Q2 2021 CalAmp Corp Earnings Call
Welcome to calendar second quarter 2021 financial results Conference call. As a reminder, this call is being recorded.
I would now like to introduce your host for today's conference call Leanne Sievers President of Shelton Group Kaelin's Investor Relations for when you may begin.
Good afternoon, and welcome to Kelly fiscal second quarter 2021 financial results Conference call I'm Leanne Sievers President of Shelton Group calendar <unk> Investor Relations firm with US today are Calamps, President and Chief Executive Officer, Jeff Gardner, Chief Financial Officer, Kurt been there before we begin I'd like to remind you that this call may contain four.
<unk> looking statements. While these forward looking statements reflect calendar best 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 obligation to revise or update any forward looking statements to reflect future events or circumstances, Jeff.
Jeff will begin today's call with a review of the company's financial and operational highlights. The car will provide additional details about the second quarter results followed by a question and answer session with that it's my pleasure to turn the call over to Kelly ups, President and CEO, Jeff Gardner Jeff. Please go ahead.
Thank you lianne well.
Welcome everyone and thanks again for joining us today to discuss our second quarter results, which were solid, especially considering the ongoing global pandemic we.
We continue to execute across the organization with notable progress against the operating plan objectives, we put in place upon my appointment.
The entire caliber team continues to perform at high levels of productivity and efficiency as we strive to position the company for increased growth and profitability.
Consolidated revenue in the second quarter was $83.5 million.
With adjusted EBITDA margin of 6.5%.
Which included some one time costs incurred in the quarter.
SaaS revenue was up 20% sequentially due to a.
Due to an increase in installations.
Across our global operations.
Particularly in Italy, and the UK.
As automotive dealerships began to reopen and NR U.S.
Eight through 12 fleet management operations as students return to school.
Network OEM revenue also increased in the quarter due to strong growth at cat as their threeg to Fourg upgrade cycle continues to accelerate.
The one area of our business that continues to see variability in demand from the pandemic.
As our MRM telematics product sales and the associated device installations. This.
This has been most prominent among our regional T.S.P. partners.
As one of our top objectives, we're looking to drive Inc.
Increased growth of our south business.
And this is evidenced by our strong sequential growth in the quarter to 40% of total consolidated revenue were.
We're also continuing to further enhance our supply chain underneath and Boston under his leadership.
Now I'd like to highlight some of our additional achievements during the quarter in support of our key operating objectives.
First let me start with our international expansion initiatives, which continue to be a strong contributor of our growth.
Our operations in Italy have been a key contributor to these efforts and revenue rebounded in the quarter as enterprise customers began to reopen.
We were able to resume our installation activities.
For which there was a sizable backlog due to lock down.
Customer demand also remains strong throughout the quarter.
We expect to see continued strength in this market and last weeks announcement of a safety alliance.
Mulder busy one of Italy's largest automotive dealerships further supports our continued growth in that region.
The expanded partnership is designed to improve road safety by providing timely preventative maintenance reminders instant crash response and stolen vehicle assistance to 12000 customers throughout southern Italy.
We also continued to enhance strategic engagement with partners and critical customers to expand our opportunities and telematics.
For example, we recently extended our relationship with our largest customer caterpillar to facilitate their continued expansion of connected assets.
Including the migration of several existing fleets to Fourg LTE.
We also pushed hard on our initiative to transition our lojack U.S. business to a telematics model by converting seven dealerships to Lotsmart and Suredrive telematics solutions.
I believe these particular developments mark solid progress considering the current market backdrop. We also expect to gain further traction in the U.S. When we have more access to dealerships as they begin to reopening process.
Our focus on key product development initiatives also remains Paramount to our long term operating plan as I've discussed with you on past calls.
The objective is to earmark critical development resources to the most promising product areas and markets.
One of these is our ion suite of applications, including I. on tab as well as eye on vision, which will be released to the market. This year.
