Q3 2021 CalAmp Corp Earnings Call

You may begin.

Good morning, and welcome to Kelly and fiscal third quarter 2021 financial results Conference call and Leanne Sievers President of Shelton Group Kellems Investor Relations firm with.

With us today are Kelley of President and Chief Executive Officer, Jeff Gardner, and Chief Financial Officer, Kurt vendor before we begin I'd like to remind you that this call may contain forward looking statements. While these forward looking statements reflect calendar. The best current judgment. They are subject to risks and uncertainties that could cause actual results to differ materially from those implied by these four.

Looking projections on 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 will begin today's call with a review of the company's financial and operational highlights and will provide additional details about the financial results followed by a question and answer session with that it's my pleasure to turn the call over to accounts, President and CEO, Jeff Gardner Jeff. Please go ahead. Thank you Leann.

Welcome everyone and thank you for joining us on this early morning call. Our third quarter results represented another quarter of solid revenue growth combined with strong margin expansion.

And the syndicated in this mornings release we.

We recently made the strategic decision to begin winding down our lojack U.S. operations.

And I will speak more about this and a few minutes.

First let me start with the results.

Consolidated revenue and the third quarter was $88 million with adjusted EBITDA margin of 10%.

Our SAS revenue grew both sequentially and year over year to $34.4 million or 39% of total revenue.

We ended the quarter with the strong balance sheet, including over $91 million and cash.

And we generated our fourth consecutive quarter of positive free cash flow.

During the quarter, we continued to benefit from the ongoing threeg and Fourg upgrade cycle.

Which fueled our largest customers record performance in the quarter.

Additionally, demand for our fleet management solution remains robust, particularly part here come the boss and bus Guardium subscription offerings.

And you May have seen our recent press release hiring of school District, and North Carolina, the implemented all of our solutions.

As the pandemic continues we've seen more and more K 12 school districts utilize these applications to track their students buses and drivers in order to create a safer environment for children and easing parents concerns.

Demand for our advanced tracking technologies for critical supply chain asset management and.

Has also been increasing recently.

Especially in light of the global pandemic and the major increase and shipping volumes.

I'll comment more about some of our recent successes in this regard and a moment.

I couldn't be prouder of our employees the contributions and kill EPS important technology offerings that are together are helping communities all of the world stay increasingly connected and safe.

To that and.

I'd like the highlight some of the key customer wins during the third quarter and more recently.

To begin we further expanded our relationship with a large global freight transport and package delivery customer by winning an additional 35000 cargo trailers for telematics tracking.

That's in addition to the 100000 trailers that were already retrofit it.

We had been working on this opportunity for almost 18 months.

And we're pleased to of one this business over a number of large competing firms.

We're also working on a new proof of concept for and exciting smart trailer project that we believe could offer this customer more efficient.

Cost effective fleet management and asset tracking features.

We're very pleased with the continued progress of this relationship and the potential opportunities for further expansion.

Additionally, and as I mentioned earlier, our largest customer caterpillar reached a new quarterly revenue record as we continued to support its ongoing threeg to fourg transition.

We also benefited from a similar trend and other large MRM customers along with some of our smaller T M Pesa.

Even though many of our smaller accounts continue to struggle with lower installations due to the pandemic.

And our EMEA region I'm excited to report that our Lojack Italia subsidiary began installing eye on tag and vision tracking solutions for shipments across Europe.

We also launched the predictive maintenance services program, and Italy with the plus service.

To make public and private transportation vehicle maintenance smarter and easier in order to prevent mechanical breakdown.

And the UK, we partnered with coaster.

And exciting new emerging digital solutions company to revolutionize the rental car industry with our telematics solutions and.

We also partnered with growth and dean to protect the vehicles across Europe and help reduce insurance premiums.

Regarding recent developments on our eye on suite application platform. We recently migrated over 350 customers from our legacy application to our new on the on platform running.

The running on Calamp telematics cloud.

We're also integrating and new AI based camera solution into the eye on platform. The T.S.P.s can use and solution development with convenient <unk> provided by callout.

And we've added some powerful fuel and asset management applications to the suite that raised the bar for our customers managing governmental and private sector vehicle fleet.

So there continues to be a lot of great progress being made across our business as calamp remains well positioned to benefit from the increasing need for tracking monitoring and recovering high value assets around the globe.

