CAMP

Good day and thank you for standing by. Welcome to the CalAmp Corp. FY ‘24 Q3 Earnings Call. At this time, all participants are in a listen-only mode. After the speakers’ presentation, there will be a question-and-answer session. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Jikun Kim, Chief Financial Officer.

Good afternoon and welcome to CalAmp’s Q3 FY ‘24 financial results earnings call. My name is Jikun Kim. I am the Chief Financial Officer at CalAmp. Also with us today is CalAmp’s Interim President and Chief Executive Officer, Jason Cohenour. During today's call, we will make certain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Exchange Act of 1934. Forward-looking statements are predictions, projections, and other statements about future events that are based on current expectations and assumptions, and as such are subject to risks and uncertainties. Many factors could cause actual future events to differ materially from forward-looking statements in this communication. Investors should listen to today's call with the understanding that our actual results may be materially different from the plans, intentions, and expectations disclosed in the forward-looking statements that we are about to make. For more information about these risk factors that may cause actual results to differ materially from forward-looking statements, please refer to the earnings press release that we issued today as well as the company's filings within the Securities and Exchanges Commission. Investors are cautioned not to put undue reliance on these forward-looking statements. The company specifically disclaims any obligation to update the forward-looking statements that may be discussed during this call. Jason will begin today's call with the review of the company's recent operational highlights, and then I will provide a more detailed review of the financial results, followed by a question-and-answer session. With that, it is my great pleasure to turn the call over to CalAmp’s Interim President and Chief Executive Officer, Jason Cohenour. Jason, go ahead, please.

Thank you, Jikun, and thanks to all of you for joining us on the call today. In the third quarter, CalAmp continued to see strength in certain areas of the business, while also experiencing demand softness in others. Specifically, our industrial and international connected car segments continued to perform well, whereas soft demand from TSP customers led to lower than expected consolidated revenue. Our view is that continued softness with TSPs is mainly related to the post-COVID supply chain correction and subsequent inventory rebalancing, as well as an intensified competitive environment in the overall telematics solution ecosystem. In response, we have reallocated strategic focus and resources to this segment and believe we are seeing early signs of recovery. We are optimistic that TSP revenue will stabilize and return to growth from current levels. Another complicating factor with our TSP customers has been a difficult but necessary migration from our legacy PULS device management system to its successor, DMCTC. I am very pleased to report that after 20 months of monumental effort and some pain, that the technical migration of more than 8.5 million devices to DMCTC is now essentially complete. All of our TSP customers can now look forward to fully leveraging the improved functionality and benefits of DMCTC as opposed to migrating devices. Furthermore, as the final strokes of the migration are completed, the CalAmp team can re-vector more of its time and attention to optimizing the customer experience and driving revenue growth. Overall, the company generated $53.6 million in revenue and $1 million of adjusted EBITDA in the quarter, both of which fell below our expectations at the time we provided directional commentary on October 5th. Adjusted EBITDA was lower than expected as a result of the lower revenue and gross margin. Non-GAAP OpEx was lower sequentially as a result of previous cost reduction initiatives, and this helped to cushion the impact of lower revenue and gross margin. On the product and sales front, the company continued to hone its focus on core market segments to maximize the effectiveness of our investments and resources. As a result, there were several developments in the quarter that we believe represent growth catalysts for the future. One of these developments was the release of an upgraded version of our AI dash cam solution, Vision 2.1. This new model offers the standalone video capabilities of Vision 2.0, but also includes other telematics functionality, such as GPS tracking, without the need for a separate gateway or LMU device. Vision 2.1 has now been released for our K-12 and commercial fleet applications. As previously mentioned, we had another extraordinarily strong quarter in the industrial segment, particularly with our large OEM customer. We are also seeing some very encouraging market traction with other industrial OEMs who are showing significant interest in the flexibility and computing power of CalAmp's edge software platform, EdgeCore. This edge platform, together with our DMCTC cloud, enables customized edge computing capabilities for proprietary edge apps, which can lead to lower operating costs, improved flexibility, and lower latency compared to traditional device-to-cloud solutions. We have customers integrating this unique edge capability today and are excited to expand our opportunity set with industrial OEMs. Also, our international connected car business continues to execute well, achieving several milestones in the quarter. First, we were granted Toyota Genuine certification, enabling our solutions to be installed at Toyota's ports, thereby streamlining the sales and customer delivery process and providing an opportunity for geographical expansion. Additionally, Jaguar Land Rover has endorsed our Stolen Vehicle Recovery system as its recommended solution to help mitigate the impact of a growing theft issue in the UK. Increasing theft of JLR's Range Rovers in the UK has led to significant increases in insurance premiums on these targeted models. With JLR's endorsement, select insurance companies are offering lower premiums on vehicles that have our SVR solution installed. We are encouraged by JLR's endorsement of our unique SVR technology and believe that it represents a catalyst for growth in the UK market and beyond. During the quarter, we also launched an initiative to narrow our strategic focus to market segments where we are particularly well positioned and see opportunities for profitable growth. In addition to concentrating our resources in those market segments with the best opportunity for growth, our narrower focus has also enabled us to take significant cost reduction actions. We estimate that our cost reduction actions will result in approximately $16 million in annualized savings compared to our fiscal Q2 run rate. We anticipate that approximately 75% of the savings will come from operating expenses and capital expenditures, with the balance coming from reductions in cost of goods. While we expect to see some immediate benefit from our cost reduction initiatives, the full impact will be realized throughout fiscal year ‘25. With these reductions, we expect to significantly strengthen the leverage in our operating model and to achieve adjusted EBITDA breakeven at approximately $42 million in quarterly revenue, depending on product mix and gross margins. On December 18, we announced the closing of a $45 million term loan with Lynrock Lake Master Fund LP. This new term loan replaces our previous asset-backed line of credit and enhances our strategic positioning as we engage with new and existing customers, partners, and suppliers. The new capital also provides financial flexibility in support of our strategy and business transformation. Lynrock is a longtime supporter of CalAmp and is an existing holder of a large majority of CalAmp’s 2% convertible senior notes, maturing in August of 2025. In connection with the execution of the term loan agreement, CalAmp is amending the notes to add a security interest. And finally, I'm very excited that we very recently announced the appointment of veteran technology leader Chris Adams as CalAmp's next President and CEO, effective January 22nd, 2024. Chris is an accomplished technology leader, will bring a wealth of knowledge and experience to CalAmp. He possesses a unique combination of technical depth, operational skills, and general management experience from a broad range of technology companies, most recently, as General Manager of the Automotive Sensing Division at onsemi. We have high confidence in Chris's ability to lead the company through its transformation and to greater value for customers and investors. As for me, I will continue to serve as CalAmp’s Interim CEO until Chris arrives. Following his arrival, I will work with him and the team to ensure a smooth handover of leadership responsibilities. Following the handover, I plan to resume my role as Independent Director for CalAmp. It has been a true pleasure to serve as CalAmp's Interim CEO and I can report without hesitation that the CalAmp team is talented and passionate and they believe in the opportunity before us. In addition to having a great team, the company also has other tremendous assets, including excellent products and solutions, a blue chip customer base, and a large and growing market opportunity. I look forward to supporting CalAmp's next chapter of profitable growth and market leadership. With that, I'll turn the call over to Jikun to discuss our third quarter financial results in more detail. Jikun?