I envision as a fully integrated video and safety visibility telematics solution that provides fleet operators and service providers with actionable and deterministic video inside too.
To improve driver safety mitigate liabilities and protect assets during shipment.
We were pleased to announce that this highly anticipated product received the 2020 I OTI evolution product of the year Award.
Additionally, our calcium ions suite of solution was named to equipment. Today is 2020 contractors top 50, new products list.
Another one of our solutions that is also received significant recognition. This quarter was our newly released contact tracing and hygiene verification application called bus Guardian, which costs.
Which complements our flagship here comes the bus platform it was.
It was even featured in a segment on good morning America, which can be viewed on our website.
What is particularly noteworthy about this offering is our team was able to turn it around from ideation to publicly available solution within three months and in time for the start of the school year.
One final comment regarding our efforts to further strengthen our corporate governance and demonstrate our commitment to board diversity.
Last month, we appointed independent director Amal Johnson as.
As chair of our board.
She has served on our board since 2013. Additionally, we appointed a new independent director Kirsten Wilbur who has over two decades of experience with top msas and software companies, including Docusign pay Pal and Salesforce.
These appointments reflect the work we're doing.
Throughout calendar to strengthen our company with critical skills and insight to support our strategic transformation as a SaaS solutions provider.
In summary, as evidenced by my comments today, we're making solid progress across the business.
Even in the midst of these uncertain times.
Although visibility remains limited we remain focused on carefully managing our business to drive sustained top line growth and profitability.
With that I will now turn the call over to Kurt.
For a closer look at our fiscal second quarter financial results and then we will open the call to your questions Curt.
Thank you Jeff today My commentary will include reference to the non-GAAP financial measures of adjusted basis net income adjusted EBITDA and adjusted EBITDA margin.
For reconciliation of these non-GAAP measures with the closest corresponding GAAP basis measures is included in the press release announcing our fiscal 2021 second quarter earnings that was issued earlier today.
I want to reiterate once again that we continue to monitor all cobot 19 development across our worldwide operations and that the cost controls we put in place, particularly in areas such as personnel travel and other discretionary spending remain in place we can.
We continue to believe that our existing cash future cash flows and available borrowing capacity are sufficient to fund our ongoing operations as we continue to navigate these uncertain times.
As Jeff mentioned, we are pleased with our solid second quarter results in which revenues increased 4% sequentially to $83.5 million Internet.
International revenue in the quarter totaled $24.6 million or 29% of consolidated revenue.
Software and subscription services revenue grew 20% sequentially to $33.7 million or approximately 40% of consolidated revenue.
In addition to growing demand for our SaaS solutions revenue benefited from the fulfillment of installation backlog that we discussed last quarter, which ranged from $2.5 million to $3.5 million as automotive dealerships and school districts advanced plans for reopening.
We continue to see strong demand across our SaaS business as scheduled installations proceed now that mandates have been lifted and re openings are occurring principally in the United States.
One important decision we made last quarter was the wind down of our vehicle finance business in the U.S revenue.
Revenue from this business was up slightly in the second quarter to $2.8 million as we through sold through and installed a majority of the remaining inventory to select customers.
However, we do expect this business to decline over the next 12 to 24 months as the customer contracts, we support begin to expire.
Telematics products revenue of $40.7 million was down approximately 11%.
$45.5 million in the first quarter.
With MRM telematics products revenue decreasing to $23.5 million compared to $30.8 million last quarter.
This decline was primarily due to two factors.
First the continued uncertainty around the pandemic and related global economic environment has resulted in our small to medium sized customers deferring product orders as a carefully manage cash flows and assess end customer demand.
Second we experienced unusually high product shipments in the first quarter as we sold through a substantial portion of the incremental Q4 backlog associated with the supply chain challenges in China prompted by the pandemic.
Offsetting the decrease in MRM telematics products revenue was a 17% sequential increase in network and OEM products revenue to $17.2 million, which also represents a 37% increase year over year.