Now turning to the additional new as we released this morning.

After extensive consideration of various alternatives over the past several months.

We decided to wind down our lojack U.S. operations.

As many of you know this business historically provided stolen vehicle recovery products operating on radio frequencies allocated by the FCC for domestic automotive dealerships.

These products and the related services were provided predominantly because like hardware based offering that no longer lines to the company's core focus on a software based business model.

Recognizing the importance of the Lojack brand.

And in an effort to further promote public safety, we intend to continue supporting law enforcement as we orchestrate the wind down and Im responsible manner and a lot of sufficient time for our dealer customers to make the transition.

The most important reason for this decision is that allows us to refine our focus on key areas of our telematics SaaS business that will drive higher growth rates and more predictable revenue streams.

I want to emphasize that we will continue to operate and invest in our international Lojack business.

Which operates as a subscription based business model.

And it's also a well line to our core SaaS strategy.

Ultimately this decision will enable higher growth rates for the consolidated business as well as generate higher margins and profitability for the company.

And although there will be a transition period financially as we wind down the business I believe in six to 12 months the company will be on a better position to grow and further expand our SaaS business.

Lastly, I want to take the time to thank the members of our dedicated U.S. Lojack team, who have worked very hard over the last four years and.

I'd like to personally extend my appreciation for all of their support.

To conclude my prepared remarks, the Calamp team remains focused on offering our telematics software solutions platform to help customers improve their fleet operations supply chain management and overall operating decisions.

We believe our south sales will continue to expand.

As our customers increasingly value of the knowledge.

And real time status of their critical mobile assets and personnel.

And this is the hallmark of our telematics technology.

With continued execution on our strategic initiatives.

And further refinement of our business, we expect to drive higher quality revenue.

To further expand our margins as well as higher profitability and cash flow for the company.

With that I'll now turn the call over to Curt for a closer look at our fiscal third quarter financial results and then we will open the call the questions hurt the.

Thank you John today My commentary will include reference 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 third quarter earnings that was issued earlier this morning.

As Jeff mentioned, we are pleased once again with our solid third quarter results, which in which revenue increased 5.4% sequentially to $88 million.

International revenue was strong in the quarter totaling $27.2 million or 31% of consolidated revenue.

Going forward, we will begin discussing our international business by region, such as the media Latam and APAC rather than by specific countries as we continue to execute well on our global expansion initiatives within our core market verticals, including transportation and logistics industrial heavy.

Equipment and connected car.

Software and subscription services revenue grew 2.1% sequentially.

And 3% year over year to $34.4 million and represented approximately 39% of consolidated revenue.

Revenue growth for our software and subscription services was driven by an increase in subscribers, particularly in the government municipalities and K 12 School bus end markets and the United States as.

As well as our international recovery services, particularly in the EMEA region.

Telematics products revenue grew 8.2% sequentially to $44.1 million from $40.7 million last quarter due to the continued strong demand from the threeg to fourg transition with large customers.

The L.T. transition is occurring in both our MRM telematics and OEM product categories.

The MRM telematics products revenue increased 6.1% sequentially to $25 million compared to $23.5 million last quarter.

Network, and OEM products revenue increased 11.1% sequentially and 9.6% year over year to $19.1 million, primarily due to record revenue from our largest customer caterpillar.

Which increased 19.8% sequentially and 20.5% year over year to $16.4 million.

We expect continued solid demand from cat in the coming quarter, along with other large telematics customers also engaged and this essential threeg to fourg transition.

Revenue from our Lojack, and U.S. business was $9.5 million and the quarter as compared to $9.1 million and the second quarter, reflecting a sequential increase in product installations as you as the auto dealerships remain open this quarter during the pandemic.

Yeah.

I will discuss more details about the wind down of this business and a minute.

Consolidated gross margin and the third quarter increased 290 basis points to 39.8% compared to 36.9% last quarter.

And you May recall last quarter's gross margin included a $1.4 million, a onetime charge to cogs or approximately 170 basis points of margin related to the resolution of the product performance manner with the large customer.

Third quarter gross margin represents a more normalized margin level for the consolidated business and the market improvement towards our long term gross margin target.

Adjusted EBITDA in the third quarter was $8.8 million with an adjusted EBITDA margin of 10% coming.

