CAMP4 Therapeutics Corp (CAMP) 2015 Q4 法說會逐字稿

Greetings and welcome to CalAmp FY5 fourth quarter and full year results conference call.

(Operator Instructions)

As a reminder this conference is being recorded. I would now like to turn the conference over to Mr. Lasse Glassen of Addo Communications. Thank you. You may now begin. presentation.

Thank you operator. Good afternoon and welcome to CalAmp's fiscal 2015 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 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 competitive pressures and pricing declines in the Company's wireless DataCom and satellite segments, fluctuations in product demand from a key OEM customer in the heavy equipment industry and other risks and uncertainties that are described in the annual report on form 10-K for FY15 as filed today, April 21, 2015, 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 to obligation to update any forward-looking statement whether as a result of new information, future events or otherwise.

Michael Burdiek will begin the 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 Mike will then wrap up with CalAmp's business outlook and guidance for FY16 first 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. Fiscal 2015 represented a high water mark for CalAmp with record revenues of $250.6 million and non-GAAP EPS of $0.96 up 25% year-over-year. Our Wireless DataCom segment revenues grew by 14% year-over-year with strong demand for our products and solutions in fleet management applications, continued international growth and volume shipments to a key OEM customer in the heavy equipment industry.

On the international front, revenue from customers outside the United States grew to $53.1 million or 21% of consolidated revenues in FY15 up from 19% last year. In addition, improving consolidated gross margins and disciplined operational execution resulted in adjusted EBITDA margins of 15.3% in FY15 up from 12.4% in the prior year. Our full year results were accentuated by a spectacular fourth quarter that included record revenues, strong earnings growth and robust bookings all driven by strength in our wireless DataCom segment.

Significant contributors to our strong fourth quarter were the record quarterly revenues posted by our MRM products business as well as increased shipments in our wireless networks business, telematics devices to our key OEM customer in the heavy equipment industry. We also felt strong growth in international sales during the quarter across many of our core verticals. As for our satellite segment fourth quarter revenues were in line with expectations with continued strong contribution to our operating cash flow and overall profitability.

Looking at our fourth quarter results in more detail, consolidated revenue was $69.2 million, an all time record for a single quarter with Wireless DataCom revenue up 23% to $60.5 million while satellite revenue in the quarter was $8.7 million down 18% year-over-year. Continued improvements in gross margins coupled with in line operating expenses propelled our fourth quarter adjusted EBITDA margin to 18%.

At the bottom line we achieved GAAP basis earnings of $0.18 per diluted share in the fourth quarter with non-GAAP earnings of $0.32 per diluted share. Strong fourth quarter operating cash flow of $7.7 million helped push our cash, cash equivalents and marketable securities balance up to $44.4 million at quarter end with zero bank debt.

Now I would like to review our operational highlights for the quarter in more detail. Both business units in our Wireless DataCom segment posted record quarterly revenues with healthy demand from a broad spectrum of customers as well as excellent traction from some of our newer strategic initiatives. In our wireless networks bushiness unit revenues were quite strong with shipments of telematics products to key OEM customer in the heavy equipment industry exceeding $7 million.

While we do not anticipate shipment volumes to ramp in a linear fashion over the next couple of quarters, we do expect this customer will represent a significant year-over-year growth opportunity for CalAmp in FY16 as well as in the longer term. In addition we also saw nice year-over-year revenue growth in our wireless networks industrial verticals including rail and energy, and we expect that trend to continue this fiscal year.

Also in our wireless networks business we continue to see solid demand for enterprise fleet management software service solutions. Overall recurring revenues from our fleet management, automotive after market, vehicle finance applications and communication services comprised 15% of consolidated revenue for our fourth quarter and 16% for the full year in FY15.

Significant contract wins that we announced in the prior quarter with large fleet enterprise customers for our SaaS solutions contributed to a sequential quarter increase of approximately 10% in higher margin enterprise fleet subscribers. Across all of our market verticals we had approximately 495,000 unique software application subscriptions at the end of the fourth quarter which is essentially flat with the end of the immediately proceeding quarter due to a higher than normal churn of vehicle finance subscribers in the latest quarter.

Moving onto our MRM products business we continue to see strong demand for products used in fleet management and asset tracking applications both domestically and with key customers outside the US. A highlight in the fourth quarter was the commencement of volume shipments to Sascar, Brazil's largest fleet management and freight security company. CalAmp is supplying Sascar with a broad set of innovative telematics products including the LMU800 high value tracking device, the LMU4200 communications gateway and the MDT-7 Android based mobile data terminal all of which are tightly integrated into Sascar's applications for use in trucks, non-motorized assets and passenger vehicles.

