CAMP4 Therapeutics Corp (CAMP) 2016 Q1 法說會逐字稿

Greetings, and welcome to the CalAmp fiscal 2016 first quarter earnings 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, Mr. Glassen, you may now begin.

Thank you, operator. Good afternoon, and welcome to CalAmp's fiscal 2016 first quarter results conference call. With us today are CalAmp's President and Chief Executive Officer, Michael Burdiek, and Chief Financial Officer, Rick Vitelle.

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

Actual results could differ materially from those implied by such forward-looking statements, due to a variety of factors, including competitive pressure 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 Company's annual report on Form 10-K for fiscal 2015, as filed on 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 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 the fiscal 2016 second quarter and full year. 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. Our first quarter represented a solid start to our fiscal 2016, with a 21% year-over-year growth in revenue for our wireless datacom segment, and a 37% increase in non-GAAP EPS. We saw continued improvement in consolidated gross margin, and operating cash flow was exceptional at $16.3 million.

Contributing to these excellent results were record quarterly revenues posted by our mobile resource management, or MRM, products business, as well as a broad-based growth in our wireless networks business. Our satellite segment revenue was in line with expectations, and added meaningfully to our bottom line profitability. Overall, I'm quite pleased with our first-quarter results, and expect revenue growth and earnings to accelerate as we progress through the balance of the fiscal year.

Looking at our first-quarter results in more detail, consolidated revenue was $65.4 million, with wireless datacom revenue up 21% year over year, to $57.8 million, while satellite revenue in the quarter was down 32% year over year, to $7.6 million. Consolidated gross margin of 36% resulted in a first-quarter adjusted EBITDA margin of 16.3%, up from 12.9% in the first quarter last year.

At the bottom line, we achieved GAAP basis earnings of $0.11 per diluted share in the first quarter, with non-GAAP earnings of $0.26 per diluted share, which includes the partial quarter impact of interest expense from our recent convertible debt offering.

In addition, operating cash flow in the first quarter of $16.3 million, by far an all-time single quarter record for CalAmp, resulting in free cash flow of $15 million. During the quarter, we also took advantage of strong market conditions and historically low interest rates, and completed a very successful convertible notes offering that raised proceeds of $152 million, net of underwriting fees, related transaction costs, and the cost of the call spread option.

This helped push our cash equivalents and marketable securities balance up to $209 million at quarter end. Our strong liquidity position provides ample flexibility to take advantage of potential future growth opportunities, including pursuing strategic M&A.

Now I would like to review our operational highlights for the quarter in more detail. Both businesses in our wireless datacom segment performed well, with healthy demand from a broad spectrum of customers for our wireless networks products and services, along with record quarterly revenues posted by our MRM products business.

In our wireless networks business unit, revenue from telematics products shipped to our key OEM customer in the heavy equipment industry were in line with our expectations for the quarter. We are quite pleased with how our relationship with this customer is progressing, and expect revenue to increase in the second quarter and further expand in the second half of the year. Overall, we expect that this customer will represent a significant year-over-year growth opportunity for CalAmp in fiscal 2016.

Also in our wireless networks business, we saw solid year-over-year growth for our enterprise fleet management software-as-a-service solutions. In total, subscription based revenues from our fleet management, automotive aftermarket, vehicle finance, and communications services comprised 15.6% of consolidated revenue for the first quarter. We continue to benefit from significant SaaS contract wins, from large fleet enterprise customers that we announced late in the prior fiscal year.

Across all of our market verticals, we had approximately 486,000 unique software application subscriptions at the end of the first quarter, which is down from approximately 495,000 at the end of the prior quarter, due to a decline in vehicle finance SaaS subscribers, for similar reasons as described on our last earnings call. However, higher margin fleet SaaS subscribers grew approximately 5% on a sequential quarter basis, driving overall growth in service revenues, with higher associated gross margins due to favorable mix.

Moving on to our MRM products business. We continued to see strong demand for products used in fleet management and asset tracking applications, both domestically and with key customers outside the US. In fact, fleet product revenues reached an all-time record in the first quarter, driven by demand from key customers in the US and Europe.

In addition, there are several emerging industry trends that we believe will benefit CalAmp's MRM products business in future periods. We are continuing to have discussions with large global industry players that are indicating a preference towards an outsourced hardware model, with CalAmp regarded as a key hardware supplier.