Compared to adjusted EBITDA of $5.4 million and an adjusted EBITDA margin of 6.5% in the prior quarter.

The increase and adjusted EBITDA was primarily due to increased revenue and the absence of one time charges that we took and the prior quarter, coupled with improved operating leverage.

Our non-GAAP operating expenses as a percentage of revenue was approximately 36% and the third quarter and.

We expect to manage our operating expenses in line with consolidated revenue growth as we continue to navigate through this on certain period.

Now, let me discuss the wind down of our Lojack us operations and provide more details as to the financial implications of today's decision.

First in the third quarter, we took an $18 million a onetime noncash charge for the write down of goodwill intangibles and other long lived assets.

As part of the wind down we expect the secular decline in revenues from the legacy Lojack us SBR product sales to accelerate over the next three to six months.

To offset the impact of declining revenues, we will execute various cost reduction measures in order to achieve expected cost savings in the range of $12 million to $15 million annually beginning in fiscal year 2022.

We believe these actions will help the further align our cost structure to a SaaS based business model that should result in operating expenses declining.

Leading to solid improvement and our consolidated operating margin over time.

These savings will be achieved incrementally over the coming quarters as we orchestrate the wind down in a responsible manner as part of our commitment to public safety.

Longer term, we expect the overhead necessary to maintain our beacon technology. The operates on radio frequencies allocated by the FCC will be de Minimis as the volume of tracking activity declines over time.

In the fourth quarter, we are anticipating a $1.5 million to $2 million nonrecurring cash charge for severance and related personnel costs.

Now turning to our current liquidity position.

At the end of the third quarter, we had total cash and cash equivalents of approximately $91.7 million after paying down $20 million on our revolving credit facility.

And that compares to $107.1 million last quarter.

Our aggregate outstanding debt is approximately $241 million, including $230 million of the 2% convertible senior notes due in August 2025.

It is notable that we achieved another quarter of of positive free cash flows and the amount of $6.7 million, representing a solid the increase over the prior quarter.

Kelly and continues to maintain and strong financial position and balance sheet with significant cash for working capital going forward.

In reference to our outlook for the fourth quarter, we are maintaining our policy of not providing quarterly guidance due to the ongoing uncertainties related to the pandemic.

Though we remain very pleased with the resiliency of our business and the sequential growth. We have achieved during this time, we expect there could be continued pressures on the global supply chain as changing demand dynamics pose challenges for both our customers and suppliers.

As many companies have been recently reported there had been broader supply and balances across the semiconductor space due to the pandemic that have resulted in rapid adjustments and available supply.

The situation could be further compounded by the seasonal nature of our fourth quarter, which includes the Chinese new year.

Overall, we are very pleased with the effectiveness and improvements we have made across our supply chain that have enabled us to support our recent growth.

But we recognize that there are a number of global market dynamics that we are closely monitoring.

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 I'm very pleased with our performance in the third quarter as the Calamp team continues to execute on our strategic initiatives across the organization.

I'm very pleased with the continued success, we've achieved in our south business to improve the growth and quality of revenue, which is contributing to increased profitability and our.

Overall business.

Today's action to wind down our Lojack U.S. operations takes us one step closer to our longer term goal of becoming the global leader and tracking monitoring and recovery of critical mobile assets on.

Of the ongoing challenges remain across the globe and the supply chain due to the pandemic, we remain cautiously optimistic and.

And focused on executing our strategic initiatives and expanding our SAS offerings to drive increasing value to our customers and shareholders.

With that lets take questions.

At this time, we would like to take any questions. You may have for us today and ask the question. Please press star one on your telephone keypad.

First question is from Scott.

The capital your line is open.

Hey, good morning.

And thanks for taking my questions Nice quarter, guys I Hope you your family and your teams are safe during this time period.

Hey, Thanks, and just just to clarify so and on the Lojack exit is that going to be a discontinued operation going forward and I want to make sure I heard correctly in terms of the.

As for your sales.

On the U.S. market, that's going to accelerate in the next couple of quarters and then do you expect by the end of the six to 12 month time period, you read zero in terms of contribution on the product front from SBR.

In the U.S.

Or is there some long tail, that's kind of associated with it.

Thanks, guys I appreciate the question yet is the this current so.

First off let me say that.