Revenue from our largest customer cat increased 26% sequentially to $13.7 million supported by strong demand for next generation LT base telematics as part of its threeg to Fourg upgrade.
We continue to expect solid demand from CAD in the second half along with many of our other telematics customers also engaged in this pivotal transition to fourg.
Also last quarter, we began presenting our domestic lojack SVR business as a separate reportable segment.
Revenue from this segment increased to $9.1 million from $6.6 million in the prior quarter as the backlog of installation related to this business was fulfilled.
While this is a respectable rebound in demand, especially on our largest dealerships installations and new business remain challenging since in person interactions are limited.
Consolidated gross margin in the second quarter of fiscal 2021.
Was 36.9% compared to 38.7% last quarter, which was largely due to the impact of a 1.4 million dollar one time charge to Cogs related to the resolution of a product performance matter with the customer.
Although the product malfunction related to a supporting technology included in our telematics solution. The issue led to excess data carrier costs that we resolved through an over the air firmware upgrade distributed to the affected devices.
Excluding this charge our gross margin would have been consistent with the prior quarter and we expect our gross margin to normalize in the third quarter in the 38% to 39% range.
In the current environment. There are a number of factors that are limiting our gross margin expansion in the near term.
It is important to note that we.
That we have kept headcount stable during the pandemic and in the face of slower customer demand.
This decision was made in anticipation of the increased customer demand, we expect as the overall economic environment improves and our customers navigate towards the Threeg network Sunset deadline in early calendar 2022.
The staffing decision has contributed to lower fixed cost absorption as a result of lower production volumes again stable costs. Additionally.
Additionally, freight costs have gone up, especially for air shipments from our contract manufacturers located in Asia.
As the freight carriers have increased rates due to capacity limitations from recent global demand increases.
We are closely managing these short term challenges with the anticipation that gross margin will improve as these pressures lift.
And our transition to a subscription based business model increasingly benefits margins over the longer term.
Adjusted EBITDA in the second quarter was $5.4 million with an adjusted EBITDA margin of 6.5%.
Compared to adjusted EBITDA of $6.5 million and an adjusted EBITDA margin of 8.1% in the prior quarter.
The decrease in adjusted EBITDA was primarily due to the onetime charge for the product performance matter discussed earlier. In addition to onetime executive relocation expenses collectively amounting to $1.7 million or 200 basis points of EBITDA margin.
Excluding these items adjusted EBITDA would have improved in the quarter, reflecting the benefit of our cost containment measures.
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.
Our non-GAAP operating expenses as a percentage of revenue was approximately 37% for the current period.
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 second quarter, we had total cash and cash equivalents of approximately $107 million compared to $104 million last quarter.
Our aggregate outstanding debt is approximately $263 million, including $230 million of the 2% convertible senior notes due August 2025.
This is also the third consecutive quarter in which we generated solid free cash flow since acquiring three businesses in the past year to accelerate our move to a subscription based business model.
KLM continues to maintain a strong financial position with additional capacity available on our revolver and sufficient cash for working capital going forward.
In reference to our outlook for the third quarter and as.
And as mentioned in todays release, we are maintaining our policy of not providing quarterly guidance due to the on going uncertainty related to the pandemic and reduced visibility into customer demand and product shipments.
I do want to state that we are proceeding into the third quarter with solid demand in our SaaS business and we also expect another solid quarter from cat as we continue to support their threeg to Fourg transition.
Together, we expect these factors will help to offset the normalization of installation backlog activity in the current quarter and the ongoing weakness in demand for our MRM telematics products due to the pandemic.
With that I will 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'm very pleased with our performance in the second quarter as the KLM team continues to execute on our strategic initiatives across the organization.
I believe the success, we continue to achieve in our SaaS business is an indication of the opportunities ahead of us as we transform our business toward becoming a leading staff telematics solutions provider, we have an exceptional team in place to advance to the next level of growth and expansion.
