Q2 2023 CalAmp Corp Earnings Call
These two CalAmp technology initiatives will not only help us expand our opportunities
and customer base, but also strengthen our current customer relationships.
by offering new best in class tools.
to help them gain even more from their telematics investments.
We completed a major update of our corporate website and branding, including more expanded information.
on our telematics solutions such as video webinars and testimonials.
product brochures, and other valuable resources.
for prospects, customers, investors, and the press.
Visits to our website have increased 30% since we deployed the upgrade.
As you know, Curt's last day will be tomorrow.
and thereby this will be his last earnings call with us.
I want to thank him for his support.
and years of service as our CFO .
and wish him the best in his new endeavor.
In terms of an update on our CFO search, we have been working with a leading executive search firm over the past several weeks.
As mentioned in our press release, Cindy Zhang, our current Senior VP of Financial Planning and Analysis. Cindy Zhang, Senior VP of Financial Planning and Analysis.
who has been with the company since 2017.
will serve as interim CFO effective tomorrow until a successor is named.
She and her finance team are fully qualified to maintain the integrity and consistency of our financial operations under my close oversight.
With that, I'd like to now turn the call over to Kurt to discuss our financial results in more detail. Kurt? He's
Thank you Jeff. I appreciate your kind words and the time that I had to work with you and the entire CalAm team. I believe the company is well positioned to continue its growth and transformation to a leading telematics SaaS-based competitor.
With that, let's dive into the second quarter numbers.
Today, my commentary will include reference to the non-GAAP financial measures of adjusted basis net income, adjusted EBITDA, and adjusted EBITDA margins.
A full reconciliation of these non-GAAP measures with the closest corresponding GAAP basis measures is included in the press release announcing our fiscal year 2023 second quarter earnings that was issued this afternoon.
though down approximately 8% from $79 million in the same quarter a year ago. The sequential increase in revenue was mainly attributable to the availability of product to support the acceleration of customer conversions to recurring subscription contracts as well as the fulfillment of customer demand for our telematics products. International revenue in the quarter totaled $26.6 million.
or 37% of total revenues. Software and subscription services revenue was up approximately 13% sequentially and 7% from the prior year quarter to $44.5 million, representing 61% of consolidated revenue.
It's instructive to mention that approximately $7.5 million of revenues in the prior year period was associated with 3G to 4G equipment upgrades.
for a large customer, which did not recur in the current year.
Both the sequential and year-over-year growth in our software and subscription services business reflects the progress we're making converting eligible telematics device customers to recurring subscription contracts.
As of the end of the second quarter, we've converted just over 50% of our total eligible Telematics device customers and expect to convert the remaining customers by the end of our fiscal year.
In terms of performance metrics for our software and subscription services business,
Remaining performance obligations in the second quarter was approximately $210 million.
a decline of 2% compared to $215 million in the prior quarter, but up 54% from $136 million in the same quarter a year ago.
We expect to recognize over 27%, or approximately $57 million, of the performance obligations during the remainder of this fiscal year.
During the quarter, our subscriber base increased 9% sequentially and 32% year-over-year to 1.3 million.
Telemanaged products revenue in the second quarter was $28.3 million, which represented a 13% increase sequentially.
and a 25% decrease year over year.
Within the Telematics products reporting segment, OEM product revenue totaled $13.7 million in the second quarter, compared to $10.5 million in the prior quarter and $15.9 million in the same quarter a year ago.
Our largest customer represented $12.4 million in revenue for the quarter, which was up from $9.7 million last quarter, but down from $14 million in the same quarter a year ago.
Our backlog with this customer remains solid.
Consolidated gross margin in the second quarter was 39.8% compared to 39.6% last quarter and 42.2% in the same quarter a year ago.
Contributing to the high gross margin in the prior year was an increase in revenue from one of our largest customers associated with the 3G to 4G upgrade cycle.
Gross margin continues to be under pressure due to increasing product and logistics costs that have yet to be fully offset by the price increases we've implemented to date.
We expect gross margin to improve slightly over the remainder of this fiscal year as a result of increased revenues and to a lesser extent favorable product mix.
Second quarter non-GAAP operating expenses on an absolute dollar basis.
increased by 3% sequentially, primarily due to increased compensation costs resulting from changes in the composition of our sales force to drive sales for our telematics subscription services.
