CAMP4 Therapeutics Corporation

Good afternoon and welcome to Cal-Am's Fiscal First Quarter 2022 Financial Results Conference Call. I'm Joel Akramowitz, Managing Director of Shelton Group, Cal-Am's investor relations firm. With us today are Cal-Am's President and Chief Executive Officer, Jeff Gardner, and Chief Financial Officer, Kurt Binder. Before we begin, I'd like to remind you that this call may contain forward-looking statements. While these forward-looking statements reflect Cal-Am's best current judgments, They're 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. Now, Jeff will begin today's call with a review of the company's financial and operational highlights. Then Kurt will provide additional details about the financial results and outlook, followed by a question and answer session. With that, it's my great pleasure to turn the call over to CalAMS President and CEO, Jeff Gardner. Jeff, please go ahead.

Thank you, Joel. We started the 2022 fiscal year with solid results and total consolidated revenue of $80.5 million, including $0.8 million of revenue from the LoJack North America operation that was sold to Spirion back in March. Revenue from continuing operations was up 8% in the prior year. Software and subscription services revenue increased 26% over the prior year, including the shipment of approximately 15,000 devices to our large package delivery and transport customer, part of our program to upgrade an additional 35,000 trailers to 4G technology and our CTC cloud platform. We believe the endurance and consistency of our relationship with this customer is a testament to the effectiveness and utility of our CTC technology. These installations represent almost one half of the total deployment, so we still have additional upside with this retrofit, as well as other exciting potential projects with this important customer. With the pivotal 3G to 4G upgrade cycle continuing in the US, we saw yet another strong quarter of demand, including our largest customer, Caterpillar. Our shipments were limited, unfortunately, due to the continuing chip shortages across global supply chains. However, the continuous growth of our backlog to record levels demonstrates our clients' confidence in our products and the significant potential for a resumption of more rapid revenue growth as this bottleneck eases. In the meantime, we are working closely with our suppliers to source as much inventory as we can to fulfill these orders. Importantly, we are also now seeing orders for our 4G devices outside the U.S., as many international accounts are beginning to accelerate their 3G to 4G transitions before the older cellular systems are shut down. These orders contributed to our international revenue reaching 36% of revenue in the quarter. We expect a continued ramping of our orders for 4G solutions from both domestic and international accounts in the quarters ahead. As part of our global expansion strategy, we recently announced the launch of a wholly owned subsidiary in Spain that opens the market for us to sell our cloud-based connected car SaaS solutions and services across that country, as well as across the pan-European region. Spain is Europe's third largest market with the highest vehicle theft rates, and we're excited about this opportunity to serve this lucrative region and other countries on the continent. I'm also pleased with the increased activity we are seeing across Europe are other international markets such as Italy, the UK, and Mexico. We're beginning to see a resurgence of activity across these regions as businesses slowly return to normal operating schedules. We're also working with a number of major new global accounts as a part of our expansion efforts in Europe and hope to be able to discuss these opportunities further in coming months. At this time, I also want to discuss briefly an initiative that we've undertaken to upgrade our Pulse device management software system, which customers recognize as our crown jewel and has been in use for over 10 years. We've started to transition customers to a new state-of-the-art SaaS platform we've developed, which we're currently calling CalAMP Telematics Cloud Device Management. or CTCDM for short. This next-gen SAF device management service, which will be rebranding shortly, leverages the same infinitely scalable infrastructure and technology that powers the CalAMP Telematics Cloud Platform. And it provides even more configurability and management of our devices. with over-the-air updating, device health alerts, and new analytic dashboards providing actionable insights. New powerful web graphical dashboards and other features in this new platform will allow customers to get more from their investments in our telematics system solution, software, and services. The system allows customers much more flexibility to innovate and manage their devices proactively. thus saving time and money. It includes advanced edge-to-cloud security technology, which of course is critical today more than ever. And it enables us to deliver expanded features and functionality to subscribers directly over the air. This major software development project reflects our continued focus as a SaaS solutions provider. and I'm proud of the work our product and engineering teams have put into this new platform. The transition to CTCDM will take some time to implement across the customer base, but the ultimate goal is to bundle all of our edge devices with our subscription services on this new device management platform. Over time, We believe this will add significant incremental revenue to our software and subscription services business. On another note, CalAMP was recognized recently by the organization 5050 Women on Boards for our continuing commitment to gender balance and diversity, while also representing a solid model for others in the industry. I'm proud of the strides we've made at the board level to appoint a powerful slate of executives with varied gender, ethnic, and professional backgrounds. Today, three of our members are women, including our chair, and two are ethnically diverse directors. Since my appointment as CEO, the composition of our board has been a key focus of mine. Along with its continuing commitment to the environment, social issues, and prudent corporate governance. Even with the recent planned retirements of longstanding directors Burt Moyer and Larry Wolf, we proactively manage the composition of our board to retain a solid depth and breadth of attributes among our board members, thus ensuring that we remain focused on key issues at the board level. The recent appointments of Henry Meyer from FedEx and Kirsten Wohlberg of DocuSign are a testament to this. At the same time, we value the decades of counsel we received from both Bert and Larry during their tenures, and we want to take this time to sincerely thank them for their tireless commitment to the company. I've worked with both of them for years on behalf of the CalAmp family. I wish them all the best. With that, I'll now turn the call over to Kurt for a closer look at our fiscal first quarter financial results, and then we'll open the call to questions. Kurt?