Furthermore, we are also seeing existing customers adopt a broader set of CalAmp products, including the MDT-7 Android-based mobile data terminal, along with an expanding portfolio of asset tracking products. With respect to the MDT-7, we continue to be encouraged by market acceptance of this new product category, and we remain confident that the MDT-7 will drive meaningful revenue growth over the coming years. During the first quarter, we announced a preferred partnership agreement with Magellan, a leading GPS device and content service provider, to bundle Magellan's professional-grade navigation software with our MDT-7.

This partnership provides fleet operators in North America with access to advanced features, such as turn by turn navigation, speed limit and speed alert notifications, integrated safety options, and trip planning enhancements, among others. Importantly, customers will also have access to an array of fleet-specific value-added cloud services available through aftermarket channels, including the CalAmp AppStore. We believe that the AppStore, along with embedded core applications on the MDT-7, will enable us to layer on these value-added elements, resulting in higher margins than our traditional fleet management hardware products.

In the auto insurance telematics market, first-quarter demand for hardware devices increased over the prior quarter, and we expect demand will continue to improve throughout this fiscal year. We continue to believe that insurance telematics can be a key growth driver for CalAmp over the longer term, particularly as we bring to market value-added services beyond hardware devices. To this end, during the first 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.

Initial discussions with insurance carriers have been encouraging, further validating our concepts for Crashboxx, as well as for other technologies on our strategic road map. Over the next several quarters, we will focus on productizing these technologies, as well as on strategic business development activities on a global basis, to drive the adoption of novel telematics-based solutions.

Moving on to our satellite segment, revenue in the first quarter was $7.6 million, in line with expectations. We continue to be pleased with the satellite segment's operational performance, which achieved gross margins of 25.5% in the first quarter, and provided solid contribution to our operating cash flow and bottom line results.

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

Thanks, Michael. I will provide a summary of our gross profit performance, income tax position, working capital management, and cash flow results for the fiscal 2016 first quarter. Consolidated revenue for the fiscal 2016 first quarter was $65.4 million, an increase of 10.9% compared to the first quarter last year. Consolidated gross profit for the first quarter was $23.5 million, an increase of $3.3 million, or 16.4%, 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 36% in the latest quarter, compared to 34.3% in the first quarter last year.

Looking more closely at gross profit performance by reporting segment, wireless datacom gross profit was $21.6 million in the first quarter, with a gross margin of 37.3%. Year over year, wireless datacom's first-quarter gross profit was up $4.3 million, while gross margin increased by 110 basis points. Our satellite business had a gross profit of $1.9 million in the first quarter, with a gross margin of 25.5%. This compares to gross profit of $2.9 million, and a gross margin of 26.1% in the first quarter of last year.

GAAP basis net income for the fiscal 2016 first quarter was $4.1 million, or $0.11 per diluted share, compared to $2.7 million, or $0.07 per diluted share, in the first quarter of fiscal 2015. Although the Company's GAAP basis effective tax rate of 36.7% in the latest quarter approximates the combined US federal and state statutory tax rate, the Company's pre-tax 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 fiscal 2016 first quarter was $9.5 million, or $0.26 per diluted share, compared to $6.9 million, or $0.19 per diluted share, for the same quarter last year. Non-GAAP earnings excludes the impact of intangible asset amortization, stock based compensation expense, and non-cash interest expense from accretion of debt discount, 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 $10.7 million in the fiscal 2016 first quarter, with an adjusted EBITDA margin of 16.3%. This compares to adjusted EBITDA of $7.6 million, and an adjusted EBITDA margin of 12.9%, for the same quarter last year. Adjusted EBITDA excludes the impact of investment income, interest expense, income tax expense, depreciation expense, intangible asset amortization, and stock based compensation expense. For a reconciliation of the GAAP and non-GAAP financial results, please see our fiscal 2016 first-quarter earnings press release that was issued today, which is available on our website.

Now moving on to our liquidity position and balance sheet. In the first quarter of fiscal 2016, net cash provided by operating activities was $16.3 million. As Michael noted earlier, this was an all-time quarterly record for CalAmp. In addition, during the first quarter, the Company completed a private offering of 1 5/8% convertible senior notes in the principal amount of $172.5 million, along with simultaneous bond hedge and warrant transactions, which collectively generated net cash proceeds of $152 million.