Thank you, Jason, and thank you for stepping up during this transition. It has been a pleasure to work with you. My commentary will include reference to non-GAAP financial measures. A full reconciliation of these non-GAAP measures with the corresponding GAAP measure is included in the earnings release. Total revenues in the third quarter were $53.6 million. Revenues declined 32% year-over-year and 13% sequentially from $61.7 million last quarter. Much of the year-over-year and quarter-over-quarter revenue decline was driven by lower sales to our TSP customers, partially offset by strong performance in our industrial and connected car market segments. As Jason mentioned in his remarks, the revenue decline was driven by our TSP customers continuing to rebalance their inventories, while also navigating competitive pressures in their end markets. As we move into Q4, we are seeing early indications from our TSP customers that the business is stabilizing and orders have improved. Recurring application subscription revenue in the quarter were $17.8 million, a $900,000 sequential decline. While the total connected car market segment revenues were steady quarter over quarter, the decline in recurring revenue was driven by our connected car UK operations as a large insurance carrier exited the UK market in the quarter. These declines were partially offset by recurring revenue growth in our K-12 segment. Consolidated gross margin in the third quarter was 33%, compared to 36% in the prior quarter. The sequential gross margin decline was driven by unfavorable product mix, lower volumes, and higher-than-normal excess and obsolescence accruals and warranty expenses. E&O was largely driven by a set of SKUs from our cargo tracking product line and higher warranty expenses were the result of quality issues with one of our product SKUs, which has since been resolved. Third quarter GAAP operating expenses were $101 million. Excluding goodwill impairment, restructuring charges, expenses related to Jeff Gardner's passing, and other non-recurring expenses, third quarter operating expenses would have declined $2.5 million sequentially to approximately $23 million. The resulting Q3 FY ‘24 adjusted EBITDA was $1 million or 2% of revenues. Please see the press release for further details of our non-recurring adjustments. At the end of Q3 FY ‘24, we had total cash and cash equivalents of approximately $38.2 million as compared to $38.6 million last quarter. Cash flow from operations was a positive $1.8 million in the quarter. Free cash flow in the quarter was a negative $500,000. Towards the end of Q3 FY ‘24, we implemented a significant cost reduction initiative, targeting $16 million in annualized cash savings relative to Q2 FY ‘24 run rates. These savings should be fully realized by the end of FY ‘25. Approximately 25% of the reductions will come from cost of goods as new, lower cost and higher performance products replace aging products over time. The balance of the reductions will come from operating expenses and capital expenditures. With these reductions, our adjusted EBITDA breakeven should be reduced to approximately $42 million in quarterly revenues, depending on business mix and realized gross margins. In the quarter, we also assessed the carrying value of goodwill on our balance sheet. Driven by significant revenue declines in our TSP market segment, the fair value of some of the goodwill segment was determined to be less than the carrying value, and we recognized a $74 million goodwill impairment. Subsequent to the quarter end, we announced the closing of a strategic financing agreement with Lynrock Lake. The financing will provide additional liquidity and operating flexibility as we implement our restructuring efforts and return CalAmp to growth, profitability, and cash flow generation. As a note, term loan has no financial covenants. With this strategic financing and significantly lower cost structure, incremental revenues will create enhanced profitability and cash flows, positioning the company to execute on its plan to address the $230 million convertible loan coming due on August 1, 2025, and the $45 million term loan coming due December 15, 2027. From a business outlook standpoint, in Q4, we expect revenues from our industrial market segment to decrease from its recent multi-quarter highs to a more normalized level. We expect this revenue reduction in industrial to be partially offset by a recovery from our TSP customers. Overall, we expect the consolidated revenues to be down slightly and for the adjusted EBITDA to be stable relative to Q3 FY ‘24 levels. With that, I'll turn the call back to Jason for some final comments. Jason?

Thank you, Jikun. In conclusion, I would like to thank everyone for their continued support of CalAmp. We have an unwavering belief in the value our technology services and employees bring to the market, and our team remains dedicated to capitalizing on that value and navigating the opportunities ahead. This concludes our prepared remarks. We will now open the call to your questions. Operator?

Thank you. [Operator Instructions] Our first question comes from Adam Beavis with Goldman Sachs. You may proceed.

Hi, this is Adam Beavis on for Jerry today. Thanks for taking my question. As a starting point, can you just put a finer point on what you're seeing in the TSP market that's driving your confidence that we could see a recovery here soon? And then, stepping back more broadly, how are you thinking about timing around return to revenue growth for the overall business? Thank you.

Thanks, Adam. This is Jason. So I'll be abstract somewhat on the signals we're seeing from TSPs, but basically we're -- we are seeing order volume come up a bit. Our internal forecast is up. We're getting more favorable anecdotal commentary from our TSPs. So all of that leads us to believe that a recovery is underway. Being realistic, I think that recovery is going to be slow. We -- it's going to take us a while to get back up to historical levels, but like I said, we're optimistic. And our current view is, in Q4, we'll see a recovery relative to Q3. With respect to forward guidance beyond the commentary provided here on overall consolidated revenue, I think we're going to be cautious on that at this point in time, Adam, but I'd say on balance we're optimistic. The big negative moving piece for us has been in the past few quarters, TSPs, and we're seeing signs of recovery. As Jikun indicated in our prepared remarks, we're going to see kind of a return to normal for industrial. So that's going to work through the consolidated results. But overall, we're optimistic and we've got some -- we believe, growth catalysts in the business that'll play out over time.

Thanks for that. And then nice to see the closing of the $45 million term loan. Can you just update us on how you're thinking about other strategic options to address the 2025 convertible note?

Yeah. So I think we've discussed this in the past, Adam. So operationally, obviously, we're going to have to do better, right? Grow the business, increase profitability, and generate more cash. We believe these things will generate opportunities and flexibility options for us to be able to, one, potentially refinance a portion of all the debts coming due at a lower cost, as well as push out some of it, as well as pay off some of it at maturity. So fundamentally, the strategy really hasn't changed.

Okay, got it. And then just lastly for me, you folks have been focused on some new applications and solutions. Just wondering how the growth trajectory of some of those higher ARPU solutions have been and how you think about revenue subscriber trends over the next several quarters as you work to grow those newer applications and solutions.