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. A full reconciliation of these non-GAAP measures with the closest corresponding GAAP basis measures is included in the press release announcing our fiscal 2022 first quarter earnings that was issued this afternoon. Also, as a reminder, the financial results of our LoJack North America business that was sold effective March 15th are being accounted for as discontinued operations. So, the financial results I will review mainly reflect our continuing operations, except where noted, and we have revised prior periods for historical comparison purposes. Total consolidated revenue in the first quarter was $80.5 million, including $800,000 of revenue from the LoJack North America discontinued operations. Revenue from continued operations was up 8% year-over-year to $79.7 million and down 3% from the prior quarter. The year-over-year revenue growth was attributable to solid performances in the industrial heavy equipment government municipality, and connected car market verticals. International revenue totaled $28.5 million, or 36% of total revenues for the quarter. This was driven by solid sequential revenue growth in the EMEA and APEC regions. Software and subscription services revenue was up year-over-year 26% to a record $35 million, or approximately 44% of revenue. Our software and subscription services business is experiencing a strong recovery from the prior period low point at the onset of the pandemic, as growing demand for our software solutions has contributed to this revenue becoming an increasing portion of our total revenue. Although customer demand remains very strong for our telematics solutions, we are managing through our supply chain challenges and lingering effects of the pandemic, which have impaired our ability to ship and activate devices, And we're doing everything reasonably possible to prioritize product allocation for our subscription-based customers. In terms of performance metrics for our software and subscription services business, annual recurring revenue for the trailing 12 months was up 9% in the first quarter of fiscal 22 to $87.6 million from $80.5 million in the prior year and up slightly sequentially. As mentioned last quarter, ARR represents revenue from recurring application subscriptions and services, which excludes revenue from the hardware devices in a bundled arrangement with the customer that is recorded at a point in time or upon installation. Remaining performance obligations rose 12% to $137 million in the first quarter, compared to $123 million in the prior year's quarter. and was also up slightly sequentially. This metric represents all contracted revenue, including deferred revenue, and contracted but unbilled revenue related to bundled contracts with customers. And as Jeff mentioned earlier, a primary focus in the first quarter was the shipment of almost 15,000 devices to one of our larger SAS customers on our CTC cloud solution as they transition their devices to the newer 4G technology. Our total number of active subscribers at the end of the first quarter was 954,000, consistent with the prior quarter and due mainly to shipment limitations. Telematics products revenue in the first quarter was down 3% year-over-year and 6% sequentially to $44.6 million, primarily due to constraints in the supply chain despite continued strength from the 3G to 4G upgrade cycle. Within the telematics products reporting segment, OEM products revenue decreased 13% sequentially, but increased 38% year-over-year to $20.3 million, primarily due to our largest customer, Caterpillar. PAT represented $17.3 million in revenue for the quarter. This was up over 50% from $10.9 million during the prior year's quarter. although down from an all-time high of $18.6 million in the prior quarter due to the supply constraints previously mentioned. We continue to expect solid demand for CAT for the remainder of the calendar year, along with many of our other Telematics customers also engaged in the pivotal transition to 4G. Consolidated gross margin from continuing operations in the first quarter increased to 40.7%, from 39.5% in the same quarter a year ago and was down from 42.2% last quarter. Although we are pleased with the year-over-year progress in gross margin performance, the sequential decrease resulted from product mix coupled with cost increases by suppliers as a result of the supply chain challenges and component shortages. In response, we implemented price increases on customer purchase orders received in the quarter. However, since the price increases were imposed later in the quarter, we expect this action to have a more offsetting impact cost and thus a benefit to gross margins in future quarters. Our non-GAAP operating expenses as a percentage of revenue was approximately 36.2% for the first quarter. As we begin to see renewed operating activity in our markets and the easing of the pandemic lockdowns, We are realigning our staffing to support the increased business activity and additional investments necessary to drive our future growth. Adjusted EBITDA in the first quarter was $8.4 million with an adjusted EBITDA margin of 11% compared to adjusted EBITDA of $8.3 million or 11% in the prior year's quarter and $9.9 million and an adjusted EBITDA margin of 12% in the prior quarter. The decrease in adjusted EBITDA is primarily due to the lower revenue base and associated gross margin impact as we align our operations and navigate through the global supply chain challenges. Now turning to our current liquidity position, at the end of the first quarter, we had total cash and cash equivalents of approximately $96.2 million as compared to $94.6 million last quarter. Our aggregate outstanding debt is approximately $237 million, including $230 million of the 2% convertible senior notes due August 2025. CalAMP expects to continue to maintain a strong financial position and balance sheet with significant cash for working capital going forward. In reference to our outlook for the second quarter of 2022, we are maintaining our policy of not providing quarterly guidance as visibility into product shipments remains uncertain, due mainly to the global supply shortages. With that, I'll turn the call back over to Jeff to provide some final comments before we open the call up for questions.