[music].
With that now I'd like to open the call up to your questions operator.
Ladies and gentlemen in order to ask a question you will need to press Star and then one on your telephone please standby what we compiled acuity roster.
Our first question comes from Mike Latimore with Northland Capital markets. Your line is open.
Thanks.
Congratulations on the solid quarter there.
So I just wanted to touch on the you gave a little bit of color around third quarter dynamics. It sounded like sort of positive offsetting weakness. So should we think about it as kind of a.
Threeq you being similar to Twoq.
Yes, Mike and thanks for your comment on the quarter.
We were real pleased as you saw particularly you know what we're trying to do here in terms of transformation. So the SaaS business came in real strong some of that was backlog as Kurt referred to but we also had some very strong demand and low check international and also in our K through 12 here comes the bus business. So.
That was very solid and another real strong quarter with cash.
Caterpillar.
As they continue their fourg migration and so I think those are the strong points and as Curt mentioned MRM continues to be.
Soft up related to the.
Regional T., Sps and kind of their outlook. These are smaller companies that are just being more cautious understandably in this environment. So as we look forward I.
I think we'll see more of that to come continued strength in the <unk>.
In the SaaS business continued strong.
Continued strength and caterpillar going forward and we're we're really focused on accelerating some of the Fourg network that we know is in front of us so whether or not it.
Our customers have moved forward with Fourg LTE today or not we know there's still a big opportunity there and so working with them.
As they kind of navigate through these difficult times will be important but overall I mean, yes, it's kind of a mixed approach, but on on average where we're feeling really good about how we performed in the quarter.
Great and then on the <unk>.
Global environment.
Can you talk a little bit about maybe just segment out kind of how much access you have within the school districts are you back to kind of complete access full a normal deployment opportunities and then separately, but is there sort of the new deal flow look like there.
Yep.
The school market, it's been a great surprise in terms of yes, theres a lot of uncertainty as to what was going to happen as we got closer to the fall here and many of our customers are opened up we were able to make substantial progress on our backlog. So we got access to.
On some of the vehicles that we have been.
Trying to get access to for some period here so that was all good.
And we've just been very pleased with the.
The adoption I think the innovation that the team came up with on bus Guardian made an already attractive product to really add software technology to school buses to provide assurance to parents, which is more important now than ever and when you include the ability to provide contact tracing information.
And hygiene verification. It gives everybody fleet managers parents, a lot of peace of mind. So we're feeling good about that segment its a very strong SaaS business for us.
We are a leader in market share, but theres still plenty of market to get and we added a lot of new logos in.
In in double digit new logos this quarter. So we're very very pleased with that.
Great and then just last on the one time cost that you said there was a 1.4 million. One did you say there was another one fantastic I might have missed that.
Yes, there was a small real.
Relocation expense that was in G. any that Kurt mentioned that was about 300000 Thats. Those are truly one time and then Kurt mentioned the onetime cost the 1.4 was related to.
Firmware problems.
Did that drove some excessive airtime charges, we corrected it immediately so its not going to be recurring its no longer an issue was the right thing to do for one of our very big customers.
All right. Thanks, a lot.
Our next question is from Mike Walkley with Canaccord Genuity. Your line is open.
Great. Thanks for taking my question.
Yes, just a clarification on caterpillar did you.
I thought I might have heard in the script that you might have expanded some business with them can you just.
Maybe clarify that and then for caterpillar any color you can give how far they are under the threeg to fourg upgrade and kind of the run rate opportunity with its key client going forward yes.
Yeah, well it wasn't really new business basically what we had was affirmation, which is important now it was a big deal to us too you might have.
You might have seen the press lease earlier in the quarter to reaffirm that we are going to be their partner as they upgrade to fourg for their critical devices. So that's really important as you know all customers have optionality. When it comes to these equipment change out so with our largest customer to get that.