Sure, Adam. This is Jason. I'll talk to -- really Vision 2.1 has been kind of our most recent important launch in terms of an ARPU driver. That product has been now fully integrated with both our K-12 apps and our CalAmp app for commercial fleet. We're in market with it. We've got a handful of customer wins and installations, so we're kind of stepping into it now. We're optimistic there, and in particular around K-12. And the other dynamic around K-12 is they're back to business now after their normal seasonal quiet period as school opens, and of course through the holidays. So we're optimistic there. And other growth catalysts to point to outside the app are connected car. Connected car has, I think, a few good things happening. We've organically opened in Spain about 18 months ago. That business has now achieved breakeven and is continuing to grow. And based on the success there, we're evaluating other geographical expansion opportunities with connected car, mainly in Europe. And in addition to that, we've got some nice milestones -- customer milestones in that part of the business with both Toyota and Jaguar Land Rover that we believe can help us drive more growth in that area of the business.

Great. Thanks so much.

Thank you. [Operator Instructions] And I'm not showing any further questions. I would like to turn the call back over to Jason Cohenour for any closing remarks.

Thank you, Josh. And thank you to everybody for joining us on the call today and for your continued interest in CalAmp. We look forward to speaking with you again during our fourth quarter and fiscal year 2024 earnings call. Josh, you can now disconnect the call.

Thank you. Thank you for your participation. You may now disconnect.

Welcome to CalAmp's Second Quarter 2024 Financial Results Conference Call. My name is Cole, and I'll be the moderator for today's call. All lines will be muted during the presentation portion of the call with an opportunity for questions and answers at the end. [Operator Instructions] As a reminder, this call is being recorded. I would now like to introduce your host for today's conference call, Logan Lucas, Corporate Strategy and Investor Relations Manager at CalAmp. Logan, you may begin.

Good afternoon, and welcome to CalAmp's fiscal second quarter 2024 financial results conference call. I'm Logan Lucas, Corporate Strategy and Investor Relations Manager at CalAmp. With us today are CalAmp's Interim President and Chief Executive Officer, Jeff Gardner; and Chief Financial Officer, Jikun Kim. During today's call we will make certain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Exchange Act of 1934. Forward-looking statements are predictions, projections, and other statements about future events that are based on current expectations and assumptions and as a result, are subject to risks and uncertainties. Many factors could cause actual future events to differ materially from the forward-looking statements in this communication. You should listen to today's call with the understanding that our actual results may be materially different from the plans, intentions, and expectations disclosed in the forward-looking statements we make. For more information about factors that may cause actual results to differ materially from forward-looking statements, please refer to the earnings press release we issued today, as well as the company's filings with the Securities and Exchange Commission. Readers are cautioned not to put undue reliance on forward-looking statements and the company specifically disclaims any obligation to update the forward-looking statements that may be discussed during this call. Now, Jason will begin today's call with a review of the company's recent operational highlights, and then Jikun will provide a more detailed review of the financial results, followed by a question-and-answer session. With that, it's my great pleasure to turn the call over to CalAmp's Interim President and CEO, Jason Cohenour. Jason, please go ahead.

Thank you, Logan, and thanks to all of you for joining us on the call today. I will start by taking a moment to express our heartfelt condolences to the family, friends, and teammates of Jeff Gardner following his passing in late August. Jeff was not only a passionate leader for this organization, but a kind and compassionate friend to many. We appreciate the effort and countless hours he put into CalAmps over these past few years, taking on challenges and opportunities with positivity and resilience. He had a truly remarkable life and career, and the outreach the company has received on his behalf following his unexpected passing is a testament to the positive impact he had on others along the way. The CalAmp team is keeping Jeff and his loved ones in our thoughts and hearts through this difficult time. Moving to our results. The company's second quarter for fiscal year 2024 produced mixed results. While we continued to experience demand softness with TSP customers, we saw strength in other parts of the business, including international connected car and with our large industrial OEM customer. The TSP softness is attributed to continued customer inventory rebalancing following the fulfillment of a large volume of orders in the second-half of fiscal year 2023. These orders had been backlogged due to the severe supply chain constraints that we and many others encountered over the past few years. Additionally, competitive pressures experienced by our TSP customers have complicated the inventory rebalancing process. We are continuing to work with each of these customers as they align their inventory levels with demand. Consolidated Q2 revenue is $61.7 million, which was below our guidance range. Revenue from TSP's, which was lower-than-expected, was the key driver of the revenue mess. Q2 adjusted EBITDA was $5.9 million, which was within our guidance range. The company also delivered strong cash flow from operations of $7.1 million. The strength and adjusted EBITDA and cash flow from operations is primarily the result of cost savings initiatives. Some of these initiatives were carried out during the second quarter, so we expect to see some incremental expense reductions from our previous actions in the back half of the year. We continue to evaluate opportunities to refocus, simplify, and streamline the business. On the product front, our team continues to push forward with several initiatives focused on value creation for our customers. For example, in the second quarter, we launched our electronic logging device or ELD, to help customers streamline their compliance workflows. Our ELD Solution is integrated with the rest of our fleet management product suite and adds to a portfolio that we plan to leverage to drive increased ARPU and gross margins in our fleet segments. We also commenced commercial shipments of our new vision 2.0 Dash Cam Solution during the quarter and now have our first successful installations. We expect to see additional commercial traction with vision at our fleet customers in the coming months and quarters. We also secured several new customer wins during the quarter, including with Transportes Castores, one of the largest transportation and logistics companies in Mexico. Transportes Castores is leveraging both CalAmps in-cab and trailer tracking solutions to pull data from their assets and to integrate the data with their proprietary enterprise applications. The solution provides seamless visibility across the customer's operations and illustrates our unique ability to integrate data from many different asset types into a variety of systems, thereby providing highly tailored insights that drive efficiency, safety, and compliance. We are excited to embark on this partnership with Transportes Castores to optimize the management of their fleet. Our international connected car business continued to deliver strong performance during the quarter, driven by expanding relationships with large automotive OEMs and rental customers, particularly in Europe. We expect this segment to continue to deliver consistent, profitable growth as we expand with our customers, secure new B2B customers, and grow new geographical markets such as Spain. With respect to the CalAmp team, you may have seen the news regarding the departure of our Chief Revenue Officer. In response to this departure, we have elevated two highly qualified individuals to lead this critical function. One of these team members now leads new revenue generation, while the other leads customer success and sales operations. Both leaders report directly to the CEO, and the transition has been seamless. Our CEO search is ongoing, and interest in the position is high. And while we have met with some excellent candidates, we have no new additional news to share regarding the search at this time. Similarly, our exploration of strategic alternatives is ongoing, and we have no additional news to report at this time. As for me, I've been serving as the Interim CEO of CalAmp since August 28th following Jeff's tragic passing. I can report without hesitation that the CalAmp team is talented and passionate, and they believe in the opportunity before us. In addition to having a great team, the company has other tremendous assets including excellent products and solutions, a blue chip customer base, and a large and growing market opportunity. While I am here, I will be supporting the team. I will be supporting customers. And I will be helping the team to hone focus, to execute operationally, and to capture efficiencies as we strive to deliver profitable growth and positive cash flow. With that, I'll turn the call over to Jikun to discuss our second quarter financial results in more detail. Jikun?

