CAMP4 Therapeutics Corp (CAMP) 2016 Q2 法說會逐字稿

Greetings and welcome to the CalAmp FY16 second-quarter earnings conference call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation.

(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 FY16 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 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 Company's annual report on Form 10-K for FY15 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 the 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 on the Company's financial results, and Michael will then wrap up with CalAmp's business outlook and guidance for the FY16 third 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. We had an outstanding second quarter, posting record revenues of $69.8 million and a 30% year-over-year increase in non-GAAP net income. Our continued operational execution resulted in adjusted EBITDA of $11.8 million, and operating cash flow of $12.4 million. During the quarter, we experienced robust demand for our mobile resource management, or MRM, products from fleet management and asset tracking customers, along with growth in our wireless networks business. Our Satellite segment revenues were in line with expectations, while a favorable product mix drove higher gross margins and strong profitability. Our momentum exiting the quarter, coupled with an expanding pipeline of opportunities, is providing CalAmp with a strong tailwind heading into the second half of FY16.

Looking at our second-quarter results in more detail, consolidated revenue was $69.8 million, with Wireless DataCom revenue up 23% year over year to $61.8 million, while Satellite revenue was down 11% to $8 million. Consolidated gross margin increased to 36.2% in the second quarter, up from 34.6% in the second quarter of last year, and adjusted EBITDA margin increased to 16.9%, up from 14.1%. At the bottom line, we achieved GAAP basis earnings of $0.10 per diluted share in the second quarter, with non-GAAP earnings of $0.27 per diluted share, which includes a full-quarter impact of interest expense from our convertible debt offering that was completed late in the first quarter.

Operating cash flow totaled $12.4 million in the second quarter, and $28.8 million in the first six months of FY16, resulting in year-to-date free cash flow of $26 million. This helped to push our cash equivalents and marketable securities balance up to $218 million at quarter end. Our strong liquidity position provides ample flexibility to take advantage of future growth opportunities, including pursuing strategic M&A.

Now I'd like to review our operational highlights for the quarter in more detail. Our Wireless DataCom segment posted another record-setting revenue quarter, as we continue to see strong customer demand for our core products and services globally. Revenue from telematics products shipped to Caterpillar were generally in line with expectations and are expected to further expand through the balance of this year and into FY17.

As a strong endorsement of this key partnership, Caterpillar recently awarded CalAmp with platinum-level certification as part of its supplier quality excellence process. Certification recognizes suppliers that demonstrate a commitment to excellence that drives a zero defects culture within their organizations. To be awarded the highest level certification in our first year as a CAT supplier is significant achievement for CalAmp and speaks volumes to our dedication to product quality and customer service, above and beyond our technology leadership pedigree.

Growth within our Wireless DataCom segment was broad-based in the second quarter, including healthy year-over-year revenue growth for our software-as-a-service solutions. In total, recurring revenues from our fleet management, automotive aftermarket, and communications services comprised 15.9% of consolidated revenue for the second quarter, up from 15.6% in the immediately preceding quarter. Total recurring revenue in the second quarter reached a record $11 million, driven by a 23% year-over-year increase in overall SaaS revenue.

Across all of our market verticals, we had approximately 487,000 unique software application subscriptions at the end of the second quarter, with fleet subscribers increasing on a sequential quarter basis, while automotive aftermarket subscribers remained flat versus the prior quarter. Margin trends and sales pipeline indicators were positive across all applications in the second quarter, including in the automotive aftermarket vehicle finance application, where elevated churn experienced over the prior two quarters abated considerably.

Another second-quarter highlight was the announcement of an OEM partner agreement to provide mobile routing devices and platform services to power Toyota Industrial Equipment's new T-Matics Mobile Vehicle Management System, a fleet management tool that tracks and reports operating dynamics and fork lifts and their operators. This innovative in-building and outdoor vehicle monitoring solution will be installed directly on Toyota Industrial Equipment's production line, and enables electronic hour meter collection, accident detection and alerting, fleet utilization optimization, and asset tracking.