Was very meaningful to us and they're they're making good progress on their fourg LTE.
Migration, but they've still got plenty to do I think Curt mentioned that we think the outlook for next quarter remains very strong there and so we're really focused on doing the best possible job to deliver to them on time good quality. So that they can make as much progress on that in 2010.
21 as possible.
Great. Thanks for clarifying then yeah, congrats on keeping them as a partner Thats key and just the overall threeg to Fourg upgrade anyway.
You can share maybe on a number of your threeg devices still out there that you have a good chance to upgrade to Fourg is a tailwind as things reopened through.
Through the Sunset date or over the next call it six quarters.
Yes, we still we still have a big opportunity.
We estimate somewhere between 500000 1 million devices translate that to revenue.
Somewhere between 50 and $100 million of revenue and that's with our existing customers and hopefully we'll get some opportunities.
With new customers as well so I mean.
As I said earlier.
This fourg conversion work's going to be done the timing the pandemic pandemics affecting the timing in some cases, but we think that that's an opportunity for us over the next six quarters as you say.
Great. Thanks, less because for me and I'll pass the line.
That's another words.
Our vision.
Further vision product can you talk about maybe the timing when that starts to hit revenue and any early feedback yet from customers that might be trialing of key products.
Yes, the the tags are out there already as you know and it's early days for that but over the next quarter or two you will see us.
Really.
Do more volume it won't be big volume early in terms of revenue, but importantly that is a very important step in our roadmap and we thought we think that although there are other camera products out. There. This one is quite unique in some of the Cape.
Capabilities that it offers our CFO.
Customers, So I think.
I think in terms of when you will see it hit revenue will be over the next couple of quarters, but.
But it is something that our customers were really interested in us in terms of our roadmap.
Great. Okay, that's on the execution and thanks for taking my questions.
Thank you.
The next question is from George Notter with Jefferies. Your line is open.
Hi, guys, thanks very much.
No with the new person you brought in running supply chain I know there were some work go.
Going on around the cost redesigns on specific products and specific skews and is there is there a big cost savings here that you guys can capture how big might that be how.
But the timing look like on that thanks.
Yeah. Thanks, George Yes, Nathan loss that are joined with.
We've got a really solid.
Supply chain team, that's been really focused on on time delivery over the last if you look back four quarters, we do think theres upside in terms of managing our bombs our costs better going forward that takes time as you know, it's not something that changes overnight, but I will tell you we have a comprehensive program to work on.
Margins across our.
Product lines, and I think you'll see us make progress over the next.
A couple of years on that and see some results.
Maybe starting in the fourth quarter of this year.
Got it and then just as a follow up.
I was.
Obviously, the environment and the headlines are being dominated by us to bid into vaccine and certainly there's got to be a logistics challenges.
So she was distributing a vaccine is there any role for Calamp.
In that distribution supply chain.
Good in terms of distributing a vaccine.
Correct.
So as you know we do have a solution called Sci on which is all about managing it.
Inventory across the supply chain in particular high value inventory and so we do see opportunities I can't say, specifically that I can speak to Ags. An exact example, but yes. We think we have a solution that will allow.
Logistics and distribution companies the visibility that they need to make sure that the vaccine is getting to the right location and that it isn't being impacted by whether it's humidity climate anything of upside. So we do feel like there is a solution there that Kelly and can bring to bear on and we're working to find customers that allow us to put that in.
Play.
Fair enough thanks very much.
Our next question is from Jerry Revich with Goldman Sachs. Your line is open.
Yes, hi, good afternoon, everyone.
Hey, Gary.
Can you talk about in software and subscription you had excellent profitability performance in terms of gross profit drop through relative to sales growth can you just talk about what allowed you to deliver the strong operating leverage in the quarter and then separately on the top line performance in so.
For subscription can you just give us an update on what proportion of that was driven by raw.
Revenue per subscriber growth versus the subscriber count increase.