Thank you, Jason, and thank you for stepping up to this transition. My commentary will include references to our non-GAAP financial measures. A full reconciliation of these non-GAAP measures with the corresponding GAAP measure is included in our earnings release. The total revenue in the second quarter was $61.7 million. Revenues declined 15% year-over-year and 13% sequentially from $70.9 million last quarter. Much of the year-over-year and sequential revenue decline was driven by lower sales to our telematic service provider customers. As Jason mentioned in his remarks, the revenue decline was driven by our TSP customers continuing to rebalance their inventories, while also navigating competitive pressures in their end markets. We now expect this inventory rebalancing with our TSP customers to take longer than previously expected. Revenue declines from the TSP customers were partially offset by revenue increases from our industrial and International Connected Car businesses. Recurring application subscription revenues in the quarter were $18.7 million, a $500,000 sequential decline. Most of the decline was driven by a $400,000 tune catch-up for prior period accounting cleanups and corrections. RPO and hardware backlog ended the quarter at $194 million and $14 million respectively. RPO declined $24 million and hardware backlog declined $6 million sequentially. The RPO and hardware backlog decline was driven by customer PO fulfillments, as well as TSP conversions that have already been completed. Consolidated gross margin in the second quarter was 36%, compared to 38% last quarter. The sequential gross margin decline was driven by lower volumes and unfavorable product mix. Second quarter GAAP operating expenses declined $3.9 million sequentially and $8.8 million year-over-year. The cost reductions that we implemented over the past 12 months are starting to significantly impact not only our OpEx, but are also our cost of goods sold and CapEx. Q2 FY ‘24 adjusted EBITDA was $5.9 million or 9.5% of revenue. Essentially flat compared to the $6 million in the prior quarter. Year-over-year, adjusted EBITDA increased by $1.1 million. At the end of Q2 FY ‘24, we had a total cash and cash equivalent of $38.5 million, as compared to $35 million last quarter, an increase of $3.6 million. Cash flow from operations was $7.1 million in the second quarter. Positive cash flow was driven by a $4.2 million cash flow from operations excluding working capital changes, as well as a $2.9 million in net working capital reductions. Unlike the prior quarter, working capital changes worked in our favor in Q2. Compared to the prior quarter, cash flow from operations excluding working capital increased by $100,000 sequentially and continues to be strong despite volume reductions. Cash flow stability is driven by our cost reductions. At the end of the quarter, we have $32.7 million in undrawn asset back line availability. This availability is subject to customary covenant tests. The $230 million, 2% coupon convertible notes are due on August 1st, 2025. Our objective is to generate a high quality EBITDA run rate in order to optimize our options for refinancing the convertible notes. As demonstrated over the past few quarters, EBITDA performance has been strong and stable. We believe that our future EBITDA run rate increases will be driven by several factors and initiatives, including the normalization of TSP revenues as we stabilize and then return to growth in this market segment, growth in recurring revenues driven by new solution introductions such as Vision 2.0, which we expect to drive significant ARPU growth with new and existing customers. Improvements in gross margin, trending back to our historical levels, and continued focus on our cost management. In addition, we will have to continue our vigilance with respect to cash flow and cash generation. Continuing strong EBITDA and positive cash flow will enable us to retire a portion of the convertible loan as it matures. In addition, we are actively exploring a range of additional financing options and how they can play in our capital structure. From a business outlook standpoint, we continue to manage through a dynamic situation with our TSP customers, and we expect Q3 FY ‘24 revenues and adjusted EBITDA to be slightly down sequentially. With that, I'll turn the call back over to Jason for some final thoughts. Jason?

Thank you, Jikun. In closing, I will assert our unwavering commitment to our customers, partners, employees, and investors. While we have experienced challenges, we also see tremendous opportunity ahead, and we are confident in our ability to overcome these obstacles and to return to profitable growth. Thanks to all of you for your continued support and interest in the company. With that, we will now open the call to your questions. Operator?

Thank you. We will now begin the Q&A session. [Operator Instructions] Our first question is from Jerry Revich with Goldman Sachs. Please go ahead.

Hi, thanks for taking my question. This is Adam Beavis on for Jerry today. Nice to see the positive cash flow from ops. Just wondering if you could talk about how you're thinking about the free cash flow trajectory from here? You know, what does normalized free cash flow conversion look like in this business? And when can you get there?

Yes, I think Jerry asked me this question last quarter also, so thank you for your question. So you can see, based on the last few quarters of cash flow statements, that cash flow from operations, excluding working capital changes have been in the $4 million range, right? We're at $4.2 million this quarter, I think we were at $4.1 million last quarter. Working capital worked in our favor this quarter. It didn't last quarter. The question that you ask about free cash flow and stability, I think, you know, one, we need to make sure that our revenue is back to where it should be, right, and then be able to project that into the future. But what you're experiencing is very strong cost management from management, as well as continued vigilance in that capacity. So it's difficult for me to say based on the working capital changes that we have right now, but I think you can be sure that we will do our hardest and utmost to make sure that we manage our costs and continue to generate cash.

Thanks for that and it looks like revenue per subscriber in the software and subscription segment was down sequentially. Just wondering if you could unpack the moving pieces there? What's the, you know, price versus two core price versus mix impact and what's the path here going forward now that most of conversion is through? Should we expect higher ARPU starting to flow through that metric?

Yes. So, keep in mind, I think, it was commented in our prepared remarks, as well as our earnings release that we had about a $400,000 recurring revenue [June] (ph) catch-up impact that we corrected in the quarter. So the recurring revenue is, you know, should be roughly $400,000 higher. You know, we had some accounting errors in the past that we corrected in this quarter, right? It just caught up. So if you do that, I think you'll see the ARPUs coming back a little better from a calculation standpoint. Fundamentally, you know, we are looking to grow our recurring revenue business and it's on new applications like Vision and ELD. You know, we just launched Vision two, months ago, three months ago, and we're starting to see, you know, we're seeing very good pipeline and customer interest. We just need to convert those and accelerate those into the fourth quarter. We have an opportunity coming up in the December timeframe as school buses, kids go on vacation during school buses during the Christmas time and that we'll be able to fit a lot more of those vision opportunities onto our customers' fleets.

Got it, and then…

Adam, I'll add a little bit of color. You know, as these -- we complete these conversions, you know, that's going to goose subscriber count and those TSP customers come in at a lower ARPU, right? So that's going to be -- we're going to have a battle of mix if you will, as those low ARPU customers come in and as we win new higher ARPU customers with products like Vision and ELD. So a couple of moving parts there with respect to ARPU.

Got it. Helpful and then lastly from me, on the Q3 revenue and adjusted EBITDA guide to be down slightly sequentially. Could you provide any color by segment there? Will software and subscription be up sequentially or are we expecting both segments to be down?

Yes. So and again, we don't break out the subcomponents of the revenue, but you can see that our TSP has a very large impact on our business. And so what you're seeing is the continued -- our customers continuing to rebalance their inventory positions. In terms of recurring revenue, I would hope that we could do better.

