Q1 2021 CalAmp Corp Earnings Call
Welcome to calendar first quarter 2021 financial results conference call.
A reminder, this call is being recorded I wouldn't know introduce your host for today's conference we haven't figures.
Shelton group killed the best or relations firm.
Yes, you may begin.
Good afternoon, and welcome to calendar fiscal first quarter 2021 financial results Conference call I'm Leanne Sievers President of Shelton Group Kellems Investor Relations firm with US today are Kellems interim president and CEO, Jeff partner, and Chief Financial Officer, Curt vendor before we begin I'd like to remind you did this call may contain forward looking statement.
While these forward looking statements reflect kellems Beth current judgment they are subject to risks and uncertainties that could cause actual results to differ materially from those implied by these forward looking projections. These risk factors are discussed in our periodic SEC filings and in the earnings release issued today, which are available on our website, we undertake no duty.
And to revise or update any forward looking statements to reflect future events or circumstances, Jeff over begin today's call with a review with the Companys financial and operational highlights then Curt will provide additional details about the financial results and outlook followed by a question and answer session with that it's my pleasure to turn the call over to Kellems interim President and CEO, Jeff Gardner Jeff.
Please go ahead.
Thank you Leann.
Welcome everyone and thanks for joining us today.
I'm pleased to be hosting my second earnings conference call since being appointed interim President and CEO on March 25.
Our first fiscal quarter operating results were solid considering the ongoing impact from the Cobiz 19, pandemic, especially when taking into account.
That our fiscal quarter ended on May 31st any time when business closures and work from home mandates were still largely in place across the globe.
Consolidated revenue in the first quarter was $80.2 million with an adjusted EBITDA margin of just over 8%.
Overall, the count went team did an amazing job, maintaining a high level of efficiency and productivity, while staying in close contact with our customers to support their product and solution requirements.
I've been focusing my efforts over the past several weeks on executing against the plan I discussed with you on our last earnings call.
I'm pleased to announce that we've already made significant progress against this plan.
First we continued making improvements across our global supply chain that have enabled enhance communications between ourselves and operations organization.
And to further accelerate these efforts, we recently appointed a highly experienced senior VP of global supply chain in operations Nathan lost better.
Nathan has over 20 years of supply chain and operations experience at large fortune 100 companies, such as Honeywell, Boeing and Fedex as well as emerging companies in automotive aerospace and solar.
It will be his primary objective to help callout further elevate the efficiency quality and on time delivery of our products and services to our customers.
Second we continue to increase our resources towards expanding our south business, which include improvements to the quality and growth.
As part of these efforts and as I mentioned in today's press release, we made the strategic decision to transition out of the automotive vehicle financing business.
This business has operated significantly below our corporate average gross margins and has been dilutive to our overall ARPU targets.
This action will enhance the quality of our south revenue, while improving gross margins and profitability within our software and subscription services business.
Additionally, arum diamond our newly appointed Chief revenue Officer is actively driving our south solutions into the market.
Underpinned by a new sales incentive program that has reenergized his sales organization and align the team with the company's objective of increasing organic staffs revenue growth.
Also noteworthy as a part of our efforts to aggressively transition our hardware business to a south model. This month, we are preloading. Our first large automotive dealer that will focus exclusively on our lojack connect and lojack connect plus product using a recurring revenue sales model third.
We have made notable progress on the telematics side of our business strategically elevating our engagement.
With key customers in particular, we're helping customers through their threeg to fourg transition cycle and have initiated a powerful new technology migration plan for this purpose.
In fact, when looking at our largest enterprise accounts.
Revenue from these important customers have grown significantly over the past year and represents a growing portion of our total consolidated revenue as we further support their L. T migration.
Fourth another key objective of my strategic plan is to focus R&D resources on the most promising verticals.
Leading these efforts is our new senior VP of product management, Jeff Clark.
One of our near term product opportunities is with our eye on suite of applications, including eye on vision, which will be released this fall.
Count lamps eye on suite of fleet management software applications will play a vital role in providing safe and secure management, a freight, especially at a time when the transportation of essential goods is becoming more vital as a result of cobot 19.
As such our eye on vision application should be of significant interest to freight companies and other shippers who need to ensure the integrity of critical freight cargo.
Lastly, one additional comment that I'd like to make as part of my commitment to provide more transparency to investors regarding progress across our business.