So Gerry I'm trying to think of it was a couple of questions I think in that.
First off we were extremely pleased as we saw.
Organic growth in.
In our software and subscription services business.
Year over year, probably around 5% to 8%.
The growth was primarily coming from.
Really two locations one was selling into the K to 12 municipality government fleet end market and two was really starting to get some traction internationally with our international recovery services.
We've been extremely pleased with the way that we've been executing on the businesses that we acquired last.
Last year early last year, and we're seeing that the subscriber growth is coming back after the last quarter, which we had a bit of the overhang from the pandemic. We're also seeing that the ARPU.
The ARPU is associated with the subscriber growth.
A pretty robust so overall very very pleased.
Your reference to the.
The gross margin improvement now, we've always anticipated that our software and subscription service businesses.
Had the ability to execute to a gross margin level at or above 50% and although we had.
Some challenges early on with the acquisitions because of various purchase accounting adjustment that did have an impact on our overall margin the impact of those purchase accounting adjustments now are starting to dissipate, which is certainly helping us. So hopefully I think that answers the nature of your question.
It does thank you for the color and then.
The purchase accounting adjustments should we look for an additional tailwind sequentially going forward or is this the current clean margin run rate at this point.
Actually there is still some remnants of the purchase accounting, which should dissipate over the balance of this year and once we've gotten past fiscal 21, it should be completely behind us, but there is a little bit of the remnants still there and it is impacting our margins slightly John.
Thank you and then in.
The mobile resource management sub segment it looks like revenue was down.
Sequentially, which compared to most industrial markets there was a pickup.
Over the course.
Call. It June July August from April May levels can you just talk about what drove the sequential decline for your MRM business Nick.
Quarter end, what to what extent, you expect but picked up to peer through what's going on and then markets. Thanks.
Yes in our business as you look at those two businesses OEM, which tends to be larger.
Customers with bigger balance sheets more in a better position to handle the on.
Uncertainty related to the pandemic on the MRM side lot of the softness with with with with some of our regional TSP too in my mind are understandably cautious costs as cautious as they come.
As they kind of navigate through the pandemic and manage their balance sheets and.
And so we're working very closely with them.
These customers still need to.
Do their fourg conversions, we really are.
We are trying to help them get through this time and I think that.
We'll see that improve over time, but I think you'll still see some softness in the next quarter in that particular group.
Okay, and then in terms of.
The lojack.
Turning around Jeff you referenced I believe you had seven dealers have signed on.
To the telematics offering which is a better cost solution for you folks can you just put them into context for us what inning of that transition are we in seven out of how many dealers.
What's the roadmap in terms in from getting the sign ups to seeing the improved operating performance.
Yes, so first of all I'm very proud of what the Lojack U.S. team did they bounce back after a very tough.
Quarter of their sequential growth and just price.
Product revenue was quite good so that that was nice to see a nice recovery like other parts of our business, we had more access in terms.
In terms of telematics conversion, it's early innings, Jerry that the team.
Very pleased the fact that we got we were able to do our insight.
Instead, the installations at seven dealers of our telematics product.
Across the country, which is really solid but that's.
Thats, there's still much more potential there and with some of our biggest dealers. Although we have access to the dealerships now when you're doing something of this magnitude you need access to the executive team. So we've had a number of meetings.
Most recently Weve with our largest.
Partner in that category. So I think the team is doing a great job, they're very focused there, but it's very early days, there and I expect that telematics to come.
To continue to accelerate throughout the year.
And in terms of just for context.
How significant are there certain dealerships transmission business.
The first inning, a good transition, Jeff or is that a meaningful number relative to your dealer count.
It's really the first inning I think is fair I mean, it was a.
There is a lot of work that goes into these conversion so I'm pleased.
To get those done but.
But we really want to start tapping some of our top top five dealers, that's where it's going to really make a difference and you will see that that happened in the coming quarters.