The convertible notes have a conversion price of $27.59 per share of CalAmp common stock, but by entering into the bond hedge and warrant transactions that comprise the call spread option, the effective conversion price, from the Company's perspective, was increased to $39.42 per share. We have provided a detailed disclosure of the accounting treatment for the convertible notes and the associated call spread option instruments in our first quarter 10-Q, which was filed earlier this afternoon. Primarily as a result of the net cash inflow from the convertible notes financing, our total cash and marketable securities jumped to $209 million, as of May 31, 2015.

CalAmp's consolidated accounts receivable balance was $45.1 million at the end of the first quarter, down $2.8 million from the previous quarter. This represents an average collection period of 56 days, compared to the receivables collection period of 54 days at the end of the preceding quarter. Our total inventory at the end of the first quarter was $16 million, a decrease of $2.6 million compared to the previous quarter, representing annualized inventory turns of approximately 10 times.

For the fiscal 2016 first quarter, our GAAP basis effective tax rate was 36.7% compared to 40.4% in the first quarter of fiscal 2015. For the full year in fiscal 2016, we expect that our GAAP basis effective tax rate will be approximately 35%, and our non-GAAP tax rate will be about 1.5%. 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 outlook, including our financial guidance for the second quarter and full year. Looking at our fiscal 2016 second quarter, we expect to achieve consolidated revenue in the range of $66 million to $70 million. We anticipate wireless datacom revenue in the second quarter will be up on a sequential quarter basis, due to broad-based demand in core markets and increased shipments to our OEM customer in the heavy equipment industry. Second-quarter satellite segment revenue is expected to be relatively flat, on a sequential quarter basis.

At the bottom line, we expect second-quarter GAAP basis net income in the range of $0.07 to $0.11 per diluted share, and non-GAAP net income in the range of $0.24 to $0.28 per diluted share. For the full year fiscal 2016, we continue to expect consolidated revenues to gain momentum as the year progresses, with the full-year revenue outlook in a range of $280 million to $290 million, driven by continued growth in our wireless datacom segment, and a much stronger second half for our satellite segment.

In closing, I'd like to recap some key points. First, we're off to an excellent start in fiscal 2016. Our strong performance reflects the continued growth within our core markets, and operating momentum in our MRM products business, as well as software-as-a-service businesses. Second, investments in strategic initiatives, including our opportunities in the heavy equipment sector, evolving initiatives in the insurance telematics market, and geographic expansion activities are expected to be growth catalysts for CalAmp throughout fiscal 2016 and beyond.

Third, our strong liquidity position, which was further enhanced in the first quarter with the successful convertible debt offering, gives CalAmp tremendous flexibility, and the financial wherewithal to take advantage of both organic and inorganic growth opportunities. And finally, we firmly believe our unique portfolio of hardware, software and service solutions, supported by established channel partnerships with global reach, gives us the leverage to win a disproportionate share of opportunities, and drive broader adoption of emerging applications in the M2M market.

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

(Operator Instructions) Our first question is from Howard Smith of First Analysis.

Yes, good afternoon, and congratulations on a strong start for the year. I wanted to talk a little bit about the visibility you're seeing in two specific areas, the first in the satellite. I know there's a product transition going on at your major customer there. You have a couple more months of dialogue or discussion or visibility. And maybe you could just give us an update on how much confidence you have, in terms of the ramp throughout the year. We'll start with that.

Sure. Hello, Howard. I would say that our visibility on the satellite transition is increasing, and I think at this point in time, it appears that the transition won't be as dramatic as one point in time, or at least our view of it as one point in time. We think the transition will be more of a phased-in process, with our legacy product shipments continuing for some extended period of time. Overall, that's generally a positive, for really two fundamental reasons.

One, our legacy products carry somewhat higher margins than we anticipate will be realized with some of the newer products, early in that life cycle. And two, based on the exhaustion of inventory for the legacy products, we think there's potentially some catch-up in the second half of the year, in order to keep the flow of product moving, as our customer continues to bring online new customers.

Okay, that sounds like an incremental positive. And then the other region I wanted to dig in on was Latin America, South America. That's been a little choppy for you quarter to quarter and just uneven order patterns as you ramp up in that area. Do you feel now your customer base and the patterns are more predictable for you?