Moving on to 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 international customers. In fact, the second quarter represented the strongest quarter ever for fleet management product sales. Customer demand in the US was particularly robust, with solid demand also coming from customers in Canada, Europe, Latin America, and the Pacific Rim. Looking ahead to the second half of FY16, we believe the core fleet management products business will continue to drive growth, coupled with demand for newer asset tracking products with a growing international base of customers. We are also making good progress in building the sales pipeline with a new large enterprise customers, some of which have historically developed their own products internally.

In the auto insurance telematics market, we continue to advance our strategic initiatives. Our recent acquisition of Crashboxx has positioned CalAmp at the forefront of telematics technologies for streamlining claims processing through the automation of crash notification and vehicle damage estimation. We have made excellent strides towards validating the core technologies through controlled crash testing with insurance carriers and key ecosystem players, and we are well on our way to productizing the core IP.

On the hardware device front, our significant investments in vehicle telematics technologies are beginning to provide tangible differentiation in the marketplace, with broad vehicle coverage in both North America and Europe, supported by our scaled and secured device management platform ecosystem. We believe our ability to securely and reliably support an ever-growing variety of vehicle makes and models for specific customer requirements is unrivaled. In our view, these strengths are highly leveragable and should help drive additional device revenue growth, not just in emerging markets like insurance telematics, but also help expand our opportunities in other segments, such as fleet and heavy equipment.

Overall, we are thrilled with the progress we have achieved over the past year in advancing our strategic initiatives in the vehicle telematics space. We will continue to invest in the technology's channels and strategic partnerships that I believe will position CalAmp to play a foundational role in the evolution of the marketplace. 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 aftermarket connected vehicle solutions.

Moving on to our Satellite segment, revenue in the second quarter was $8 million, in line with expectations. We continue to be pleased with the Satellite segment's operational performance, which achieved gross margins of 27.6% in the second quarter, a new record for this business unit, and provided healthy contribution to 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 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 FY16 second quarter.

Consolidated revenue for the FY16 second quarter was $69.8 million, an increase of 18% compared to the second quarter last year. Consolidated gross profit for the second quarter was $25.3 million, an increase of $4.8 million, or 23.5%, 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 36.2% in the latest quarter, compared to 34.6% in the second quarter last year.

Looking more closely at gross profit performance by reporting segment, Wireless DataCom gross profit was $23.1 million in the second quarter, with a gross margin of 37.4%. Year over year, Wireless DataCom's second-quarter gross profit was up $5.1 million, while gross margin increased by 140 basis points. Our Satellite business had a gross profit of $2.2 million in the second quarter, with a gross margin of 27.6%. This compares to gross profit of $2.4 million and a gross margin of 27.2% in the second quarter of last year.

GAAP basis net income for the FY16 second quarter was $3.5 million, or $0.10 per diluted share, compared to $3.3 million, or $0.09 per diluted share, in the second quarter of FY15. Although the Company's GAAP basis effective tax rate of 37% 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 net operating loss and resource and development tax credit carry forwards.

Our non-GAAP net income for the FY16 second quarter was $9.8 million, or $0.27 per diluted share, compared to $7.5 million, or $0.21 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 from amortization of debt discount, and includes income tax expense for cash taxes paid or payable for the period.

Adjusted EBITDA, which is also a non-GAAP measure, was $11.8 million in the FY16 second quarter, with an adjusted EBITDA margin of 16.9%. This compares to adjusted EBITDA of $8.3 million and an adjusted EBITDA margin of 14.1% 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 FY16 second-quarter earnings press release that was issued today, which is available on our website.

Now, moving onto our liquidity position and balance sheet, as of August 31, 2015, the Company had total cash and marketable securities of $218 million, and total outstanding debt with a carrying value of $137 million. Essentially all of this debt on our balance sheet is associated with the convertible notes that we issued in May of 2015. Net cash provided by operating activities was $12.4 million during the second quarter, and $28.8 million for the first six months of FY16. In addition, the unused borrowing capacity on our bank revolver at quarter end was $15 million.