Okay terrific I appreciate the discussion thanks. Thanks.
Thanks Jerry.
Next question is from Scott Ciro with Roth Capital Your line is open.
Hey, good afternoon, thanks for taking my questions.
Couple of clarifications and some cleanup questions first.
First off on the $1.4 million charge to Cogs I just want to clarify is that product or is that in service. It sounds like it related in incremental services cost, but it wasn't clear to me if that was going through your your product channel.
It's been recorded as a products Kong charge, probably equivalent to sort of a product warranty charge.
Lets go into cost of goods sold we recorded a 100% of that in this quarter gotcha perfect.
On the Opex front, just kind of looking at normalized non-GAAP Opex looks like it was up a little bit sequentially is this the level, we should be operating off of going forward are there some onetime elements in there.
That were not broken out in the in the release.
Yes, the only one time of significant and Jeff alluded to that earlier with some of these relocation executive relocation costs.
Outside of that we have in the back of the earnings announcement, a reconciliation of the one time cost that we typically break out for non-GAAP purposes, but I think that's what you're seeing at least from a and I think I referenced this in my my original comments was our.
Our overall opex as a percent of revenue.
Is fairly stable right now and obviously, we're going to work to try to improve that and of course, we'll make investments in areas like sales and marketing and R&D as we see the revenue start to tick up we see light coming for the ended this pandemic, but I would suggest right now that that the opex.
In aggregate as a percent of revenue is probably where you can expect at least going into the next quarter Gotcha.
Gotcha and to quickly follow up on Mike's earlier question.
Caterpillar the mix of business sounds like you're getting some upgrades as well as from Threeg to fourg as well as new sales I was wondering you know can you.
Can you help us understand what the mix is there in terms of what a retrofits and upgrades for existing customers versus you know what are you seeing in terms of new.
New new heavy equipment vehicles going out the door.
Well a lot of our current business a good percentage of it is relating to the upgrade cycle.
It to move some of their threeg fleets to Fourg. So.
I don't have the precise percentage, but its a significant amount of the volume and driving some of the increases that we talked about sequentially got you.
Gotcha, and just last two if I could.
MRM sounds like continues to be headwinds on that front I was wondering if you could provide a little bit of color in terms of what the linearity looked like in the quarter and lastly, lojack U.S. its nice to see some U.S. dealers kind of coming onboard is there is there a target as you look out 12 or 24 months of of what percentage of the dealerships.
Or you would expect or hope to have converted thanks.
Yes ill, let Kurt answer the first question on MRM linearity, and then I'll take the Lojack question after that.
Yes, Scott that's a great question, because we've been looking at that very closely if you go back and we did some analysis on over the last three quarters here with the impact of Penn The pandemic, we've seen that business, the MRM business running somewhere between $23 million to $25 million on a quarterly run rate.
If you go back past those three quarters, probably seven quarters eight quarters back we were more averaging in the area of say $33 million to $35 million per quarter. So were down quite a bit off of what we would consider to be our normal cadence and so what we've done in there as well.
We mentioned last quarter and this quarter is we've doubled down in terms of keeping our head count stable. We believe that the growth will come all of.
All of the customers that we're actively engaged with have been communicating to us that they are absolutely committed to making the threeg or fourg conversion, we haven't really lost any customers. So our expectation is as we go through that.
The balance of this fiscal year and into the early part of next fiscal year that will start to see the uptick.
Demand from Fourg, LTE, and we'll get back to that say $33 million to $35 million quarterly run rate.
You want to touch on and schedule last question on on Lojack, Yes. The the lojack expectation is that we're going to make a major shift this year to telematics.
It's really what we're leading in every one of our discussions with our customers. The seven dealers that I referenced in my script is just the beginning.
For this year to be successful we are targeting to shift the majority of our top 10 dealers to a telematics solution. It's a much better value add for the customer provides a lot of benefit to the dealers. It allows us to reach all customers across the nation. So there's a lot of upside there and as you know we're really interested in.
