CAMP4 Therapeutics Corp (CAMP) 2017 Q1 法說會逐字稿

Welcome to the CalAmp first-quarter earnings release conference call.

(Operator Instructions)

As a reminder, this call is being recorded. I'd now like to introduce your host for today's conference call, Ms. Nicole Noutsios, Investor Relations for CalAmp. Thank you, Nicole. You may begin your conference.

Thank you for joining us on today's conference call to discuss CalAmp's first-quarter 2017 financial results. This call is also broadcast live over the web and can be found on the investor relations section of our IR website. With us today are CalAmp's President and Chief Executive Officer, Michael Burdiek; and Chief Financial Officer, Rick Vitelle.

Before we begin, let me remind you that this call may contain forward-looking statements. While these forward-looking statements reflect CalAmp's best current judgment, they are subject to risks and uncertainties that could cause actual results to materially differ from those forward-looking projections.

Risk factors that could cause CalAmp's actual results to materially differ from its projections are discussed in the earnings release, which was issued today and is also available on our website and in our FY16 annual report on Form 10-K that was filed on April 20, 2016, and with the SEC. We undertake no obligations to revise or update publicly any forward-looking statements to reflect future events or circumstances.

With that, it is now my pleasure to turn the call over to CalAmp's President and CEO, Michael Burdiek.

Thank you for joining our call today. We reported a strong first quarter with record results across a number of financial performance metrics. We also made progress on several business initiatives that will set the foundation for long-term revenue growth, margin expansion, and earnings leverage. We are very pleased that we are seeing early success with LoJack, which was acquired in March and was a strong contributor on multiple fronts, from revenue growth to operating leverage.

Overall, it was a solid start to the year, with first-quarter revenues of $91.1 million, up 39% year over year, with consolidated non-GAAP gross margin at 43%, non-GAAP earnings per diluted share of $0.30, and adjusted EBITDA margin of 15%. Our first-quarter results include revenue of $8.4 million from our satellite business as part of continuing operations.

At the time we gave first-quarter guidance in April, we believe that the satellite business would be accounted for as a discontinued operation beginning in the FY17 first quarter. However, current accounting guidelines dictate that discontinued operations treatment should not be applied at this time. Nonetheless, the outlook for this operating unit is unchanged, with the business expected to wind down completely over the next two months.

Looking ahead to Q2, we expect to see incremental growth across CalAmp's core businesses, along with continued strong contribution from LoJack. Despite our progress on a number of fronts, we remain cautious in the very near term, as macro conditions in North America have resulted in softer-than-expected demand from key customers for MRM telematics products.

We believe that as certain customers work off their inventory overhang, this part of our business should see solid recovery. In fact, we believe that our long-term growth prospects are stronger than ever, and we have recently secured a significant customer win that we expect will be a growth contributor in the latter part of this fiscal year.

Operationally, we are in the process of realigning CalAmp's wireless datacom segment into three new business units and have added dedicated leadership in key areas to drive focus and execution for long-term growth. These new business units are telematic systems, which includes our MRM and LoJack products businesses; software and subscription services made up of the recurring revenue from our subscription services, including recurring revenue of LoJack's Italian operation; and network and OEM products, which includes products sold to customers such as Caterpillar, positive train control products, and networking products sold to utilities and for other industrial applications.

I will now touch upon recent accomplishments in each of these businesses. Starting with telematics systems, we made progress expanding our customer base in the first quarter, and we commenced shipping products to one of the largest lead telematics service providers in North America. Although revenue from this new customer was modest in Q1, we expect them to become an important contributor to telematic system revenue over the coming quarters, as they migrate to 100% outsource model for telematics devices. This customer selected CalAmp as a supplier based upon our product reliability, flexibility, future technology road map, as well as our ability to scale with their business.

On the product front, we made excellent progress on our strategic road map, reinforcing our position as a telematics system innovator. In May, we officially launched our instant crash notification service, or ICN for connected vehicle markets. This new service discriminates different types of crash events and automates damage reporting for insurance, fleet, leasing, vehicle finance, and consumer applications. This is the first of CalAmp's proprietary automated first notification of loss services, planned for rollout during the coming quarters.

We are also pleased to report that the integration of LoJack is going smoothly, and we could not be more pleased with the financial performance and pipeline of opportunities that this acquisition has brought to CalAmp. While the process of integrating LoJack is not complete, we have made significant and measurable progress on multiple fronts.