In addition to our opportunity with Sascar, we are seeing an overall uptick in demand for the MDT-7 and are confident this new product category will drive meaningful revenue growth over the coming years. To support the commercial roll out of the MDT-7, during the fourth quarter we launched CalAmp private App store. We believe that the App store along with embedded core applications on the MDT-7 will enable us to offer additional product and software content to customers within existing verticals and also gain access to new vertical applications through developing content partnerships.

During our analyst day in January we hosted a live demonstration of the App store including applications from two of our emerging content ecosystem partners. One of the novel technologies demonstrated was a driver behavior driver feedback application supplied by Crashboxx Telematics.

As announced yesterday subsequent to the end of the fourth quarter we completed the acquisition of Crashboxx, an early stage technology company with unique intellectual property focused on insurance telematics applications across the entire auto insurance life cycle from driver risk assessment through claims processing automation. The crash detection, crash notification and physical and bodily damage estimate technologies are extraordinarily unique within the emerging insurance telematics marketplace and we expect that Crashboxx technology will help form the nexus of CalAmp's broadening insurance telematics strategy going forward.

The core Crashboxx team joining CalAmp has the automotive industry crash and safety pedigree that will help position CalAmp as a thought leader and innovator in insurance claims processing automation and fraud detection. Innovations such as reliable automated first notification of loss and near real time estimation of damages could drive significant business efficiencies and ROI for both insurance carriers and fleet managers in the future. Over the next several quarters we will focus on productizing these acquired technologies as well as on strategic Business Development activities on a global basis to drive the adoption of these novel applications.

While we expect this acquisition will add approximately $1 million of incremental pro forma R&D and Business Development expenses in FY16, going forward we believe that the Crashboxx technology, once fully commercialized will play a critical role in expanding our growth prospects in this enormous and largely untapped market. Meanwhile we expect that revenue growth from hardware device shipments to insurance telematics customers will continue to improve through the coming year as was the case in this latest quarter.

Moving on to our satellite segment revenue in the fourth quarter was $8.7 million. We continue to be pleased with the satellite segment's operational performance which achieved gross margins of 24.4% in the fourth quarter reflecting an improvement of four percentage points year-over-year and providing solid contribution to our bottom line results.

In summary, we made tremendous progress in FY15 as we grew revenues to record levels and made excellent progress on a range of strategic initiatives. We are as confident as ever about CalAmp's future and remain bullish on our ability to expand our market and thought leadership over the coming years.

With that I will now turn the call over to Rick Vitelle, our Chief Financial Officer, for a closer look at our fourth 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 FY15 fourth quarter. Consolidated revenue for the FY15 fourth quarter was $69.2 million, an increase of 15.6% compared to the fourth quarter last year.

Consolidated gross profit for the fourth quarter was $24.6 million, an increase of $4 million or 19.3% over the same quarter last year. The gross profit increase is the result of higher revenue in the Wireless DataCom segment. Consolidated gross margin was 35.5% in the latest quarter compared to 34.4% in the fourth quarter last year.

Looking more closely at gross profit performance by reporting segment, Wireless DataCom gross profit was $22.5 million in the fourth quarter with a gross margin of 37.1%. Year-over-year Wireless DataCom's fourth quarter gross profit was up $4 million with essentially flat gross margins. Our satellite business had a gross profit of $2.1 million in the fourth quarter with a gross margin of 24.4%.

This compares to gross profit of $2.2 million and a gross margin of 20.4% in the fourth quarter of last year. The four point improvement in satellite gross margin was due to a shift in product mix that resulted in a greater proportion of higher margin home networking products. GAAP basis net income for the FY15 fourth quarter was $6.5 million or $0.18 per diluted share compared to $3.1 million or $0.08 per diluted share in the fourth quarter of 2014.

While the Company's full year GAAP basis effective tax rate approximates the combined US federal and state statutory tax rate, the Company's pretax income is still largely sheltered from taxation by NOL and research and development tax credit carry forwards and is expected to remain so for the next several years. Our non-GAAP net income for the FY15 fourth quarter was $11.6 million or $0.32 per diluted share toward compared to $7.1 million or $0.20 per diluted share for the same quarter last year.

Non-GAAP earnings excludes the impacts of intangible asset amortization, stock based compensation expense and acquisition related expenses and includes an income tax provision for cash taxes paid or payable for the period. Adjusted EBITDA which is also a non-GAAP measure was $12.4 million in the FY15 fourth quarter with adjusted EBITDA margin of 17.9%. This compares to adjusted EBITDA of $7.6 million and an adjusted EBITDA margin of 12.7% for the same quarter last year. Adjusted EBITDA excludes the impact of investment income, interest expense, income taxes, depreciation expense, intangible asset amortization and stock based compensation expense.