In terms of the discontinued operations treatment.

Unfortunately until you effectively shut the business down on the.

The accounting guidance doesn't allow for you to show the business as discontinued operations. However, if you remember on a couple of quarters ago. We made a decision to actually put on the lojack U.S. SVR business as a separate reporting segment and therefore, if you look and our financial statements you will see it actually broken out and that reporting.

Segment, that's important because we wanted to make sure we were providing some form of comparative information. So that you can see management execute on the wind down we had indicated that over the next say six months or so we're going to be executing on this wind down plan, so until that wind down period.

It is complete and.

We won't have discontinued ops treatment and so hopefully that makes sense to you in terms of the tail I'll just answer that question. We believe that there will be some incidental longer term cost that we will have to cover for this business.

We understand that the.

The the Lojack brand brand is very important and the technology very important and so we believe it's critical for us to continue to support our law enforcement partners on to allow them to do their job effectively utilizing our technology, but we think that that cost of maintaining that say tower infrastructure will become de minimis overtime.

As the.

As the device activity tails off so we do expect some tail, but but it will be a de minimus cost and we think we can manage it on your last point regarding the software and subscription services revenue our whole goal and this effort is really to ensure that we're focused on driving our key more.

Profitable growth initiatives, because we want to have high quality revenue and more predictable revenue streams and so we believe that realign focus around our software and subscription businesses.

And our key Tech telematics solutions will allow us to drive better growth in terms of the timeline that we expect will materialize say over the next six to 12 months.

Yes, and current if I could just just on the Lojack U.S. business.

As all of our investors know that business has been in secular decline.

And it's been putting pressure on our revenue and our EBITDA margins and we were trying very hard this year to make the conversion to.

Telematics of SAS offerings, but at the end of the day as current sad we were really focused on doing something that was quick and seamless and.

The leave that in the long run this will be accretive to both are our top line growth and margins.

On the international business, which we're going to continue to be and is very different it's multi channel. So in addition, the dealers we have rental companies we have financial companies.

And Oems as well and.

And as many of you know Thats all of the SaaS model. So.

I think it's good decision and the long long run for the company.

As we focus on those verticals that we think of the best growth and profitability potential.

And maybe Jeff just to follow up quickly on the the accretion to the gross margins could could you quantify that a little bit what the gross margin differential is maybe between the U.S. lojack and other MRM products and then also.

Yes in terms of cat huge quarter of the sustainability on that front or any color you could provide in terms of where that's going either geographically or some of the end markets and lastly, just the SaaS mix of the business, you've got Italy, and there you've got to know of yet I'm kind of wonder and how those components of breakout and seems like there's a lot of activity that you've got going on and the asset tracking front kind of how big is that right now thanks.

So much.

So let me take the first one on the true.

So so its got to on the AD the gross margin.

One thing the we want to make sure. We focus on is this is more about improving our overall EBITDA performance. We believe that if we can execute on our plan and drive the cost savings.

We've qualified and our profit.

For the quarter remarks that our EBITDA performance will improve.

And this decision will be either neutral or or overall accretive to our margin profile on so.

So in the interim there will be on some work we'll need to do as we proceed down the swine down plan, but again. We believe this is the right decision to allow us to focus on revenue growth and overtime EBITDA margin improvement.

You want to touch on cash flow, yes, sure I mean caterpillar spin of.

Important part of our business for a long time.

We're very focused on net customer I consider that of various strategic relationship.

They the outlook in the in the near term. It is very strong for caterpillar. So we expect to continue aggressive.

Rollout of their threeg to Fourg conversion, so we're feeling pretty good about that business.

Working very hard all the time to improve our quality and performance with that company and maintaining a good relationship and.

I'm very proud of that in.

In terms of the of.

The other day, the other things of that I'd say in terms of margins.

Contrasting the use of business to international on the Lojack.

Connected car space, and our margins are well over 50% and.

Italy, Italy, we're coming off one of the best quarters, we've ever had so.

Very different business mix as I said, multi channel, which makes it very attractive to us when.

When you ask about our business overall, we had very good traction and transportation and logistics and fleet management this quarter driven really by our.

Our K through 12 business was very very strong as.

I talked about on the call, we did renew or sign additional business with the large true.

Transportation logistics company and that and the international markets continue to perform very well.