First, and perhaps most importantly, we have developed a converged CalAmp LoJack road map for products and telematics services targeting the dealer channel. Over the next 6 to 18 months, we expect to deliver innovative new offerings ranging from dealer inventory management solutions to consumers sell-through applications, such as instant crash notification.

On the commercial front, we have begun realizing revenue synergies with LoJack customers and channels much earlier than anticipated. As one example, a LoJack licensing in Latin America purchased CalAmp's telematics devices for integration into its proprietary telematics service offering. The same customer also began piloting our lender outlook application, which represents the first deployment of the subscription service outside the US and Canada. We are also in dialogue with a number of LoJack's other international licensees that have expressed an interest in adopting CalAmp telematics devices as part of their regional service offerings.

As we look at our software and subscription services business, we have been impressed by the performance of LoJack Italy. This captive subsidiary is growing at approximately 60% year over year and represents a tangible case study of our opportunity to leverage the LoJack dealer channel and brand.

LoJack Italy is rapidly innovating and has introduced multiple compelling offerings for auto dealers, insurance companies, leasing and rental companies, as well as consumer stolen vehicle recovery services. It operates on a pure subscription revenue model, and we expect solid growth from this business, which is on target to achieve a greater than $15-million-per-year run rate by the end of our current fiscal year.

We are enthused by the prospect of leveraging the LoJack brand and channels to substantially grow our subscription revenues from where they are today. We believe that with the addition of LoJack Italy, incremental revenue streams from new applications launched through LoJack's global channels, and organic growth from CalAmp's existing SaaS applications, we can achieve our target of $100 million annual run rate for recurring revenues within the next two to three years.

Moving on to the Q1 results of our network and OEM products, Caterpillar was a solid contributor this quarter, and we expect fairly steady and predictable revenues on its existing telematics program through this year. We are increasingly confident that we will be able to expand on the Caterpillar relationship as it aggressively pursues its global connected machine strategy. The industrial connected machine market is largely unpenetrated, and we believe we are exceptionally well positioned to win a significant share in new opportunities as this market develops.

Now turning to capital allocation, we announced today that CalAmp's Board of Directors has authorized a $25 million,12-month stock repurchase plan. The Board and management believe that our current share price does not reflect CalAmp's long-term intrinsic value, and this repurchase plan underscores our confidence in our business prospects. We plan to fund these stock purchases through existing cash balances.

Overall, we made significant progress in the past few months on a number of financial and business initiatives, including the integration of LoJack. Throughout the combined enterprise, our employees are energized and excited by our collective vision and are aligned with our prime objective of delivering strong value for our customers and shareholders.

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 and Q2 guidance.

Thanks, Michael. My commentary will include reference to the non-GAAP measures adjusted basis net income, adjusted EBITDA, and adjusted EBITDA margin. Our adjusted basis net income excludes intangibles, amortization expense, stock-based compensation, acquisition and integration expenses, and certain other adjustments.

Our adjusted EBITDA excludes interest, taxes, depreciation, amortization, stock-based compensation, and certain other adjustments. A full reconciliation of these non-GAAP measures with the closest corresponding GAAP basis measures is included in our first-quarter earnings press release that was issued earlier today.

Consolidated revenue for the first quarter was $91.1 million, up from $65.4 million in the first quarter of last year. This increase is primarily due to the acquisition of LoJack in the first month of Q1, which contributed revenue of $27.9 million in the quarter.

In conjunction with the acquisition of LoJack, we are realigning our wireless datacom segment into three new business units that Michael mentioned a few minutes ago: telematics systems, software and subscription services, and network and OEM products. Telematics systems revenue was $52 million in the first quarter, of which approximately 60% represent sales of MRM products and the remainder represents the contribution of LoJack's products business.

Software and subscription services revenue was $14.3 million in the first quarter, up about 40% year over year as a result of LoJack's contribution. Across all of our SaaS and recurring service platforms, we had approximately 589,000 unique subscribers at the end of the first quarter, including approximately 100,000 subscribers from the LoJack acquisition, compared to approximately 482,000 subscribers at the end of the immediately preceding quarter.

Network and OEM product revenue was $16.5 million in the latest quarter. This is primarily composed of sales of CalAmp's existing products with no contribution from LoJack. Sales to Caterpillar in the first quarter were approximately $8 million as we guided to last quarter.