Second quarter non-GAAP operating expenses on an absolute dollar basis decreased by 5% over the prior year driven principally by a decrease in general administrative expenses.
Our focus remains on reducing DNA expenses.
in the quarters ahead.
Adjusted EBITDA in the second quarter was $4.8 million with an adjusted EBITDA margin of 7%, compared to $1.9 million and a margin of 3% in the prior quarter, and $8.3 million, or 11% in the same quarter last year.
The sequential increase in adjusted EBITDA in the second quarter was attributable to higher revenue in the quarter.
In terms of our overall liquidity position, at the end of the second quarter, we had total cash and cash equivalents of approximately $48 million as compared to $59 million last quarter.
The sequential decline in total cash and cash equivalence
is attributable to a reduction in free cash flows due to the payment of the settlement for the OMEGA legal matter discussed last quarter, as well as lower revenue levels resulting from some supply constraints, coupled with consistent operating expenses and an increase in deferred billings or unbilled receivables.
The deferred billing are a result of the conversion of one half of our eligible Telematics device customers to multi-year subscription arrangements.
The provision of services under multi-year subscription arrangements extends the cash conversion cycle due to upfront cash outlays for devices combined with deferred billing over the subscription period.
During the quarter, we executed a new $50 million asset-based revolving line of credit with PNC Bank to give us added flexibility as it relates to working capital.
At August 31st, there were no borrowings outstanding under this facility, and the total borrowing capacity based on eligible accounts receivable and inventory was $34 million.
Additionally, we were in compliance with our covenants under this revolving credit facility.
We believe that our current cash and cash equivalents, coupled with the availability on our revolving line of credit, provide adequate liquidity to support our transformation and growth of the next.
12 months.
Our aggregate outstanding debt is approximately $232 million, including $230 million of the 2% convertible senior notes due August 2025.
It should be noted that we are always evaluating ways to optimize our capital structure.
In reference to our outlook for the third quarter of 2023.
The company is maintaining its policy of not providing quarterly guidance.
as visibility into product shipments remains difficult to accurately assess.
However, we do expect to achieve low to mid-single digit percentage sequential revenue growth in the third quarter.
With that, I'll turn the call back over to Jeff to provide some final comments before we open the call up for your questions.
to Jeff to provide some final comments before we open the call up for your questions. Jeff?
Thank you, Kurt. In summary, the Cal-Lamp team achieved a solid quarter with revenue growing sequentially.
from an increasing rate of SAS conversions.
fueled by incremental device inventory and resulting in a major increase
in total global subscribers.
With that, we will now open the call to your questions.
the call to your questions. Operator?
Absolutely. We will now begin the question and answer session. If you would like to ask a question, please press star followed by one on your telephone keypad. If for any reason at all you would like to remove that question, please press star followed by two. Again, to ask a question, press star one. As a reminder, if you are using a speakerphone, please remember to pick up your handset before asking your question. We will pause here briefly as questions are registered.
The first question comes from Mike Walke with Canaccord. Please proceed. Don't do this again because I'm coming from the Montgomery guessing area.
Great. Well, Kirk, best wishes. It's great to work with you all these years. Best wishes at your new opportunity. And Jeff, congratulations on the conversion, looking strong, crossing that 50 percent mark. Can you update us on just the supply chain improvements that helped in the quarter and how does supply look to support the conversions in future quarters?
Yeah, we were pleased. We saw some modest improvement Mike in the quarter that helped us in terms of one, driving better revenue as you saw, and assisting us with the conversions which was equally important. We were able to grow software and subscription services as well. We are not totally out of the woods yet, but I do see progressive improvement throughout the back half of the year. And we are still working very hard on that in terms of doing everything we can.
We've made a few redesigns in terms of our products that give us better clarity in terms of future looking bomb improvement. And we are looking to see, as I said, steady improvement in the back half of the year.
Okay, great. Any update? I know you had a record backlog over 60 million not too long ago. Is that coming down now as you're working through that backlog or is it still at kind of similar levels? So, you said farther into the bottom of the curve?