This quarter, we decided to breakout our U.S. lojack fcr product revenue as a separate revenue line item.
As many of you know this business has been challenged from a performance perspective.
And it's one of my top objectives to be began transitioning this business to a recurring revenue model that offer significant value to our dealer partners and their customers similar to model that we provide through all of our international businesses.
In terms of additional progress across other areas of our business, we just announced an exciting collaboration between our lojack Mexicos subsidiary and overhaul that we're bringing supply chain visibility in security to enterprises shipping across Mexico, effectively preventing that any.
Improving the integrity of these shipments.
Our Sonobi a solution subsidiary is also making solid progress despite nationwide school closures and has recently introduced two new technology offerings to help support school children and their parents during these uncertain times.
The first is designed to help schools better manage.
Unconventional bus routes like field trips sports and Cobot 19 related trips in order to comply with social distancing and stay at home mandates.
And the second is the new application called bus Guardian.
Serves as a powerful flexible and scalable solution designed to help schools deliver instant and actionable reporting of school bus ridership based on contact tracing which is particularly important if they student or driver becomes hill.
The program also delivers the hygiene verification system to help administrators monitor and report on real time sanitation efforts these products.
We will bring great value to school districts around the nation as kids returned back to school in the fall to conclude my remarks today.
I want to reiterate how proud I am at the Calamp team for managing through these unprecedented times, while continuing to maintain a high level of focus and productivity.
I remain convinced the count lamp is positioned to build lasting shareholder value as a full stack software solutions provider delivering high growth recurring revenue.
We have a solid team in place to continue advancing our strategic initiatives and operating plan.
With that I will now turn the call over to Curt for a closer look at our fiscal first quarter financial results and then we will open the call to your questions Kurt.
Hi, Jeff.
Today My commentary will include references to non-GAAP financial measures of adjusted basis net income adjusted EBITDA and adjusted EBITDA margin.
A full reconciliation of these non-GAAP measures with the closest corresponding GAAP basis measures is included in the press release announcing our fiscal 2021 first quarter earnings that was issued earlier today.
Additionally, I want to emphasize as I did in May that we continue to monitor all cobot 19 developments across our worldwide operations.
The cost containment measures, we implemented earlier this year, particularly in areas such as personnel travel and other discretionary spending are still in place and we remain confident that our existing cash future cash flows and available borrowing capacity are sufficient to fund our ongoing operations through these uncertain economic.
Additions.
Overall, we're pleased with our financial performance in the quarter, considering the economic uncertainty created by the pandemic.
First quarter consolidated revenue was $80.2 million compared to $87.2 million last quarter down 8% sequentially.
Our first quarter fiscal 21 commenced just prior to when the shelter in place mandate was enforced by most states across the U.S.
Our international revenue reached a record $28.7 million or 36% of consolidated revenue in the quarter driven by some of our larger international enterprise customers like Caterpillar Verizon and Trimble.
We believe that our global scale and diversified base of large customers creates a point of differentiation for the company.
Software and subscription services revenue was $28 million or approximately 35% of consolidated revenue.
And representing a 10% increase year over year.
The year over year increase was driven primarily by Sonobi solutions.
And Lojack Mexico.
Software and subscription services revenue declined $6.8 million sequentially from $34.8 million last quarter due to a slowdown in system installations, resulting from cobot related shutdowns.
And work from home mandate, particularly for snow via solutions.
And our Lojack, Italy subsidiary.
We expect scheduled installations to increase in the second half of our fiscal year. When the mandates are lifted and geographic regions like the U.S. and Italy.
As Jeff mentioned, we made the strategic decision to transition out of the auto vehicle financing business as part of our efforts to improve the quality of our overall SaaS revenue, while increasing margins and profitability within the business.
This business produces about $2.3 million in quarterly revenue from approximately 385000 subscribers.
However, this business has realized gross margins well below our corporate average for the past few years and does not meet our expectations for this as business.
Therefore, we made the decision to transition out of this business over the next 12 to 24 months.
While we honor the service commitment period stipulated on our existing customer contracts.
This transition resulted in a one time charge of approximately $600000 in the quarter principally for the write off of excess and obsolete inventory.
Additionally, during the first quarter, we decided to present the legacy Lojack us SVR business as a separate reportable segment to provide greater visibility into this product line as we aggressively transition into a subscription based business model.
