CAMP CalAmp Corp

CalAmp Corp. (Nasdaq:CAMP), a leading provider of wireless products and engineering services, today reported results for its fiscal 2007 first quarter ended May 31, 2006. Key elements include: -- Revenues of $46.3 million within guidance -- Net loss of $34.1 million includes non-cash charges of $36.7 million for in-process research and development (IPR&D) and goodwill impairment -- Operating cash flow of $4.7 million during first quarter, improved 15% over prior year Fred Sturm, CalAmp's President and Chief Executive Officer, commented, "Overall, operating results from our core business in the first quarter were solid and within our expectations. During the quarter we benefited from revenue growth in our wireless data communications product line, which has now been significantly enhanced with our recent acquisitions of Dataradio and TechnoCom. Resulting profitability, after adjusting out the effects of non-cash charges for the IPR&D write-off associated with the Dataradio acquisition and a goodwill impairment charge related to our Solutions Division, was driven by solid operating margins and was within expectations." Sturm added, "We continue to execute on our strategy of building a significant business in the wireless datacom industry, where we believe there is an expanding market opportunity for revenue growth at higher gross margins, and which provides for further customer diversification. Additionally, we are focused on maintaining our leading position in our core DBS product line. Steady progress was achieved during the quarter on product development initiatives in support of customers' requirements for integrated multiple satellite reception equipment as they roll out expanded service offerings including HDTV programming. These products are expected to begin shipping during the second half of fiscal 2007." Fiscal 2007 First Quarter Results Revenue in the fiscal 2007 first quarter (14 weeks of operations) was $46.3 million, compared to $47.6 million for the first quarter of last year (13 weeks of operations). The decrease was the result of lower Solutions Division revenue and DBS product sales in the latest quarter, partially offset by growth in the Company's wireless data communications business for public safety and machine-to-machine (M2M) applications. Gross profit for the first quarter of fiscal 2007 was $10.9 million, or 23.6% of revenues, compared to $10.7 million, or 22.5% of revenues, for the same period last year. The increase in gross margin was primarily the result of improved operating efficiencies and increased sales of higher margin products of the Products Division. As previously announced, in late May 2006 the Company acquired Dataradio and the mobile resource management (MRM) product line of TechnoCom. CalAmp's results of operations for the fiscal 2007 first quarter include both of these acquisitions for a one week period. During this period Dataradio generated revenue of $721,000 and gross profit of $469,000, while the MRM product line accounted for revenue of $87,000 and gross profit of $37,000. Dataradio and the MRM product line are included in the Company's Products Division. Results of operations for the fiscal 2007 first quarter as determined in accordance with United States Generally Accepted Accounting Principles ("GAAP") was a net loss of $34.1 million, or $1.47 per diluted share. During the fiscal 2007 first quarter, in connection with the acquisition of Dataradio, the Company recorded a non-cash charge of $6.9 million for the write-off of IPR&D and recorded a non-operating gain of $689,000 associated with foreign currency hedging activities. In addition, as a result of the annual impairment test of the Solutions Division goodwill conducted during the fiscal 2007 first quarter, the Company recorded a non-cash impairment charge of $29.8 million. Excluding the effects of the IPR&D write-off, the foreign currency hedging gain and the Solutions Division impairment charge, in the fiscal 2007 first quarter the Company generated net income of $2.2 million, or $.09 per diluted share ("Adjusted Earnings"), compared to GAAP basis net income of $2.0 million, or $.09 per diluted share, in the first quarter of last year. A reconciliation of the adjustments made to GAAP-basis earnings to compute Adjusted Earnings is contained in the financial tables of this press release. Results of operations for the fiscal 2007 first quarter on both a GAAP basis and an Adjusted Earnings basis include stock-based compensation expense of $260,000 net of tax or $.01 per diluted share, which has been recorded in the first quarter of fiscal 2007 under the newly adopted Statement of Financial Accounting Standards No. 123R, "Share-Based Payment". During the fiscal 2007 first quarter the Company continued to focus on realizing value from the 2004 Vytek acquisition by transferring the design engineering services business out of the Solutions Division into the Products Division, in order to more effectively integrate the product design and product manufacturing activities. The Company also plans to phase out some non-strategic portions of the Solutions business during the second quarter in order to focus on the core Solutions business which now is comprised of the industry leading TelAlert urgent messaging applications as well as media download management software. Liquidity At May 31, 2006, the Company had total cash of $30.8 million, with $38 million in total outstanding debt. Net cash provided by operating activities was $4.7 million during the first quarter, up 15% over the prior year. Inventories were $30.6 million at the end of the first quarter, which includes $5.5 million associated