Our consolidated accounts receivable balance was $45.8 million at the end of the second quarter, up slightly from $45.1 million at the end of the preceding quarter. This represents an average collection period of 54 days, compared to the receivables collection period of 56 days at the end of the preceding quarter.

Our total inventory at the end of the second quarter was $22.6 million, representing annualized inventory turns of approximately 8 times, down from inventory turns of approximately 10 times in the preceding quarter. Total inventory increased by $6.5 million compared to the previous quarter, as we prepare for projected increases in shipments in the second half of the year. Despite the increase in inventory balance, our cash conversion cycle of 29 days remained unchanged from the prior quarter and is within our targeted range.

For the FY16 second quarter, our GAAP basis effective tax rate was 37%, compared to 34.8% in the second quarter of FY15. For the full year in FY16, we continue to expect that our GAAP basis effective tax rate will be approximately 37% 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 fiscal third quarter and full year. Looking at our FY16 third quarter, we expect to achieve consolidated revenue in the range of $71 million to $76 million. We expect our Wireless DataCom and Satellite segment revenues in the third quarter will be solidly higher on both a sequential quarter and year-over-year basis. At the bottom line, we expect third-quarter GAAP basis net income in the range of $0.08 to $0.12 per diluted share, and non-GAAP net income in the range of $0.26 to $0.30 per diluted share. For our FY16 up full-year outlook, we continue to expect consolidated revenues to gain momentum as the year progresses, with full-year revenues estimated in the range of $281 million to $289 million, driven by our continued growth in our Wireless DataCom segment and a much stronger second half in our Satellite segment.

In closing, I'd like to recap some key points. First, I am quite pleased with our performance in the first half of FY16. Our strong results reflect the continued operating momentum in our core MRM products business and software-as-a-service applications. 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 for the remainder of FY16 and beyond. Third, our strong liquidity position gives CalAmp the flexibility and financial wherewithal to take advantage of both organic and inorganic growth opportunities. And finally our ever-increasing scale, impressive roster of global enterprise customers, and ongoing strategic investments positions us well to sustain our momentum into FY17 and beyond.

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.

Great. Thank you. Congratulations on the strong results. Wanted to ask a question, just starting on Caterpillar, just what's given you the confidence? It sounds like the visibility you said could improve all the way through the beginning of FY17. And then, also, what trend are you seeing with other large global companies maybe outsourcing more hardware opportunities to CalAmp?

Sure, Mike. Well, thank you for the compliment on the quarter. It was an outstanding quarter. So the outlook for Caterpillar really hasn't changed at all, and obviously, there's been a lot of noise about Caterpillar adjusting its guidance down for this year and next as it experiences softness in many of its markets around the world. I think it's important to remember what the motive is behind Caterpillar broadening out its telematics strategy across more of its products and certainly on a global basis. Caterpillar sees that as a way to not only gain more information about its products and performance in the field, but also generate incremental revenue streams. So despite the relatively poor cyclical backdrop for Caterpillar and its core business, they view this program as key and critical, and in fact a way of hedging against of the softness in the global economy, by creating a platform to generate incremental revenues. So this is as important, if not more important than ever, for Caterpillar.

And obviously there are others in the marketplace who feel much the same way. And we made excellent progress in terms of engaging with other heavy equipment OEMs, and including many OEMs in the heavy duty truck sector on a global basis. And each and every one of those major players on a -- in the global environment are really, really interested in identifying ways of layering on additional value to their products and obviously creating additional revenue streams and profit streams for the enterprise.

Great. That's helpful. And then just outside of the heavy equipment area, how should we think maybe about some of the wireless networks business? Is there any improved visibility in some of the other strategic areas, such as your larger energy customers and maybe the PTC?

Sure. Great question. So in the energy markets, the quarter was good, and, in fact, the first half of this year was pretty much in line with where we were in the first half of last year from a revenue perspective. Actually the outlook for the energy business for the balance of this year is probably pretty consistent with what we experienced this quarter and in the first half of this year. We have seen a couple of projects slip out of the year with our customer in the solar marketplace. But that's pretty typical as it relates to project-based activity like we have with that customer. So despite those projects slipping out, the rest of the year looks to be pretty solid, and we're very, very comfortable with the outlook in that regard.