Revenue from this segment was $6.6 million down from $11.2 million in the prior quarter.
As discussed on our last quarter call. The decline is due to a slowdown in device installations across our us dealership network due to the kobin related shutdowns.
Further this business continues to be impacted by the transition from proprietary radio frequency technology to GPS based telematics solutions within the automotive vertical.
Telematics products revenue was $45.5 million in the first quarter compared to $41.3 million last quarter with MRM telematics products revenue, increasing to $30.8 million compared to $23.4 million last.
Quarter.
In the first quarter MRM telematics products revenue benefited from the shipment of a substantial portion of the incremental backlog from the fourth quarter that resulted from the supply chain challenges in China prompted by the pandemic.
Telematics products revenue also included network in OEM product revenue of $14.7 million compared to $17.9 million last quarter.
Revenue from Cat was $10.9 million in the quarter compared to $14.7 million last quarter.
Reflecting some unevenness in certain product shipments two cats worldwide factories that were affected by the pandemic.
Overall demand from Cat remains strong as we continue supporting their transition to next generation LT E. Bay's telematics as part of its threeg to LTE upgrades.
We expect this strong demand to continue.
In the second quarter and into the second half of our fiscal year.
We believe that our portfolio of large global customers light cat is another point of differentiation for the company.
Revenue growth across these top customers today is being driven largely by the ongoing threeg LTE upgrade cycle.
Consolidated gross margin in the first quarter of fiscal 2021 was 38.7% and consistent with the prior quarter and prior year.
Although stabilizing our gross margin remains under pressure due mainly to the declining telematics products revenue attributed to the cobot 19 outbreak in the quarter, coupled with a write off of excess inventories as we transitioned out of the automotive vehicle financing business.
Now that we have completed the closure of the Oxnard, California manufacturing facility and moved all product assembly to tier one contract manufacturers.
We will be able to leverage the efficiencies gained in working with these experienced manufacturers to enhance the margin profile for our telematics devices.
Further we are very focused on transitioning our extensive device installed base to a software and subscription business model, which will also help improve our future consolidated gross margin.
Adjusted EBITDA in the first quarter was $6.5 million with an adjusted EBITDA margin of 8.1%.
Compared to adjusted EBITDA of $7.8 million and an adjusted EBITDA margin of 8.9% in the prior quarter.
Although our EBITDA margin declined 80 basis points, the company executed well around its cost savings initiatives in the quarter.
As adjusted EBITDA was impacted by the decline in telematics products revenue, we instituted various cost containment measures, which resulted in savings of approximately $2 million in the quarter.
Moreover, we continue to manage our spend carefully in this period of uncertainty and our focus has been on closely managing personnel costs, including delayed hiring as well as the timing of discretionary spend around teeny professional services and marketing among others.
As such during this time, we have maintained relatively consistent head count level without instituting layoffs or employee furloughs.
Our non-GAAP operating expense as a percentage of revenue was 36% for the current and prior quarter and we expect to manage our operating expense in line with consolidated revenue growth as we navigate through this period.
Now turning to our current liquidity position.
At the end of the first quarter, we had total cash and cash equivalents of approximately $104 million compared to $107 million last quarter.
Our aggregate outstanding debt is approximately $263 million and we recently redeemed the remaining $27.6 million of our 2020 convertible notes, which were paid on May 15.
During the first quarter of fiscal 2021.
We're also pleased with our net cash flows from operating activities of $5.9 million compared to $8.2 million and net cash provided by operating activities in the prior quarter.
As we navigate through the downturn and finalize the integration of our acquired businesses.
Our focus will remain on improving working capital in order to enhance cash flows generated from operating activities.
With that said, we believe that our strong balance sheet.
And available capacity on a revolving credit facility will enable us to whether through a potentially extended downturn, while also positioning us to compete effectively across the fragmented markets we target.
Now turning to guidance for the second quarter.
Visibility into customer demand and product shipments from our suppliers in southeast Asia, and Mexico remains uncertain at this time.
As a result, we're not providing guidance for the second quarter.
We still expect revenue pressure in the second quarter with customer demand increasing in the second half of our fiscal year.
Overall, our team is doing an effective job proactively addressing a managing this crisis in order to mitigate the impact to our business.