Got it. Thanks so much.

Sure.

Our next question is from Scott Searle with Roth. Your line is now open.

Hey, good afternoon. Thanks for taking my questions. Jason just wanted to extend my condolences to you, your team, and Jeff's family and, you know, his untimely passing. Maybe to follow-up on, you know, to follow-up on some of the earlier questions. I'm wondering what is the level of normalized TSP that you would expect? And then on the OpEx front, Jikun, that's been coming down. It sounds like there's more that'll come out in the back half of this year. Is there an absolute number that you could calibrate us with?

Yes, so I mean, so most of the cost reductions that we implemented on the OpEx side were done earlier in the year. We just had transition periods where that we had to make sure that, you know various tasks that employees were responsible were transferred to the appropriate people. So you're going to see, I mean, it's not going to be, you know, $3.8 million, quarter-over-quarter, but it should be a little down and yes, it's not a lot, but just a little bit. In terms of TSP, yes, I mean, it's normalization of TSP. I mean, I can tell you in 2021, we did $104 million and in ‘22, we did $91 million in ‘23, we did $110 million, right? Those are historical numbers. Need to figure out obviously when we can get back there, you know, and whether that's you know sustainable or not as our customers you know provide us feedback and information. Jason, any thoughts on that?

Yes, just a little more color, Scott, on the TSP's. I mean, it was the part of our business that was considerably softer than we expected in Q2. So down considerably from Q1 and down considerably from historical run rates. So we believe we're battling through this inventory rebalancing thing, but we're also conscious of the fact that our TSPs operate in a very competitive environment, right? So we need to keep an eye on that as well. You know, we're hoping we're around stability here, Scott, and we can grow from here. But, you know, to be candid, there's still a little bit of uncertainty around that channel, where inventory levels are and should be, and the ability of our TSPs to compete in a pretty competitive marketplace. So I would say we're getting our arms around that. Obviously it's priced us in Q2 and we will know more in the quarters that come.

Okay very helpful and as my follow-up and perhaps a little bit unfair given the transition in current events. But as you start to think about the convert and what you need to do to be able to refinance that, it implies that EBITDA levels are higher than where we are today. Clearly you've got to get the top line going a little bit more and more subscription. It seems like OpEx has been tightened up. I'm wondering if you could talk a little bit about timing and model as it relates to EBITDA margins or otherwise as we get out several quarters from now to think about that? Because I guess you got to be getting close to doing 10, 12 or more in terms of quarterly EBITDA to be able to fully handle that convert? Thanks.

Yes, so, you know, again, we provided next quarter guidance, but I can point in some direction from the current quarter, if you like, right? So we missed revenue guidance. The midpoint would have been $70 million. That would have generated roughly an $8 million revenue increase -- I mean, our revenues would have been $8 million higher. You can add a gross margin number to that. And if you make the assumption that, that drops down, you kind of get a feel for where we could be, have our, you know, revenues normalize sometime in the future. And I'm not saying 70s are normalized revenue, but that was the midpoint of the guide.

Yes, and I'll add Scott. I mean, you're not off base with respect to EBITDA levels we need to get to in order to have maximum optionality, maximum options on the convert. And that has got to come through a combination of growth, obviously, and continued vigilance on cost, and not just OpEx, but COGS as well.

Great, thank you.

Thank you, Scott. Our next question is from George Notter with Jeffreys. Your line is now open.

Hi, thanks a lot guys. I guess a clarification, can you guys give us the backlog metrics and RPO metrics that you referenced earlier in the monologue?

Sure. Do you have another question? I'll dig that up for you in a minute.

Yes, and then I also wanted to just kind of go through, you know, what are the options on refinancing the convertible debt? I'm kind of wondering, you know, how you guys are thinking about it. You know, obviously growing EBITDA is part of the formula here, but I'm just wondering what kind of options are available to you? What are you contemplating? Thanks.

Sure. So just going back to your first question, our RPO was $194 million and our hardware backlog was $14 million in the quarter -- at the end of the quarter, I'm sorry. Anything else on that?

And then, no, I'm just curious about your refinancing options. How do you think about it?

Yes, yes. Sure, sure. So, I mean, you know, it's clear that we've got to do better from a top line standpoint and generate sustainable, sufficient EBITDA. Higher the EBITDA, more optionality we'll have. But look at it at the same time, the RPO -- the 2% convertible note has a 2% coupon on it, it's very valuable, right? So as we increase our EBITDA and revenues come back, you're going to see more cash flow drop to the bottom line. And ideally, some portion of this 2% coupon I'd like to take to maturity and pay it off at maturity, right? And then we're looking at, once you get the EBITDA high enough, we might have term loans available to us, you know, different types of financial instruments that might be available to us. So the key is operational performance, revenue growth, EBITDA growth, which will provide various levers that we might be able to pull on.

Got it. Okay, great. Thank you.

Sure.

Thank you, George. There are no additional questions waiting at this time. So I'll pass the call back over to Jason Cohenour for any closing remarks.

Thank you very much, and thank you to everybody for joining us on the call today and for your continued interest in CalAmp. We look forward to speaking with you during our third quarter earnings call. Operator, you may now disconnect the call.

Welcome to CalAmp's First Quarter 2024 Financial Results Conference Call. My name is Bethany, and I'll be the moderator for today's call. All lines will be muted during the presentation portion of the call with an opportunity for questions and answers at the end. [Operator Instructions] As a reminder, this call is being recorded. I would now like to introduce your host for today's conference call, Logan Lucas, Corporate Strategy and Investor Relations Manager at CalAmp. Logan, you may begin.

Good afternoon, and welcome to CalAmp's fiscal first quarter 2024 financial results conference call. I'm Logan Lucas, Corporate Strategy and Investor Relations Manager at CalAmp. With us today are CalAmp's President and Chief Executive Officer, Jeff Gardner; and Chief Financial Officer, Jikun Kim. During today's call we will make certain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Exchange Act of 1934. Forward-looking statements are predictions, projections, and other statements about future events that are based on current expectations and assumptions and as a result, are subject to risks and uncertainties. Many factors could cause actual future events to differ materially from the forward-looking statements in this communication. You should listen to today's call with the understanding that our actual results may be materially different from the plans, intentions, and expectations disclosed in the forward-looking statements we make. For more information about factors that may cause actual results to differ materially from forward-looking statements, please refer to the earnings press release we issued today as well as the company's filings with the Securities and Exchange Commission. Readers are cautioned not to put undue reliance on forward-looking statements and the company specifically disclaims any obligation to update the forward-looking statements that may be discussed on today's call. Now, Jeff will begin today's call with a review of the company's recent operational highlights, and then Jikun will provide a more detailed review of the financial results, followed by a question-and-answer session. With that, it's my great pleasure to turn the call over to CalAmp's President and CEO, Jeff Gardner. Jeff, please go ahead.