with Dataradio. Accounts receivable outstanding at the end of the first quarter represents a 43 day average collection period. Business Outlook Commenting on the Company's fiscal 2007 second quarter outlook, Mr. Sturm said, "Based on our most recent projections, which include contributions for the full quarter from our recent acquisitions of Dataradio and the MRM product line, we estimate that fiscal 2007 second quarter revenues will be in the range of $55 to $60 million, with earnings in the range of $0.05 to $0.09 per diluted share which includes an estimate of $800,000 for amortization of intangible assets related to the recent acquisitions of Dataradio and the MRM product line, FAS 123R stock option expense of $370,000 net of tax, and net interest expense of $300,000, versus net interest income of $301,000 in the fiscal 2007 first quarter." Conference Call, Webcast and 10-Q filing A conference call and simultaneous webcast to discuss fiscal 2007 first quarter financial results and business outlook will be held today at 4:30 p.m. Eastern / 1:30 p.m. Pacific. The live webcast of the call is available on CalAmp's web site at www.calamp.com. Participants are encouraged to visit the web site at least 15 minutes prior to the start of the call to register, download and install any necessary audio software. CalAmp's President and CEO Fred Sturm and CFO Rick Vitelle will host the conference call. After the live webcast, a replay will remain available until the next quarterly conference call in the Investor Relations section of CalAmp's web site. The reader is also referred to the Company's quarterly report on Form 10-Q as filed today with the Securities and Exchange Commission. About CalAmp Corp. CalAmp is a leading provider of wireless equipment, engineering services and software that enable anytime/anywhere access to critical information, data and entertainment content. With comprehensive capabilities ranging from product design and development through volume production, CalAmp delivers cost-effective high quality solutions to a broad array of customers and end markets. CalAmp is the leading supplier of Direct Broadcast Satellite (DBS) outdoor customer premise equipment to the U.S. satellite television market. The Company also provides wireless connectivity solutions for the telemetry and asset tracking markets, private wireless networks, public safety communications and critical infrastructure and process control applications. For additional information, please visit the Company's website at www.calamp.com. Forward-Looking Statement Statements in this press release that are not historical in nature are forward-looking statements, which involve known and unknown risks and uncertainties. Words such as "may", "will", "expect", "intend", "plan", "believe", "seek", "could", "estimate", "judgment", "targeting", "should", and variations of these words and similar expressions, are intended to identify forward-looking statements. Actual results could differ materially from those implied by such forward-looking statements due to a variety of factors, including general and industry economic conditions, competition, development factors, operating costs, the Company's ability to eliminate operating losses in its Solutions Division and make this business segment profitable, the Company's ability to efficiently and cost-effectively integrate its acquired businesses, and other risks and uncertainties that are detailed from time to time in the Company's filings with the Securities and Exchange Commission. Although the Company believes the expectations reflected in such forward-looking statements are based upon reasonable assumptions, it can give no assurance that its expectations will be attained. The Company undertakes no obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. -0- *T CAL AMP CORP. Consolidated Statements of Operations and Reconciliation of Non-GAAP Adjustments (Unaudited, in thousands except per share amounts) Three months ended Three May 31, 2006 (a) months -------------------------------- ended GAAP Non-GAAP Adjusted May 31, Basis Adjustments Basis 2005 -------- ----------- --------- -------- Revenues $ 46,313 $ 46,313 $47,580 Cost of revenues 35,386 35,386 36,882 -------- -------- ------- Gross profit 10,927 10,927 10,698 -------- -------- ------- Operating expenses: Research and development 2,565 2,565 2,197 Selling 1,771 1,771 1,872 General and administrative 2,813 2,813 2,614 Intangible asset amortization 401 401 443 In-process research and development 6,850 $ (6,850)(b) 0 293 Impairment loss 29,848 (29,848)(c) 0 - -------- -------- -------- ------- 44,248 (36,698) 7,550 7,419 -------- -------- -------- ------- Operating income (loss) (33,321) 36,698 3,377 3,279 Non-operating income (expense), net: Interest income (expense), net 301 301 68 Other, net 660 (689)(d) (29) (25) -------- -------- -------- ------- 961 (689) 272 43 -------- -------- -------- ------- Income (loss) before income taxes (32,360) 36,009 3,649 3,322 Income tax provision (1,691) 276 (e) (1,415) (1,345) -------- -------- -------- ------- Net income (loss) $(34,051) $ 36,285 $ 2,234 $ 1,977 ======== ======== ======== ======= Net income (loss) per share: Basic $ (1.47) $ 0.10 $ 0.09 Diluted $ (1.47) $ 0.09 $ 0.09 Shares used in per share calculations: Basic 23,131 23,131 22,492 Diluted 23,131 23,747 22,910 Business Segment Information Three months ended Three May 31, 2006 (a) months --------------------------------- ended GAAP Non-GAAP Adjusted May 31, Basis Adjustments Basis 2005 --------- ----------- --------- -------- Revenue Products Division $ 42,957 $ 42,957 $41,168 Solutions Division 3,356 3,356 6,412 -------- -------- ------- Total revenue $ 46,313 $ 46,313 $47,580 ======== ======== ======= Gross profit Products Division $ 10,087 $ 10,087 $ 8,810 Solutions Division 840 840 1,888 -------- -------- ------- Total gross profit $ 10,927 $ 10,927 $10,698 ======== ======== ======= Operating income (loss) Products Division $ (857) $ 6,850(b) $ 5,993 $ 5,356 Solutions Division (31,182) 29,848(c) (1,334) (1,143) Corporate expenses (1,282) (1,282) (934) -------- -------- -------- ------- Total operating income (loss) $(33,321) $ 36,698 $ 3,377 $ 3,279 ======== ======== ======== ======= CAL AMP CORP. Consolidated Statements of Operations and Reconciliation of Non-GAAP Adjustments (continued) (a) Because of the Company's 52-53 week fiscal year, the three month periods ended May 31, 2006 and 2005 contain 14 weeks and 13 weeks, respectively. (b) In-process research and development write-off arising from the acquisition of Dataradio based on the preliminary purchase price allocation. (c) Solutions Division estimated goodwill impairment charge pursuant to step one of the annual goodwill impairment test as of April 30, 2006. Step two of the impairment test is expected to be completed in the fiscal 2007 second quarter, at which time the amount of the goodwill impairment charge will be finalized. (d) Foreign currency hedging gain realized in connection with the acquisition of Dataradio. (e) Tax expense associated with the foreign currency hedging gain. "GAAP" refers to financial information presented in accordance with Generally Accepted Accounting Principles in the United States. This press release includes historical non-GAAP financial measures, as defined in Regulation G promulgated by the Securities and Exchange Commission, with respect to the three months ended May 31, 2006. CalAmp believes that its presentation of historical non-GAAP financial measures provides useful supplementary information to investors. The presentation of historical non- GAAP financial measures is not meant to be considered in isolation from or as a substitute for results prepared in accordance with accounting principles generally accepted in the United States. In this press release, CalAmp reported the non-GAAP financial measures of Adjusted Basis net income and diluted earnings per share. CalAmp uses these non-GAAP financial measures to enhance the investor's overall understanding of the financial performance and prospects for the future of CalAmp's core business activities. Specifically, CalAmp believes that a report of Adjusted Basis net income and diluted earnings per share provides consistency in its financial reporting and facilitates the comparison of results of core business operations between its current, past and future periods. CAL AMP CORP. CONSOLIDATED BALANCE SHEETS (Unaudited - In thousands) May 31, Feb. 28, 2006 2006 --------- --------- Assets Current assets: Cash and cash equivalents $ 30,779 $ 45,783 Accounts receivable, net 28,498 28,630 Inventories 30,557 18,279 Deferred income tax assets 5,132 4,042 Prepaid expenses and other current assets 8,198 2,502 --------- --------- Total current assets 103,164 99,236 Equipment and improvements, net 6,772 5,438 Deferred income tax assets 1,891 2,344 Goodwill 84,315 91,386 Other intangible assets, net 21,443 5,304 Other assets 1,205 638 --------- --------- $218,790 $204,346 ========= ========= Liabilities and Stockholders' Equity Current liabilities: Current portion of long-term debt $ 775 $ 2,168 Accounts payable 18,091 12,011 Accrued payroll and employee benefits 8,344 3,608 Other accrued liabilities 5,826 2,763 Deferred revenue 1,799 1,323 --------- --------- Total current liabilities 34,835 21,873 --------- --------- Long-term debt, less current portion 37,253 5,511 --------- --------- Other non-current liabilities 968 853 --------- --------- Stockholders' equity: Common stock 233 232 Additional paid-in capital 136,051 135,022 Common stock held in escrow - (2,532) Retained earnings 10,137 44,188 Accumulated other comprehensive loss (687) (801) --------- --------- Total stockholders' equity 145,734 176,109 --------- --------- $218,790 $204,346 ========= ========= CAL AMP CORP. CONSOLIDATED CASH FLOW STATEMENTS (Unaudited - In thousands) Three Months Ended May 31, ------------------ 2006 2005 --------- -------- Cash flows from operating activities: Net income (loss) $(34,051) $ 1,977 Depreciation and amortization 1,119 1,080 Stock-based compensation expense 420 - Write-off of in-process R&D 6,850 293 Goodwill impairment writedown 29,848 - Excess tax benefit from stock-based compensation (199) - Deferred tax assets, net 441 818 Changes in operating working capital 264 (62) Other 31 9 --------- -------- Net cash provided by operating activities 4,723 4,115 --------- -------- Cash flows from investing activities: Capital expenditures (798) (373) Proceeds from sale of property and equipment 17 - Acquisition of Dataradio net of cash acquired (47,999) - Acquisition of TechnoCom product line (2,478) - Proceeds from Vytek escrow distribution 480 - Acquisition of Skybility assets - (4,886) --------- -------- Net cash used in investing activities (50,778) (5,259) --------- -------- Cash flows from financing activities: Proceeds from long-term debt 38,000 - Debt repayments (7,651) (731) Proceeds from stock option exercises 389 13 Excess tax benefit from stock-based compensation 199 - --------- -------- Net cash provided (used) by financing activities 30,937 (718) --------- -------- Effect of exchange rate changes on cash 114 - --------- -------- Net change in cash (15,004) (1,862) Cash at beginning of period 45,783 31,048 --------- -------- Cash at end of period $ 30,779 $29,186 ========= ======== *T