Our satellite business generated revenue of $8.4 million in the first quarter, up 10% from Q1 of last year. As previously announced, during the first quarter, the sole customer of our satellite business notified us that it will cease purchasing our products as a result of a consolidation of its supplier base and reduced demand for the products that we currently supply. Consequently, we expect our satellite business will cease operations at or around the end of August 2016.

GAAP basis consolidated gross margin was 38.2% in Q1 compared to 36% in the Q1 of the prior year. Excluding the non-cash cost of sales in the latest quarter, arising from the fair value step up of LoJack's inventory, the non-GAAP consolidated gross margin in the latest quarter was 42.6%, which is up nearly 7 points year over year.

In OpEx, our R&D, sales and marketing, and G&A expenses in Q1 as a percent of revenues were 6.5%, 12.1%, and 11.6% respectively. These are non-GAAP amounts that exclude stock compensation expense, and in the case of G&A, acquisition and integration expenses and arbitration-related expenses for LoJack's legal claim against a battery manufacturer. Over the remainder of FY17, we expect R&D and sales and marketing expenses as a percent of sales will remain fairly close to the first-quarter amounts, while G&A as a percent of sales is expected to trend somewhat lower.

The GAAP basis net loss in the first quarter of FY17 was $2.7 million, or $0.07 per diluted share, compared to net income of $4.1 million, or $0.11 per diluted share, in the first quarter of FY16. Our non-GAAP net income for the FY17 first quarter was $11.1 million, or $0.30 per diluted share, compared to $9.5 million, or $0.26 per diluted share, in the first quarter of FY16.

Adjusted EBITDA was $13.7 million in the first quarter of FY17, with an adjusted EBITDA margin of 15.1%. This compares to adjusted EBITDA of $10.7 million and an adjusted EBITDA margin of 16.3% in the first quarter of FY16.

Now moving on to our liquidity position and balance sheet, in the latest quarter we had total cash and marketable securities of $118 million and total outstanding debt of $141 million, which represents the carrying value of the $172.5 million face amount of our 1.625% convertible unsecured notes that we issued in May 2015.

Net cash provided by operating activities was $8.3 million in Q1. We also have a $15-million bank working capital line of credit that is fully available for borrowing. Our consolidated accounts receivable balance was $69.4 million at the end of Q1, representing an average collection period of 61 days, while total inventory was $27.7 million, representing annualized inventory turns of about eight times.

The acquisition of LoJack has expanded CalAmp's global footprint, with nearly 23.5% of revenues in the latest quarter generated outside the US, up from 16.1% in last year's first quarter. Going forward, we plan to leverage LoJack's international business structure, which is more highly evolved than CalAmp's, to lower our overall GAAP basis effective income tax rate.

For Q1 our GAAP basis effective tax rate was 32% compared to 37% in the first quarter of 2016. For FY17 as a whole, we expect that our GAAP basis effective tax rate will be approximately 34% and our non-GAAP tax rate will be about 4%.

For our second quarter of FY17, we expect to achieve consolidated revenue in the range of $90 million to $95 million. At the bottom line, we expect second-quarter GAAP basis results of operations to be in the range of a $0.02 net loss to $0.02 net income per diluted share, and non-GAAP net income in the range of $0.25 to $0.31 per diluted share, with adjusted EBITDA in the range of $12 million to 16 million.

Our second-quarter outlook includes approximately $6 million of revenue from our satellite segment, along with a modest positive contribution of profitability. Looking further ahead, we expect the second half of the year to be considerably stronger than the first half for our core business, with consolidated revenue reaching a $100 million quarterly run rate later in the year.

With that, I'll turn the call back over to Michael to provide some final comments.

Thank you, Rick. In closing, we made significant progress over the past year, and going forward, CalAmp is superbly well positioned as a pure play pioneer in the connected vehicle and broader industrial Internet-of-things marketplace. Our global competitive position and the pipeline of growth initiatives has never been stronger, positioning us for growth well into the future.

With that, we would now be happy to open the call up to questions.

Thank you, Michael?

(Operator Instructions)

Mike Walkley, Canaccord Genuity.

Great, thank you. Michael, congratulations on the new MRM customer. Can you give a little more color just on the inventory you are working through, and is it really just the fleet market to your fleet customer base that you see adding maybe $10 million more per quarter in revenue by the second half of the year? Maybe walk us through that inventory adjustment.

