatively minimal in Australia. We think the Telstra certifications enables us to become a little more active in that marketplace. Of course, Brazil was a big contributor to revenue in Q2 and the certifications we received there were obviously enabling factors for us to be able to see the revenue run rates we experienced this past quarter.

Okay, thank you. On the Wireless Network side, you talked about on the PTC project and also the LTE build project for first responders being weaken in the last couple of periods, but obviously, your top line results have been strong regardless of that. I just wondered maybe how much revenue that contributed in the printed quarter and also, what you're baking into your guidance and expectations for when those businesses may recover at some point in the future?

I think the outlook on both fronts is a little bit uncertain in terms of when they become meaningful contributors to growth. In Q2, if we roll back and recall what we talked about in Q1 in the last earnings call, we talked about having roughly $2.5 million of PTC-related backlog at that point in time. We shipped a little more than half of that. We have, I'd say, an improving pipeline of opportunities as it relates to PTC, but I don't believe we're looking at a year that would exceed the roughly $5 million of PTC-related production revenue that we saw last year. I don't think we're going to see much higher than that, if we see that this fiscal year. I think the outlook for the balance of the year is relatively flat to what we experienced in Q2 from a production shipments perspective.

The government market remains somewhat uncertain, although we're starting to see some FirstNet certifications of some of our products. We're also seeing FirstNet approve the infrastructure buildout in a couple of different markets in the United States, which we think bodes well for our government business going forward, but it's not going to be that meaningful of a revenue contributor, probably for the next quarter or two. But I think the investments we've made in terms of channel partnerships and development of Tier 1 brand name partners for our FirstNet-related products, I think is going to put us in a great position to see some nice revenue growth once the FirstNet dream begins to be realized in certain markets with infrastructure rollouts.

Great. On the operating expenses, you mentioned, as did Michael, in the prepared remarks that the Wireless Matrix acquisition was largely integrated at this point. Maybe you could talk a bit just to forward operating expense expectations? Obviously, strong growth in the top line and we can derive a bit for the next quarter based on the guidance for the bottom line, but just going forward into next year, what do you expect the operating expense line to look like? Thanks.

Sure, Matt. As far as R&D goes, we think that it will be flat to up modestly from the percent of revenue that it has been running at over the past several quarters. Sales and Marketing, I think that was a bit high in the first half of this fiscal year and we see that somewhere between stable and down modestly over the course of the next several quarters. G&A expense, we don't see that growing as a percent of revenue relative to what it ran at in the last two or three quarters.

Okay, thank you very much. Congrats again on the strong results.

Mike Crawford, B. Riley & Company.

Regarding your development and prototyping activity with Caterpillar, where, if you can say, in what stage are you in customizing Vanguard routers and other equipment to be ready to go for Caterpillar?

As we mentioned in the prepared remarks, that project is very much on track. We're sort of in the final throws of Phase II development program, really involving kind of the last stages of production process validation, but the designs themselves have actually been validated and are actually out in certain numbers of different types of Caterpillar equipment, sort of a pilot testing program. We are beginning to get some visibility in terms of what a production ramp might look like. The outlook right now appears to involve a ramp of production shipments beginning about the midpoint of next calendar year, which could have some positive impact on Q2 next year ramping through the balance of our fiscal 2015. But I think the Caterpillar relationship is very solid and the development program is very much on track and I think we remain very optimistic that Caterpillar could be a very strong growth driver for revenues in the second half of next calendar year.

Thanks, Michael. Any distinction between the cellular and satellite version of the product?

Not really. We've seen some preliminary forecasts in terms of potential mix between the two products. It's not outside of what we had projected earlier on. I think at this stage, it's probably going to be about 80/20; 80% of the product will be cellular-based, about 20%, maybe a little bit more, would be satellite-based.

Okay, thank you. Just briefly touching on stolen vehicle recovery in Brazil, is that only with Movistar or do you have other channel partners there as well?

Most of the activity we had in Q2 was with an import broker channel partner who was bringing product into Brazil for one stolen vehicle recovery service provider that actually sells under multiple brands. I believe different brands are active on different carrier networks in Brazil, but the business was not necessarily a channel-related activity with any of the carriers, as it has been in other parts of Latin America.

Okay, thank you. On the insurance side, so you think you could see meaningful insurance telematics revenues starting in Q4? By meaningful, could that be $3 million a quarter, more? How do you characterize that and also how many insurance telematics customers do you have presently?

I think we actually defined meaningful on the last earnings call; I think we said around $3 million per quarter. A few million dollars per quarter was meaningful. I'm not sure we'll get to a few million dollars or meaningful revenue. Certainly, it will be meaningful, but it may not be a few million dollars in Q3 but we would hope that it would be at least that level, if not higher, in Q4. In terms of the number of customers, we have a couple that could represent good demand for the balance of this fiscal year, really involving ramps from Q3 into Q4 and carrying on through next fiscal year, but we have at least a half a dozen other insurance opportunities that could become backlogged for us over the next quarter or so.

Okay, great. Thank you very much.

Anthony Stoss, Craig-Hallum.

Nice job. Michael, if you wouldn't mind commenting about gross margins and how you view them or what your feel is on gross margins going forward? On the 405,000 monthly subs, where do you see ASPs? Are they flattish still? Do you expect them to trend higher? Last question, if you had kind of a generic statement on where you think either your channel fill is or the [disti] or inventory levels with your customers are? Thanks.