On the PTC front, we had a very strong quarter. And in fact, we had the strongest quarter in PTC radio shipments since the wind down of the development program three years or so ago. And we're going into Q3 with a pretty solid backlog position, and I think we are comfortable in expressing that we're pretty certain, not certain, not completely certain, but pretty certain we're going to have a much stronger year as it relates to PTC radio shipments than we had last year, which was a pretty good year overall.

Great. Just one last question for me, I'll pass it on. Just for housekeeping, can you give us the MRM mix within Wireless DataCom? And just comment -- I think you said it was -- was it the second strongest quarter ever in MRM and is that mainly due to your fleet customers?

No. It was actually the strongest quarter ever for our MRM product. And as it relates to the breakdown, it was 60% MRM products and 40% wireless networks products and solutions in Q2. Consistent with what we saw in Q1.

Great. Thank you very much.

You're welcome.

Mike Crawford, B. Riley and Company.

Thank you. On the insurance front, sounds like you are progressing with productizing your IP. Can you just go into that a little bit more, please?

Yes, I'm assuming you're talking about IP as it relates to the Crashboxx technology. Actually, there is a lot more to the insurance telematics for us than just the Crashboxx technology, but that's obviously a key area of focus for us. Over the last quarter or so, we've had some very, very interesting conversations as it relates to crash detection and damage estimation technology that we believe we have now in our possession through the Crashboxx acquisition. And we're seeing that the application of that technology is actually probably a lot more broad-based than just the insurance segment. We're seeing interest from existing fleet customers. We're seeing interest -- keen interest from companies who manage lease fleets. We're also seeing a little bit of interest in the rental car market. And we believe that we now have in front of us a multitude of options as it relates to monetizing that technology.

So where we are today is investing in some additional product development activities, as it relates to, not necessarily so much the algorithms or the crash detection technology itself, but the means to deliver it through multiple channels, both directly through an insurance telematics service provider but also indirectly potentially over the top two existing device customers in the fleet and car leasing marketplaces. There may also be an application of that technology somewhere down the line, even in the heavy equipment market. So in a sense, we think we got the tiger by the tail as it relates to a very innovative package of IP that we acquired from Crashboxx, and we continue to enhance with some of our current investments.

Okay. Thank you. And then, I know that some of that's been offered in your B2B CalAmp app store. What else is there that's new or active in that store today, since it's hard to see from the outside?

Well, we haven't really offered anything commercially through the app store yet, but it's been a great incubator platform. As you saw at our analyst day earlier this year, we featured Crashboxx and we had another partner there that had some content that it was trying to develop and commercialize that would be appropriate to offer through our app store. So it's been a great incubator platform. As it relates to the Crashboxx technology, we think that the app store is going to play a critical role in how transactions are processed and how that technology is potentially delivered to some of these end-market applications I described a little bit earlier.

Okay. Thank you. And then final question is I know you dodge some foreign currency bullets by not delivering straight into Brazil for a bulk of your revenue there with Sascar, but can you just describe the impacts of currency movements?

Well, as it relates to revenue impact in our latest quarter, it's not discernible, because we were up in every region in the world, including Brazil, in Q2 versus the prior quarter, with the exception of Africa. That's the only region in the world where we actually saw a sequential quarter decline in sales, and I wouldn't even call that precipitous, and certainly I wouldn't necessarily attribute that to any foreign exchange factors. We had a very good quarter in Europe, in the UK in particular. As I mentioned, we saw increased revenues in South America. We saw increased revenues in Australia and New Zealand. And so, overall, we haven't been able to detect significant foreign currency challenges, although, I'm sure if things were going in the other direction, it would be a good tailwind for us as we continue to focus on international expansion.

Great. Thank you very much.

You're welcome.

Mike Latimore, Northland Capital Markets.

Thank you. Yes, and great quarter.

Thank you.