For a reconciliation of the GAAP and non-GAAP financial results, please see our fourth quarter and FY15 earnings press release that was issued today which is available on our website. Now, moving on to the balance sheet, at the end of the fiscal 2015 fourth quarter, the Company had total cash, cash equivalents and marketable securities of $44.4 million with no bank debt outstanding.

The consolidated accounts receivable balance was $47.9 million at the end of the fourth quarter. This represents an average collection period of 54 days compared to the receivables collection period of 57 days at the end of the preceding quarter.

The decrease in the average collection period in the fourth quarter is primarily attributable to the fact that a significant portion of third quarter sales were made in the latter part of that quarter which had the effect of skewing the collection period upward as a result of the formula used to calculate this metric. Our total inventory at the end of the fourth quarter was $18.7 million, a decrease of $0.9 million compared to the previous quarter representing annualized inventory turns of approximately nine times.

R&D tax credits that we earned for all of FY15 were not recognized until the fourth quarter when Congress took action to extend that tax credit program. This lowered our GAAP basis effective income tax rate in the latest quarter to 26.2% compared to 32.9% in the fourth quarter of FY14. For FY15 as a whole, our GAAP basis effective tax rate was 33.4% compared to 34.1% in FY14.

For FY16, we estimate our GAAP basis effective tax rate will be approximately 35% and our non-GAAP tax rate will be about 1.5%. With that, I will now turn the call back over to Michael for our guidance and some final comments.

Thank you, Rick. Now let's turn to our outlook including our financial guidance for the first quarter of FY16.

During the first quarter of FY16 we expect to achieve consolidated revenue in the range of $63 million to $67 million. We anticipate Wireless DataCom revenue in the first quarter will be up significantly year-over-year but down modestly on a sequential quarter basis due primarily to the timing of shipments to key OEM customer in the heavy equipment industry. Shipments to this customer are expected to pick up in the ensuing quarters and are expected to represent significant year-over-year revenue growth.

In addition, first quarter satellite segment revenue is expected to be down on a sequential quarter basis. At the bottom line we expect first quarter GAAP basis net income in the range of $0.10 to $0.14 per diluted share and non-GAAP net income in range of $0.24 to $0.28 per diluted share.

For FY16 as a whole we expect our Wireless DataCom segment revenue growth will be at or above the estimated mid teens market growth rate with continued margin expansion. For our satellite segment, we expect revenue to be somewhat weaker in the first half of the year and then picking up in the second half as our key customer in this segment transitions to next generation DBS products. Overall we expect both revenue and earnings to gain momentum as FY16 progresses exceeding the impressive milestones established in this past fiscal year.

In closing, I'd like to recap some key points. First fundamentals of this business continue to improve as evidenced by our fourth quarter performance. Continued growth within our core markets and momentum in our MRM products and software as a service businesses are providing CalAmp with a pronounced tailwind as we enter FY16.

Second, investments in strategic initiatives including our opportunities in the heavy equipment sector involving initiatives in the insurance telematics market and geographic expansion activities are expected to be growth catalysts for CalAmp in FY16 and beyond.

Third, we believe that our broad and expanding technology portfolio, substantial scale, and robust financial performance are sources of sustained competitive advantage. Our competitive position is strengthening, and I am pleased with the expanding base of key customers around the world.

And finally, we firmly believe our unique portfolio of hardware, software, and service solutions supported by established channel partnerships with global reach give us the leverage to win a disproportionate share of opportunities and drive a broader adoption of emerging applications in the M2M market.

With a record year behind us we are working to take CalAmp to new heights by continuing to focus on short term execution while strategically positioning the Company to benefit over the longer term from emerging M2M trends. Simply stated we are more optimistic than ever about the future of CalAmp.

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

Thank you.

(Operator Instructions)

First question is from Mike Walkley of Canaccord Genuity.

Great. Thank you and congratulations on the strong results.

Thank you.

Maybe for Rick or Michael, just with the 18% plus EBITDA margins and you have given a [general stake of] longer term target of 20%, maybe you could help us think about those 18% margins and the trajectory in FY16 and remind us again about the 20% target, what type of time frame? Thank you.

Sure. Thanks, Mike. Well, in Q4 obviously we had a very, very strong revenue growth performance particularly in our Wireless DataCom segment so in many ways our revenue outgrew or outpaced our OpEx growth. So I think 18% was probably sort of the near term high water mark in terms of EBITDA margin.