Yeah, Mike, it's still pretty high, but it has come down a little bit. So we're still pretty pleased at the robust nature of the demand. Obviously, we're hoping that that continues in the second half of the year. And as we ship on that backlog, we have constant inflow of orders. So we're pleased with the progress we've made with the supply chain, as Jeff had mentioned, and the backlog has come down a little bit, but still pretty robust. Yeah, thank you.
Great. Last question from me and I'll pass the line. You know, Kurt, I know you indicated, you know, gross margins would slightly improve over the next couple quarters, but now that, you know, your transition's going well, you're over halfway through it, you know, once the costs improve on the hardware side and the price increases go through, any thoughts just...
longer term where gross margins can trend from current levels. Thank you.
Sure. Yeah, like we've discussed in the past, the great thing about this business model is that as we expand on that install base and that install base becomes monetizable, that increased revenue base helps us with expanding our gross margin. So we're super excited about proceeding this fiscal year through the conversions, getting close to 70% of all of our customers over to the subscription model. That will be a major accomplishment. For more information, visit www.fema.gov
Once that's done and things stabilize in the supply chain and that install base starts to monetize, it will have a pretty meaningful impact on our gross margin. As we've indicated before, our medium to long-term financial model suggests that we target 50% gross margin, so that's still our goal across the entire enterprise.
Thank you very much.
You're welcome.
Thank you. The next question comes from.
Jerry Revich with Goldman Sachs.
Your line is open
Hi, this is Adam Bubis on for Jerry Ravitch today. Thanks for taking my question. You talked about expectations to achieve low to mid-single digit sequential revenue growth in the third quarter. Can you just help us parse that out between the two segments?
Well, I think, Adam, we'll continue to see growth led by our software and subscription services revenue. That's been performing well all along. We expect to do more conversions. If you've looked at our conversion numbers for the quarter, we're actually a little ahead of where I thought we would be, and so I think we'll continue at that pace. When we look at the fact that we've gotten a lot of our big customers over the finish line there, we're going to be very...
specific in terms of driving additional conversions in the third quarter. And again, as we get through the customer base, which to me is really exciting, our Salesforce is going to continue to turn more towards new logos, which will help us grow across the base. And in particular, all of our new sales will be focused on software and subscription services.
Great. And then in telematics, what was EBITDA margin in this quarter and what does the path to profitability look like from here?
So, Adam, in the 10Q that we filed this afternoon, we did lay out for you EBITDA margin by reportable segment. So you can reference that in that file document. But to answer your question, it's a bit of a journey here. G well, you need to correct that, which means about the minimum until this one GreenGRUE
The first part of the journey we've been focused on is moving those Telematics customers over to a subscription model as they evolve or move over to the software and subscription services business, the gross margin and EBITDA margin associated with that rollover to that reportable segment. So right now, the EBITDA margin is actually negative for the Telematics products reporting segment. Over time, as we finalize the conversion and we focus on essentially the customers with in our OEM segment.
We believe that that reportable segment can be profitable or EBITDA positive, but it's going to take a little bit of time and certainly will take probably the balance of this year to even that all out.
Great, thank you very much.
Thank you. Our next question comes from Mike Latimore with Northland Capital Markets.
Please proceed.
Great, thank you.
I just want to be clear on the conversions. So I heard that you had finished the conversions by I think year end and I also heard maybe you get to 70 percent conversion. Can you just clarify which one is accurate? Sure.
Yeah, yeah, just I think there's a little confusion. We think that ultimately our software and subscription services as a percent of revenue will increase to 70 percent, Mike, but we think that by the end of the year we believe we'll get to 100 percent of our base converted to a subscription model. Okay, okay. And then for those.
conversions through year-end, you know, what...
kind of ARR does that represent or what revenue level would that represent in terms of software and subscription?
Yeah, as you know, we reported that we're about 50% through our customer base today. We're not providing guidance in terms of what the ARR for the remaining customers are. Obviously we've got a couple of, it's a little bit of a mix. We got some big customers out there. And again, our strategy has been when we do these conversions, not only do we convert our customers to a subscription model, but generally we get a three-year commitment on volume. So we expect to continue to execute on that.
and put it as a better position from a cash perspective.
Would that also change REVREC or is it really just on the cash side?
No, it has no impact on RevRec whatsoever. And then kind of once you're through this conversion, as you look into next year.
would you expect most of the growth to come from new logos or from kind of current customers expanding?