Michael, you mentioned you're making -- you said excellent progress on other heavy equipment and heavy duty truck opportunities. Can you talk just a little bit more about that. Does that mean that you're getting into new trials there or you have new customers? Or the trials you're already in are progressing nicely to an end? Maybe a little more color would be helpful.

Well, I did say we're in a number of different trials with what I would term significant players. There is no certainty that those trials will result in large-scale programs, but the large -- a lot of large numbers suggests that the more trials we're involved in, the more likely it is that we're going to land one of those as a meaningful opportunity.

When might some -- when might a trial or two come to an end and the decision be made?

Excellent question and I wish I had the answer. In most cases, these are very large global OEMs, and things take time. I think it's important to point out that before we shipped product one, revenue-generating product one to Caterpillar, we had been engaged with them for something in the order of three years. But as we've proven with Caterpillar and other opportunities historically, we are patient, and we'll hang with the opportunity as long as necessary to close it.

All right, and I think you mentioned that thought that the UBI vertical could help the second-half growth here? Is that still the core customers growing or is that new customers adding to the mix?

A little bit of both. We have one of our customers is -- has come on pretty strong the first half of this year. We expect them to grow through the balance of this year. We've actually had a new partner come online that we've been working with on a number of trials last year who contributed a little bit of revenue in Q1 but more so in Q2, and we expect them to continue to ramp. And by the way, both of those references relate to companies based in the UK. And in fact, about two-thirds of our UBI-related device revenue in Q2 came from European opportunities.

One of our domestic programs has continued to ramp through this the first half of this year after being in pause mode for really the last three quarters of last year. And then another one of our partners domestically has continued to face some challenges, not so much with their technology, but with regard to their end customer, trialing a number of different solutions as potential alternatives to their solution for insurance telematics purposes. However, that partner has landed an international opportunity, which we hope to see ramping in the second half of this year.

Great, and just last question. The DSOs have been trending nicely lately. Should we assume that they can stay in this range for a while?

Well, I'll let Rick amplify this, but I think, generally, we're at the new normal, which I think is around 54 days this last quarter. Rick?

I would not expect it to get higher than that; I'd like to see it trend down a bit, but it may be the new norm.

Okay. Great. Thanks a lot.

You're welcome.

Jonathan Ho, William Blair.

Hey, guys. Congratulations on the strong quarter. Just wanted to start out with your SaaS growth. Can you guys talk in a little bit more detail in terms of maybe where you are seeing strength there and just business expectations for the second part of the year?

Sure. Well, I think a key contributor to SaaS revenue growth this last quarter was in the automotive aftermarket category, both in vehicle finance and in remote car start. We're just at the beginning of the remote car start season, and so there's some obviously channel-filling activity there. So that was a contributor. Really strength in terms of how we've been able to reconstitute our vehicle finance sales channels, which we've talked about in the last couple of quarters. So I think we found some nice success there.

And also we're trying to position the vehicle finance sales channel as one that we can leverage in other applications down the line. We think it's got potential opportunities as it relates to the delivery of insurance telematics services and some other applications. So we're really -- we've reconstituted that business, both internally and externally with regard to our channel partners. And then, of course, as we've talked about late last year and early part of this year, we had some pretty significant fleet SaaS wins, enterprise fleet SaaS wins in the latter part of last year. Those -- many of those subscribers have come online, and obviously, contributed positively to revenue growth this latest quarter.

Got it. And then can you maybe talk a little bit about, I think last quarter you had mentioned that maybe some of the ASPs were going to start looking at maybe some different sourcing methodologies. Has there been any shift there in terms of the traction with some of the larger ASPs?

Yes. Continued progress, I would say. Again, I think we're in excellent position as it relates to converting some of the long-standing hold outs, as it relates to potentially outsourcing the hardware component of their solution.

Got it. And just one last one. In terms of the Satellite business, can you maybe give us your expectations around the second-half ramp there as well?

Yes. Well, as we noted, we expect the second half to be quite a bit stronger than the first half. And in some ways, we would expect the second half of this year to resemble really the first half of last year where we saw roughly $20 million of revenue, plus or minus.

Great. Thank you.