However, as we look into next fiscal year we do expect ongoing margin expansion in the Wireless DataCom segment as well as on a consolidated basis overall. We do expect OpEx to grow generally in line with revenue growth. However, given the margin expansion we would expect to see year-over-year expansion in EBITDA margin on a full year basis as compared to where we ended up for the full year in FY15.

It's not to say that we wouldn't sort of threaten that high water mark that we experienced in Q4 during FY16, but I would say in the short term that's probably a well established target milestone for us to reach or exceed in the coming fiscal year. In terms of the longer term 20% aspirational target I think we sort of framed that in a three to five year time frame, and obviously that's still a very key objective for us.

That's helpful. Then Michael just on your heavy equipment customer, I think you said it was around $7 million for the quarter if I heard that right. Is that a good number to think about an annualized rate, and is the Q1 sequential slow down, is that just normal kind of catch up after you build some inventory with that customer, or is there a seasonal aspect of the business we should think about on longer term modeling?

We talked about this a little bit on the last earnings call, that Q4 might establish sort of a -- kind of an indication of what the run rates would be once they reached peak and were generally what you would categorize as ramped and flow in nature. We did through Q4 experience some benefit from supply chain priming inventory build in the after market channel as well as slow business, and I think you would characterize our guidance in Q1 as being essentially flow business and that business ramping as factory production ramps through FY16.

Thanks. Then just a follow up question for me on satellite. With the new DBS products, this year might be a little different than your $10 million plus or minus. Should we consider something like maybe $15 million for first half of the year and maybe back to the $10 million per quarter, or $20 million for the back half of the year? Is that a good way to think about satellite cadence for the year?

In summary, yes. That's a reasonable way to look at it. However, when we go through product transitions with this customer, I have only been through one in my tenure here with this Company. These product transitions generally involve a little bit uncertainty in terms of predictability.

Satellite business as compared to our Wireless DataCom segment tends to provide with better visibility more than one quarter out. I would say this year may be an exception because of that product transition. I think your sort of qualitative guidance in terms of first half verses second half I think is a reasonable outlook at this point in time.

Great and just a housekeeping question and I will pass it on. Can you give us MRM and wireless networks and mix in the Wireless DataCom business?

The mix within the Wireless DataCom business?

Yes.

Yes. It was about the same as last quarter, 55% MRM products and about 45% wireless network products and services.

Great. Thank you very much.

You're welcome.

Thank you. The next question is from Mike Crawford of B. Riley & Company. Please go ahead.

Thank you. Michael, can you talk about your efforts to leverage your lead customer relationship with Cat into more business in that heavy equipment vertical and then also as well as efforts to do more for Cat than providing routers?

Sure. Maybe I'll start with the last question first if you don't mind. We're building a very, very strong relationship with Caterpillar in our view. And I think Caterpillar would corroborate that. And, as we expected, once we were in as a trusted supplier to Caterpillar, we expected to get visibility on other opportunities.

I think that's generally playing out as we predicted. And obviously I can't go into anymore detail than that. But we think it's going to be a long term relationship whether that long term involves the current set of products or it involves other products and services at some point down the line.

As it relates to other opportunities within the heavy equipment sector, obviously we are dealing often times with very large global enterprises, and it takes a long time to gestate opportunities within the larger players in the industry. And I would say that we're building I'd say a good pipeline of opportunities on that front.

However, probably short to medium term more interesting and probably more realizable opportunities are being identified in other heavy equipment or motorized asset sub niches where we actually may be able to do more than just provide a telematics device but we may also be able to add additional value to the device whether in the form of air time plus platform services or in the case of an entire application service bundle.

Okay. Thank you. And then you mentioned the subscriber units tracked at 495,000. At some point, are those all going to move over to the new CalAmp connect platform? And also can you give some idea of how many units you can get data off of in the field to then feed analytics or big data to regarding things like insurance telematics?

Great questions. As it relates to the potential migration of subscribers over to the new connect platform, that's probably not how it's going to play out. I would say that within the existing applications whether it's vehicle finance, remote start, or fleet management, we would at some point in time begin to bring new subscribers on to the connect platform and as older subscribers matured or churned away or potential upgraded to new services, we would obviously see an ongoing decline in the number of subscribers actually active on the old legacy platforms.

So I don't think we're going to see a mass migration of existing subscribers. I think it's going to be more of an ongoing add and subtract phenomenon, hopefully more add than subtract, that's certainly our expectation. As it relates to ability to get data from our existing population of SaaS subscribers I would say virtually 100% of them we have visibility on data flows for.

