CalAmp Corp. - Quarter Report: 2011 May (Form 10-Q)

 

 

 

x		QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended May 28, 2011
or
o		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from      to

 

 

 

 

Delaware	95-3647070
(State or other jurisdiction of	(I.R.S. Employer
incorporation or organization)	Identification No.)
1401 N. Rice Avenue
Oxnard, California	93030
(Address of principal executive offices)	(Zip Code)

 

     Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x   No o

 

     Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes o   No o

 

 

Large accelerated filer o	Accelerated filer o
Non-accelerated filer o	Smaller reporting company x
(Do not check if a smaller reporting company)

     Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o   No x

 

     The number of shares outstanding of the registrant’s common stock as of June 17, 2011 was 28,334,436.

 

 

 

 

		May 31,				February 28,
Assets		2011				2011
Current assets:
Cash and cash equivalents		$	4,336			$	4,241
Accounts receivable, less allowance for doubtful accounts of
$307 and $290 at May 31, 2011 and February 28, 2011, respectively			15,938				16,814
Inventories			9,731				9,890
Costs and estimated earnings in excess of billings on
uncompleted contracts			2,053				1,331
Deferred income tax assets			2,024				1,961
Prepaid expenses and other current assets			3,770				3,866
Total current assets			37,852				38,103
Property, equipment and improvements, net of
accumulated depreciation and amortization			1,745				1,877
Deferred income tax assets, less current portion			9,824				9,887
Intangible assets, net			3,660				4,012
Other assets			1,396				1,606
		$	54,477			$	55,485
Liabilities and Stockholders' Equity
Current liabilities:
Bank working capital line of credit		$	5,392			$	7,489
Accounts payable			14,175				14,103
Accrued payroll and employee benefits			2,693				3,341
Deferred revenue			5,766				5,796
Other current liabilities			2,728				2,140
Total current liabilities			30,754				32,869
Long-term debt			4,532				4,460
Other non-current liabilities			597				554
Commitments and contingencies
Stockholders' equity:
Preferred stock, $.01 par value; 3,000 shares authorized;
no shares issued or outstanding			-				-
Common stock, $.01 par value; 40,000 shares authorized;
28,134 and 28,147 shares issued and outstanding
at May 31, 2011 and February 28, 2011, respectively			281				281
Additional paid-in capital			153,607				153,135
Accumulated deficit			(134,428	)			(134,948	)
Accumulated other comprehensive loss			(866	)			(866	)
Total stockholders' equity			18,594				17,602
		$	54,477			$	55,485

 

 

 

		Three Months Ended
		May 31,
		2011				2010
Revenues		$	34,554			$	26,346
Cost of revenues			25,122				20,223
Gross profit			9,432				6,123
Operating expenses:
Research and development			3,104				2,763
Selling			2,592				2,622
General and administrative			2,499				2,509
Intangible asset amortization			352				306
Total operating expenses			8,547				8,200
Operating income (loss)			885				(2,077	)
Non-operating expense:
Interest expense, net			(374	)			(367	)
Other income (expense), net			18				(33	)
Total non-operating expense			(356	)			(400	)
Income (loss) before income taxes			529				(2,477	)
Income tax provision			(9	)			-
Net income (loss)		$	520			$	(2,477	)
Basic and diluted earnings (loss) per share		$	0.02			$	(0.09	)
Shares used in computing earnings (loss) per share:
Basic			27,357				26,982
Diluted			28,226				26,982

 

 

 

   
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
(IN THOUSANDS)

		Three Months Ended
		May 31,
		2011				2010
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)		$	520			$	(2,477	)
Adjustments to reconcile net income (loss)
to net cash provided by (used in) operating activities:
Depreciation and amortization			700				636
Stock-based compensation expense			532				523
Non-cash interest expense			134				134
Other			-				11
Changes in operating assets and liabilities:
Accounts receivable			876				3,097
Inventories			159				(471	)
Costs and estimated earnings in excess of billings
on uncompleted contracts			(722	)			1
Prepaid expenses and other assets			76				(197	)
Accounts payable			72				(1,731	)
Accrued liabilities			(17	)			(457	)
Deferred revenue			(30	)			534
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES			2,300				(397	)
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures			(216	)			(569	)
Collections on note receivable			168				110
NET CASH USED IN INVESTING ACTIVITIES			(48	)			(459	)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net debt proceeds (repayments) on bank line of credit			(2,097	)			1,955
Taxes paid related to net share settlement of vested equity awards			(65	)			(59	)
Proceeds from exercise of stock options			5				-
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES			(2,157	)			1,896
Net change in cash and cash equivalents			95				1,040
Cash and cash equivalents at beginning of period			4,241				2,986
Cash and cash equivalents at end of period		$	4,336			$	4,026