As we obtain more clarity regarding the future business outlook and overall customer demand, we expect to return to providing quarterly guidance.
With that I'll turn the call back over to Jeff to provide some final comments before we open the call up for questions. Thank you Kurt in closing I am pleased with our solid results in the quarter as well as our continued progress on our operating plan and strategic initiatives.
We are making improvements across our business and remain focused on aggressively transitioning our business to a SaaS model.
Although visibility remains limited due to the current pandemic, we feel confident that we will emerge from this crisis as a leaner more focused and more profitable company.
With that now I'd like to open the call up to questions operator.
Thank you and just a reminder, in order to ask a question simply press Star then the number one on your telephone keypad pause for just a moment like compiled acuity roster.
Your first question comes like Mike Walkley of Canaccord Genuity. Your line is open.
Great. Thank you for taking my questions and congratulations on the strong results from the tough environment.
Okay. Thanks.
Thanks.
Question for me, it's just gross margins longer term clearly youre.
Not giving guidance for Q2, but can you talk about.
Margins, where they could trend to by.
Staying out of the.
Jeff business and then also you've talked about some synergies from contract manufactured scales.
And the improving hardware gross margins, so without giving near term guidance, how should we think about.
Kind of gross margin targets as business starts to recover in the second half of the year on longer term.
Yeah, Mike So as you pointed out we aren't giving any any future looking guidance I would say that.
For the second half of this year.
Margins will continue to be under pressure, primarily this quarter. We noted that did cobot 19 impact which impacted our telematics systems revenue.
Was a factor. Additionally, as we made the move to transition out of the auto vehicle financing and we took.
$600000 ahead on excess inventory impacted this quarter.
But I will say that.
We're pretty pleased with the fact that we finally closed our Oxnard, California facility.
We're now moving to gain efficiencies in working with these tier one contract manufacturers, which we think will help us improve margins. Additionally, I think as we continue to work hard to transition more to our software and subscription services that will help drive margins up.
And so there are number initiatives as that are in place, but I just have to say that in terms of this year in particular in the second half of the year. The margins will remain under pressure and then as we come out of this the impact of covered 19, we believe some of these cost measures that we've taken will ultimately allow us to expand margins.
To Bob the 40% range.
Okay, and then just Mike one other thing I'd, just like to add to that I was very pleased that we were able to.
Hi are a key member of our management team to had the SPP global supply chain job.
Nathan milestone for his deep experience in supply chain and.
Today, our focus has really been more on time delivery and quality and I think.
Overtime Nathan's can really help us get much more focused on on the margin part of our business in terms of managing our contract manufacturers.
Understood and then just on the on the software and services.
I know you're right.
Setting guidance, but with the drop this quarter due to timing in some installations Hutch, how should we think about the roll offs.
Of the car theft recovery.
Over the two year period, I think are the contracts how should we think about that as a headwind versus maybe some tailwinds installations come onboard later in the year.
Thank you.
Yes, Theres a couple of things going on one that's a pretty small business as Kurt.
Described in addition to that we're going to honor existing.
Service commitments, so it's it's a fairly.
Slow wind down or it's a very manageable in terms of all that said it allows us to really focus on our fleet management and.
Supply chain logistics business that we think is more critical to the long term growth.
In South and we expect to see continued improvement some this quarter and more in the back half the year as as.
Installations improve across the business, we talked last quarter about our in particular Sunovia business was in the installations were affected in that.
That slowed some of the.
SaaS revenue there. So we've got a number of things going on in addition to the sales focus that will help offset that I think more importantly, rather than.
Focus on that business kind of gradually moving away I think it allows us to really get focused on what can be real drivers of the kind of revenue growth organically that I think all of our investors are looking for.
Great.
Question for me and I'll pass the line just just and you are talking with your us customer base on the on the Lojack business, Yes, let's look the feedback and we think the timing is as you transition that business from hardware to more recurring revenue how should we just think about that as you break out that piece of business in terms of that modeling down, but hoping year old.
Overall recurring revenue line. Thank you.
Yes, I think on the Lojack business. We took this action this quarter as a part of our commitment to provide more transparency to investors.
Across the business and last year, we also appointed a general manager to specifically oversee that business because we believed it needed attention right and so.
Our goal there is.
In terms of our dealer partners I mean that business is changing we've been primarily offering our legacy SBR product.