And in fact there is even a percentage of the population that aren't necessarily on our platforms from a service perspective but may be hardware customers where we actually may get some visibility on data flows by means of our pulse device management platform.

Okay. Great. Thank you very much.

You're welcome.

Thank you. The next question is from Mike Latimore of Northland Capital. Please go ahead.

Great. Thanks a lot. Nice quarter there.

Thank you.

Michael, just to clarify, you said there's a -- when you were talking about EBITDA margins for the year, were you saying that 18% is something that is possible for the full year or that you would get back to that in the quarter? Just like a clarification on that.

Thank you for giving me the opportunity to clarify. No, we don't expect our full year EBITDA margin to be 18%. We hope to threaten that quarterly 18% EBITDA margin high water mark sometime during this fiscal year in a single quarter, but we certainly don't expect to achieve that for the full year. However, for the full year, we would expect to see certainly a perceptible increase in EBITDA margin on consolidated basis comparing FY16 to FY15.

Got it. Got it. Thank you. And then as you look at the Caterpillar business, roughly what percent do you envision being after market sales verses flow business this year?

This fiscal year, it's really hard for us to forecast that. I would expect that the vast majority of revenues would be represented by factory install or factory build activity.

Yes. And is the thought that like the first quarter revenues from Caterpillar would be similar to maybe like the third quarter or something like that?

Similar, maybe modestly lower but in that ballpark.

Okay. Then you talked a little bit about the rail and energy verticals being strong in the fourth quarter, maybe trending well this year. Can you elaborate on those verticals a little bit more?

Yes, well the energy market is not growing at the same pace as say the fleet management market is domestically or even a greater rate internationally. It's more of a 10% sort of tag or a market growth rate. So hopefully we can maintain growth at or greater than that pace in FY16 in the energy market. In the rail space, the vast majority of our business there is PTC radio shipments.

We had a great year in FY15 compared to the prior year. In fact the business almost doubled. Obviously that's off of a low base in FY14, but we expect to see some ongoing progress in terms of being able to grow the PTC business in FY16.

Very good. Thanks a lot. Good luck this year.

Thank you so much.

Thank you. The next question is from Howard Smith of First Analysis. Please go ahead.

Yes. Congratulations on a strong finish to the year. I actually have two questions. My first is on UBI. An intriguing asset acquired here from a thought perspective you suggest.

I don't know if you are willing to break out what you did in UBI from a revenue perspective in this past year but you talked about growth going forward. Is that further penetration of your existing distribution relationships, or are there things you are seeing new customer relationships that you assume are coming on in order to get that? Just any other color you can provide around that vertical application.

The simple answer to your question is we expect both. Sort of replaying what happened in FY15, obviously we had a strong first quarter in the year following first quarter of FY15 following a very strong Q4 in the prior year in UBI device shipments.

Then we saw a significant fall off in Q2 due to a number of technological issues and customer on boarding challenges across all of the programs that we were shipping into. At that point, there were three. We saw two of those programs sort of get back on track in Q3. We saw further progress on those two programs in Q4.

And we saw the third that had sort of gone into [pos] mode in Q2 actually come back online late in Q4. So our expectation is the three primary programs that we were shipping product into in late FY14 and through FY15 will continue to grow in terms of opportunity for device shipments through FY16. And we also expect one or more additional programs to come online although not like gang busters, probably at a very sort of moderated pace, but we do expect new programs to be contributors in FY16.

Great. The second question, changing topics a little, is 2G to 3G migration particularly in your MRM asset tracking business product sales. Where do you think you are in terms of lift in overall demand from that component as opposed to just more units being tracked out in the field?

Do you think we're still on the up swing of 2G to 3G migration or are we kind of steady state, and we'll keep it here for another year or year and a half until it starts to fall off with AT&T's network. What dynamic do you see around that?

Sure, well, you used a frame of reference our MRM products business. Interestingly enough I think in some of the energy verticals there may be more, quote, lift in terms of 2G upgrade opportunities. There is a lot of smart grid infrastructure that's being monitored and connected by 2G networks today where obviously that stuff has to be upgraded or replaced at some point in the future.

That's probably an opportunity for us in the energy markets. As it relates to sort of the traditional location based services applications in the United States, a good deal of that transition has been ongoing over the last year to two and I would say the vast majority of our fleet customers in the US have been ordering either CDMA, 3G, or 4G devices for the better part of two years. So in terms of lift in MRM product demand domestically I don't think it's going to be a significant growth driver.