Certainly, Latin America has been weak for us the last couple of quarters. I'm pleased to say, in our first quarter, even though our international product revenues on a consolidated basis were down as a percentage of revenue, in our MRM products business we actually saw growth in product shipments in virtually every region in the world, including Latin America. Canada being a key exception.

So I think that, for us, is a positive indicator. And it's also interesting in that our product shipments to international customers, particularly in Latin America, have undergone somewhat of a change in character. It's shifting more from lower-end stolen vehicle recovery types of products, more towards low- to mid- and midrange fleet types of products. So I think that's, again, a fairly positive indicator for us.

Great, I'll leave it there. Thank you.

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

Great quarter and outlook there. Just following up on the usage-based insurance market, it sounds like you're seeing growth throughout the year. Is that tied to the current core customers you have? Or are new customers being layered in here?

I think our expectation is, we'll see growth with our existing programs. And obviously, the growth would be greater if we can bring some additional customers online. And we're involved in a couple of different pilot projects and some RFP activities there. But the growth we saw in Q1 versus Q4 was with the existing core customers that we've been shipping to for some period of time, and we expect, again, some progress there, as we work our way through the year.

Are the new prospects interested in the acquisition you guys made? Or is that not part of that proposal?

I think it's changed the character of the conversation, and I think for the positive. Perhaps significantly more positive in that certainly our road map suggests we're going to be able to do a lot more than just deliver a hardware device and report driver behavior information from that device. We've been involved in many interesting discussions and actually, a number of different live trials involving our device and the Crashboxx technology on board. And I would say that the feedback we've received thus far and the market dynamics that are in play today are very, very receptive to that type of value-added technology.

Got it. And then the solar segment you guys are in, did you see the solar business being -- growing this year, let's say, in fiscal 2016?

We had a good year last year, with that particular customer. It was down a little bit in Q1, but up substantially year over year, because we had a pretty light quarter in Q1 of FY15. I think our outlook is that we will have somewhat of a better year this year than last year, and last year was by far our best year ever with that customer.

Great, thanks a lot; good luck.

Thank you.

Thank you, the next question is from Sid Sinha of Canaccord Genuity.

Thanks for taking my questions, and congratulations on the nice quarter. I guess starting off with the wireless networks, and given the expected slowdown at the heavy equipment customer in the quarter, you've said that the Q2 should see improved sales. And how should we think about the sales level? Is it a modest improvement over Q1? Or could it potentially go back to Q4 levels, I guess, Q4 fiscal 2015 levels?

I don't think our outlook is in line with where we were in Q4. I would say probably more the former than our expectation for the latter in Q2. We do expect it to be up somewhat in Q2, and strengthen considerably as we move our way through the balance of the fiscal year.

Okay. And then just outside this heavy equipment customer, if we look at the wireless networks business for Q2 and the rest of the year, given your guidance, how should we think about the different verticals? And is there any better visibility for PTC after the unfortunate railway accident? And what about public safety in the energy markets?

Sure. That was a full question, for sure. Actually, our outlook for the full year is based upon really solid growth in all of the core vertical applications.

And as it relates to some of the specific ones you mentioned, like PTC, we had a pretty good year last year in PTC radio shipments. We would be quite pleased to see that level of activity again this year. Although I think, based on the quoting activity and the pipeline of opportunities, we may see a little bit of an improvement in PTC this year.

I'm also pleased to say we saw, for the first time in, I think, almost seven years, an increase in product shipments into the public safety market in Q1. We -- there hasn't been a lot of activity on the product side there for some period of time. And I think the FirstNet infrastructure is beginning to be built out, and that's starting to create some demand for our Fusion high-end Band 14 router product. And we had some solid shipments in Q1, and I think the pipeline is solid for the balance of the year.

On the energy front, we had a good year last year. We would expect that base of business to grow modestly this year. And as we pointed out earlier in the Q&A here, we expect our solar customer to ramp up somewhat from where we were in FY15. So I think the energy segment overall, for FY16, looks to be pretty solid. So our guidance, our full-year guidance, is based upon, really, core growth, almost all across-the-board, with the exception of our satellite segment, obviously.

Okay, great, thanks for the great color. And then following the recent significant convertible debt raise, could you remind us, Michael, what your acquisition philosophy is, in terms of the financial and strategic goals? And then how is this M&A pipeline, in terms of potential candidates and timelines, I guess?