That that operates on a different.
On an RF frequency as opposed to.
Mobile frequency and the world's really moving to telematics and we think we'll have much more.
We'll have a product that delivers a lot more value to the customer in addition to still having the FDR capability and that will allow them to be more connected with their customers post sell so not only does it help them from a lot management perspective, but this post sale engagement with the customer is really really import.
So what's going to be incumbent upon us is to really convince our top dealer partners and it's a pretty concentrated business. When you look at Ed. So we're being very aggressive on that in the quarter.
To convert as many of them as we can to to a telematics solution.
And just to add to that Jeff I think.
Mike you asked about the timeframe I mean this this transition has been in place for a little while now, but certainly with the new leadership here in guidance from Jeff Theres, a heightened focus on it as we look at the timeframe that this may take realistically speaking it could be as much as low end.
18 month, but probably could be as much is 36 months out there for the full transition to actually take effect.
Great. Thanks for taking my questions and Thats was just for the year.
Thank you.
Our next question comes the line of Scott Burell upfront capital Your line is open.
Hey, good afternoon. Thanks for taking my questions Nice nice quarter, guys going to in very tough operating environment.
Maybe just to sort out just a couple of questions around calibrating on the quarter.
MRAM had a very nice step up part of that seems like it was catch up in terms of the inability to ship product due to to component availability in the fourth quarter could you help us understand what that onetime catch up was so maybe we can normalize for what the real run rate of MRM as may be a linear already on a monthly basis that you're seeing in the quarter for MRM.
Sure sure Scott Thanks for the question so.
Just to give you some perspective and I think we laid this clearly out in our fourth quarter earnings announcement back in May timeframe, we'd indicated at that time that we had approximately $8 million of incremental background backlog that was on shipped at that point in time in this quarter, we do believe.
That we shipped a large portion of that backlog and as a result of that that did impact or help impact. Our MRM products revenue you pointed out that sequentially that revenue line item was up and I believe was.
These partially impacted by that I think our focus right now on on.
Q2 is there still remains a pressure as we've said before the impact of covered 19, we believe will be highly concentrated on the first half of this year and the second half will really be the timeframe when things will start to.
Lift a bit. So currently we shipped I would say a large portion of that backlog and it did impact our MRM product revenue.
Very helpful. And then maybe just a follow up then on the at the Lojack SBR products side.
Big step down this quarter managed step down to the 6 million to change it sounds like so that will transition the expectation is what to zero or do a couple of million a quarter over an 18 to 36 month period and then.
Along with that what are the or proves that you're thinking about within that lojack dealer base because now it sounds like.
You referenced some comments related to specific frequencies to lojack versus more standards based or may be LTE. Your cat M type of solution, where you could offer more connectivity more different types of solutions to that existing installed base. Once you got the product on board. There. So I'm wondering what the thought process isn't what the target is in terms of how your.
Thinking about ARPU, maybe 18, 24 36 months out.
So it's got I'll try to break that question down there.
And is there I think first off let me just answer by saying.
Obviously, the lojack business logic products business was impacted by the shutdowns to shelter in place mandates for the quarter. So we do not expect that this step down that you see this quarter will persist out.
Beyond let's say the next couple of quarters that being said, we also do not expect that this business will run at ground zero, we do believe that Theres, a baseline revenue that can be realized through the sale of legacy lojack products.
All that said, obviously, our focus has been on transition into a telematics solution.
And that is in progress still early days, but we expect that to happen more rapidly here and thats been the milestone or expectations at Jeff is set forth.
The team in terms of the ARPU associated with that we right now we have.
A growing base of.
Subscribers were were targeting and ARPU that is say in the range seven to $9 on a monthly basis, which is fairly consistent with what we've done with our international businesses and Scott you know very well that we believe that the success, we've had in Italy and now in places like.
Like Mexico, we can replicate here in the US we've just got to educate our dealer partners and be more aggressive at transitioning them from the hardware sale to until and telematics solution got you very helpful. Thanks, and one last multipart question if I could.
Looking at the the software and services side of the equation.
Looks like there were installation headwinds there was that all of the shortfall or worse. So there's some other elements like with Sunovia.
Where there was there churn whether deactivations kind of given what's been going on in terms of the pause or shelter in place and I'm wondering if you have some.