 

 

 

 

 

     CalAmp Corp. ("CalAmp" or the "Company") develops and markets wireless communications solutions that deliver data, voice and video for critical networked applications. The Company's two business segments are Wireless DataCom, which serves utility, government and enterprise customers, and Satellite, which focuses on the North American Direct Broadcast Satellite market.

 

 

 

 

 

 

     The Company recognizes revenue from product sales when persuasive evidence of an arrangement exists, delivery has occurred, the sales price is fixed or determinable and collection of the sales price is reasonably assured. Generally, these criteria are met at the time product is shipped, except for shipments made on the basis of "FOB Destination" terms, in which case title transfers to the customer and the revenue is recorded by the Company when the shipment reaches the customer. Customers do not have rights of return except for defective products returned during the warranty period.

 

 

 

 

 

 

     Costs and estimated earnings in excess of billings on uncompleted contracts arise when contract revenues have been recognized on the percentage-of-completion method but the amounts cannot be billed under the terms of the contracts. Such amounts are recoverable from customers upon various measures of performance, including achievement of certain milestones, completion of specified units, or completion of a contract. Costs and estimated earnings on uncompleted contracts and related amounts billed were as follows (in thousands):

 

			May 31,			February 28,
			2011			2011
	Costs incurred on uncompleted contracts		$	2,979		$	2,167
	Estimated earnings			1,844			1,713
				4,823			3,880
	Less: billings to date			2,926			2,594
			$	1,897		$	1,286

 

			May 31,				February 28,
			2011				2011
	Costs and estimated earnings in excess
	of billings on uncompleted contracts		$	2,053			$	1,331
	Billings in excess of costs and estimated
	earnings on uncompleted contracts
	(included in Other Current Liabilities)			(156	)			(45	)
			$	1,897			$	1,286

 

     The following methods and assumptions were used to estimate the fair value of each class of financial instrument for which it is practicable to estimate:

 

 

 

 

 

 

 

		May 31,			February 28,
		2011			2011
Raw materials		$	7,848		$	8,663
Work in process			128			85
Finished goods			1,755			1,142
		$	9,731		$	9,890

 

 

     Intangible assets are comprised as follows (in thousands):

 

				May 31, 2011									February 28, 2011
				Gross									Gross
		Amortization		Carrying			Accumulated						Carrying			Accumulated
		Period		Amount			Amortization			Net			Amount			Amortization			Net
Developed/core technology		5-7 years		$	2,853		$	1,712		$	1,141		$	3,101		$	1,783		$	1,318
Customer lists		5-7 years			1,268			847			421			1,339			831			508
Covenants not to compete		4-5 years			115			93			22			138			106			32
Patents		4-5 years			39			17			22			39			15			24
Tradename		7 years			2,130			76			2,054			2,130			-			2,130
				$	6,405		$	2,745		$	3,660		$	6,747		$	2,735		$	4,012

 

 

 

2012 (remainder)		$	925
2013		$	1,060
2014		$	464
2015		$	304
2016		$	304
Thereafter		$	603

 

 

     On December 22, 2009, the Company entered into a Loan and Security Agreement (the "Loan Agreement") with Square 1 Bank. This revolving credit facility expires on December 22, 2011 and provides for borrowings up to the lesser of $12 million or 85% of the Company's eligible accounts receivable. Outstanding borrowings under this facility bear interest at Square 1 Bank's prime rate plus 2.0%, subject to minimum interest of 6.0% per annum or $20,000 per month, whichever is greater. Interest is payable on the last day of each calendar month. At May 31, 2011, the Company had outstanding borrowings under this facility of $5,392,000, and the amount available to borrow at that date amounted to $6,603,000. At May 31, 2011 and February 28, 2011, the effective interest rate on the revolver was 6.0%.