Great. Thanks, guys happy holidays.

Yeah, you to cash that take care.

Your next question is from Michael.

On capital your line is open.

Okay, great, Thanks, and congratulations on the quarter there.

On the SaaS business, we grew some sequentially. Despite the backlog fill from last quarter I guess.

Is there any seasonality this business or should the continued to kind of.

The growth sequentially.

Yes.

There is a little bit of seasonality with the business in particular.

Probably no.

Our business in the EMEA region, particularly the UK and Italy tends to slow a bit in the and our fourth quarter because of the fourth quarter and complex is the the Christmas holiday. So there is a little bit of the ebb and flow that's driven on it.

In the in the fourth quarter.

Overall I mean, we were very pleased I mean, I can give you a couple of highlights one is in terms of our subscriber growth. We had seen more have seen sequential and year over year subscriber growth.

One of the items, where we've talked to you about in the past that we are watching and managing very closely is our vehicle finance business as we mentioned to you and the path that business was running historically at about 400000 subscribers and that came down pretty.

Quickly here, we dropped about age of 15% over the last couple of quarters, So as an offset even with the with that taken out our sequential growth and subscribers was about three 3% year over year about 9% and so we would expect the that trend to continue but we.

We do have a little seasonality that we will we will be addressing around our Q4.

Got it and then it looks like your EBITDA margins on your SaaS business are almost we're almost 26% in the quarter.

Yes, that's that continues to grow a little bit I mean, what's the what's driving the growth of the EBITDA margin there and.

You know how sustainable is that or would you expect to invest some more on sales and marketing over time or R&D.

Yes, so first of all I always say to the team gross margin matters and so as that business continues to grow and our gross margin continues to expand obviously that margin will roll down to our EBITDA margin, but in addition to expanding on our margin revenue growth we have been watching carefully.

They are on Opex and not just in terms of trying to keep it in check around COVID-19 and.

And not just bring it down but more so to reallocate to make sure that we're spending and the right places and the area of focus for US right now and.

Moving down DNA and of course, investing and things like sales and marketing as well as R&D on.

In connection with the wind down of Lojack. Our objective is to really take a close look at our opex and ensure that it's optimized around the SaaS based business model.

And I think that that will overall help us to continue to expand on our EBITDA margin, especially in our software and subscription services business.

And the one thing I'd add their current is like is it because we continue to refine our strategy and get focused on.

On a smaller number of verticals I think that really helps us in terms of also focusing our index apps and.

R&D.

I talked about and the script some of the things that were doing much eye on suite, which is our platform for the future and so I think it puts us in a better position longer term to continue to invest in our software.

To avail ourselves to those higher margins.

Great and just.

And on the opportunity in the I guess, you asked municipal and education markets.

The of a sense of what percent penetrated in those markets are for your applications of this growth.

Well, we can speak more directly around say the K through 12 and municipality space a lot more focused on K through 12, when we acquired the Sonobi of business.

Over a year ago, and we were looking at the the market potential.

One of the reasons why snowmobile was so attractive is because they didnt have a real strong market penetration.

We we estimated at that time based upon the data that we had it was somewhere in the say 25% to 30%.

And that there were a couple of key players in that space.

So that's what we estimated back then and we think that on.

Over the last year, we've actually gained additional momentum and we've been taking share.

[music].

Okay, great. Thanks.

Thank you thanks, Mike.

Yes.

And with Goldman Sachs. Your line is.

And.

Hi, good morning, everyone and Jeff Congratulations on reaching the decision on non on Lojack.

Thanks.

I'm wondering could you talk about.

The range of growth that you're seeing and the subscription portfolio. So true you had mentioned the overall excluding vehicle finance the growth was 5% year over year can we just step through maybe rank order of the platforms that are driving the growth and what's the slower on the growth curve.

Yes, sure Jerry so so looking at year over year subscriber growth.

Yes, first rank order it first and foremost.

Italy, and and the EMEA region was.

By far the highest subscriber growth.

That grew year over year of about 14% on.

Second.

And to say that here in the us and our feet fleet management solutions space that actually grew the subscriber base grew about 6% year over year and then.

Latam was probably the third place so.

Outside of that we did as I mentioned.

Automotive was was down.