And moving that business more to a recurring revenue model.
Great. Thanks, so much guys.
Youre welcome.
And again, ladies and gentlemen in order to Q4 a question. It is star and then one on your telephone keypad our next.
Our next question is from Paul Coster with Jpmorgan. Your line is open.
Yes, thanks for taking my questions.
So stop me.
Hello Hello.
The telematics segment is that now includes or are you carrying any over into the next quarter.
Yeah, Paul So at this stage that weve pretty much cleared the backlog in really the backlog was in two locations one was.
With the K through 12.
The disparity of fleet services, we probably had close to two to two and a half million dollars of backlog that we couldn't fulfill because there was no access to the to the school districts and then in addition to that within the lojack business and not having access to the.
To the dealership network, we probably had another half a million $2 million backlog.
We were pleased with the performance of our installation team over the quarter and they were absolutely effective at clearing that backlog.
Got it.
Ran a bit if don't mind on the side.
You said you're on boarding new logos is there a trend there in terms of the size of the.
The customers who are on boarding the number of subscribers.
Yes, I mean, it's a there's quite a bit of.
For the.
Diversity in terms of the size of the school districts a lot of these are school districts in terms of the new logo. So some can be as big as 1500 vehicles.
The average probably probably in.
In the more enough the hundred range so.
They are good solid yeah as you know that business has very strong ARPU.
Paul and good long term contracts and we've got a very good solution, that's very easy for customers to understand so as I've.
As I've said earlier, we're pretty bullish about that space I love our product we've got a great.
Bunch of engineers, developing making that product better every day. So we're not sitting on our laurels taking rest.
Resting on our leadership position, we're trying to get even stronger in that space.
Jeff in the current Oh churn issues Youve detected.
The slowdown in parts and some vertical.
No not too much I mean, the biggest impact has been just the slowdown in the arm MRM that we've talked about we've been really trying to use this time to stay very very focused on our customers and to make sure. We're very proactive if there are any issues with any one of our customers. So.
Outside of that not really.
I'll now turn the call highlighted I think we've mentioned in the original comments around the vehicle finance business. As you know we communicated last quarter. The our position that we were going to start to.
Transition out of that and so we are starting to see and we will continue to see the churn in in subscribers in that over the next several quarters.
Got it Okay. My last question, Jeff Lubert sort of out there but.
I'm sure like like everyone. You are seeing this massive amount of innovation in the <unk>.
Vehicle space Ruth.
You know a slew of new electric vehicles, primarily coming to market and about two years from now and say that seems to be the surgeon that pitching or specific many shares many of the business models assume some kind of relationship.
Customer rather than just the straight what style.
And I'm just wondering is this an opportunity are you seeing design then.
The opportunities coming your way I mean, suppose extend this is an opportunity or threat.
Yeah, I think it's going to be a big opportunity. It's early days for that so in terms of.
The opportunity for near term, but I mean, the information that is needed by the customer and fleet managers. It relates to electric vehicles is slightly different but not much of its the same and so.
Our our engineering team is trying to stay ahead of that and work on a solution. So that when that market gets traction will be a player there.
As you know our businesses.
Tracking monitoring recovering mobile assets, whether they are paolo powered by a motor or by.
Electric battery.
Sure Okay, alright, thanks, so much.
Thank you.
And this concludes the Q and a period I'll now turn it back over to Jeff Gordon for any closing remarks.
Right. Thank you and thank you all for joining us on the call today and for your continued interest in California on a final note for those of you who would like to schedule, an introductory call or an update meeting with US. Please contact the Shelton group.
I look forward to discussing our continued progress during our fiscal third quarter call scheduled for late December.
Just prior to Christmas Operator, you may now disconnect the call.
Ladies and gentlemen, this concludes today's call. Thank you for your participation and you may now disconnect.
[music].