 

 

     The Loan Agreement contains a financial covenant that requires the Company to maintain minimum levels of earnings before interest, income taxes, depreciation, amortization and other noncash charges ("EBITDA") on a rolling six-month basis. The Loan Agreement also provides for a number of customary events of default, including a provision that a material adverse change constitutes an event of default that permits the lender, at its option, to accelerate the loan. Among other provisions, the Loan Agreement requires a lock-box and cash collateral account whereby cash remittances from the Company's customers are directed to the cash collateral account and which amounts are applied to reduce the revolving loan principal balance. Borrowings under the Loan Agreement are secured by substantially all of the assets of the Company and its domestic subsidiaries.

 

 

 

 

 

		May 31,				February 28,
		2011				2011
	Subordinated promissory notes due December 22, 2012	$	5,000			$	5,000
	Less unamortized discount		(468	)			(540	)
		$	4,532			$	4,460

 

 

		May 31,			February 28,
		2011			2011
	Deferred rent	$	14		$	4
	Deferred revenue		583			550
		$	597		$	554

 

 

 

     The Company files income tax returns in the U.S. federal jurisdiction, various U.S. states, Canada and France. Income tax returns filed for fiscal years 2006 and earlier are not subject to examination by U.S. federal and state tax authorities. Certain income tax returns for fiscal years 2007 through 2011 remain open to examination by U.S. federal and state tax authorities. Income tax returns for fiscal years 2008 through 2011 remain open to examination by tax authorities in Canada and France. The Company believes that it has made adequate provision for all income tax uncertainties pertaining to these open tax years.

 

 

 

 

 

 

		Three Months Ended
		May 31,
		2011		2010
	Basic weighted average number of common
	shares outstanding	27,357		26,982
	Effect of dilutive securities:
	Stock options, restricted stock, restricted
	stock units and warrants	869		-
	Diluted weighted average number of common
	shares outstanding	28,226		26,982

 

 

 

 

		Three Months Ended
		May 31,
		2011			2010
	Cost of revenues	$	44		$	39
	Research and development		82			79
	Selling		82			40
	General and administrative		324			365
		$	532		$	523

 

					Weighted
		Number of			Average
		Options			Option Price
	Outstanding at February 28, 2011	2,108			$	4.87
	Granted	-				-
	Exercised	(3	)			1.50
	Forfeited or expired	(10	)			1.92
	Outstanding at May 31, 2011	2,095			$	4.89
	Exercisable at May 31, 2011	1,457			$	6.08

 

					Weighted
		Number of			Average Grant
		Shares			Date Fair
		and RSUs			Value
	Outstanding at February 28, 2011	2,045			$	2.16
	Granted	-				-
	Vested	(56	)			2.71
	Forfeited	(21	)			2.00
	Outstanding at May 31, 2011	1,968			$	2.15

     During the three months ended May 31, 2011, the Company retained 21,313 of the 56,000 vested restricted stock shares and RSUs to cover the minimum statutory required amount of employee withholding taxes.

 

 

 

 

 

     Some of the Company’s components, assemblies and electronic manufacturing services are purchased from sole source suppliers. One independent foreign supplier, which functions as a procurement agent and subcontract manufacturer, accounted for 53% and 59% of Company's total inventory purchases in the three months ended May 31, 2011 and 2010, respectively. As of May 31, 2011, this supplier accounted for 62% of the Company's total accounts payable.

 

 

 

		Three Months Ended
		May 31,
		2011				2010
	Balance at beginning of period	$	700			$	1,231
	Charged to costs and expenses		288				89
	Deductions		(167	)			(293	)
	Balance at end of period	$	821			$	1,027

 

 

 

		Three Months Ended
		May 31,
		2011			2010
	Interest paid	$	94		$	117
	Income taxes paid	$	5		$	-

 

 

 

 