We dropped to about 345000 subscribers from the peak of about 404000 subscribers and so we're trying to manage that accordingly, but that will be a bit of a headwind over time and we'll make sure that we give you adequate information. So you can kind of understand how that portfolio of such.

The drivers is trending.

Okay I appreciate it and then in terms of the.

The testing.

The pilots you're running.

So with the major shipping company. The you spoke about Jeff could you talk about what the time line looks like for.

For their investment decision of a rough sense of key milestones are signposts that we should be thinking about.

Yeah and in terms of how thats going on.

Yes, and I think.

We're very excited on what's going on just in general transportation and logistics.

In general is growing very quickly in particular as it relates to smart trailer, we're looking something near term and I'd say in the six the 12 month timeframe, there really adding features to what we already do today things like cargo sensing.

Temperature control door lock and unlock those kind of features that are really important to our.

And user so.

I think thats pretty near term the team is very focused on that space and.

Look looking forward to continued growth there.

And and I'm, sorry in terms of the.

Valuation the of the pilot programs that you spoke about is the specific the state of mind or is.

As we talked about.

And Thats, it's hard to tell its pretty early days for that so we'll keep everybody updated and.

I think more importantly that.

The point that we want to convey is that we're continuing to invest and our capabilities around transportation and logistics and the only thing I would add there is as.

Jeff pointed on an as early remarks, and we did.

On add additional.

Close to 30 35000 subscribers on to existing relationship with them under our current trail and program. So that relationship is very good and it's trending in the right direction and as you know Jerry when you're working with these large global enterprises.

These pilot programs are much about of collaborative effort to identify the type of solution that they want holistically and so it takes a bit of time. So I think that six to 12 month timeframe that Jeff mentioned seems reasonable.

Terrific I appreciate the discussion thanks.

Thank you thanks Terry.

Your next question is from George Notter with Jefferies. Your line is open.

Hi, guys. Thanks, very much I guess I wanted to.

Maybe ask the couple of questions about the SVR exit and then.

So maybe just to start did you guys have any opportunity to sell those assets or sell the business to any other entity was that something that you guys considered and.

And then also on the cost structure, you mentioned 12 to 15 million and costs coming out of the business over the next.

I think it was handful of orders, but just to be clear is that just the cost structure of the SCR business or are you talking about cutting costs on other areas of the company as well. Thanks, Yeah I'll take the first part and let Kurt speak to the 12 to 15 million dollar cost number the he mentioned.

Yes, George we considered all alternatives, including a potential sale and we worked with the reputable financial advisor.

Our primary objective was to do something that the swift and seamless.

I would not be we didnt, we wanted to stay away from a lot of complexity. So at the end of the day. This wind down absolutely was our best option.

But we did explore all those opportunities.

And George to the to the cost question. So let me just try to clarify so.

Pathways to describe it and a holistic perspective, so that business.

Was is trending and say, maybe a $30 million to $35 million revenue run rate on an annual basis.

Of the entire cost structure that supports that that revenue base about 60% to 62%.

Of that cost.

Cost represents on what would on it caused indirect and direct variable cost, which means it will go away as the revenue declines the remaining portion, let's say, 35% to 38% represent on indirect and direct fixed costs and we believe that if we can.

Paul.

The $12 million to $15 million out of that fixed cost structure that and this decision to wind on this business will be EBITDA margin neutral or accretive. So that's kind of how we qualified that the the 12, the $15 million target number for expense savings.

Got it okay. That's helpful. Thanks very much.

Thank you.

Okay.

Ask the question. Please press star one on your telephone keypad.

Next question is from Mike Walkley with Canaccord Genuity.

[music].

Great I hope everybody has helped the happy holiday on the call and stays healthy just a follow up question on on the Lojack.

For the for the unwinding of the U.S. trajectory just on the revenue just wanted to clarify do you think there'll be any late buying is the customers maybe stock up on this or should we just have a pretty steady decline to zero over the next to of call it to the three quarters.

Yeah, Mike how are you and yes, so so.

Good question and as you can imagine this is a.

Yes, it's a little uncertain and we are having conversations right now kind of contemporaneously with this.

Public notice with our customers. So we'll know more here, but our overall feeling is that this business has been running.

Cobot adjusted out about $9 million to $9.5 million.