Boy, that was a collection of questions. First of all, to clarify on the inventory point, it is not our inventory that's really the overhang, it's our customer's inventory. And over the course of the last few months, since we have engaged more deeply in terms of our forecasting process with our key customers, we have been able to get some feedback that, in many cases, our customers have really over-forecast their demand, which has caused some softness in the near term with some of those key customer accounts.

We've had the situation happen in the past. In fact, two times over the last four years, we've actually seen fairly significant growth for certain periods followed by a couple of quarters of weakness. It seems to be the situation that we're working our way through now.

And as it relates to the soft outlook in MRM, it's almost exclusively focused in the fleet area and almost exclusively a comment related to the US market. Despite the economic challenges in other parts of the world, we actually saw an increase sequentially in sales in most regions around the world, Latin America being an example. Again, this is a commentary on our MRM products business.

But overall, the business is healthy. And as we pointed out in the prepared remarks, we think we're in as good a position if not a better position than we've ever been competitively for a number of reasons.

As it relates to the new key customer, this is an opportunity we've been working on for some time. We have other similar size opportunities in the pipeline, but in this case, we believe this customer will be a growth contributor in the second half of the year and into our FY18. And we think they will quickly move into the top five key customer category.

Okay, great that's helpful. Just bigger picture, Michael, on your longer-term strategic outlook, any feedback or is it too early just from your LoJack dealerships just regarding some of the new products? I'm particularly interested in the instant crash notification opportunity through that dealer channel.

I think one thing that's been surprising to us is the feedback we've received from some of the larger dealer groups on some of their core enterprise needs. So it's really not all about the consumer sell-through proposition.

We believe that an inventory management solution that LoJack had tentatively deployed with certain dealer groups in the US, we believe is a great platform that can be enhanced and further improve dealer operations. And we think that's a very, very ripe and near-term opportunity to expand that telematics service business just focused on the deal enterprise.

However, the dealers are smart people. They are business people, and they would like to monetize that investment to the maximum extent possible. And they have been working with us very, very closely in terms of defining various consumer sell-through propositions, including instant crash notification services, most likely branded under the LoJack brand.

Okay, great. That's helpful. And then just a clarification and I'll pass it on. Can you give us just for old modeling purposes, the breakout between MRM and networking? And will we get any historicals or just going forward, you're going to report the three new divisions?

Well, it's becoming a bit murky, and in fact, it's challenging to break it out cleanly in Q1, which is why we have outlined this new business unit structure. Clearly, the business was heavily weighted towards the telematics system product sales in Q1, but we did see relatively solid performance in what was formerly known as our wireless networks business, with Caterpillar and some of our other OEM opportunities performing pretty much in line with our guidance. And the outlook there, from a network products and SaaS applications perspective I think is pretty positive for the full year.

Great. Thank you very much.

Mark Drucker, B. Riley & Company.

Hi Michael, thanks for the time. One question is the forward EBITDA you previously shared for LoJack, it seemed to reflect some lag time with respect to getting traction with selling connected car systems through the dealer channel. Can you provide some insight as to a timetable when you actually anticipate selling the full connected car systems suite in the dealer channel?

Sure. I think you started with an EBITDA question and I'd like to touch on that if I could. When we closed the transaction, we outlined an adjusted EBITDA profile of LoJack of roughly 10% of revenues. It was actually quite a bit better than that in Q1, and we expect it to be better than that for the balance of the year. And in fact, adjusted EBITDA margin for the various LoJack-related activities in Q1 was more in line with the consolidated EBITDA margin that we reported of roughly 15%. So obviously, that helped us outperform related to guidance on the earnings front.

As it relates to consumer sell through or other telematics system connected vehicle opportunities in the LoJack channel, we're actually realizing some of those now vis-a-vis LoJack Italy. And LoJack Italy, in many ways, is the incubator for many of the concepts which we think are viable in the US new car dealer channel.

And as it relates to monetizing opportunities in the US new car dealer channel, I think we'll start to see some commercial activity as we work our way through the fiscal year.

Okay. That's helpful. On the surface level, it appears your exposure to Europe is limited, although you stated last year that you did well in the UK. Can you touch on your exposure there with respect to currency translation and Smart Driver Club as well?

Well, our European exposure, if you want to use that term, has increased by means of the LoJack acquisition, and LoJack Italy is obviously an important enterprise for us. We did roughly, prior to the closing of LoJack acquisition, about $15 million of business in Europe last fiscal year. Of that, probably 60% or so was in the UK.