Sure. There are four key acquisition criteria. Number one, margin accretion, that being gross margin accretion. Two, non-GAAP earnings accretion. Three, vertical market alignment and/or channel leverage. And four, relative ease of integration. So those are the key acquisition criteria, and they're not easily satisfied, obviously, collectively.

I think our philosophy continues to be to try to adhere to those principles. And I would say, as we've increased our international revenues, we've had some increased visibility on potential acquisition opportunities, given our more global view today, as opposed to where we've been in the past. But outside of that, I don't think anything has necessarily changed, in terms of our pursuit of strategic M&A opportunities.

Okay, thanks. And just a bookkeeping question. Can you share what the split between the MRM and the wireless networks business was? Or wireless (multiple speakers)?

Yes, it was approximately 60% MRM products versus 40% wireless networks products and services in Q1.

Okay, great. Thanks for taking my questions.

Thank you.

Thank you. The next question is from Jonathan Ho of William Blair.

Hey, guys. Congrats on the strong quarter. Just wanted to start out, you referenced in your prepared remarks that you're starting to see a bit more of a shift from some of the larger customers towards an outsourced hardware model. Can you talk a little bit about maybe what's changed there? And what sort of opportunity this would open up for you guys?

Thanks, Jonathan. As you know, we've been a dominant supplier of fleet products to application service providers in North America for some period of time, and we have significant market share. But even though our market share is quite high in the US, and in North America more broadly, as we look at the largest application service providers in that region, in the North American region, roughly 8 out of 10 of the top service providers are our customers; that leaves 2 large ones that we have left to tackle.

I think in terms of some of the hold-outs, we're starting to see some opportunity to potentially penetrate those key North American accounts. And likewise, in various regions around the world, where some of the larger application service providers, up to this point in time, have relied mostly on their own internal developments for their product solutions, we're starting to see some openings to potentially transition some of those customers over to our core product portfolio.

Got it. And then just in terms of the competitive landscape, can you talk about whether you're seeing any increased competition? Whether there's any -- there's been more traction with some of the Asian competitors that have been referenced in the past? And whether that's meaningful at all, relative to the first-quarter results?

I don't think the potential Asian threat has been any -- has been detectable in the market, at least in terms of our go to market strategies. And if anything, I would say our competitive position is strengthening, as opposed to weakening, or being somewhat stable. I'm really, really comfortable with where we're at, and I'm very, very comfortable with the momentum we're seeing, in terms of converting some of these customers we talked about a moment ago over to our product portfolio, all around the world.

Got it, and one last one for me. You guys talked a little bit about the MDT-7, and what that can add to some of the potential transactions, and some of the customers that are adopting it. Can you maybe give us a sense of how much that would uplift a typical deal? Or what that could mean, if you're able to, I guess, more fully penetrate the base with the additional hardware up-sell?

In the past, we talked about the MDT product, in terms of revenue impact, being potentially minimal. If we reached a run rate of a few million dollars a year on that product, we would view that as success. Where we would see the lift is on the margin side. The ASPs we've been able to realize for those products are both accretive, in terms of pricing, but very much accretive in terms of margin impact.

Great, thank you.

(Operator Instructions) The next question is from Mike Crawford of B. Riley.

Thank you. Could you please talk about what kind of activity you're seeing with your B2B AppStore? And what your thoughts are, and how that's progressing?

In terms of revenue activity, not much. But it has been an interesting incubator for some interesting content providers. Crashboxx is a great example of that. Crashboxx had been developing Android-based versions of some of their applications, to be monetized through our AppStore. And obviously, that's when we got to know those guys better. And certainly, that ended up resulting in us acquiring their technology.

But we see other emerging players with special types of applications mostly targeted towards fleet, but not necessarily exclusively targeted at fleet where we're getting some interesting insights into where the market is headed for fleet applications.

So that's very, very valuable market information. It's a great leading indicator for us. But it also is providing a portal for us to be able to bring some of our own applications to the Android platform, such as FleetOutlook, which is our core enterprise fleet application, which we acquired through Wireless Matrix. But also some of the driver scoring and driver feedback applications that Crashboxx was developing, we're starting to mature those. And hopefully, we're in a position to bring those to market, early part of next year.

Okay, thank you, Michael. And then in that heavy equipment vertical, it sounds like you and your primary customer continue to be happy with each other, and we know you've been working to penetrate others in the market, as well. How's that progressing?