We know that our focus is on the next say three to six months and winding down those customers of the revenue base about 50% is with the larger dealers and we want to make sure that we provide the is larger dealers with the kind of a seamless exit and or replacement associated with the solution.

With the SBR products.

We expect that on the revenue to decline and the first quarter. After the notice is probably somewhere between 40 and 50% and then followed by a continuous wind down over the base of the next two to three quarters down to zero. So the secular decline that we've been experiencing we do believe.

That will accelerate and it really kind of wind down over over three to six months or so.

Great. Thanks, and then they follow on for Jeff on that when you're talking the sees all.

All the dealer partners across the U.S. or do you think there's any chance to convert some of these two of subscription model like you've done and the fatally and other other regions that have the type model.

Yeah, we we do hope there's some opportunities there and that's why we're trying to be very responsive to our transition with this.

The announcement today, we have good relationships with some of these.

Large dealers, who do business all around the world and we're really looking for an opportunity to continue to part with them.

[music].

On a SaaS business model.

Great and then of a follow up question for either just on this very strong caterpillar results do you have any sense of how far you are into the threeg to fourg upgrade and what might the more of a steady state of the business once that Threeg and Fourg has done. This is the does that tail continue for another year or six month.

Just trying to get an idea of how to model caterpillar over a call. It a two to three year period.

Okay.

Yes, Thanks, Mike I think first of I, just need to say that you of the relation with cat is exceptional one and and we are working with them not just on say the heavy equipment, where we've been.

Over the past several years, but expanding that relationship into other product categories within their portfolio and that's been going well on in terms of the momentum around threeg to fourg.

The the great thing about Cat is cat is one of our largest customers and our most sophisticated customers and they are rolling out the threeg to fourg. The transition globally. So we are seeing them with the products being sold into regions outside of the U.S. places like.

Pick and the Latam regions.

We expect that momentum to continue at least for the next year or so and then our goal is really to continue to penetrate their portfolio to grow from there as well that.

That was the big part of our strategy about a year ago, when we started to sell a lower priced higher.

Higher volume oriented.

On a product to them telematics product to them I guess about a year September so and that that product line as it has been growing very well. So I think in terms of the threeg to Fourg momentum will continue say for the for the next year. So then we will expand into other other areas of the their portfolio I do want to use that as an opportunity to highlight what were also.

Experiencing with other customers.

Again on larger customers are making this move pretty rapidly.

For the smaller to medium sized customers that the pace has been a bit delayed and we expect that the start to pick up here and the next two quarters and then from there and we'll be focused on here domestically, but then we are seeing some trend.

Internationally, if you look at our international growth as the pointed out and the pre record of remarks.

Our international business grew to 31% of our revenue a big part of that was growth in Latam and most of that expansion. The Latam was around fourg. So although the mandate is here in the U.S. and and the next year.

Driven by the Sunset dates we are seeing the growth potential globally and want to companies moving that direction outside of the U.S.

Great. Thanks, that's helpful and just last question for me just on the the logistics customer additional and congrats on the expanding within that important customer can you just remind us when you sell the hardware is out of that bundled and runs through higher services revenue over time or is that kind of onetime in nature with this customer.

And can you talk maybe a little bit about the competitive environment that helped you win the deal versus what sounds like the pretty pretty busy one.

Yeah, no it's definitely a bundled product with the SaaS component.

This is the strategic relationship that.

We're providing visibility across the entire fleet. There. So I think we're well suited I think one of the things we bring to bear market, when we're competing and situations like that as our engineering prowess, our product leadership that really.

Gives a lot of comfort we've got a of Barry.

Highly scaled platform out there that offers great visibility to our customers and as you heard me talk about my remarks really looking to make continued investment and that's smarter trailer initiative.

Right.

This is for the new year and thanks for taking my questions.

Yes, the same to you thanks, Mike happy holidays.

[noise] there are no further questions at this time I turn the call back the Jeff Gardner for closing remarks.

Okay, well, thank you for joining us today and.

Your combined continued interest in calendar on a.

The final note, Kurt and I will be attending the virtue of virtual conference with Needham Needham growth Conference on Thursday January 14, if you'd like to request a meeting their please contact need M or the Shelton group and we look forward to talking to our investors throughout the day to day and have a safe and happy holiday season to everyone. Thank you.

[music].

This concludes today's conference you may now disconnect.

[noise].