Yeah, well the whole reason we hired Brendan Carson and the rest of the sales team, which has been upgraded substantially this year, is to focus on those areas. One, we've got a major focus on our existing customers through our customer success program, but the big change for us going forward after the base is converted is a clear focus on and working with our marketing team on new logos. And I think that will be the biggest difference.
When you look at CalAmp year over year and in the next six months is that new logo focus.
specifically in the key areas of transportation logistics.
not only in the US but in EMEA and LATAM and in Enterprise Fleet in those same geographies.
Thanks a lot.
You're welcome.
Thank you. The next question comes from Scott Searell with Ross Capital. Please proceed.
Good afternoon, thanks for taking the questions. Kurt, I want to wish you the best of luck going forward. It's always been a pleasure working with you.
Hey, just quickly...
To dive in on the supply constraint side, it sounds like things are getting better on that front. I'm wondering if you were still constrained in the quarter in terms of what you ended up leaving on the table. And as you're looking out to that mid-single digit sequential growth, what do you actually have visibility to in terms of what you can service? What do you already have in terms of visibility or parts to be able to service that?
Yeah, that's a complicated question, but I absolutely we could have done more in terms of revenue with a stronger supply chain. Having said that, we did see a significant increase in unit shift. So as I mentioned in my remarks, it did get better. We expect to see that progress even more.
in the third quarter. We're finally back to a point where customers can order and receive goods on certain of our solutions in the same quarter, which is a nice feeling. That's been some time since we've been able to do that. And I think we'll progress steadily over the rest of the year. Now, when we think about CalAmpe, we're a little bit different than most out there because of the sophistication of our solutions. And we have pretty high-end devices. And so our supply chain is a little bit different.
is a little bit different than say some of the more generic device players out there. But nonetheless, it's good. We do see better visibility, especially in the third quarter. We are trying to really get ahead and work with everybody in the supply chain all the way to the semiconductor players, even though their relationships are more with our contract manufacturers. Our team, including me, have been in direct contact with everybody across the chain and are working very, very hard to.
improve the situation and improve the visibility. But it does feel good. It feels good to have the ability to meet our customers' demand to fulfill some of our backlog in the quarter.
It's very helpful.
the historical run rate, especially within the telematics products and with our backlog at an all-time high, I don't think it would be unusual to have expected that at least the telematics product segment could have done maybe 20% more than where it was for this particular quarter. That's just going off of what we've done historically when you look at the quarterly run rate from the last two fiscal years.
Great. And Kurt, maybe to follow up on that point though, you know, given the push to more of a recurring revenue stream, right? The expectation was that, um, MRM would continue to come down on the telematics side. Right. Um, but it seems like we're running above, I think those longer term levels that you thought it would get down to 10 million or so a quarter. So is there a new higher sustained level of telematics product once you strip out the OEM business that you expect the company to be running at going forward?
No, I mean, I think as we've communicated in the past, our objective is to move 100% of those MRM telematics device customers over to multiyear subscription arrangements. It only makes sense considering the post-sale support services that we tend to provide to those customers and really with the business use of what they're doing with our devices and our services. So I think ultimately we will get all of those customers moved over.
That then will represent 70% of our consolidated revenue, as Jeff mentioned. But I think that it's still going to happen over the course of this year, and there's still, with the existing customers that are within the telematics product category, healthy demand that's sitting in that backlog. So it'll come down, but it'll come down gradually over an extended period of time.
Great. And lastly, if I could, on the software and subscription services front was a big sequential uptake in the quarter. Are there any one-time events that are kind of mixed in there to kind of calibrate us on that front? And also, on that 1.3 million subscription figure that you have now, is it possible to give us an idea in the quarter, the incremental net ads, how many of those were from conversions versus non-conversions?
Yeah, I'll take the first part as Kurt will answer the second part regarding the...
subscriber growth. In respect to, there weren't really any one-time items. I think that we benefited both from new logos selling.
full-stack solutions to our customers as well as a pretty healthy success in terms of moving up our conversions. I think we're moving from something in the 30s to 50 percent in the quarter. So those were two things. No big one-time events there.
Oh, and just the subscriber net addition mix in the quarter?