It's progressing very well. And as it relates to our key customer, I'm pleased to say that we were recently -- we recently were awarded the highest supplier designation by that customer, in recognition to our top tier quality systems and processes, which is great. And I think that's a great endorsement of our capabilities, and hopefully will help secure a solid long-term relationship with that customer.

But outside of that account, we're seeing a lot of activity, including some piloting activities of our products with some of the other larger players around the world. And it's actually -- the engagements are actually extending beyond what we would term just the heavy equipment component of some of those companies' offerings, including some of the heavy-duty truck OEMs. And the engagements, and the piloting activities, are in some cases involving more than just a hardware device, which is also exciting for us.

Okay, thank you, and then final question is more financial related. Given the recent successful convertible offering, combined with the hedge and swap transactions, and also the continued utilization of your NOLs. Can you just go walk us forward several years, as to how cash tax expense as a percent of pro forma income might walk up? It's 1.5% this year. I think it probably starts to increase a couple percent a year for several years? Or maybe you could provide some more color there, please.

Hi, Mike, this is Rick. We don't expect the convertible notes, and the call spread option instruments, to have any appreciable effect on the non-cash tax rate. For the near to midterm future, we still expect the cash tax rate to be roughly 1.5% to 2% of our taxable income.

What's happening for tax purposes is, we have the cost of the bond hedge. And that gross cost of approximately $31 million is deductible on the tax return, as original issue discount interest. Which essentially mirrors what's happening, for financial reporting purposes, as we're recognizing as interest expense, in addition to the 1 5/8% coupon interest, and the amortization of the transaction costs that were allocated to the debt.

On top of that, we're also recognizing, for financial reporting interest expense, as we amortize the note discount of $33 million, almost $34 million. So there's really not any significant impact on the cash tax rate, per se. As we indicated during our Analyst Day presentation, we expect our cash tax rate will start moving up over the next several years, as we begin recognizing more of our taxable income outside the United States, where we currently don't have a tax shelter.

Okay, thank you, Rick.

The next question is from Greg Burns of Sidoti & Company.

How much remains outstanding on the Navman note payable? And do you expect any change in buying behavior from that customer, once the discount goes away?

So I think the amount outstanding, if there's any, is nil on the note. And as it relates to the potential commercial activities with that customer going forward, I think there shouldn't be any perceptible change in the relationship. And now that we're some 2.5 years -- almost 3 years into a commercial engagement with that customer, obviously, we're tied together tighter than ever.

And over the past two to three years, that customer has transitioned away from some of their internally developed legacy products to our broader portfolio. And in fact, I think that's put them in a stronger competitive position, frankly, given our product portfolio, in general, is probably brought to market at a lower cost than anything they were able to do on their own, internally.

So we're quite pleased with the relationship. We think it's solid and secure, and in fact growing, as we work our way through this year and the coming years.

Okay. And just had a question about the recent rise in DSOs, not necessarily quarter-over-quarter, but more structurally from a little over a year ago. It seems like we're at this higher plateau than where you were historically. Can you just run through what the major drivers have been of that?

Sure. There's fundamentally three contributing factors. Number one, it's the consolidated mix shift. Historically, our satellite customer has paid in very -- a relatively short number of days after invoice, as compared to the broader average for our wireless datacom segment. So that's a key factor. Obviously, satellite is a much smaller percentage of revenue today than it was a year ago.

Another factor is, obviously, our expanding international footprint. Generally speaking, international customers pay slower than we would traditionally see from a US-based customer. But that is not a big factor, but it is a bit of a factor.

And thirdly, in the last couple of quarters, our key customer -- our key heavy equipment OEM customer has, relative to our average customer base, has fairly liberal payment terms. And so those three factors combined, I think, are the key reasons you've seen the DSOs expand marginally.

I would say this. The creditworthiness of our customer base overall has actually increased over the last few years. And I think our well past due balance was at a record low, at one point during this past quarter. So overall, even though the DSOs have expanded somewhat, due to the factors I mentioned earlier, the creditworthiness of the customers, and our bad debt expense, has actually gone down during that period of time.

Great, thank you.

I would now like the turn the conference back over to management for any additional remarks.

Thank you for your support, and for joining us on today's call. We'll look forward to speaking with you again when we report our fiscal 2016 second-quarter results in the Fall. Thanks again.

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.