Sure. Last question, that's the first time that's been asked as far as I can remember, but let me start with the gross margin question. We think that, both in terms of Wireless Datacom gross margin and consolidated gross margin, Q2 was probably the low point for the year. I think it's our expectation we would see modest improvements and margin accretion for the balance of this fiscal year, potentially carrying on to the next year. In terms of the application subscribers, I think the ASP profile has been relatively stable, really, in all of the applications. I think fleet is pretty stable, vehicle finance has stabilized after seeing some ASP erosion over the last few years, and I think the remote car start activity and business we have with DEI, from an ASP perspective, is pretty stable. In terms of inventory, outside of the channel filling activity in Brazil, because of the nested channel partnerships we have there, there really isn't any other kind of disti-related business activity that we have. Much of it feels very direct, so in terms of channel filling, I don't think that should be anything of a factor as we look forward.

Okay. Just following up on the gross margin front, from an engineering perspective, what do you guys have on the table in terms of redesign that you can either shrink or reduce components and help push gross margins higher?

That's an ongoing activity. On the MRM product side, most of that activity is to defend against ASP erosion. The gross margin profile -- Q2 being somewhat of an anomaly because the Brazil activity, the gross margins, we've been able to maintain at a pretty steady rate in the low 30s-ish and that's because we see component cost reductions that are realized through product redesigns keeping pace with what we see as ASP erosions in the market. On the Wireless Network side, we don't see nearly the ASP erosion factors that we see on the MRM products front. I think product pricing there has been relatively stable, although there's always a natural erosion of ASPs when you're dealing with electronic products of one sort or another. But really, across-the-board, we have a continuous product refresh program; not only in terms of the hardware products, but also in terms of some of the software products and solutions that we now sell into a number of different markets.

Nice execution, thanks.

Mike Latimore, Northland Capital.

Excellent results. On the fleet management category, obviously that's a good driver. Has the growth rate in that category sort of been consistent? Is it accelerating, slowing, how would you characterize the growth of that vertical for you?

You sort of have to break that down into three components. If you look at what we acquired from Wireless Matrix, we really had three different product lines -- we had the enterprise fleet business, we had the SMB fleet business, and then we had the satellite data services that were sold mostly to rail customers and to some other customers in the energy markets. As we were going through our due diligence process and considered Wireless Matrix as a potential key acquisition target, we were trying to understand the dynamics in each of those areas. What we realized earlier on is that we would expect to see continued churn in erosion of subscriptions on the satellite datacom side as more and more of those connections migrated to cellular type of connectivity. Obviously, we want to be there to capture that churn with other products in our portfolio as that happens. That process has actually been underway and has been somewhat of a head wind for revenues in the Wireless Matrix-related business activities. On the enterprise side, we saw the loss of one enterprise customer in late Q1 and no significant enterprise customer additions in Q2, although our pipeline, as we mentioned in our prepared remarks, is very healthy.

Many of those opportunities that are in the pipeline have actually been realized through some of our established channels and channel partnerships in the energy, government, rail, and heavy equipment sectors. Prospects on the enterprise side are good, although we haven't seen the uptick in revenue on that front yet, but we're optimistic that we'll see that later this fiscal year. On the SMB side, we saw good subscriber growth in Q1. A little bit less subscriber growth in Q2, but we have a very effective, I would say, customer acquisition platform there and so the outlook on the SMB side is positive for the balance of the fiscal year.

On the insurance vertical, should we assume that RAC is the biggest customer in that vertical or would another one be bigger?

Certainly in Q3 and probably through Q4, we expect RAC to probably be the biggest customer. However, we have one additional customer, domestic customer, that could be roughly a quarter behind them in terms of ramp profile.

Great. In your prepared remarks, you talked about maybe doing more in the insurance space beyond hardware. Could you just elaborate a little bit on that?

I really don't want to go into too many details, but obviously, it's very, very, very early days in the insurance telematics space. As I often talk about here with our folks, the game hasn't even really started yet. We're still in batting practice. Using the baseball analogy in terms of what inning we're in, the game hasn't really even started. As the ecosystem begins to develop, obviously, we're going to be very vigilant and opportunistic, hopefully, to take advantage of opportunities that will require a lot more than just a hardware device; involving not only hardware device plus device management, but also platform support for third party types of services and potentially even application support for applications we would develop ourselves.

You usually give a cumulative devices sold number, do you have that for the quarter?

I don't have it handy, but I think we're right around 2.75 million devices and services enacted with customers.

Okay, great. Thanks a lot. Nice work.

(Operator Instructions)

Shia Dardashti, DCM.

I'm wondering if the revenue growth you've seen is gaining market share or exceptionally in line with the industry growth rate?

Good question. I think recently, the growth is probably driven more by industry growth, as well as international expansion. I don't think much of the growth can be directly attributed to market share gains.

If you're comfortable, could you comment on the market share of Wireless Matrix at this point, please?

I'm not comfortable because I wouldn't be able to quote a very accurate figure.

Do you have a sense who might be one or two spots bigger or one or two spots below you?

I have a sense of that, yes, but I wouldn't necessarily want to name names and be wildly off base.

All right. Thank you so much. I appreciate it.

Thank you. We have no further questions in the queue at this time. I'd like to turn the floor back over to Management for any closing remarks.

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

Thank you. Ladies and gentlemen, this does conclude today's teleconference. You may disconnect your lines at this time and thank you for your participation.