Yes, Scott, so I would say it was split probably maybe like 80-20 where we have 80% coming from conversion and 20% from new logos.
Thanks so much.
Sure.
Thank you. As a reminder to all participants, if you would like to ask a question, please press star 1 on your telephone keypad.
The next question comes from George Nautter with Jeffers.
comes from George Nauta with Jeffers. Please proceed.
Hi, this is Blake Milke on for George Nautter. First, I just wanted to congratulate or rather wish you good luck, Kurt, moving forward. You know, from what it's what you're saying, it sounds like the remaining 50% of Telematics customers to be converted tilts towards larger customers. So should we expect the total opportunity remaining with these customers be larger than 50% and then I have a follow up?
Well, I think maybe you misheard me a little bit, but there's a couple large customers in there, but there's also the tail of our smaller customers that we'll kind of bring over in one fell swoop. So we brought over, as we said in our script this quarter, we brought over Local Lisa and Trimble, which are two of our larger customers. So it's a little bit of mix in terms of what we have in front of us. There are a couple large ones, but we also have that tail that I mentioned earlier.
Okay, great. Which tend to be smaller. When... Yeah.
But the important thing is we've really got this down to a science now, both in terms of how we work with our customers. They're seeing tremendous benefit to switching to the subscription model because the software that they utilize is giving their much improved capability. Our sales and technical teams are now that it's old hat to drive these conversions.
Okay. And then in terms of price increases, when should we expect those to fully work into the model and is there any evaluation for additional rounds of price increases at this point?
Well, we steadily use something we term internally PPV or purchase price variance to offset, especially when we go out and do spot buys to opportunistically access low.
some products that are in high demand. We've done that steadily so that we, and we've been able to pass those costs onto our customers. Now the PPV does lag a little bit behind some of the price increases that we see. So I think throughout the rest of the year, you'll see us both continue to use PPV as a tool. And that is, as we see inflation and other costs increase in our bombs look to opportunities to strategically use price increases to help offset some of that pressure.
Great. Thank you.
You're welcome.
Thank you.
Thank you. There are currently no questions waiting in the queue at this time, so we'll pass it back to the management team for any closing remarks.
Thank you for joining us on the call.
Okay.
Thank you.
You're teasing us, okay.
Go ahead, please.
Apologies, it seems they have removed their question. You may proceed with the closing remarks.
No worries. Thank you for joining us on the call today and for your continued interest in Cal-AMP.
As we look into the second half of our fiscal year, we remain focused on further expanding our SaaS transition program and securing new global customer logos to drive a higher level of future recurring revenue.
We look forward to sharing our progress with you during our third quarter 2023 earnings call in December .
Operator, you may now disconnect the call. Thank you.
Thank you.
This concludes the Cal-AMP Q2 Fiscal Year 2023 earnings conference call. Thank you for your participation. You may now disconnect your line.
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We expect the that even more in the third courar fin back to point year customers arterin rece of our solution in the courarter, the illing some time been able to do and think progress over the rest of year. We think about coun little bit of the fif ation, our solions and we have 30 end icees, our ly a little bit some of the more Vice out there but not the. We do ability speci in the D courarter ING really a and work in the supply all way to the ERS even relation our contract our, including 8, been in dire CT with across and woring to pro ituation and improve the ability, the ability to our customers mand to sub some of our back law in the couraryear cour we run pect with in the telematics products and with our our back law. Time would be to expected that the the tele productics sement may be twent percent was for the courarter going off. What we ve when you the courtly run last two fiscal cour thatpoint ven the to more recur ING revenue pection was that continue to come telematic. But runing the I think those vel would down one million courarter. So new high ST level tele product spt business that expect the company courward. I think as we comm? icated the our to hundred percent those telematics Vice customers over subscript sent Consing the Sal suppcour serv that we prov customers in and really the what our vicees, our services, I think we will all customers moved over that representcent sevenvent cent of our llid revenue ment. I think that have over the court of this year the existteen customers in the telemat product co.un he demand ING in that back law. So come down, come down ext the time the subscription oftare subscription services, the seential in courarter 1, the the LE on that also that one point three million subscript have the in the courarter, the in mental that of those were from conversion for ES conversions. Take the cour cour the second the subscription subscriber expect were really any one time. I think that we enefit from new se ll solions our