Thank you, Logan. And thanks to all of you joining us on the call today. Over the past few years CalAmp has been executing a strategy to enhance shareholder value as an independent company. In the past weeks we have received unsolicited inbound inquiries. As a result, the Board of Directors has engaged advisors and formed a Special Committee to help us explore all strategic alternatives available to the company. We will not be answering any questions on this topic today. Overall, the CalAmp team is more focused than ever on driving topline revenue with a leaner and more efficient cost structure to increase the profitability of the company. Strategically, we have converted the installed-base to a subscription-model, focused the sales organization on selling full stack solutions, set up a customer success team to drive retention and upselling, and restructured the business to improve cash flow and profitability. Regarding the first quarter, we saw varying degrees of strength and weakness in demand across the customer base. Specifically, we had a particularly strong quarter with our large industrial customers with the account generating around $16.6 million in revenue. We expect this performance to continue into the future as we are increasingly able to ship against their demand. On the other hand, demand from our telematics service providers, or TSPs, and channel customers demonstrated some softness in the quarter as they adjusted their order volumes in inventory strategies to better align with a more normalized shipping environment. Due to supply improvements, customers no longer need to order far in advance to secure supply. So order volumes were lower as they sell existing inventory. We expect this to take a few quarters to correct and we will continue to drive additional revenues from other areas of business. Now to dive into our performance in the first quarter of fiscal year 2024. We recognized $70.9 million in revenue. Despite missing the low-end of guidance, the teams’ focus on cost efficiencies produced gross margin growth of 280 basis points and generated over $6 million of adjusted EBITDA. The gross margin expanded due to better revenue mix and decreased PPV costs as the supply chain continues to normalize. Further, the company continued to realize expense efficiencies from the recent cost management initiatives resulting in $5.4 million in operating expense reduction year-over-year. Improvements in gross margin and cost structure culminated in a strong adjusted EBITDA performance, which fell within our guidance range. Overall, we are pleased with the progress we're making on the expense side of the business and feel that the profitability we achieved despite an unexpected topline shortfall, demonstrates the effectiveness of our cost initiatives. We will maintain an increasingly lean expense structure to continue enhancing the profitability of the company. To help accelerate revenue growth, the sales organization will be dedicating additional bandwidth to new logo generation. Since Q1 marked the completion of the team's efforts to actively convert the installed base of device customers to subscription contracts. In addition, the team gained traction in selling CalAmp's software products, resulting in a modest sequential growth in our recurring application subscription revenue of approximately $100,000. The sales team closed multiple deals with new enterprise fleet customers, including an opportunity with R&L carriers that added around 18,000 subscribers, following the first quarter. In addition, the team continued to execute on renewals and up-selling opportunities. New products such as our next-generation vision solution will also help us drive new bookings into the second quarter and beyond. This new solution is a standalone dash camera powered by advanced AI software that will help fleets optimize driver behavior and significantly decrease operating and liability related cost. Since the full release, the team has qualified more than 65 different opportunities and the pipeline continues to grow. Sales of this product will have a substantial positive impact on ARPU as we sell to both new logos and the existing customer base Finally to organizationally align behind our growth goals through recurring revenue, we rolled-out new sales compensation programs built and implemented by Brennan Carson, our Chief Revenue Officer. The new compensation plans rewards sales personnel based on the bookings value of new logo acquisitions and reward customer success personnel according to the net revenue retention targets. This will help to drive our operating model towards the revenue growth, gross margins, and free-cash-flow we are aiming for. Internationally, the consumer, automotive business continues to perform well demonstrating profitable growth in the quarter. The company expects to continue ramping-up revenues from the BMW relationship for the remainder of the year and into fiscal year '25. The relationships with BMW and several other of the world's top automotive brands will drive consolidated and recurring revenue growth well into the future for this segment. Further, the operating models across the various geographies have been aligned under a single leader to maximize cost-efficiency and operating effectiveness. We have already begun to see significant benefit to this new organizational structure and expect this trend to continue. The modest growth in our recurring application subscription line which occurred despite declines in overall revenue and Software and Subscription Services revenue demonstrates the value and strength of the recurring software revenue we are focused on growing. We look forward to accelerating execution in this area of the business which is positioned to grow as we execute on a robust pipeline of opportunities. These deals with direct fleet customers will continue to drive-up ARPU as the mix of recurring revenue shifts away from the low ARPU device management solutions purchased by converted telematics service providers and channel customers and towards high ARPU cloud API and application solutions purchased directly by fleet. Finally, we will continue to work with our TSP and channel customers to return to normalized order volume over the coming quarters. With that, I will turn the call over to Jikun to discuss our first quarter financial results in more detail. Jikun?

Thank you, Jeff. My commentary will include reference to non-GAAP financial measures. A full reconciliation of these non-GAAP measures with the corresponding GAAP measures included in the Q1 FY '21 earnings release. Total revenue in the first quarter were $70.9 million. Revenues grew 10% year-over-year but we realized a 10% sequential decline from $78.5 million last quarter. The sequential decline in revenue was driven by telematic devices and rental income revenue. As Jeff mentioned in his remarks, our TSP and channel customers are working through their excess inventories, as well as our K-12 business is seeing a temporary slowdown in hardware installations. We expect this inventory corrections to take a few quarters to work through. Excluding the effect of the auto leasing, recurring application subscription revenue was $19.2 million, a $100,000 sequential increase. Net subscribers increased 6% sequentially to 1.69 million subscribers. S&SS RPO and hardware backlog ended the quarter at $217 million and $20 million, respectively. RPO declined $17 million and hardware backlog declined $9 million sequentially. RPO decline was driven by customer contract modifications, and hardware backlog decline was driven by TSP and channel customers working through their inventory correction. Consolidated gross margin in the first quarter was 38% compared to 35% last quarter. Gross margin continues to recover from the Q3 FY '23 later driven by a better mix of offerings, as well as significant reductions in purchase price variance. First quarter GAAP operating expenses, excluding restructuring charges, increased $100,000 sequentially driven by increased R&D and sales and marketing activities, offset by lower G&A. The sequential OpEx increase was driven by annual incentive and commission resets for FY '24, along with recruiting activities related to our CEO and CTO transitions. GAAP operating expenses declined $5.4 million year-over-year. The cost reductions that we implemented in late '23, and early '24 are starting to take impact not only in their OpEx, but our cost of goods sold and capital expenditures. Q1 FY '24 adjusted EBITDA was $6 million or 9% of revenue, compared to $6.8 million in the prior quarter. Year-over-year, adjusted EBITDA increased by $4.1 million. At the end of Q1 FY '24, we had total cash and cash equivalents of approximately $35 million, as compared to $42 million last quarter. The decline in cash was driven by working capital paydowns and CapEx in the quarter. Excluding working capital paydowns, cash generated from operations would have resulted in a positive $4.1 million cash flow, a $3.5 million improvement from the prior quarter. At the end of the quarter, we have $35.6 million in undrawn asset back line availability. As customary, this availability is subject to various covenant tests. The $230 million 2% convertible senior notes are due on August 1, 2025. Our objective is to generate a high-quality, strong EBITDA run rate by the end of the fiscal year to provide financing options to resolve this continuing overhang on our shares. As demonstrated over the past few quarters, EBITDA quality and quantity continues to improve over time. Our future EBITDA run rate increases will be driven by several factors and initiatives. First, the normalization of telematic device revenues in the second half of FY '24. Our TSP and channel customer inventory corrections should be behind us. Recurring revenue growth driven by new solutions like Vision 2.0, our Video Dash Camera, which will drive significant ARPU growth, upsell opportunities across our installed with K-12 customers and new subscribers in our commercial fleet market segment. Fleet continued improvements in gross margins trending back towards our historical 40% levels. And lastly, aggressive cost reductions implemented in '23 and '24 across our cost of goods sold, operating expenditures and capital expenditures. In addition, we will have to continue our vigilance to cash flows and cash generation over the next 25 months. Executing on these EBITDA run rate improvements could provide the following financing options. Organic positive cash flows gives the opportunity to pay off a portion of the convertible loan as it matures. 2% coupon is very valuable financing during these times of high interest rates. Refinancing a portion of the convert with term loan structure, which will come with higher interest rates and expenses. Refinancing a portion of the convertible loan and pushing out the maturity which will come with higher interest rates and the conversion prices as well as other financing options. There is no single solution that will address the convertible note, who will take a combination of these and other solutions to resolve over time. As for Q2 FY '24 guidance, we expect revenue to range between $67 million and $73 million, with adjusted EBITDA expected between $5 million and $9 million. With that, I will turn the call back over to Jeff for some final thoughts and comments.