Split between the two quarters.

Thank you.

You're welcome.

Howard Smith, First Analysis.

Yes. Thank you. Congratulations on solid execution, particularly internationally. I'm very surprised to hear Brazil and South America up sequentially. I was wondering as you look out at your international expansion efforts, how do you allocate resources going forward? Do you take into account the macro environments of the different regions and adjust your relative efforts accordingly, maybe weighting Europe a little more now relative to South America? Or do you just go where the opportunities and the partners and the RFPs are? How do you balance that effort around the world?

Well, we're not quite as ad hoc as perhaps the last part of your question there. We have dedicated resources based in South America, as well as in the UK, to address really the entire EMEA region. So it's not like we shift people around to take advantage of potentially cyclical -- the cyclical backdrop in each of the regional economies. And we're in this for the long run. Brazil is a large economy. It's tough to do business there, but if you make the appropriate investments and you stick with it, sooner or later, if you have the right products, the right people, the right technology, all delivered from the right company, which we think we are, we'll find success And we have thus far, despite the challenges as it relates to the real/dollar exchange rates and the trends there.

Obviously, we've had resources in the UK for some period back of time. There's a lot of great opportunities in the UK, it's a growing economy, it's on solid footing, and I think certainly not only do we have the people and the technology all being delivered from the right company, but obviously, the macroeconomic backdrop there is more favorable. And I think we're seeing things improve overall in Europe. And the overall economy Europe-wide I think is modernizing, and that modernization obviously creates a much more attractive backdrop to contemplate outsourcing certain parts of previously internally developed solutions to trusted third parties.

Our global brand has continued to build as well, and whereas three or four years ago we could have flown into South America or any number of countries in Europe and no one would have known CalAmp from the man in the moon; that's not the case anymore. We are a well-known entity on generally a global basis as relates to telematics technologies.

Great. I appreciate that color. Congratulations again. Thank you.

Thank you.

(Operator Instructions)

Rajesh Ghai, Macquarie.

Yes. Thank you, and I'll add my congratulations for the quarter. My first question is, Michael, you talked about strength in fleet management. Could you give us a little bit more color as to what's driving that strength and how sustainable that could be going forward?

Well, again, the revenue strength in Q2 was driven by the subscriber growth we saw late FY15 through the beginning of this fiscal year. And there's two thrusts as it relates to fleet services. One is with enterprise customers, large enterprise customers who tend to have anywhere from let's say 100 to hundreds to, in some cases, a few thousand vehicles in their fleets. And we also have a thrust into the municipal government market, and we've had a lot of good success there; however, those fleet opportunities are much smaller in magnitude, generally in the dozens, in some cases up to 100 vehicles in the fleet. And I think we've got a solid, solid sales organization, and I think that sales organization has become very, very functional over the last year and I think we'll continue to cultivate opportunities. And I think we've got a good future in front of us as it relates to our efforts in the fleet SaaS area.

That's helpful and could you comment upon the timing and magnitude of the Toyota opportunity?

The third opportunity?

The Toyota forklift.

Oh, the Toyota. Well, in terms of revenue contribution this year, it's not going to be great, certainly less than $1 million, but it's significant. It's really one of our first publicized platform-as-a-service opportunities. And obviously, with a significant brand in the forklift marketplace. So strategically important. It's not that material to results for this fiscal year, it certainly wasn't in Q2; however, we think that grows over time. And it's just, I think, an additional endorsement along the lines of the endorsement we received from Caterpillar when they selected us as a trusted partner. And these large global enterprise players don't want to do business with fly-by-night operations who don't have staying power. And I think that's a significant strength for us and a competitive advantage in the marketplace as it relates to engaging with Toyota-like opportunities.

And considering your confidence in the momentum on the fleet services side, the SaaS side of the business, could we expect some margin uplift, gross margin uplift as we move towards the end of the year into next year?