customers as he six in terms of MO ving up our conversion. I think moving from something in the 30, 50 cent the courarter those were two things: no one time year just subscri. Addition in the courar, say pro may eightty 20 we have 8% conversion, 20% from new. All would like to question one tele. Next question: con not C? vers ion re MO? Ing for what? Re 50% telematic customers be converted court large customers expect total o? ort remain ING with the customers large. fiftypercent I think may be the a little's couple large customers also that of our customers that over and one we proought over we our CRI the courarter, we over Cal in IM of our large customers a little bit of in? ter of what we have our couple large but we also have that that ion. But the court we really got really got the down now in terms of how we were our customers enef to the subscription model oft that they iz? Ing prove ability our sales N? Teen our that to these conversions terms of price cre? Es expect those to for model valueu ationion ional point we sub we we ter ter pur PR? Ion when we go out by to two some product that mand done that, that that we, the those ST our customers the little bit the the price increase that we, the I think outthe the year continue to to that we see lation in other coross- increase our our to oper ortunities to strateg price increases that presyear. Thank Thank, courren. No question in teen any clo? Mar joining ING the question the? Mar you for ining on the call and for continue interest Cal we to the second of our fiscal year. We remain focus on exexpanding our transion Pro and Lo custom to D? A leve? uture re? Ing revenue. Look cour ING our progress with ING our D? courarter 20 20, 3? Ning in the may out the thank the? clud the 20? twent conference you ation may.
technology initiatives will not only help us expand our opportunities and customer base but also strengthen our current customer relationships by offering new best-in-class tools
And custommer basase also in our court custom by our ST to even more from their telematics in ments Ted mayjor D our court and anding including more expanded foration on our telematics solion reven our and M product and other value services for prospe pects customers in V in the to our increase 30% the cour as cour they will and their by the be Ning one the for the court and serv our in the year in terms of update we been King with leading exact over the P mention in our ASE our courrent financial planing and ES with the any 20 seventteen service in six serv and finan our fully teen the and consisten our financial operions under my over over with that ter the over cour to the cus financial Su in MAR cour your and the time had to and the ENT coun teen believe the company posation to continue trans ation to a lead telematics basase with that. To the second courarter numbers. My com ment will includ reference to the nine financial measers just based just and just marg re ation the meas the cour court P bases measers included in the re our year two thousand 20, three second courarter ING that the after total revenue in the second courarter seven Y $2.8 million. The proxim 13% from sixty four point seven million dollars in the prior courarter, down ProX 8% from 7, nine million dollars and the same courarter ago the sequential increase reven with may butable to the ailability product support the exteleation custom conversion. two recour recuring subscription contracts. Well, the IL ment of customers demand for our telematics products? ual revenue in courarter total 20, six point six million dollars 30, 7% of total revenuers. tware subscription services revenue was the proxim 13% sequentally and 7% from the prior year courarter to $44.5 million representing 50, 1% of solid revenue CT to mention proxim 7, five thousand llars revenuees in the prior year was the associated with three Qu ment for MAR custom not recour in rent year the sequential and year over year oursoftware subscription services business ref the progress re convers leg telematics, the Vice customers. two recur subscription contract. The end of the second courarter we convers just over 50% our total leg teleoun Ice customers and expect the convers, the remaining customers, end of our fiscal year and terms of forman for oursoftware and subscription services bus remaining four ligation in the second courarter thepro IM two hundred ten million dollars of 2% compared to two hundred fifteen million dollars in the prior courarter. 50, 4% from hundred 30, six mion dollars in the same courarter year ago. We expect to over 20, 7% proxim 50, seven million dollars. The four lig ation uring the remain of the fiscal year. The courarter, our subscriber basase increased 9% quent and 30, 2% year a year. 2, one point three million teleoun products revenue in the courarter was 20, eight point three million dollars represented 8, 13% increase sequentally and 20, 5% decrease year year. In the teleounics products repcourty segment we products revenue total 13 point seven million dollars in the second arter compared to $5 thousand in the prior courar and fifteen point nine million dollars in the same courarter year ago. Our marg custommer recordpresent point four milliondollars reven for the courarter was from nine point seven million dollars last courarter down from $14 million in the same courar year ago. Our with the custom re ll ID courross margin in the second courarter was 30, nine point 8% compared to 30, nine point 6% last courar and for, ty two point 2% in the same courarter a year ago. Con buting two courross