Thank you, Jikun. I am proud of our team for the continued progress we have made in driving these transformational efforts. I am confident in our ability to execute on growing both revenues and profitability into the future, both of which will ultimately manifest in value creation for our shareholders. With that, we will now open the call to your questions. As a reminder, we will not be answering questions on our Board's decision to explore all strategic alternatives for the company. Operator?

[Operator Instructions] Our first question comes from the line of Scott Searle with ROTH MKM. Please go ahead.

Hi, good afternoon. Thanks for taking the questions. Hi Jeff, I apologize to ask about the strategic process, but I just wanted a quick clarification. Was it a single inquiry? Or was multiple inquiries? I thought it was plural in the release. I just wanted to clarify that. And then I had several follow-ups.

Yes. Yes. It was plural in the release.

Okay. Thank you. Just looking towards normalization of - on the product side of the equation. I'm wondering if you could give us some idea of what the level of channel inventories and customer inventory levels are on that front. And I guess kind of bundled into that question, how are you feeling about the gross margin profile? And to clarify, Jikun, did you say the second half or did you say the fourth quarter when you expect more normalization on that front?

Yes. On both volume as well as - yes, can you hear me?

Yes. Fine. Thank you.

Okay. On both the volume as well as the gross margin, we're discussing the second half of the year, so Q3 and Q4.

Got you. And just looking sequentially in terms of your guidance --

Scott, on the inventory levels with our TSPs, it really is quite a unique situation. And very quickly, they went from an environment where they're having to place their orders six months out to now a company like us are able to give them precise times in terms of delivery. And we completed a lot of the - filling much of the backlog. So they're just adjusting to that. As Jikun said, we expect our inventory levels to normalize in the third and fourth quarter. But that's what we're seeing.

Got you. And just lastly, if I could. Looking to the guidance in the second quarter, how are you expecting gross margins to trend on that front, both as I look at it from an SS&S standpoint as well as on the product front? And then coupling that into, I think, the long-term model you've talked about 18 months out, EBITDA margins getting into the mid-teens. Is that still the track and the path that you're on, even with some headwinds in the first quarter and the second year [Technical Difficulty]…

Yes. Yes, Scott. It definitely is driving those kind of EBITDA margins. Jikun mentioned some of the things that we're focused on. The expense improvements are real and there's more to come in that regard. We've seen only a portion of the savings to-date. And gross margin is incredibly important. I'll let Jikun talk about it. There are two things going on there. One, the product mix, where we're focusing more on full stack solutions, and two, the environment - the supply chain environment. So Jikun, would you elaborate on that, please?

Yes. So, if you remember, we kind of got into a gross margin percentage problem in Q3 FY '22 - I'm sorry, '23. And we've been building our way out of it. Last quarter, it was 35%. This quarter was 38%. If you go back a few quarters before the COVID crisis and the supply chain issues, you'll see it normalizing in 40%. That's the current business model as is. But as Jeff mentioned, as we shift more to a recurring application subscription revenue model, we do anticipate that gross margin to go above the 40% historical numbers. Obviously, this is much further out from a time frame standpoint.

Great. Thanks so much. I'll get back in the queue.

Yes. One other thing I'd like to add to that, given that we're focusing on these full stack customers going forward, that's going to really drive the margin profile and higher ARPUs. Today, in the first stage of our transformation, those conversions were moving our TSPs to a device management solution, which had a lower ARPU. So we had good ARPU growth there. We expect - we had good subscriber growth there. But now I think we're searching and focusing on higher ARPU customers.

Thank you. Our next question comes from the line of Jerry Revich with Goldman Sachs. Please go ahead.

Hi, good afternoon, everyone. Hi, I'm wondering if you folks can just talk about when do you expect to turn free cash flow positive? And if you wouldn't mind just bridging through the drivers of the working capital headwind to cash flow this quarter and how that resolves itself sequentially in the back half? Thanks.

Sure. So let me just take a look at the data here. Based on the prepared remarks, hold on a second. My apologies. Just give me a moment. Looking at some information. Okay. Yes. If you look at the current free cash flow, you will see that it was a negative $3 million in the quarter. But if you look at the working capital charges that attributed almost $7 million to it. So, core operations was positive $4 million. So operationally, we are generating cash. If you subtract out CapEx without working capital adjustments, you'll see that it was a positive $2 million in the quarter. So good strong turnaround. Now having said that, we've got some working capital challenges. You'll see that our accounts receivable. If you go back two 2 years, has increased $20 million. A lot of this has to do with the conversion. And then if you look at our accounts payable, you will see that, that has also increased roughly $20 million over the last few quarters. We need to address both of these. We made some headway on accounts payable in the last quarter. We dropped it from $52 to $47 we'll obviously continue to need to do that over the next few quarters. In terms of when we turn free cash flow positive, obviously, it's going to take quite a few quarters.

And could you expand on that last point? If you don't mind, is it the issue of until the receivables profile stabilizes with the new business model? Is that what's driving that comment? It would take quite a few quarters, if you don't mind, just more context on that point, please?

Yes. I mean basically, accounts receivable increases were funded by AP increases. So you can address the cash flow in two ways, pay down the payables. And hold your receivables flat or you can reduce the receivables and hold your payables flat. We're trying to go the payables route.

Okay. And separately, can I ask a deferred revenue came down sequentially in the quarter. What was the driver? Is that normal seasonality or any other factors that are driving the sequential deferred revenue decline?