	Three Months Ended May 31, 2011																Three Months Ended May 31, 2010
	Operating Segments																Operating Segments
	Wireless																Wireless
	DataCom				Satellite				Corporate				Total				DataCom				Satellite				Corporate				Total
Revenues	$	22,037			$	12,517							$	34,554			$	15,819			$	10,527							$	26,346
Gross profit	$	8,604			$	828							$	9,432			$	5,330			$	793							$	6,123
Gross margin		39.0	%			6.6	%							27.3	%			33.7	%			7.5	%							23.2	%
Operating income (loss)	$	2,130			$	(288	)		$	(957	)		$	885			$	(633	)		$	(438)			$	(1,006	)		$	(2,077	)

     The Company considers operating income (loss) to be the primary measure of profit or loss of its business segments. The amount shown for each period in the "Corporate" column above for operating income (loss) consists of corporate expenses that are not allocated to the business segments. These non-allocated corporate expenses include salaries and benefits of certain executive officers and expenses such as audit fees, investor relations, stock listing fees, director and officer liability insurance, and director fees and expenses. Corporate expenses also include stock-based compensation expense of $211,000 and $170,000 in the three months ended May 31, 2011 and 2010, respectively.

 

 

 

 

 

 

 

 

 

     The Company's discussion and analysis of its financial condition and results of operations are based upon the Company's consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of sales and expenses during the reporting periods. Actual results could differ materially from these estimates. The critical accounting policies listed below affect the Company’s more significant accounting judgments and estimates used in the preparation of the consolidated financial statements. These policies are described in greater detail in Management’s Discussion and Analysis (“MD&A”) under Part II, Item 7 of the Company’s Annual Report on Form 10-K for the year ended February 28, 2011 as filed with the Securities and Exchange Commission on April 28, 2011 and include the following areas:

 

 

 

 

 

 

 

 

 

 

	REVENUE BY SEGMENT
		Three Months Ended May 31,
		2011							2010
						% of							% of
		$000s				Total			$000s				Total
	Segment
	Wireless DataCom	$	22,037			63.8	%		$	15,819			60.0	%
	Satellite		12,517			36.2	%			10,527			40.0	%
	Total	$	34,554			100.0	%		$	26,346			100.0	%
	GROSS PROFIT BY SEGMENT
		Three Months Ended May 31,
		2011							2010
						% of							% of
		$000s				Total			$000s				Total
	Segment
	Wireless DataCom	$	8,604			91.2	%		$	5,330			87.0	%
	Satellite		828			8.8	%			793			13.0	%
	Total	$	9,432			100.0	%		$	6,123			100.0	%
	OPERATING INCOME (LOSS) BY SEGMENT
		Three Months Ended May 31,
		2011							2010
						% of							% of
						Total							Total
		$000s				Revenue			$000s				Revenue
	Segment
	Wireless DataCom	$	2,130			6.2	%		$	(633	)		(2.4	%)
	Satellite		(288	)		(0.8	%)			(438	)		(1.7	%)
	Corporate expenses		(957	)		(2.8	%)			(1,006	)		(5.0	%)
	Total	$	885			2.6	%		$	(2,077	)		(7.9	%)

 

     Wireless DataCom revenue increased by $6.2 million, or 39%, to $22.0 million in the first quarter of fiscal 2012 compared to the fiscal 2011 first quarter. About two-thirds of the revenue increase was related to the MRM business and was attributable to the addition of new customers, growth in orders from existing customers, and a license fee of $400,000 recognized in the first quarter of fiscal 2012. The remaining increase was attributable to higher sales of the Wireless Networks business, with significant contribution from an important project in the railroad sector.

 

 

 

 

 

     Satellite gross profit increased by $35,000 to $828,000 in the fiscal 2012 first quarter compared to the first quarter of last year. Satellite's gross margin declined to 6.6% in the first quarter of fiscal 2012 from 7.5% in the first quarter of fiscal 2011 due primarily to product mix.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

     The Loan Agreement expires on December 22, 2011. The Company is currently in discussions with commercial banks concerning a new credit facility, and management expects that a new credit agreement will be in place prior to the expiration of the existing Loan Agreement.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

     Exhibit 31.1 - Chief Executive Officer Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

     Exhibit 31.2 - Chief Financial Officer Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

 

 

 

June 30, 2011		/s/ Richard Vitelle
Date		Richard Vitelle
		Vice President Finance & CFO
		(Principal Financial Officer and
		Chief Accounting Officer)