margin in the prior increase revenue from one of our marg customers associated with three the 3, four Ross margin continue to be under ue two increasing product and just co the the be four by the price increases to. We expect courross margin to impro over the remain of the fiscal year result of increase revenuees and to a ext product. Second courarter opering expenses on dollarsar bases increase by 3%. quent imar to increase conensation cost resullt from changes in the conposition of our ales for D Sal to our for our telematics subscription services second courarter nine operating exexpenses on dollars bases decrease by 5% over the prior year. cour decrease general exexpenses. Our focus remain on re? ucing exexpenses in the courarter the just the second court four point eight million dollars in just margin of 7% compared to one point nine million dollars and margin 3% in the prior courar and eight point three illion dollars LE percent and the same courarter last. The sequential increase and just in the second arter was the able higher reven in the couraryear and terms of our over all the cour posion. The end of the second courarter we had total Ash cash cour proxim ty eight million dollars as compared to 50, nine million dollars last courarter. The sequential the C total cash cash cour the over ductionion three cash ue to the P? ment of the seven fourty the may leg ter the cus last courar well revenue leve resul from supply with Con oper exexpenses and increase billion or rece the the bill. Our result of the conversion of one have of our telematics customers two subscription rions the proversvision of servic under the year subscription rments tend the cash conversion do to cash out for vicees B with the billion over the subscription. The courarter reexecut a 50 million dollars basase re line courred with B give ability to capal 30 first were stand under the facility and the total based on leg coun rece and 30, four million dollars ition we were with our com under re facility. We believe that our courrent cash cashual cour coued with the ailability on our re line cour prov cour. The cour support our trans ation and cour th of the mon our out teen the pro two hundred 30, two million dollars including two hundred thirtymillion dollars of the 2% cont on two thousand 20, five not that we our all the value pt our capital struion reference to our out for the third courarter two thousand 20, three the company teen not viding courart as the ability to product ment remain to. We do expect to sing percent Sequent revenue th in the third courarter with that turn the call back over prov fin in the question. Thank cour and some the TE teen ll courarter revenue sequentally increasing R conversionions in ment. The Vice in the in resul in jor increase total lo subscribers that we in the year questionions perate the question ion like to question by one tele that would like that question by 2, question for year. Question questionions re. The first question come from law coun court per C cour years ion ort and just con on the conversion across 50% MAR date the supply pro in the courarter and pply suppcour versionions UT the cour.ar we saw Est improve ment in the courarter that in terms of one that revenue and ING with conversions which was court able soft subscription services tot out of the. I do C gress improve ment out the back after the year and the working on that interms of think we we re in terms of our products that courar in terms of uture provement and we are or looking to C prove the back the year date that record back sixteenmillion that coming down dollars level still ty had come down a 30 pleas that ure of the demand vious that that continue in the second the year and we on that back law we have con courarter as the prigress made with the pply mention and the the the cour ated gin L improve over the next couple arters that trans ion over one prove on the in the PR increas long term margin from rent. Thank cuss the P the about the de that we exand on that basase and that all basase that increase revenue ASE help expand our margin. So ced cing fif is year the conversion get cour the 7, Y percent our customers over to the subscription de that mayjor jor con ment one that and state iz in the pply and that all based oun will have 30 Act marion icated four to financi oun sub Est 50 cent cour margin across the question con re re question expect cour revenue Thethird courar that out the segment I think. I think continue to by our soft subscript services revenue that been pro cour ING all we expected more conversion. Our conversion numbers for the courarter a we would, and so I think, continue that when we look the fact that a of our customers over over the finitionion line to be C in terms of D? Ing addition conversion in the third courarter and as we the custom basase, exciting our Sal for going, continue to more cour go which will help Ross the basase and particular all of Sal be focus soft subscription services, tele. What MAR the courarter and what proof ability year the that we, the we out for margin reportable segment referen that and that that F question we the bit of vious the first J cus on moving those telematics customers over to subscription Del as the move over to the oftare oftare subscript services business the the cour margin margin associated that over that repcourortable se right the margin NE the tele Act products reporting segment over time as we final ized the conversion and we focus ion the customers in segment we believe that that reportable segment pro a little the time pro of the