Early thoughts as to what the SaaS mix would look like for looking out 18 or 24 months, what the bogey is on that front. Thanks.
Yes, so on the South revenue, yes, it was predominantly affected by the installations.
From a turn perspective, we didn't see any particularly.
Big Spike in churn of more of a normal quarter there and.
We were affected in some of the school districts Bye.
Not being will get access to the buses in those cases.
Some of that also some of our lojack.
Mexico, and Italy businesses as well as the UK were also affected in there there in that SAS category as well.
And then the second part of the question I'm trying to remember occurred to recall there Scott can you repeat the second half of that I know you asked about churn, but no Justin just in terms of your overall.
SAS focus for the company as we look out over the next couple of years you brought on RM, you've obviously, bringing in more management team with the DNA in and around recurring solution. So im Turner with a high level thoughts or where you'd like that to be yes, yes, preliminarily I think we've we're on record as things, which we're trying to get that to 40%.
Longer term were more aspirationally than that mean, but we've already seen some great things as arum and his team have done a few things one we've rolled out a new compensation.
Process this quarter a system that I think does a better job one incenting, our salespeople to go out there and get much longer term enterprise agreements with customers.
Rewards them for.
For SaaS revenue versus.
Product revenue and really drives us I think more strategic thinking I've been really pleased with what we've been able to do in terms of the level of engagement, we have have with our customers and in fact.
The level of the discussion we're going in there very proactively as it relates to threeg to Fourg and Thats, a great opportunity to introduce the new sales team there and drive up those software revenues and to be overtime again, the more we can focus on our core products here. So some of these stay.
Dziedzic moves we made may seem a little but intra inside the company I think they're going to be big and the company's very aligned on this SAS initiative.
Great. Thank you.
And our next question comes line of George Notter of Jefferies. Your line is open.
Hi, guys, thanks very much.
I guess I'm.
Curious about the step down sequentially in the software and subscription services business.
I understand not getting access to vehicles and.
How big installs delayed, but I guess I would've expected that revenue number to be more consistent with the February quarter given that.
It's more of recurring type model here is there something I'm missing that explains the step function down here.
Sure George let me take a stab at that I guess, the first thing to keep in mind is.
With.
Especially the Sunovia business as well as Lojack, Italy business, which were the two product lines and we're probably the.
Most significantly impacted by the lack of installations.
He is oftentimes a component of that.
Recurring revenue arrangement and that is recognized upfront associated with the value of the actual hardware installation.
And so that did have an impact in the quarter. So said another way specific values lojack as a good example.
Because we sell lojack hardware as a standalone device and other aspects of our business, especially here in the U.S. Thats then used in coupled with a subscription arrangement.
And those instances we are required to record that revenue upfront so although.
Lojack, Italy may have a.
And enterprise arrangements stay with the customer like.
Well the that requires continuous installation of the hardware devices. When you are impacted by pandemic like that you can't get access to any vehicles are to the customer it had pretty sizable impact so anyway.
That's really the the explanation is around installations and the inability to recognize the revenue associated with the hardware element of those subscription contracts.
Got it and of that revenue number for this quarter I just out of curiosity can you give us a sense for how much is is tied to that hardware and solution.
How much is.
Yes. It is only a third is it a half just to southern curiosity.
Yes, great question and the use of the best way for me to answer that is just in in terms of the typical type contract. If you have a contract let's say for a high higher end fleet management service, we would expect in ARPU that may range anywhere from $18 on the low end to a high end of $25 and of that con.
Track that may be over 48 to 60 months, we tend to see something between say 25, and 30% could be allocated to the installation of the actual hardware device depending on the type of hardware devices, a ultimately go with and the overall service arrangement.
Okay, great. Thank you.
Sure.
And our next question comes a lot of Gary Rebid liver Tox. Your line is open.
Good afternoon this feature rich.
No excuses for you all drilled wells.
Hi, I'm wondering if we could talk about the subscriber count due to new.
Close what this subscriber count was at quarter end bid.
Okay.
How it shrunk by international loan Gerrick shoes, they didnt should other businesses.
Sure. So just to answer part of that question initially so last quarter.
Our subscriber count was.
Somewhere in the range of 1.3 to five.
This quarter it.
It declined to about 1.307.
Most of that decline was in the area.
The automotive vehicle finance category that category as I mentioned earlier.