Well I think we might have realized some of that in Q2. Obviously SaaS revenues as a percentage of consolidated revenues were higher sequentially. But remember, most of our efforts in the fleet area are enterprise focused and those come in chunks. They can actually come and go in chunks, but fortunately, we haven't seen any significant churn over the last several quarters, and therefore, these subscriber adds and the customer wins we've recognized over the last few quarters have been contributing to revenue nicely and subscriber growth on a net basis. So we'll continue to forge ahead. And obviously, we not only have a focus on enterprise customers, we have somewhat of a vertical focus as well, areas like transportation, energy, heavy equipment, and the municipal government space.

Okay. Wonderful. Thank you so much.

You're welcome.

Greg Burns, Sidoti.

Hi, in regards to Toyota and you providing a platform as a service for them, if you could just give a more color on exactly what you're doing for Toyota. Are you hosting their application? Just what does that entail in terms of you providing that platform as a service?

We are not hosting their application. It's not actually dissimilar to what we're doing with the direct electronics for the remote car start product. So basically we are supplying a device. It's a very -- actually it's quite a complex device, given its unique attributes and its ability to navigate and to detect crash events, both internal, inside buildings, as well as outside of buildings at vehicles moving at relatively slow velocities. So there are some interesting algorithms embedded in that device that were developed specifically for Toyota. So that device obviously connects through a traditional wireless network, and we are not providing the network services; however, we're interfacing through the network carrier's infrastructure to our platform services that then communicate with Toyota's application through what's termed a data pipe, or API, which feeds their application. So we host the device essentially on our platform, but then we provide data feeds to Toyota and its applications [for them], which they host themselves.

Okay, thank you. And in terms of the electronic log device mandate in the fleet market, I haven't heard you talk about that, but could that potentially be a catalyst for your MRM products business?

It could be, really from two points of view. Number one, the more telemetry that fleet operators either desire to have or are obligated to have through regulatory influences, the more likely it is that they require higher end mobile router products. And we've actually seen a shift to more higher end -- what I'd call vehicle area networking products, which is actually a positive for us, both from a revenue and a margin perspective, within our MRM products business. But also because of some of these regulatory requirements, there's a stronger demand or actually a regulatory obligation for there to be an in-cab display system for the drivers. And that, we believe, is a potential tailwind for us as it relates to MDT, android tablet demand. We've seen a number of customers start to adopt our MDT platform, specifically because of some of these regulatory influences.

Okay. Thank you.

You're welcome.

Anthony Stoss, Craig-Hallum.

Hey, guys. My congratulations as well on a great quarter. So Michael, you talked about Caterpillar expanding into additional platforms over the next several quarters. Can you give us a sense of, maybe a few quarters out, what likely revenue -- quarterly revenue range might be on that? And then lastly, given the cash position on the balance sheet now, has that opened up additional new M&A opportunities? Thank you.

So we kind of rewind the tape and go back to the end of last year where we talked about our Q4 potentially being indicative run rate for once their program was fully ramped. We reached about $7 million of revenue with Caterpillar in Q4 last year. I think that outlook is still pretty much in place. And as it relates to the second half of this year, I think the second-half expectation and certainly what's contemplated in our guidance is the second half that may not necessarily be dissimilar to what we saw the second half of last year. Maybe not necessarily distributed in the same way, but roughly $12 million or so of revenue versus something around $9 million or $10 million that we experienced in the first half. And assuming we could get up to a $7 million or more quarterly run rate, I would say that would define being fully ramped.

Okay. And then the M&A side?

M&A, I wouldn't -- I don't think that the capital raise has necessarily changed the backdrop there. Obviously, in the public markets, there's been some significant multiple compression. So as it relates to potential public company targets, it may be a more favorable backdrop today than it was 90 days ago. On the private side, valuation expectations are all over the map. But I don't necessarily think that the funnel and the flow of opportunities through our funnel has changed in any meaningful way, simply because we have now something in the neighborhood of $218 million of cash on our balance sheet.

Okay. Great job. Thank you.

Thank you.

Thank you. At this time, I would like to turn the conference back over to Mr. Burdiek for any closing comments.

Well, thank you for your support and for joining us on today's call. We look forward to speaking with you again when we report our FY16 third-quarter results later this year.

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.