year. To even out question my cap MAR C the conversion. So conversion year seven cour. I think ion we that all our oftare subscription service the percent revenue increase sevenven percent. We think that by the end year we believe to hundred percent of basase con Ted to subscription mode and for those conversion year re venue vel re soft subscription reported 50%. Our custom ASE re not providing gu in terms of what the our our for remaining customers obviously a couple, a little bit. We some customers our when we do these conversion not only con our customers subscription model gener we a three year comm ment So expect the continue on that only change that we re to our to cash the change our terms on so ING last courarter and the next two courar, see the in the six mon of year. four mon the as we focus Ting cash which I think en the ll posion from the C pect that also re recorders the as Act re the conversion in the next year. Expect of the th the come from new law from customers exexpand the re we re ING cour and the of the Sal as been cour Ed subsstantciion. The year the focus on those one got a mayjor focus on our existing customers customers the, the change for going for after thebasase convers Ed the focus and wereking our marke teen and I think that will be the CE you look over year and next six mon that new focus C in the trans pertation 6, not only in the, the and and price in those casease up the question comes year with cap C. the question cour cour, quick the pply con.tr get better on that one contr the courar interms of what believeaing on the as looking to that sing tional th actually have ability to in terms of what services alty have terms of iability cour able the servic C icated question. But the we could done more in terms of revenue with gers supply said that we did ific increase and so as mention marks did AR we expect the that even more in the thir courarter fin back to point customers arter of our solions in the same courarter illing that some time been able to do that and think prog that over the of year we think little bit out the fif ation our solions and we have 30 high end VES and our ly a little bit some of more Vice out there but not the we do better ability speci in the thir courarter were ING the really and work in supply cha all to the ERS even relation our contract our teen including 8, been direct Act with across and wor to prove ituation and improve the ability ability to our customers M to sub some of our back law in the couraryear the the run pect with in the telematics products and with our back law. Time would be to expected that the, the Telematic product segment be 20% was for courter going off what we when look the courtly run from last two fiscal cour on thatpoint the to more recuring revenue pectationion was continue. Come on telematics runing. I think ter leve million courarter So high level telelaw product subscript business that expect the company cour. I think we icated our to hundred percent those telematics V customers over subscription only sent Consing the POS Al sucourort services that we prov those customers in and really bus what our VES in our services. I think we will all customers over that represent sevenvent cent of our solid revenue. Mention I think that still ened over the court of this year their still the exist customers in the telematics product coun the demand that cing in that back law. So come down, come down and T time on the subscription software, subscription services was the sequentialal take in the courarter 30, one tele on that also that one point three million subscription that have the in the courarter the incour that of those from conversion conversions, the first cour cour, the second the subscription subscriber pect really any one time I think that we benef from new seing ll SOL to our toers 30 he six in terms moving up our conversion. I think moving from something in the 30, 50% the courarter those were 2, no one time year just subscriber ition in courarter year pro may eightyty 20 we have 8% from conversion, 20% from new Min to all. Would like to question one tele question con not C version re for what cent remaining 50% telemat customers be conversted cour large toers expect total o ortun remaining with the customers large 50% I think may maybe a there a couple large customers in their also that of our customers that over and one we ought over, as we said, our CRI the courarter we over Cal and IM our lar customers. It a little bit of termsof what have our couple large but we also have that ion year the court we really got. We really got the to terms of we with our customers enef to the subscription mode because thesoftware that they ING their impro ability sales N teen that to these conversions terms of price increasees expect those model valueuation for ition the point we sub we we ter ter price CI when by to two some products that demand we done that, that that we able the those co on our customers the little bit, the some the price inasees that we the I think out the the year continue to to and that as we see ation other coross increase our to ortunities to strateg price increasees that presyear. Thank, Thank court. No question the P? Teen cour MAR we ining ING ASE question the clo? Mar think joining on and for continue interest Cal as we look to the second have our fiscal remain focus on exanding our transition Pro and curing new custom ve level uture ING revenue. We court aring our progress ING our third courarter 20 20, three Ning in the may out the Thank cour the C? iscal 20 twent conference for ation may.