We have a base of operations in the UK, roughly six employees there. And we did inherit a corporate administration operation in Ireland by means of the LoJack acquisition. So Europe is an important region for us, and obviously, the UK is an important market for us as well. Having a base of operations in the UK obviously helps us deal somewhat by UK-based costs of hedging the situation there as it relates to the depreciation of the pound versus the dollar.

But given the movement there, if you look at it on a percentage terms, the pound has moved about 8% over the last few days, as compared to where we were three months ago. So that, in and of itself, isn't a big risk factor by challenging us from a price competition standpoint. I think the bigger issue, short to medium term is, in the UK, is what's going to happen to their local economy. And given that it's been an important market for us, obviously, we're watching that very closely.

Okay. Last question for me, are you anticipating any further investments in Smart Driver Club?

Yes we are, and we did make an investment by means of a debt tranche during our first quarter. It's denominated in pounds, so in that sense, it's interesting in that the investment level there is a little bit below what we thought it would of been, given what's happened with the currency. And based on Smart Driver Club hitting certain commercial milestones, we anticipate we will make additional debt investments through our FY17.

Thank you.

You're welcome.

Jonathan Ho, William Blair.

Hey guys. Can you maybe talk a little bit about the seasonality as we start to model the three new business units and how we should think about that over the course of the year?

Sure. In telematics systems, we probably inherited a little bit of seasonality as it relates to licensee purchase of LoJack SVR products. Historically, the first calendar quarter of the year has been the weakest. And in some cases, with the licensees, the last calendar quarter of the year has been the strongest. And part of that is just a true up of the licensees commitments prior to the expiration of the calendar year.

We do expect some seasonality in LoJack Italy. A good chunk of Europe shuts down for the month of August, so we expect a little bit of softness from the licensees in Europe. And we expect a little bit of commercial softness with LoJack Italy in the month of August. Obviously that impacts our second quarter.

But really, elsewhere in the Company, we don't anticipate that there is a lot of seasonality you could actually model in that would be any different than recent history.

Got it, that's helpful. And then can you maybe update us on your expectations for the LoJack revenue contribution this year? I just want to get a broad number that can maybe help us understand what the contribution is likely tracking towards?

Well, we haven't broken out LoJack in our guidance, obviously, and frankly, it's going to become very challenging for us to break it out, LoJack versus CalAmp legacy, as we integrate these various functions in these various sales organizations and these various product lines.

As an example, we have taken all the commercial sales team and all of those products and solutions and merged them into our SaaS business. And it's going to be very, very difficult for us to break out on a prospective basis what the actual contribution was from LoJack or LoJack resources going forward.

On the telematics system side, it's a little bit easier because those products are sold as LoJack branded products, and it's very easy for us to track that revenue, both retrospectively and prospectively. So I wouldn't want to necessarily lay out for you very, very clear guidance is what we expect from LoJack contribution this year.

However, I will say this. I don't expect to see any decline in various business activities, whether it's on the SaaS side, whether it's within LoJack Italy, or whether it's with the sale of LoJack traditional SVR products in the United States. I think the business is very sound, very robust, and we're pleased with the performance thus far.

Great, thank you.

Mike Latimore, Northland Capital Markets.

Great, thanks a lot. Like I said, as you look at the second half here, you talk about getting to say, $100 million run rate. How would you prioritize the drivers to get from your second-quarter guidance, ex satellite, up to that? What would be the two or three things to get you to that $100 million run rate?

Well, obviously, ongoing solid performance in the core, including some pickup in activity on the MRM product side. We think that the LoJack business has been very solid. LoJack Italy, as we described in our prepared remarks, has been an outperformer, and we're very, very enthused by business prospects there.

We believe that there's some upside opportunity later on this year with Caterpillar, as we become qualified for potentially a new program there. I wouldn't expect though, that you would want to bake in a lot of upside potential, but that business relationship is very sound, very solid. That outlook is very positive. To get to $100 million a quarter run rate, we would need to see the MRM products business continue to pick up, as it did from Q4 to Q1 this year.

Got it. And this large new telematics customer, you said maybe eventually gets to be a top-five customer. What kind of annual run rate does a customer need to have to get to in that top-five category, let's say?

To be in the top five, you've got to be $10 million or more, more or less, a year.

And then on the customer over-forecasting, the one-on-one implication there is that there was some weakness in their end markets so they over forecast. Any sense of what kind of environmental change might have occurred maybe, if at all?