Then outside the US in Europe you see 2G being the primary mode of transport for some of these location based applications. We don't see that changing in the near term. We see pockets of transition going on in places like the UK, Australia, New Zealand, but for the most part Europe, South Africa, Brazil still rely on and will continue to rely on 2G connectivity for a number of different location based service applications.

That's fantastic color. Thank you.

You're welcome.

Thank you. Our next question is from Tim Quillin of Stephens. Please go ahead.

Good afternoon. I just have a few quick questions. First, on the satellite business, what kind of mix would you expect through the year and gross margins were up quite a bit in FY15 with mix. Would you expect more of a FY15 mix or a FY14 mix when you get into FY16?

Interesting question. Actually a little bit of both probably. For the first half of the year we would expect to continue to ship these legacy kind of current generation products. In that sense that would be consistent with where we were for the most part of FY15.

However as we transition to new products later in the year, it may resemble more of our experience in FY14 from a margin perspective.

Okay. No, that's helpful. And then with Caterpillar as we start getting into Q2, how much visibility do you have into the level that you might see in Q2 and how should we think about just quarter-to-quarter variability that might be normal throughout this year?

Well, I think the first half will be a little less predictable than let's say when we move into the second half of the year and the flow business is growing and becomes sort of a larger percentage in terms of penetration to the existing production. Obviously there is a lot of calibration going on at this stage of the program, trying to align forecast demand with actual pull through the factories.

It could be a little choppy through the first half of the year, but I think as we move through our Q2 and into Q3 I think our visibility will begin to improve pretty considerably. The predictability of the business will be certainly greater than we have experienced up to this point in time through this overall program from development phase all the way through preproduction and now production phase.

And just to clarify a little bit, as we think about Q2, should we think about, kind of start with Q1 but it could be anywhere between what you saw in Q2 and Q4? Is there that much variability about what you might see?

Boy, that's quite a bit of variability. I wouldn't expect that much Q1 to Q2 frankly, but I can't speak to it with perfect visibility. I would say our expectation for Q2 would be better than Q1. Would it be up to the level of Q4, it's possible but I wouldn't say that's likely.

That's fair. Then I think, Michael, you talked about operating expenses generally growing in line with revenue for FY16. So in terms of margin improvement then do you expect to see some gross margin pick up as well, or how should we think about that?

Yes. We do expect gross margin expansion.

That would be the primary driver mathematically of margin improvement then, right?

That is correct.

Okay. You have to dumb it down for me. Thank you. You mentioned some elevated churn in the vehicle finance business. What is happening there?

Well, we had sort of what I would term an unusual non-recurring situation in sort of late Q3, certainly playing out in Q4. That is, we had a very promising channel partner that we had worked with for a period of time who had ramped up.

Unfortunately we weren't seeing the returns on that investment in that channel partner that we expected. We terminated that channel partnership in Q3, and so demand from that channel evaporated in Q4 and we have been working with additional channel partners to sort of pick up the slack in terms of giving us our former exposure to the serviceable market as we view it. So I would say that process is pretty much complete.

Also we had what I would term somewhat typical end of the year dormant and deadbeat account clean up, so that was a smaller factor. But the key factor in terms of perceived churn or lack of subscriber growth in Q4 in the vehicle finance business was mostly due to the terminated channel partnership.

Got it. Got it. Then on usage based insurance, could you give us some quantitative sense of where you are, where you end up in revenue in FY15, in that vertical, what the growth was like year-over-year and what you expect in FY16?

Sure. Again, 100% of our revenue in FY15 was device sales, same for FY14. We ended the year around approximately $10 million of revenue, up from somewhere between $7 million and $8 million in the prior fiscal year. So I will do the math for you, 25% plus-ish.

Thank you. Appreciate that.

Obviously, we had a pretty significant pause in our Q2 of FY15, and I think for the most part we have recovered from that as have our customers and channel partners. Going forward I expect ongoing growth. As I mentioned earlier, at the end of Q2 or at least by end of Q4, FY15 we had all three of our earlier programs up and running.

We expect those programs to expand during FY16, and we expect one or more new ones to come online. So I can't give you really accurate forward guidance, but I would say our expectation is to exceed the growth we saw in FY15 verses FY14 and potentially could be up to double. But it's very, very hard to forecast.

Okay. That's great. Then just one last question. What are you seeing in terms of international growth, and have you seen any negative impact from currency? Thank you.

Great, great question. I can tell you this. In FY15 we saw growth in virtually every market around the world, in every vertical that we service with the exception of Latin America and stolen vehicle recovery sales in Brazil.

Stolen vehicle recovery sales in Brazil were actually down $7 million year-over-year FY14 to FY15. So, but outside of that we saw growth in Europe. We saw growth in South Africa. We saw growth in the Middle East. We saw growth in AustralAsia.

