CalAmp(CAMP) - 2020 Q3 - Quarterly Report

PART I – FINANCIAL INFORMATION Financial Statements The company presents its unaudited condensed consolidated financial statements, reporting a decrease in total assets and a significant net loss Condensed Consolidated Balance Sheets Total assets decreased to $562.4 million by November 30, 2019, primarily due to a reduction in cash and cash equivalents Condensed Consolidated Balance Sheet Highlights (in thousands) | Account | Nov 30, 2019 | Feb 28, 2019 | | :--- | :--- | :--- | | Cash and cash equivalents | $101,634 | $256,500 | | Total current assets | $253,253 | $403,497 | | Goodwill | $105,584 | $80,805 | | Total assets | $562,411 | $603,626 | | Total current liabilities | $129,831 | $83,592 | | Long-term debt, net | $176,378 | $275,905 | | Total liabilities | $371,758 | $397,973 | | Total stockholders' equity | $190,653 | $205,653 | Condensed Consolidated Statements of Comprehensive Income (Loss) The company reported a net loss of $7.4 million for Q3 and $23.5 million for the nine months ended November 30, 2019 Financial Performance Highlights (in thousands, except per share data) | Metric | Three Months Ended Nov 30, 2019 | Three Months Ended Nov 30, 2018 | Nine Months Ended Nov 30, 2019 | Nine Months Ended Nov 30, 2018 | | :--- | :--- | :--- | :--- | :--- | | Total Revenues | $96,597 | $88,495 | $278,903 | $279,420 | | Gross Profit | $36,884 | $36,381 | $109,965 | $114,293 | | Operating Income (Loss) | $(3,997) | $599 | $(15,248) | $4,274 | | Net Income (Loss) | $(7,415) | $(522) | $(23,477) | $7,135 | | Diluted EPS | $(0.22) | $(0.02) | $(0.70) | $0.20 | Condensed Consolidated Statements of Cash Flows Net cash from operating activities significantly declined to $3.3 million for the nine months ended November 30, 2019, leading to a net decrease in cash Cash Flow Summary for Nine Months Ended Nov 30 (in thousands) | Activity | 2019 | 2018 | | :--- | :--- | :--- | | Net Cash from Operating Activities | $3,303 | $48,093 | | Net Cash from Investing Activities | $(62,314) | $(17,148) | | Net Cash from Financing Activities | $(95,462) | $108,578 | | Net Change in Cash | $(154,866) | $139,010 | Notes to Financial Statements The notes detail accounting policies, recent acquisitions, debt structure, and significant legal proceedings including the Omega patent case Management's Discussion and Analysis (MD&A) Management discusses financial performance across segments, highlighting revenue growth from acquisitions, liquidity, and operational risks - The company is undergoing a strategic transformation towards higher-value, subscription-based services, accelerated by the acquisitions of Tracker UK, LoJack Mexico, and Synovia[141] - Telematics Systems revenue declined due to reduced sales to large customers and a product line transition at its largest OEM customer, which is expected to be temporary[146] - Liquidity is supported by cash on hand and a $50 million revolving credit facility. The company expects to settle the remaining $27.6 million of its 2020 Convertible Notes with cash in May 2020[190] Results of Operations Revenue increased 9.2% in Q3 to $96.6 million, but operating expenses rose, leading to an operating loss for both the quarter and nine-month period Revenue by Segment - Q3 2019 vs Q3 2018 (in thousands) | Segment | Q3 2019 | Q3 2018 | % Change | | :--- | :--- | :--- | :--- | | Telematics Systems | $63,192 | $68,552 | (7.8%) | | Software & Subscription Services | $33,405 | $19,943 | 67.5% | | Total | $96,597 | $88,495 | 9.2% | Revenue by Segment - Nine Months 2019 vs 2018 (in thousands) | Segment | Nine Months 2019 | Nine Months 2018 | % Change | | :--- | :--- | :--- | :--- | | Telematics Systems | $188,782 | $222,004 | (15.0%) | | Software & Subscription Services | $90,121 | $57,416 | 57.0% | | Total | $278,903 | $279,420 | (0.2%) | - Operating expenses for the nine months increased by $15.2 million (13.8%) YoY, primarily driven by higher Selling & Marketing and General & Administrative costs related to recent acquisitions[172][173][174] Liquidity and Capital Resources Liquidity is primarily from cash on hand and a revolving credit facility, with significant cash used for acquisitions and debt repurchase - Primary sources of liquidity are $103.6 million in cash and marketable securities and an undrawn $50 million revolving credit facility[190] - Significant cash uses in the first nine months of fiscal 2020 included acquisitions of Tracker UK ($13.1 million), LoJack Mexico ($14.3 million), and Synovia ($49.8 million), and the repurchase of $94.7 million of convertible notes[192][205] - Net cash from operating activities for the nine months ended Nov 30, 2019 was $3.3 million, a significant decrease from $48.1 million in the prior year period[201][202] Quantitative and Qualitative Disclosures About Market Risk The company is exposed to market risks from foreign currency exchange rates and interest rates, though interest rate risk is deemed immaterial - The company has exposure to foreign currency risk from its international operations, resulting in a cumulative translation loss of $0.8 million as of November 30, 2019[212] - Interest rate risk is primarily related to the company's investment portfolio in fixed debt securities. Management believes this risk is not material due to the short-term nature of the portfolio[214][215] Controls and Procedures Management concluded disclosure controls were effective, while a new ERP system implementation is modifying internal controls over financial reporting - The principal executive and financial officers concluded that disclosure controls and procedures are effective as of November 30, 2019[217] - The company is implementing a new ERP system in phases, which has required modifications to internal controls over financial reporting. The first phase was completed in Q2 FY2020[218] PART II – OTHER INFORMATION Legal Proceedings The company is involved in various legal proceedings, most notably the Omega patent infringement lawsuit where a jury awarded damages - In the Omega patent infringement case, a jury awarded Omega damages of $4.6 million plus $0.8 million in pre-judgment interest in September 2019[134] - CalAmp plans to file motions seeking judgment as a matter of law or a new trial, and intends to appeal if the judgment remains intact[134] Risk Factors The company highlights various risk factors including U.S. tariffs, Brexit uncertainty, and operational risks from ERP system implementation - The company faces risks from U.S. tariffs on Chinese imports, though it does not currently expect a material impact. Further tariffs or retaliatory measures could negatively affect revenue or operating results[222] - Uncertainty related to Brexit could adversely affect relationships with European customers, suppliers, and employees, impacting financial results[223] - The ongoing implementation of a new ERP system poses significant operational risks, including potential disruptions to supply chain, customer billing, and timely financial reporting[224] Exhibits This section lists exhibits filed with the Form 10-Q, including employment agreement amendments and Sarbanes-Oxley Act certifications - Filed exhibits include an amendment to the employment agreement for Kurtis Binder and required CEO/CFO certifications under the Sarbanes-Oxley Act[226]