Yes. I think we discussed our K-12 revenues declining a bit, and that's the primary driver. It should come back. It's a seasonal thing.

Okay. Thank you.

Jerry, thanks for joining. I did want to point out that we did after the quarter-end, we did convert our largest TSP to a subscription model by signing an MSA later in the quarter. So really happy about that turning all of our attention towards our growth segments and serving our TSP customers with a new device management solution.

And Jeff, how much was that contract? How much did that add to deferred revenue?

We just - that happened after the quarter-end. So we're not going to provide details on the individual contracts, but it was our biggest TSP, Jerry, and very important in terms of where our focus was. So it's good to have that step behind us. I know it was painful. But we're in a position now where everything that we sell has a recurring revenue component with the exception of the cat business. So I think we're where we wanted to be took a little longer, but I think the focus of our sales force on higher ARPU is going to make a big difference.

Thank you.

You're welcome.

Thank you. Our next question comes from the line of George Notter with Jefferies. Please go ahead.

Hi, guys. Thanks very much. I guess I wanted to ask about your recurring application subscriptions metric. I saw that it was up, I guess, $100,000 sequentially, but it was down year-on-year. The staff subscriber metrics you gave us were up pretty substantially year-on-year. So I guess I'm wondering about that dichotomy, the revenue down, the subscription subscribers up. Can you just kind of talk to that phenomenon?

Sure. Sure. So I think Jeff alluded to this, our subscriber count, the big growth that was really tied to our TSP conversions, right? So we have very heavy subscribers based on our telematics service provider business, a very large chunk of the business. And we converted them to a subscription model, very low ARPUs, right, extremely low ARPUs. They only buy our device management capabilities. And so while the subscriber base increased our ARPU did not - increase a lot and hence, it was relatively flat. Last year compared to this year, we did see some FX headwinds that we had last year and that we are not seeing this year.

Got it. Okay. Thank you. And then the other one I wanted to add --

But if you look at the - yes, just one more commentary. We did bottom out from a recurring revenue standpoint in Q3 FY '23. And so we've been making sequential improvements over time the last two quarters on that metric.

Okay. Got it.

And George, that's really the metric - as we focus on our full stack solutions, that's the metric that we believe and investors believe for our discussions. That's the right thing to look at in terms of how we're growing this business. That recurring revenue business is what you guys would refer to as more pure SaaS business.

Got it. And then the K-12 business was a bit softer. Can you talk about why that was? I think you mentioned seasonality, but I guess it’s the summertime.

Yes, George, very simply, we installed fewer units in the quarter was a little bit of pressure, but we expect that will bounce back over the next couple of quarters. We're still in a really good position in that business with a go-to-market process that is driven by our sales expertise and familiarity with the customers in that business and adding the camera solution is going to really help our sales reps. We're already in a leadership position in the market. But going forward, we've got the cameras, I think, are getting a really good reception in the K-12 business as well as fleet.

Got it. Okay. And then any thoughts on you like the metric --

I'll let Jikun take that. George, I just wanted to also point out that when we talk about the vision solution over time, this is a much - this is a very high ARPU add-on for customers. So it can really do a lot in terms of growing that incremental margin that we talked about earlier. So Jikun, would you take the second part there?

I'm sorry, I didn't hear the question. If you could repeat the question.

Yes. I mean, I guess, like I get that the telematics transition, you move customers onto the lower ARPU capability. But I know the story here is to migrate the company to more of a full stack solutions provider. I know the K-12 business is obviously an element of that. But as I kind of look at all these metrics, I'm just curious like, how are you doing in terms of retention of existing customers? Do you have retention rates that you can share with us? Any thoughts there?

Yes. No, we haven't disclosed that, but I can share with you the subscriber base for K-12 has been relatively flat the last few quarters. We are a very large market shareholder in that market. And obviously, as an incumbent large shareholder get attacked by some of our competitors. But we are holding our own, but it's time to go on the offensive, obviously, to make sure that we increase ARPUs, meaning upsell existing customers, with this vision solution as well as gain share.

Okay. Great. Thanks very much guys.

Sure.

You're welcome.

Thank you. Our next question comes from the line of Anthony Stoss with Craig-Hallum. Please go ahead.

Thanks. Hi Jeff, I just wanted to ask a question, more big picture competitive landscape wise. You've been having issues clearly on component sourcing, et cetera, and pricing over the last several years. It seems now though that a lot of your competitors are actually growing where you guys aren't. Can you give us any kind of confidence that you're not losing share that the fact that your telematics devices are probably abnormally high versus your competitors and they're using price to take share? That's what it seems like to me.

Yes. On the TSP side, it's really important, Tony, as you know, that the TS business is pretty unique to us. So when you look at us compared to Geotab or Samsara, they don't really have this big TSP business. That's where we started. It was necessary to convert that base to a subscription model, so we could manage it. I think that will be more stable over time. We are still winning business from our customers because our configurability, we are priced a little higher but our customers really need that configurability, they place a lot of value on it. It allows them to - it's not as simple as you would think to switch providers. So I really think on the TSP side, is inventory correction that they're making with the change in the supply chain is having a big impact, at least in the first and second quarter. But when I think about share and what we're trying to do with the business now, really turning towards those full stack customers and the sales force can really focus there now. And that's where I think you'll see us growing that recurring revenue line item. And it makes us look more like a pure play like Samsara and Geotab over time, which, yes, they are growing. And we think we are a very good competitor, especially at the high end of the market with big fleet, long-haul customers where we could leverage our engineering and transportation logistics expertise. So we do very well there. We tend to compete upmarket. And so we've seen a couple of wins, as we said in the - at the end of the first quarter there. Those are a little bit longer sales cycle but higher ARPU.

And then just to mention that you expect this to continue on for a couple of quarters. Do you expect kind of this $70 million run rate that you're at for both May and you guide for August to be largely similar for November and February.

No. I think Jikun said that we'll recover in the back half of the year. So we expect the TSPs to be back to more normalized levels in the second half. So the first quarter, Jikun, would you just review the guidance once for and why we went with that guidance range?

Yes. So I mean, it's relatively flat guidance relative to Q1 actual, slightly down. But again, this reflects our TSP situation. But the second half of the year, we do expect the TSPs to come back.

But would you expect it to be up year-over-year versus what you did in fiscal '23 for both November and February?

Well, if you look at fiscal '23, right, Q3 and Q4, we're up at $79 and $79. I think those ordering is kind of what caused some of the TSP problems. And so normalization would put you somewhere between current levels in Q3 and Q4.

All right. Thank you.

You're welcome. Thanks Tony.

Thank you. That concludes the question-and-answer session. I would now like to pass the conference back to Jeff Gardner for any closing remarks.

Yes. Thank you very much. And thank you all for joining us on the call today for your continued interest in CalAmp. We look forward to sharing our progress with you during our second quarter 2024 earnings call later this year. Operator, you may now disconnect the call.

That concludes today's conference call. I hope you all enjoy the rest of your day. You may now disconnect your lines.