In the prepared remarks.
Had about 385000 subscribers and that did decline a bit in this quarter.
Outside of that across the board most of our subscriber account.
Remained fairly consistent for the other other businesses.
As it relates to.
International I don't have the exact number calculated.
I, probably would say maybe.
No.
Quarter to a third of it is probably international with the rest being domestic.
Okay. Thank you and then.
Impressed with your performance.
This quarter given the production shutdowns globally to be pads that had mentioned that benefit you had.
Thank you you train II transition.
Just to expand Darren.
And drivers performance here.
Yes, Terry definitely we definitely benefited from the LG.
From the Threeg transition.
For especially on some of our big customers. We have we saw very good growth.
Whether we have cobot 19, or not right. The fact of the matter is that these networks are going to be transitioned.
In short order so.
Working with our customers our product team did a very nice job, enabling the sales team with data to go directly to the customers and talk to them. How what we can best solve this in a multi year head of arrangement and we had successes as Curt mentioned in his script with the large customers I think when when we think about.
Our business in this fragmented industry. The fact that we do have some very big customers, who are internationally focused is is a real advantage to us and that definitely helped this quarter and it will for the balance of the year as well I believe.
Just to give you some perspective, Jerry I mean in terms of our overall MRM revenue comp a composition.
Approximately 80% to 85% was generated from the purchase of LTE products.
Incurred is impossible to will participate.
How did that.
Erie default, which I think will be how much more specifically because replacement.
Are you seeing hardware businesses.
New hardware.
Okay Thats possible.
It's not something that we have available right now I mean, we are looking at that fact pattern in assessing our existing customers as well as a number of customers or potential customers that are out there looking at.
Did type of data that is available in the marketplace. So that number of devices that they have and where they might stand in their overall upgrade program. We do know just based upon our experience, especially over the last year. So that the larger enterprises as Jeff pointed out in these are enterprise.
Like caterpillar varying connect trimble they have been much more.
A quick to to move on however, we're seeing that a lot of our small or medium sized customers and in particular, the telematics service providers to TSP have been a bit slower to move probably because of the cash flow implications of that change so that being said as Jeff had mentioned, we're we're strategically engage.
Page with our customers and having those conversations right now trying to understand what we can do to meet their needs in an effort to ensure that we don't have a mad rush as the sunset is upon us and to handle it in a more orchestrated fashion.
Okay.
I think it completely expand on.
Yes, Lojack SVR strategic plan, even before that decline this quarter had to be issues, even gone negative.
A year ago.
Issue facing.
Send challenges sharing which what's the parents, who are just too because you're still going head to costs.
To support the legacy product is you can you just expand on that part of the sure discussion and the fact that you're putting your AD is simply segment.
Moreover, if thats a signal.
Your strategic for two minutes as well.
Yes, Thanks Gerry.
Listen I think I think that as we look at the business you're right. It's been under pressure for quite some time.
In addition to our focus on telematics and we've probably been saying that for a long time, but I think that what you will.
The difference is we've really got a focus strategy to drive that with specific milestones and time frames that we can evaluate to see okay.
We said, we're going to switch we're going to convert and transform this business. How are we doing how are we doing at the end of the second quarter and ended the third quarter and ended the fourth quarter. So we can evaluate whether it makes sense to continue down this path or do we need to think about other alternatives there, but I think we've got a really good shop. The team is doing a really good job.
Getting in front of our large customers.
At the same time, we're looking for opportunities in the short run with.
To to take out some additional expense, we've always been very cautious there you're right.
You still have to maintain the infrastructure for some of the infrastructure for the legacy.
Our product, but I think we can make some sick.
Progress there, but importantly for our investors.
I think the difference are these milestones and the fact that we're now really.
We've got a general manager in charge of that business, we're very very focused on how we're doing each month each quarter throughout.
Fiscal year 2021.
Great.
It just feels like the overhead costs for that business is going to be lumpy absorbed because the problem, but really at the gross margin line we're running.
We'll take about $6 million per quarter in overhead for 12 million dollar revenue business, a year ending 6 million.
Revenue business this year.
Can you cut cost significantly item that SGN a base. It just looks like that network costs are extremely high.
Having trouble seeing the path forward here.
Yes, Kurt would you talk about some of the things we've done on the network side. Please yes short Jeremy you do have a great point and it's something that we're looking at carefully I mean, we do think that there are some.