The last time we saw some MRM product weakness, we had experienced a slowdown in the US economy. This was about two-and-a-half years ago. And obviously we have seen a slowdown in the US economy at the end of calendar 2015 into the early part of 2016. So I think we see that as the primary driver in some of the softness and probably the over-inventory position some of our key customers find themselves in.

Okay. Thanks a lot.

You're welcome.

Rajesh Ghai, Macquarie.

Yes, thanks. Michael, you talked about some increase in the pickup from Caterpillar. Could you provide some more color on where, how this program is ramping? Is it the same business that you have been involved in? Is that picking up or is this new programs that are ramping? What exactly is that delta that you see between the Q2 number and the Q3 number on the Caterpillar side?

Well, we have been saying for some time, Rajesh, that Caterpillar is an important customer for us, and I think in some ways, a bellwether of where the entire heavy equipment market is headed. Caterpillar's CEO has been very, very clear and very vocal in their goals to connect all of their vehicles and all of their assets, whether they are rolling off the factory floor or they are in the field with their customers.

And given the program that we've been involved with, with Caterpillar for a number of years, we have been front and center as it relates to getting visibility on some of the newer connected machine opportunities that they want to pursue. And we believe that we're in an exceptionally prime position to be able to leverage some of those new programs to drive continued growth with Caterpillar.

Great, and as far as cost synergies are very concerned with the acquisition of LoJack, how much is still left in terms of [harnessing] cost synergies going forward? How much have you achieved and how much is left?

That's a great question. So in Q1, we obviously had some transaction- and integration-related expenses that got added back to earnings, and most of those expenses, I would say, are behind us. And a lot of those things relate to the corporate executive team and the wind down of some of the other public company-related activities.

We also made some progress in integrating various functions of LoJack into like CalAmp functions, and we've been able to identify some cost synergies there as well. I would also like to point out we found some synergies in reverse. LoJack has a very, very large and robust SVR dealer installation crew, and we've been able to identify opportunities whereby we can leverage their operational resources and use those as an installation crew for some of our vehicle finance activities, and thereby, probably finding ways of improving some of our margins on the CalAmp side.

Okay, thank you.

Greg Burns, Sidoti & Company.

Good afternoon. In terms of the instant crash notification service that you rolled out, how -- outside of incorporating that with the LoJack offering, how will you be bringing that to market as a standalone product? And it also sounded like that was the first in a line of consumer-based applications you are rolling out. Could you just give us maybe a little bit more color on what that road map looks like for you this year?

Instant crash notification is one service which we think is a compelling consumer sell-through application, but there are others. And we would anticipate that ICN would be one application in a value-added service bundle that would be sold through the dealer network. And again, the dealers are interested in leveraging potentially their inventory management solution as a platform to sell through to the consumers.

So we're looking at the entire lifecycle of the telematics platform and how we can leverage it from one phase of a transaction to the next phase of a new vehicle transaction. So there's still a little bit of work to be done as it relates to the productization and the marketing activities around that, but I think we have a pretty solid road map, and we'll be talking about it more as we work our way through this fiscal year.

Okay, and in terms of Smart Driver Club, you mentioned Italy was like an incubator for what you can potentially do in the US. I think Smart Driver Club is that nature, too. What kind of success have they had commercially with that service so far?

Smart Driver Club just launched their service publicly back in April, so it's pretty early days there. But they've had a lot of interesting and I'd say very positive national press and national relating to the UK. So I would say they were making very, very good progress.

And as it relates to the various commercial milestones that were part of our investment agreement, they have been hitting those milestones in a very timely manner. We're very impressed with the team there, and I think they've got a very, very advanced consumer value proposition that we think is compelling.

The reason we've been focused so much on Italy during this call is that Italy obviously is an up-and-running commercial enterprise. So in many ways, offers us more of a real-world opportunity to get feedback on various telematics-based solutions than perhaps Smart Driver Club is in a position to do today. However, we are very excited by Smart Driver Club and we'll be watching them closely as they roll out their services more broadly in the UK through the new car dealer channel.

Okay, thank you.

You're welcome.

At this time, there are no further questions. This does conclude our question-and-answer session.

Thank you for joining us today. We'll look forward to talking to you at the end of our second quarter.

Ladies and gentlemen, this does conclude our teleconference for today. We thank you for your time and participation, and you may disconnect your lines at this time.