In terms of international opportunities, FY15 was a great year for us. In terms of currency headwinds, obviously the dollar has appreciated against virtually every other currency in the world with the exception of those that are pegged to the dollar. Obviously the dollar is stronger -- much stronger against the Euro than it has appreciated against the pound.

More than half of our European business is in the UK so in that sense we probably don't face quite the currency headwind in Europe that might be implied by the fact that we've had a good year, had a solid base of business in Europe. More than half of the business is in the UK.

Brazil, the real dollar exchange rate has not worked in our favor there. That's probably somewhat of a headwind. But we are coming off a fairly weak year in FY15 anyway, so I don't expect that to be a perceptible issue for us. Probably only represents upside opportunities as we move through FY16.

I think it's also worth noting that if you look at our strongest competitors whether it's in the vehicle finance device phase, if it's in the fleet management device market, if it's in the asset tracking space, our key device competitors are all based in California. So if we have issues, they all have issues too. Fortunately, we are bigger than all of them and therefore have greater scale. And hopefully have a cost advantage that gives us more flexibility than they may have in terms of pricing appropriately given certain regional currency headwinds.

Perfect. Thank you.

You're welcome.

Thank you. The next question is from Rajesh Ghai of Macquarie. Please go ahead.

Thanks. Michael, I wanted to ask you a question on your recent Crashboxx acquisition. How does that factor into your strategy for insurance telematics business long term and more broadly into your hardware as a service strategy that you announced at the analyst day?

Sure. Crashboxx is a key element of our strategy going forward. What's interesting about Crashboxx is that Crashboxx has technology that addresses sort of areas of the whole UBI value chain that almost no one else is able to address.

So the Crashboxx technology coupled with our device portfolio, coupled with our connect platform, coupled with our App store utility gives us an amazing set of technology elements to be able to address insurance telematics opportunities anywhere from risk assessment all the way back through claims automation and claims disposition. So it's really a critical piece.

It's a core asset, we think, in terms of enabling our strategy going forward. Obviously through this fiscal year we're going to be working diligently on commercializing that technology and monetizing it in the future years.

If you don't mind I'd like to talk about Crashboxx sort of metaphorically. If you look at where we were two years ago in the insurance telematics market, we weren't even in the room. We weren't even a spectator. I think over the last 18 months, finding our way into a number of different mainstream insurance programs as a key device supplier, we sort of moved into the middle of the room, in the middle of the audience.

We have had great visibility on everything that was going on in the marketplace. I think with Crashboxx we've sort of moved into a front row seat. Over the coming year, our objective is to work into a prominent role on the stage. So you know it's really, really a key acquisition for us.

I think the expertise we have acquired and the individuals we're going to bring on board is really going to be unique and offer us the opportunity to be somewhat disruptive in the marketplace.

Very helpful. Does this also help you execute on your vision as hardware as service provider that you articulated at the analyst day?

I wouldn't say that it's necessarily an enabler in terms of our ability to pursue hardware as a service opportunity, but I would say that there are certain opportunities that Crashboxx may enable that allows us to leverage and/or monetize our install base of hardware devices, whether they're in service for insurance telematics applications or they're in service with other applications such as fleet or vehicle finance.

My last question is on the gross margins on the Wireless DataCom side. It was I think the third quarter where you have seen sequential increase and expansion in the Wireless DataCom margins which is impressive. I was just wondering how much more run will you have in terms of expanding that Wireless DataCom margin line and what could limit it going forward?

Well we think there is a lot more runway, actually. If you look back over the last couple fiscal years and you go all the way back to Q1 of FY14 we reported a quarter where Wireless DataCom gross margins were just a tick over 39%. I think it was 39.1%.

We think we could threaten that threshold in an individual quarter at one point or another during this coming fiscal year.

All right. Thank you so much. You're welcome.

Thank you. The next question is from Anthony Stoss of Craig Hallum. Please go ahead.

Michael also following up with Crashboxx (technical difficulty) how quickly do you think you can (technical difficulty) from Crashboxx also, but the second part of the question is how many SaaS that business. (technical difficulty) What's your current monthly ASP and now with Crashboxx where do you think that can go?

You sort of were choppy there Tony, but I think I was able to extract a couple questions from that. As it relates to monetizing in the form of revenue and profit Crashboxx, I think we intend to begin piloting some things in fairly short order. If we gain traction sooner than we expect we can potentially see revenues this year, but obviously we've tried to not lay that out there as guidance or expectation for FY16.