Contract cost attributes that we can rationalize out.
Obviously things like the tower infrastructure is critical to maintaining the services on the legacy Nick legacy system, meaning the RF technology, but as you start to move customers to a cellular based.
Technology those cost dissipate over time, so we are looking at the business.
And the present tense identifying those costs. So that we can strip out of the business, but do it in a way, but that doesn't disrupt our opportunities to move rapidly to the telematics space and we believe that once we get to the telematics model. The subscription model, we'll be bringing number one more value to our customers our dealer partners.
But to delivered in a way that's a lot more cost effective to two offices as an enterprise. So so those are topics that we're looking at very closely and as Jeff mentioned Weve appointed a general manager in there to assist in that effort and I am I'm pleased to say that we're going to providing additional transparency to hold up.
Cannibal, so that we execute.
I appreciate that discussion thank you.
Sure help them.
As for lighter in order to ask a question.
That number one on your telephone keypad.
Your next question comes in light of Mike Latimore Northland Capital. Your line is open.
Great Thanks, and just on the.
Software and subscription business.
Just kind of curious about the pattern on that through the corner was there kind of the big step down in the first month stabilization or has it been sort of in a declining month by month throughout the quarter.
Well in terms of as as we mentioned that really what are the drugs in the quarter was around the installation and so that that got better as we got later in the quarter as more of the markets around the country opened up but it was a struggle I mean it was the kind of thing were everyday we're looking at our list.
Pending installs talking to our installers working with our sales team to reach out to our customers and so it did get better at the on but but still you know it you. When you look at what's going on across the country, you know that the openings taken place at different.
In a different pace, depending on the region or the state and so we had to manage through all of that but I do think it got better and as we enter into this quarter, we felt better about our prospects of getting access or that there will still be some drag there, but we're feeling better that's getting better.
Each each day.
The only thing on having to add Mike.
Just on that as a big part of that is Italy, and you know.
And listening to all of the media that Italy was.
Pretty significantly impacted as a country and in particular, our business is concentrated in northern part of Italy. So there wasn't an impact, especially early in the quarter. Then as you look to Q2 keep in mind that we're going in the summer months and so our hope is that the business will pick up however, given some of the seasonality that goes into.
Good.
Q2 will still be impacted a little bit by the normal seasonality with the summer months.
Great and then on the the school district commentary I guess have the schools have your school customers signal that we know we're going to reopen we know we will have the able to do more installs.
What kind of commentary to giving you at this point.
Yeah, I mean, we're still proceeding with installs as we get access so we've had good.
Good success with that and as I've just mentioned, we're building momentum there as it relates to next year. They don't have all the answers yet as you know when you look across the country. It's still remains unclear I'm very happy that our sales team hosted a.
Customer Advisory Board meeting with a number of our.
Leading customers in that space to kind of walk through the what next year it looks like and.
I still think a lot remains to be determined on that.
Just to remind our investors that this is a recurring revenue model to its software as a service subscription for us and as they talked about the various ways that could open up who knows it could offer some.
Opportunities to run to route today for the school buses versus one because of social distancing and so I think the team has been fairly innovative adapting and rolling out new services to support our customers as they navigate through these.
Cobot 19 issues, but it's still uncertain exactly how theyre going to open up next year, we're just trying to be a very good partner and work with them.
Through that process.
Okay, Great makes sense I, just want to make sure I guess the rate number here network and OEM. So that was 14.7 million.
Uh huh.
Yeah.
The actual hardware portion of yes, yes, yes.
Yes about $14.7 million for the quarter, Okay, great alright. Thank you.
Thanks, Mike.
Thank you at this point I'd like to turn the call back over to Jeff Gardner, President and CEO for any closing remarks.
Thank you.
Thank you all for joining us on the call today and for your continued interest in Kalamazoo.
One final note for those that we'd like to scheduled meeting with us will be participating in the Jefferies Global Industrials conference in the first week of August and the Canaccord conference in the second week of August both the virtual events.
Please contact your sales representative or the Shelton group, if you'd like to be added to our meeting schedule I look forward to discussing our continued progress during our fiscal second quarter call scheduled in late September.
Operator, you may now disconnect the call.
Thank you. This does conclude today's conference call you may now disconnect.