I think our key focus is on commercializing the technology appropriately in appropriate channels both directly and indirectly with some meaningful material revenue contribution in FY17 and beyond. I'd just also like to point out, given the nature of the technology, one would expect that it's -- it would come with very, very high gross margins. I mean essentially it's technology software firmware that could be laid upon a device in some other services and either be monetized in the form of recurring SaaS revenue or potentially in the form of transactional services such as fee-based crash notification or fee-based bodily injury notification that may be an option layered atop other SaaS services.

Then just your current monthly ASP on the SaaS side and whether or not you want to talk about what Crashboxx you think can add per month or what you think you might price it at on the SaaS.

I think it's much too early to give guidance in terms of what Crashboxx could do in terms of a blended ASP on the SaaS side. Obviously given that we have three different applications that we support in terms of application services, they range from $3 to $4 a month per subscriber on the vehicle finance side all the way through the upper $30s for some of our enterprise fleet applications.

Okay. Thank you.

You're welcome.

Thank you. The next question is from Greg Burns of Sidoti & Company. Please go ahead.

In terms of the UBI market opportunity, how do you size the addressable market for CalAmp in that vertical?

Great, great question. I can tell you what I know about the overall size of the auto insurance market. It's roughly $180 billion domestically, of which about 10% of that is paid out in the terms of agent and broker commissions for policy origination and about 30% to 40% of it is paid out in the form of claims.

So if you think about the Crashboxx technology sort of enabling us to address sort of the claims part of that, obviously the market is quite large.

Okay. And from the hardware perspective, you are only at $10 million now. How big could that be for you?

Well, bigger than it is. I mean, for us -- we've made no secret of this. For us even though $10 million to $20 million a year of device revenue in a new and emerging market is interesting. That's not the thing that gets us really excited.

It's looking at ways that we can monetize that device portfolio, whether it's directly or it's indirectly by leveraging an install base of devices that we either manage or are being managed by some of our existing hardware customers. Monetizing that install base, leveraging some of the technology assets that are in house now including those we acquired with Crashboxx.

Okay. You mentioned that two years ago you weren't even a player in the UBI market. Are there any other verticals or applications that are interesting to you that you think you could maybe be looking to get into over the next year or so?

I mean, we're always looking. We think that the App store is an interesting sort of portal into some of those newer opportunities, but I think it's much too early to describe either adjacent vertical markets that we think we can tackle or whether they're new verticals all together.

Lastly from an M&A perspective, is Crashboxx going to be a template for future M&A where a technology tuck in or new application that you could layer whether it be in UBI or some other vertical? What's the pipeline of opportunities look like if that's the case?

Well, I wouldn't call Crashboxx a template for future acquisition tactics or strategies, but I would say it's a pixel in the overall bigger picture.

Okay. Thank you.

Thank you. The next question is from Daniel Amir of Ladenburg Thalmann. Please go ahead.

Thanks a lot. Thank you for taking my call here. So you've talked about a number of opportunities kind of for growth drivers I guess in the next year or two. Can you maybe highlight or rank where you see the biggest focus on? You talked about Crashboxx, some of the Caterpillar opportunities, some of the MRM products, some geographical expansion of your overall products.

So it would be great if maybe you can give us some highlights where do you think biggest focus should be compared to others? Thanks.

Well, I think the biggest focus has to be on nurturing the core. Wireless DataCom segment revenues were north of $200 million in FY15. Obviously we have to make sure we care and feed those customers and those verticals that are really fundamental to the core, and those markets are growing, and we've got to make sure we grow at or greater than those market rates of growth.

Obviously the heavy equipment market is interesting. We expect to bring on board some additional customers in that space over the next year to two. As I mentioned earlier, I would expect some of the early opportunities that cross the line to be smaller in nature and niche oriented, but down the line we don't see any reason why we can't be a fundamental supplier to the heavy equipment industry on a global basis.

Insurance telematics is a fascinating marketplace. It's so early day, so chaotic, I would characterize it as the wild, wild west. I think with Crashboxx we certainly have more bullets in our guns and a faster horse to ride as we ride out into that wild, wild west looking for our opportunities.

And I think over the next year or two, insurance telematics will become a well described growth opportunity for us, much more succinctly than we have been able do up to this point in time.

Great. Thanks a lot.

Thank you.

Thank you. I would now like to turn the conference back over to Mr. Michael Burdiek for any closing remarks.

Well, thank you for your support and for joining us today. We'd like to remind everyone that we kick off a very busy investor conference season in May and June during which we'll be participating in six conferences across the country. We hope to see many of you at these events. Thanks again and have a great day.

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.